Employee Benefit Plan Review – From The Courts

January 10, 2019 | Insurance Coverage

Sixth Circuit Again Rules That CBA Did Not Provide for Lifetime Retiree Healthcare Benefits

The U.S. Court of Appeals for the Sixth Circuit has issued another decision concluding that a collective bargaining agreement did not provide for lifetime healthcare benefits for union retirees.

The Case

Every three to four years since 1973, General Electric Company (GE) negotiated a new collective bargaining agreement (CBA) with unions representing GE employees. Each negotiation resulted in the execution of a memorandum of settlement (MOS) between GE and the unions that established the terms of the new CBA. In connection with each CBA from 1973 to 2011, GE and the unions bargained the terms of retiree benefit plans, including medical benefits, which they incorporated into each CBA through a pension and insurance agreement (PIA). The PIA was “the exclusive and definitive” agreement between the parties with respect to pensions and insurance.

The 2011 CBA expired in June 2015 and a new CBA took effect on June 22, 2015. On January 1, 2016, GE replaced the existing retiree medical benefit plan with an annual $1,000 retiree reimbursement account. The unions sued GE under:

  • Section 502 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132(a)(1)(B), (a)(2), and (a)(3);
  • Section 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185, which provides a federal right of action for violations of contracts between an employer and a labor organization representing employees; and
  • The Declaratory Judgment Act, 28 U.S.C. § 2201(a).

The unions alleged breaches of the CBA and violations of ERISA, and sought damages, declaratory judgment, and an injunction preventing GE from altering the medical benefits provided under the CBA. They argued that GE had breached the agreements by altering the terms of their vested retiree benefits.

In particular, the unions argued that the parties had agreed, and at a minimum intended, to provide lifetime medical benefits for union retirees.

The U.S. District Court for the Northern District of Ohio granted GE’s motion to dismiss, holding that the CBA did not provide vested lifetime medical benefits.

The unions appealed to the Sixth Circuit, arguing that the CBA provided employees who retired under or prior to the 2011 CBA with vested lifetime medical benefits, i.e., those who retired before the 2011 CBA expired were entitled to lifetime medical benefits even after the 2011 CBA expired.

The Sixth Circuit affirmed, holding that the retiree health plans did not provide lifetime medical benefits.

The Sixth Circuit’s Decision

In its decision, the Sixth Circuit analyzed the jurisprudence regarding whether medical benefits vested for life.

For example, in Gallo v. Moen Inc., 813 F.3d 265 (6th Cir. 2016), involving a contract providing that “[c]ontinued hospitalization, surgical and medical coverage will be provided without cost to past pensioners,” the court concluded that the CBAs did not unambiguously provide for vested retiree medical benefits, reasoning among other things that they provided for “[c]ontinued” medical coverage to “past pensioners,” and “[t]here would be no need to ‘continue’ such benefits if prior CBAs had created vested rights to such benefits.”

The court also analyzed three other Sixth Circuit cases issued on the same day: Cole v. Meritor, Inc., 855 F.3d 695 (6th Cir. 2017); International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) v. Kelsey-Hayes Co., 854 F.3d 862 (6th Cir. 2017); and Reese v. CNH Industries N.V., 854 F.3d 877 (6th Cir. 2017).

In Cole, the court relied on Gallo to hold that retiree healthcare benefits did not vest for life because the CBA controlled. In Kelsey-Hayes and Reese, the court found that certain features of the CBAs at issue in those cases made the duration of the benefits ambiguous, which warranted a review of extrinsic evidence. In both cases, the court found that the extrinsic evidence demonstrated that the parties intended for the healthcare benefits to vest for life. Importantly, however, the U.S. Supreme Court subsequently reversed the Sixth Circuit’s decision in Reese.  Moreover, relying on its decision in Reese, the high court later vacated and remanded the Sixth Circuit’s decision in Kelsey-Hayes. The Sixth Circuit recognized the Supreme Court’s decisions in Reese and Kelsey-Hayes as “powerful indications” that CBAs should dictate when benefits expire.

The court also considered Serafino v. City of Hamtramck, 707 F. App’x 345 (6th Cir. 2017), in which the Sixth Circuit again held that a series of CBAs did not create a vested right to lifetime healthcare benefits because the company’s promise to provide benefits to a retiree “until that retired employee attains the age of sixty-five” meant “until [the retiree] reach[es] age 65 . . . or until the expiration of this agreement[,] whichever is sooner.” In Watkins v. Honeywell Int’l, Inc., 875 F.3d 321 (6th Cir. 2017), the court held that language “for the duration of this Agreement” limited the company’s promise to provide healthcare “for as long as the agreement lasts.”

Then, in Cooper v. Honeywell Int’l, Inc., 884 F.3d 612 (6th Cir. 2018), the court again held that a retiree healthcare benefit provision in a CBA did not clearly provide an alternative end date to the CBA’s general durational clause; therefore, it concluded that the plaintiffs had failed to show a likelihood of success on their vesting argument. The court rejected the plaintiffs’ reliance on language stating that the company would pay for healthcare insurance “until age 65,” holding that such language was insufficient to indicate vesting beyond the expiration of the CBA.

In sum, the court’s recent case law has generally held that healthcare benefits for retirees do not vest. After analyzing these cases, the court ruled that the 2011 CBA between the unions and GE did not vest healthcare benefits for retirees. The court explained that, among other things, each retiree benefit plan contained a reservation-of-rights clause that provided that it could be amended, suspended, or terminated by GE’s board of directors and that the PIA contained a general durational clause that showed that GE at most guaranteed healthcare benefits only until the expiration of the CBA, and “nothing more.” [IUE-CWA v. General Electric Co., No. 17-3885 (6th Cir. Aug. 16, 2018).]

D.C. Circuit Court Rules That Pension Plan Participants May Not Recover Post-Termination Increase in Plan Assets

The U.S. Court of Appeals for the District of Columbia Circuit has reversed a district court’s decision allowing participants in a pension plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) to seek to recover the increase in the value of plan assets that took place after the plan had been terminated.

The Case

In 2005, Delta Airlines, Inc., filed for bankruptcy and stopped contributing to the Delta Pilots Retirement Plan it sponsored for its pilots. The following year, Delta and the Pension Benefit Guaranty Corporation (PBGC) agreed to terminate the plan because it had insufficient assets to support the benefit payments it promised to the pilots.

When Delta and the PBGC agreed to terminate the plan, they agreed that the PBGC would become the statutory trustee.

The PBGC determined that the plan had a deficit of over $2.5 billion in unfunded benefits when it terminated, almost $800 million of which were guaranteed under Title IV of ERISA. Based on this information, the PBGC began paying estimated post-termination benefits to the pilots.

It took six years, however, for the PBGC to finish making final benefit determinations. Administrative appeals filed by the pilots to challenge their benefit determinations concluded in 2013.

Nearly 1,700 pilots in the plan or their beneficiaries subsequently sued the PBGC. They alleged that the PBGC had breached its fiduciary duty as statutory trustee in various ways, such as by creating procedural obstacles for and withholding necessary information from participants who were trying to appeal their benefit determinations, improperly denying those appeals for untimeliness, hiring incompetent contractors to estimate the value of plan assets and leaving them unsupervised, and misallocating pension funds to younger participants who would not retire and collect the money for many years. All of this, the plaintiffs claimed, allowed the PBGC to control plan assets for a longer period and to collect “massive investment returns” rather than timely paying the pilots what they were owed.

The plaintiffs argued that ERISA authorized “appropriate equitable relief” and, therefore, that the PBGC “should be required to disgorge itself of this unjust enrichment.” They asked to recover this money individually instead of on behalf of the plan.

The PBGC moved to dismiss the breach of fiduciary duty claim on numerous grounds, including that 29 U.S.C. § 1344(c) prevented disgorgement in this case. The U.S. District Court for the District of Columbia denied the motion, explaining that the plaintiffs were trying only to “recoup the alleged ill-gotten investment returns” on plan benefits that the plaintiffs claimed should have been distributed to them, but certified the case for interlocutory review by the court of appeals.

The PBGC appealed to the U.S. Court of Appeals for the District of Columbia Circuit, which reversed the district court’s denial of the PBGC’s motion to dismiss the fiduciary breach claim. It ruled that 29 U.S.C. § 1344(c) prevented the pilots from recovering any post-termination increase in the value of the plan assets, so that disgorgement was not an available remedy in this case.

The Circuit Court’s Decision

In its decision, the court noted that 29 U.S.C. § 1344(c) provides that “[a]ny increase or decrease in the value of the assets of a single-employer plan occurring after the date on which the plan is terminated shall be credited to, or suffered by, the [PBGC].” Therefore, the court explained, under that section of ERISA, the PBGC was entitled to any post-termination increase in the value of pension plan assets.

The court reasoned that the PBGC guaranteed certain benefits to pension plan participants. In exchange for paying the difference between the guaranteed benefits and the plan assets in existence at plan termination, as well as absorbing any subsequent “decrease in the value of the assets of a . . . plan,” the PBGC was allocated any post-termination “increase” in the value of a plan’s assets under the express terms of 29 U.S.C. § 1344(c). Accordingly, that money, the court declared, was “not available to plan participants,” because under the statute post-plan termination gains and losses belong to the PBGC.

The court concluded that the pilots were entitled to their guaranteed benefits, but that any post-termination increase in the value of plan assets belonged to the PBGC. [Lewis v. Pension Benefit Guaranty Corp., No. 17-5068 (D.C. Cir. Aug. 21, 2018).]

Finding No Abuse of Discretion, Eighth Circuit Upholds Decision Denying Long-Term Disability Benefits Under ERISA-Governed Plan

Reversing a district court’s decision, the U.S. Court of Appeals for the Eighth Circuit upheld a claim administrator’s decision denying long-term disability benefits to the plaintiff under his employer’s welfare benefit plan.

The Case

The plaintiff, a project manager at Walmart, stopped working on April 4, 2014 due to chronic back pain. As a Walmart employee, the plaintiff was a member of Walmart’s Associates’ Health and Welfare Plan, an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA). Liberty Life Assurance Company is the plan’s claim administrator and issued a group policy of insurance to fund long term disability benefits payable under the plan. After his last day of work, the plaintiff applied to Liberty Life for long-term disability benefits under the plan.

To evaluate the plaintiff’s claim, Liberty Life obtained medical records from his treating physicians. Liberty Life submitted those records to an independent consulting physician, who reported back to Liberty Life on May 30, 2014. The consultant diagnosed the plaintiff with chronic low back pain and recently increased back and leg pain due to disc protrusion with severe stenosis. From this diagnosis, the consulting physician concluded that the plaintiff’s then-current estimated work capacity was limited to sedentary work, rather than the light work required by his job at Walmart.

The consulting physician explained, however, that the usual recovery time for the plaintiff’s primary impairing condition was three to six months. In a later portion of her report, when asked to address the estimated duration of the plaintiff’s restrictions and limitations, she stated, “An additional 3 months and depe[n]dent on response to treatment.” (Brackets in original.) The consulting physician suggested that Liberty Life continue to obtain updated office notes from the plaintiff’s treating physicians for ongoing review of his condition. Liberty Life then approved the plaintiff’s claim on June 4, subject to periodic evaluation of his disability. The plaintiff began receiving benefits on July 6.

As part of its periodic evaluation, Liberty Life sent requests for updated medical records to the plaintiff’s treating physicians on October 12 and October 27.

On December 15, Liberty Life received updated medical records from three of the plaintiff’s treating physicians for May 9 to November 7, 2014. The same day, it sent the records to a second independent consulting physician for his assessment.

In a report dated December 23, the second consulting physician observed that the plaintiff had been diagnosed with lumbar degenerative disc disease and bulging discs, and that he suffered from spinal stenosis. He noted that there was no evidence of any side effects from the medication that the plaintiff used to control his pain. From the plaintiff’s records, the second consulting physician concluded that the only diagnosis causing the plaintiff’s impairment was lumbar degenerative disc disease and back pain. He then opined that “a gentleman who is 51 years old with a history of lumbar degenerative disc disease, but no evidence of any disc herniation” could perform full-time activities throughout an eight-hour work day, five days a week.

Liberty Life then determined, based on the second consulting physician’s assessment, that the plaintiff was no longer eligible for long-term disability benefits.

After the plaintiff appealed and submitted a number of documents and additional information, Liberty Life asked a third independent consulting physician for his assessment. In May 2015, he opined that the plaintiff could work an eight-hour shift, 40 hours a week. Liberty Life upheld its adverse benefit determination on June 1, 2015.

The plaintiff sued Liberty Life under 29 U.S.C. § 1132(a)(1)(B). The U.S. District Court for the Western District of Arkansas held that Liberty Life’s determination to terminate the plaintiff’s disability benefits was not supported by substantial evidence and, therefore, was an abuse of discretion. Its conclusion rested on its determination that the opinions of the second and third independent consulting physicians were unreliable. The district court then ordered Liberty Life to pay the plaintiff past-due benefits and attorneys’ fees.

Liberty Life appealed to the U.S. Court of Appeals for the Eighth Circuit.

The Eighth Circuit’s Decision

In its decision reversing the district court, the Eighth Circuit explained that it would review Liberty Life’s decision for an abuse of discretion, because the plan granted Liberty Life the discretion to determine whether a claimant was eligible for benefits.

It then disagreed with the district court and concluded that the opinions of the second and third independent physicians “were sufficiently reliable to provide a reasonable basis for Liberty Life’s denials of [the plaintiff’s] claim.” The court said that although another interpretation of the plaintiff’s medical records could support his eligibility for benefits, the opinions of these two independent consulting physicians “were not outside the range of reasonableness, and it was not an abuse of discretion for Liberty Life to rely on them.”

The court added that even if the opinions of the first and third consulting physicians were inconsistent, Liberty Life was not required to reject the third consulting physician’s opinion. As a general rule, the court explained, a plan administrator vested with discretion has discretion to choose between two reliable but conflicting medical opinions – and it even could credit the opinion of its own consulting physician over that of a claimant’s treating physician.

Moreover, the court said that Liberty Mutual was not required to accept the first consulting physician’s view just because it was reported first. The court concluded that because the third consulting physician’s opinion rested on a “reasonable interpretation” of the plaintiff’s medical records, the consultant’s opinion was sufficiently reliable to support Liberty Life’s adverse long-term disability benefit determination. [Zaeske v. Liberty Life Assurance Co. of Boston, No. 17-2496 (8th Cir. Aug. 23, 2018).]

Related Publications


Get legal updates and news delivered to your inbox