Say you want to retire from a big company. You’ve worked there a long time. You’ll get a pension, but, before you retire, you want to find out whether you’ll also get health coverage.
Luckily, you will. Your union negotiated for retiree coverage in its collective bargaining agreement, which says that, if you’re entitled to a pension, you’re also entitled to a “full Company contribution toward the cost of benefits.”
That’s good enough for you. You retire. Three years later, you’re living in Florida and cultivating your bocce game when you get a letter in the mail. Your company now wants you to start paying premiums toward your health plan. You’re worried—you’re barely getting by as it is—and also confused. Didn’t your company promise to cover the costs of your health plan during your retirement? Doesn’t that mean until you die?
That question is now teed up for the Supreme Court, which just agreed to hear the case of M&G Polymers v. Tackett. The question arises because federal law (ERISA, if you’re curious) treats pensions differently from retiree health coverage. Pensions are said to “vest” the moment a worker retires. Employers can’t welch on a vested pension.
Health care is another thing altogether. For union-negotiated coverage, health benefits vest only if that’s what the collective bargaining agreement says. So if the agreement says, “The company will cover the full costs of your health benefits until you croak,” the right to free lifetime coverage would vest. But if the agreement says, “The company may at some later date ask retirees to contribute to their health plans,” it wouldn’t.
Oddly enough, collective bargaining agreements are often silent about the duration of retiree health coverage. That’s true here: you’re entitled to “full Company contribution[s],” but for how long? Only for as long as that particular collective bargaining agreement is in force? Or until death?
Because cases like this come up all the time, the courts of appeals have developed different strategies for resolving them. The Sixth Circuit thinks that health benefits vest unless the collective bargaining agreement says to the contrary—which explains, in part, why the Sixth Circuit ruled in favor of the retirees in M&G Polymers. Other courts say that they vest only if the agreement says so unambiguously. Still others are somewhere in between.
The Supreme Court will now wade into this mess to decide how lower courts should construe silences and ambiguities in collective bargaining agreements. The question may seem arcane, but it’s important. Lots of companies would like to cut back on their retiree obligations—especially in the Rust Belt. Not coincidentally, the Sixth Circuit has jurisdiction over much of that area. Eliminating the Sixth Circuit’s retiree-friendly rule would make it easier for Rust Belt companies to trim retiree health benefits. That could create financial hardship for thousands of retirees and give heartburn to their former unions.
If I had to guess, this case won’t go well for retirees. The Sixth Circuit’s retiree-friendly rule is an outlier; it has no counterpart in the rest of the circuit courts. Plus, the justification that the Sixth Circuit has offered for its rule—first announced in a 1983 case called Yard-Man—is a bit of a head-scratcher. Yard-Man reasoned that workers (and their unions) will generally insist on lifetime retiree benefits to avoid the risk that employers might someday snatch them away. But if that’s right, wouldn’t unions also make companies put that promise in writing?
Sure, it’s possible that, when collective-bargaining agreements are negotiated, “everybody knows” that health benefits are meant to vest for life upon retirement. If so, the Yard-Man rule might make sense—why reduce to writing what everybody knows? I’m skeptical, however, that such a consensus pervades hard-fought union negotiations. Even if I’m wrong about that—always a possibility—it’ll be very hard to convince a business-friendly Supreme Court that it does.
Which brings us back to our bocce-loving retiree in Boca Raton. Fixed income or not, he may soon find himself paying more for his health care.