Circuit Courts Grapple With The Permanence Of Retiree Health Benefits Under Collective Bargaining Agreements

On August 7, 2019, in Kelly v. Honeywell International, the Second Circuit handed down the latest decision in a series of cases across the country on a company's obligation to provide lifetime health care to retirees.

Unlike for ERISA-regulated pension plans, which have strict vesting requirements, ERISA permits employers to adopt, modify, or terminate welfare benefit plans, such as health care plans, "for any reason at any time." M & G Polymers USA, LLC v. Tackett, 135 S. Ct. 926, 933 (2015). The Supreme Court in Tackett explicitly overturned UAW v. Yard-Man, Inc., 716 F.2d 1476, 1482 (6th Cir. 1983) and its progeny, which held that when an employer and union "contract for benefits which accrue upon achievement of retiree status, there is an inference that the parties likely intended those benefits to continue as long as the beneficiary remains a retiree." Now, under Tackett, whether the parties to a collective bargaining agreement (CBA) intended that the employer would provide vested welfare benefits is a question of contract interpretation. There is no automatic presumption of vesting.

Since Tackett, courts across the country have grappled with what language could require an employer to extend welfare benefits beyond the expiration of a CBA. The Second Circuit's decision is the latest in series of separate cases involving Honeywell International over the past year, and exemplifies this challenge.

The Second Circuit Finds Retiree Benefits Vested

In Kelly, the Second Circuit determined that an effects bargaining agreement (EBA) between Honeywell's predecessor and the United Automobile, Aerospace and Agricultural Implement Workers of America contained "unambiguous language vesting welfare benefits" and that the agreement's general durational clause did not prevent those benefits from vesting. Specifically, the EBA provided:

All past and future retired employees and surviving spouses shall continue to receive . . . full medical coverage as provided in the . . . Group Insurance Agreement, as now in effect or as hereafter modified by the parties for the life of the retiree or surviving spouse.

The EBA was incorporated into the broader CBA between the parties. Both the EBA and the more general CBA had a durational clause. A separate supplemental group insurance agreement was also incorporated into the CBA and described medical benefits and plan options available to eligible employees and retirees. This group insurance agreement contained a...