The United States Supreme Court Rules That The Sixth Circuit Can No Longer Infer That Collectively-Bargained Retiree Welfare Benefits Were Intended To Vest For Life

The long-standing Yard-Man inference, which has been lauded by retirees and loathed by their former employers, has been retired. In M&G Polymers USA, LLC v. Tackett, the United States Supreme Court rejected that inference, under which Sixth Circuit courts would infer that collectively-bargained retiree welfare benefits were intended to vest for life. 2015 U.S. LEXIS 759 (Jan. 26, 2015).

By way of background, ERISA draws numerous distinctions between pension plans and welfare plans, one of which is that while pension plans are subject to vesting and minimum funding standards, welfare plans are exempted from such rules. Accordingly, welfare plans (and the benefits offered thereunder) generally may be modified or terminated at any time and for any reason. Employers, however, may choose to vest welfare benefits. The issue of proving whether an employer has chosen to do so has been the subject of heated debate for over 30 years—since the Sixth Circuit announced its decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. ("UAW") v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), finding that retiree healthcare benefits are "status" benefits and carried "with them an inference that they continue so long as the prerequisite status is maintained."

In Yard-Man, the UAW alleged that the defendant-employer breached a collective-bargaining agreement by terminating retiree healthcare benefits. The agreement stated that the employer "will provide" healthcare benefits to retirees. After finding the durational nature of this "will provide" language ambiguous, the Sixth Circuit looked to the agreement as a whole and found provisions that explicitly provided for the termination of healthcare benefits for other groups (e.g., active employees and, under certain circumstances, the spouses and dependents of retirees). Because there was no provision specifically addressing the termination or intended duration of retiree healthcare benefits, the Sixth Circuit inferred that the employer intended to vest those benefits. The court also looked to the "context" of labor negotiations and noted that retiree healthcare benefits are generally understood to be a form of delayed compensation tied to the acquisition of retirement status. The Sixth Circuit continued to apply its Yard-Man inference, notwithstanding the fact that most other federal circuit courts rejected it.

In 2013, the Sixth Circuit decided Tackett, 733 F.3d 589, 592-93...