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Supreme Court retirement benefits ruling provides clarity for employers


A U.S. Supreme Court ruling should provide some clarity for employers trying to manage costs of their unionized retiree health programs.

In a unanimous ruling Jan. 26, the U.S. high court said unionized employees at M&G Polymers USA L.L.C. are not automatically owed lifetime retiree medical benefits simply because the language of their collective bargaining agreement with the Apple Grove, West Virginia-based manufacturer does not explicitly limit the duration of those benefits.

The company sought in 2006 to have retirees, their spouses and dependents at the Point Pleasant Polyester Plant in Apple Grove pay part of their health insurance following expiration of a contract with the union, a move the Supreme Court said cannot be prohibited based solely on a lack of clarity in the contract.

“I think it's fair to say that most folks see this as a positive,” said Kathryn Wilber, senior council for health policy at the American Benefits Council in Washington.

By ruling in M&G Polymers' favor, the high court effectively invalidated a 30-year-old standard of judicial contract analysis used primarily in the 6th U.S. Circuit Court of Appeals that experts said heavily favored labor unions in litigation over employer-sponsored retirement benefits.

Known as the Yard-Man principle from the 6th Circuit's 1983 ruling in International Union, United Auto, Aerospace & Agriculture Implement Workers of America v. Yard-Man Inc., the appeals court's previous standard generally presumed labor contracts to provide lifetime vestment of retirement benefits, absent specific language or other extrinsic evidence to the contrary.

In writing for the court, Justice Clarence Thomas said the Yard-Man presumption “violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.”

“Yard-Man's assessment of likely behavior in collective bargaining is too speculative and too far removed from the context of any particular contract to be useful in discerning the parties' intention,” Justice Thomas wrote.

“I think there was a sigh of relief that the Supreme Court vacated the 6th Circuit's ruling,” said John Grosso, senior vice president of Aon Hewitt's health and benefits consulting practice in Norwalk, Connecticut. “Certainly, plan sponsors are happy that Yard-Man isn't the law of the land.”

How beneficial the Supreme Court's ruling in M&G Polymers proves to be for employers remains to be seen, as the litigants must now return to the 6th Circuit for a new ruling on the legality of M&G's cost-sharing methods.

Uniform set of rules

Most immediately, experts said, the ruling should at least result in greater uniformity across the federal appeals courts in analyzing collective bargaining language on employee benefits, reducing litigants filing suit in favorable jurisdictions.

“Before, you had unions rushing to file their cases in the 6th Circuit and employers trying to file declaratory judgment cases in other circuits first,” said Wilber H. Boies, a partner at McDermott Will & Emery L.L.P. in Chicago. “We now are going to have one set of rules for the whole country, and we'll no longer have all of the forum shopping that was going on.”

On a longer timeline, experts said, the ruling could strengthen employers' positions in negotiating collective bargaining and/or settlement agreements with labor unions over the promised duration and level of retiree benefits.

“I think it will level the playing field a bit,” said Nancy Ross, a partner at Mayer Brown L.L.P. in Chicago. Employers may be less likely to settle such cases when they are sued, she said. “Conversely, I think it might increase the incentive for the unions and the plaintiffs' counsel to settle the cases.”

“Hopefully, employers and labor unions have learned from the public exposure of this case that what they really need to do is just be clear in their collective bargaining agreements about what the duration of the promised benefit actually is,” said John Woodrum, a shareholder at Ogletree, Deakins, Nash, Smoak & Stewart P.C. in Washington.

“Of course, both sides have known forever that if you're clear in the contract, these kinds of disputes probably won't come up to start with,” he said.