Retirees’ right to vested health benefits for life did not preclude a manufacturer of agricultural and construction equipment from reducing or restricting those benefits, the 6th U.S. Circuit Court of Appeals recently held in a split decision. In doing so, the circuit rejected the retirees’ argument that the company could not change the “scope” of its commitment to provide retiree health benefits.
However, changes to retiree health benefits had to be reasonable, two of the three judges ruled (there was a dissenting opinion) in Reese v. CNH America, 2012 WL 4009695 (6th Cir., Sept. 13, 2012). But if changes were reasonable, the employer could unilaterally alter retiree health benefits, the appeals court ruled. The court remanded the case to the lower court to collect information that would permit a reasonability test to be conducted.
Background
This ruling came after the same court’s earlier finding (Reese v. CNH America LLC, 574 F.3d 315, 318-20 (6th Cir. 2009)) that the employer could not terminate those benefits. The retirees’ benefits were vested under the collective bargaining agreement, which said employees who retired under the employer’s pension plan had a vested right to health benefits.
The appeals court did favor the company’s argument that reasonable changes would be allowed, even without the union’s consent. Reasonability would be based on considerations of whether:
- the modified plan provided benefits “reasonably commensurate” with the old plan;
- the proposed changes were “reasonable in light of changes in health care”; and
- benefits “roughly consistent with the kinds of benefits would be provided to current employees.”
The district court didn’t see it that way.
On remand, the district court instead ruled in favor of the retirees that the company had no right to unilaterally change the plan. The appeals court, with some frustration, said the district court erred: the 2009 ruling meant a unilateral change is allowed, provided it is reasonable.
The Reasonability Test
Whether the change was reasonable would be based on cost trajectory, health quality, and a comparison to what retirees are getting in the latest CBA. More specifically, the appeals court ordered more discovery to find out the following:
- What was the average annual total out-of-pocket cost to retirees for their health care under the old plan (the 1998 Group Benefit Plan) and the new plan (the 2005 Group Benefit Plan)?
- What was the average per-beneficiary cost to CNH under the old plan and the new plan?
- What premiums, deductibles and copayments must retirees pay under the old plan and under the new plan?
- What difference (if any) was there between the quality of care available under the old and new plans?
- What difference (if any) was there between the new plan and the plans CNH makes available to current employees and current retirees?
- How does the new plan compare to similar retirees and workers with similar demographics at companies similar to CNH?
CNH Corp. was previously called Case Corp., and it first signed a CBA with the UAW union in 1974, which was renewed several times. Case was acquired by Tenneco in 1994 and the dispute revolves around promises made in the 1998 CBA.
The dissenting opinion agreed with the district court that “[vested health care] benefits must be maintained precisely at the level provided for in the 1998 CBA.”