In M&G Polymers v. Tackett, the U.S. Supreme Court ruled that ordinary contract principles govern whether a collective bargaining agreement vests retirees in health coverage (and the contributions they are required to pay for health coverage). The decision essentially overturns the decision by the U.S. Court of Appeals for the Sixth Circuit in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc., which has governed and influenced many retiree health benefits cases since it was issued in 1983.

The Supreme Court viewed the 1983 decision as placing a “thumb on the scale” in favor of vesting retiree health benefits and giving little or no effect to the general termination provisions of a collective bargaining agreement. The Court did not view this sort of presumption as warranted for welfare benefits, which are not subject to the specific vesting requirements that apply to qualified pension plans.

M&G Polymers does not reach the ultimate question of whether any of the plaintiff retirees’ rights to health coverage vested. That question was sent back to the Circuit Court, which will need to make that determination based on the intent of the parties. In a concurring opinion, four justices observed that this determination should be made by reviewing the entire agreement. The justices warned against a reverse presumption that would require the collective bargaining agreement to state expressly that the retirees’ rights to health coverage have vested.

Employers negotiating with unions will wish to consider how relevant provisions in their collective bargaining agreements will be interpreted in the absence of general presumptions about the parties’ intent.

Although the specific case arises in the context of a collectively bargained, private sector plan, the decision has potential implications for non-bargained and public sector plans as well. For decades, most employers have made concerted efforts to preserve their rights to amend and terminate retiree health coverage through clear provisions in plan documents, summary plan descriptions, and other relevant materials. We continue to recommend that employers clearly reserve the right to amend and terminate retiree health coverage, leaving little room for a court to restrict that right.

If you have questions about the Supreme Court’s decision or want more information, please contact Brian M. Pinheiro at 215.864.8511 or, David S. Fryman at 215.864.8105 or, Edward I. Leeds at 215.864.8419 or, or any member of the Employee Benefits and Executive Compensation Group with whom you work.

Copyright © 2015 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

Related Practices

Employee Benefits and Executive Compensation
Health Care
Labor and Employment