Pension & Benefits News Early retirees’ health care benefits not vested; Honeywell did not breach CBAs by terminating them
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Thursday, April 18, 2019

Early retirees’ health care benefits not vested; Honeywell did not breach CBAs by terminating them

By Pension and Benefits Editorial Staff

A class of Honeywell early retirees had no likelihood of success on their claims that the company breached two collective bargaining agreements when it terminated their health care benefits because the CBAs unambiguously contained no promise of vested retiree health care benefits as a matter of law, the Eighth Circuit ruled in reversing the district court’s grant of a preliminary injunction. In addition to the general and specific durational clauses, other provisions confirmed an unambiguous intent not to confer vested benefits to the under-65 retirees, including the reservation-of-rights clause in the plan’s summary plan description and a CBA provision making early retiree health care benefits a mandatory subject of collective bargaining

Benefits for early retirees. The class action was filed by former Honeywell employees who had retired before age 65 during the terms of their Teamster local’s 2007 and 2010 CBAs. They claimed that the company’s announced plan to terminate early retiree health care benefits at the end of 2017 breached the CBAs and violated ERISA because those health care benefits vested when each class member retired. The district court subsequently granted their request for a preliminary injunction barring Honeywell from terminating their benefits, concluding they had a "fair chance of prevailing" on their claims.

Supreme Court decisions. While Honeywell’s appeal was pending, the Supreme Court issued its decision in CNH Indus. N.V. v. Reese holding that the Sixth Circuit had improperly relied on inferences to refuse to give effect to the CBA’s general durational clause, and to read the CBA’s silence on a retiree health care end date as evidence of an intent to vest benefits. The Court reiterated the traditional principle it applied in M&G Polymers USA, LLC v. Tackett that "when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life."

Application of ordinary contract principles. On appeal, the Eighth Circuit was tasked with interpreting the retiree health care benefit provisions of Honeywell’s CBAs. After a careful review of the applicable contractual provisions, it concluded that the 2007 and 2010 CBAs unambiguously did not grant the plaintiffs vested early retiree health care benefits. The retirees properly noted that lifetime retirement health care benefits were at issue in Reese, whereas they sought vested benefits of a lesser duration (to age 65). However, two weeks after Reese came down, the Sixth Circuit took up this very issue in Cooper v. Honeywell Int’l, Inc. and held that a group of Honeywell employees who retired under a CBA providing that retirees under age 65 "will continue to be covered under the [applicable Medical] Plan, until age 65" did not receive vested benefits. The Sixth Circuit applied Reese’s command "that general durational clauses should dictate when benefits expire, unless an alternative end date is provided," and held that the CBA unambiguously did not provide vested retiree health care benefits. The Eighth Circuit agreed with that analysis here.

Moreover, the district court erred in concluding that provisions in the CBAs unambiguously reflected an intent to confer vested retiree health care benefits though certain provisions indicating early retiree benefits may extend. Those provisions needed to be read in the context of the CBAs’ general durational clauses, which provided that each CBA "shall remain in full force and effect from year to year" after its initial expiration date unless one party gives notice of its intent to terminate or modify the CBA. The clauses also provided that "issues including fringe benefits shall not be subject for collective bargaining" during the term of the CBA.

Other evidence of unambiguous intent. In addition to the general and specific durational clauses, other evidence confirmed an unambiguous intent not to confer vested retiree health care benefits. First, the SPDs that accompanied the CBAs reserved Honeywell’s right to terminate the plan, or any portion it, "at any time and for any reason" except as limited by law or the provisions of a written CBA. The Eighth Circuit has repeatedly held that "an unambiguous reservation-of-rights provision is sufficient without more to defeat a claim that retirement welfare plan benefits are vested."

Moreover, both the 2007 and 2010 CBAs explicitly extended health care benefits for past retirees. As the Sixth Circuit explained in Cooper, "if a promise that retirees will continue to be covered until age 65 vested those benefits—notwithstanding a CBA’s intervening expiration—then why would each successive CBA need to repeat the same promise?.... The only reasonable inference, of course, is that the parties did not believe this language created a vested right to lifetime health care benefits and thus had to include it in each new CBA."

A provision in the 2007 CBA also explicitly made early retiree health care benefits a mandatory subject of bargaining, suggesting that these benefits were subject to negotiation, not inalterably fixed. Thereafter, Honeywell and the union negotiated modifications to those benefits in the 2010 and 2013 CBAs, with no objection that such changes violated vested rights. "[T]he fact that modifications were routinely negotiated is fundamentally inconsistent with the notion that any retirement health benefits were ever vested."

Finally, the lack of explicit vesting language in the CBAs and their accompanying SPDs provided strong evidence of the parties’ intent not to provide vested health care benefits when viewed together with specific references in the pension plan SPDs to "vested pension benefits" and "vested terminated employees."

SOURCE: Pacheco v. Honeywell International Inc. (CA-8), Nos. 18-1006 and 18-1294, March 21, 2019.

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