By: Ron Kramer and Jim Goodfellow

Recently, the Sixth Circuit, in Witmer v. Acument Global Technologies, Inc.,Case No. No. 11-1793, concluded that the specific reservation of rights clause preserving the employer’s right to terminate the plan that was found in the Appendix to the collective bargaining agreement that provided retiree medical benefits enabled Acument to reduce and then terminate retirees’ health care benefits.

The dispute, although not the outcome, is one that may be familiar to many employers in the Sixth Circuit who provide retiree health care benefits by way of a collective bargaining agreement.  The CBA Appendix, entitled “Pension Plan.” an appendix first written solely for pension benefits but then later amended decades ago as retiree health insurance and life insurance were added, provided that retirees would receive “continuous health insurance…during the life of the retiree” at retirement.  In 2008, as a result of the economic downturn, Acument modified and then terminated the retiree health benefits. 

The Plaintiffs filed a class action suit alleging that Acument had breached the terms of the CBA in violation of ERISA and the Labor Management Relations Act.   They argued that the above referenced language found in the CBA Appendix constituted a promise to provide them with unalterable lifetime vested benefits.

Acument argued that the reservation of rights clause giving it the right to “amend, modify, suspend or terminate the Plan,” which appeared in the very same Appendix, demonstrated that (1) there was no such promise for lifetime benefits and (2) it had discretion to modify or terminate the retirees’ benefits.  This reservation language appeared at the beginning of the Appendix, addressing revisions to the pension plan, before the Appendix addressed the so-called “principal provisions” of the pension plan, which included retiree medical coverage and life insurance.

The district court granted Acument’s motion for summary judgment and the Sixth Circuit affirmed.  The Court emphasized that plaintiffs’ claim for lifetime benefits depended entirely on the language found in Appendix E (“continuous health insurance”), which also contained Acument’s clear reservation of rights.  Said the Court: “[plaintiffs’ claim for benefits gets nowhere without Appendix E, and yet Appendix E broadly reserves the company’s right to change the Plan benefits, using language that is incompatible with a promise to create vested, unchangeable benefits.”  The Court went on to conclude that the reservation of rights language clearly applied to the retirees’ healthcare benefits.

The Court also rejected plaintiffs’ arguments that the formal pension plan did not originally cover retiree health insurance, and that the “plan” durational language in the Appendix should be interpreted to only apply to the traditional pension plan portions of the Appendix.    In reaching this conclusion, the court recognized that the Appendix addressed the pension plan, which here included retiree health insurance, and that plaintiffs could not rely on the Appendix to provide benefits they want yet ignore the reservation language.  The Appendix defined the scope of the plan documents — here both the traditional pension plan documents and the health insurance documents —  and how they can be modified.  The Court stated that the purpose of the phrase “continuous health insurance” was to show that benefits did not automatically terminate upon expiration of the CBA, not to vest the retirees with lifetime coverage that could never be modified.  Put simply, the Court found that a “company can promise ‘continuous health insurance’ and reserve the right to modify or end that coverage if it becomes unaffordable.”

One judge on the panel dissented.  He concluded that the language cited by the parties created an ambiguity given the language referenced “Plan” in the initial paragraphs that included the reservation language, yet utilized the generic “pension plan” regarding the principal provisions, and retiree medical insurance for the description of that benefit.  The dissent called for the case to be remanded for consideration of extrinsic evidence to determine the intent of the parties.

This is an unusual decision for the Sixth Circuit, under its Yard-Man (UAW v. Yard-Man, Inc. , 716 F.2d 1476  (6th Cir. 1983)) approach for collectively bargaining retiree insurance benefits, almost always can find a way to declare the benefits vested.  Notably the Court never even cited Yard-Man by name.  The key here was that there was a strong plan reservation of rights provision actually negotiated into the contract in the same Appendix providing for the retiree insurance benefit.  Few contracts contain reservation language.  Nevertheless, this case demonstrates that under the right circumstances employers can find success in retiree insurance cases in the Sixth Circuit.  Does it signal a change, however, in the Court’s basic Yardman approach in retiree medical cases?  Do not bet the company on it.