Earlier this week, the Supreme Court issued its opinion in M&G Polymers USA v. Tackett, addressing the question whether a collective bargaining agreement is presumed to provide vested retiree medical benefits.  Unlike pension benefits, welfare benefits, such as retiree medical coverage, are not subject to statutory vesting rules under ERISA.  Accordingly, whether an employer may reduce or eliminate retiree medical coverage depends on the promises the employer has made.  These promises are typically analyzed under ordinary contract principles.  However, a seminal 1986 decision in the Sixth Circuit, International Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man, established an inference—perhaps even a presumption—that retiree medical benefits required by a collective bargaining agreement could never be taken away unless the bargaining agreement expressly provided otherwise.  Last Monday, the Supreme Court unanimously overturned Yard-Man and its progeny.

In M&G Polymers, the collective bargaining agreement provided that certain retirees “will receive” retiree medical coverage without any contribution by the retiree.  The employer subsequently began charging a premium for the coverage.  The Sixth Circuit found that the bargaining agreement was ambiguous and, citing Yard-Man, inferred that the parties to the collective bargaining intended contribution-free retiree medical coverage to vest.  According to the Sixth Circuit, the retirees could not be charged a premium.  The Supreme Court disagreed.

The Supreme Court stated that the Yard-Man approach departed from ordinary contract principles by “placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.”  Instead, the Court emphasized that the intent of the parties must be inferred from evidence and not merely from the nature of collective bargaining.  In addition, the Court highlighted contract principles that would weigh against a finding that ambiguous language in a bargaining agreement creates vested benefits, including−

  • courts should not construe ambiguous contractual language to create lifetime promises;
  • an expiration date in a contract is presumed to apply to the whole agreement, and therefore the expiration date in a bargaining agreement is presumed to apply to a provision in the agreement requiring retiree benefits; and
  • contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.

On the other hand, a concurring opinion by Justice Ginsburg (which was joined by three other Justices) emphasized provisions in the bargaining agreement at issue in the case indicating that retiree medical benefits had vested, even absent the Yard-Man inference.  For example, the bargaining agreement provided that surviving spouses would receive medical coverage until death or remarriage.

The Court remanded the case without concluding whether the retiree medical benefits at issue had, in fact, vested.  The fact that the Court declined to resolve the dispute, and the conflicting factors weighing against and in favor of vesting cited in the opinion of the Court and the concurring opinion, demonstrate that, even absent the Yard-Man approach, the issue of vested welfare benefits under ambiguous bargaining agreements is likely to continue to be contested, with unpredictable results.

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Photo of Robert Newman Robert Newman

Robert Newman represents clients ranging from small employers to some of the nation’s largest employers, including for-profit and tax-exempt entities.  His practice includes designing, drafting, and amending a wide range of retirement plans (including 401(k) plans, ESOPs, and traditional and hybrid defined benefit…

Robert Newman represents clients ranging from small employers to some of the nation’s largest employers, including for-profit and tax-exempt entities.  His practice includes designing, drafting, and amending a wide range of retirement plans (including 401(k) plans, ESOPs, and traditional and hybrid defined benefit plans) and welfare plans (including health, severance, and cafeteria plans); creating executive compensation arrangements including nonqualified deferred compensation plans, stock option plans, and other incentive plans; representing clients before the IRS and the Department of Labor; assisting clients with legislative initiatives; providing benefits expertise in corporate transactions and ERISA litigation; counseling clients with respect to pension fund investments in private equity funds and hedge funds; and negotiating and writing employment agreements.