Blogging Employee Benefits

April 2, 2006

United Retired Pilots Lose Appeal

Filed under: Bankruptcy, Collective Bargaining, Termination (Plan) — Fuguerre @ 11:20 am

Since no feasible remedy remains, the 7th Circuit has affirmed district court approval of decisions of the bankruptcy court permitting United Airlines to terminate its pilots pension plan without a hearing to determine whether retired pilots should receive replacement benefits. [United Retired Pilots Benefit Protection Association v. United Airlines, No. 05-3121]

An agreement (the "Letter Agreement") to modify the collective bargaining agreement negotiated between United and the pilots' union gave the active pilots compensation in exchange for a union promise not to oppose voluntary termination of the pension plan. The bankruptcy judge approved that agreement under 11 U.S.C. §363(b)(1), which requires bankruptcy court approval for contracts made by the debtor during the bankruptcy that are outside the ordinary course of business. Retired pilots had no representation in those negotiations, and they received no replacement compensation under the agreement.

The question presented by the retired pilots' appeal boils down to whether the bankruptcy judge could approve that agreement without giving any consideration to the retired pilots' interests.

United argued that retired pilots had no stake in the Letter Agreement negotiations, since the retirees had no right to enforce the collective bargaining agreement. While correct, the appellate court pointed out that retirees retained the right to oppose the termination of the pension plan, a right which the active pilots had exchanged for compensation. "But what is true," further observed the court, "is that the already daunting complexity of major corporate bankruptcies would be multiplied if anyone with some potential blocking power, yet whom the trustee or debtor in possession had not thought it worthwhile trying to buy peace with, could insist on negotiating rights as a condition of the bankruptcy judge's approving a transaction out of the ordinary course." Accordingly, to avoid unraveling the §1342 proceeding, perhaps reversing the entire bankruptcy proceedings, the appellate court declined to vacate the Letter Agreement.

Earlier in the course of the bankruptcy, United had sought to terminate the pilots pension plan through a proceeding under §1113 of the Bankruptcy Code, which permits rejection of the executory portion of a collective bargaining agreement only with approval of the bankruptcy judge. The bankruptcy court refused to appoint a representative to those negotiations for retired pilots. United withdrew its §1113 application upon receiving approval of the Letter Agreement. As the §1113 process was aborted, the appellate court reviewed exclusion of the retired pilots from that process only as interlocutory to the order relating to the Letter Agreement.

Although United then proceeded toward voluntary termination of the pilots plan, the PBGC intervened with an involuntary plan termination. The bankruptcy court's approval of the PBGC action currently remains on appeal.


March 17, 2006

Retiree Health Benefit Rights Restricted to CBIA Term

Filed under: Collective Bargaining, Litigation, OPEBs — Fuguerre @ 4:45 pm

The distinction between lifetime benefits and vested benefits is “a legal distinction that understandably escaped” many of the retirees.

Finding no patent or latent ambiguity in collectively bargained insurance agreements (CBIA), the 7th Circuit affirmed a district court ruling that an employer was not obligated to extend retiree health benefits beyond the term of those agreements. [Cherry v. Auburn Gear, Inc.] CBIA language explicity stated that retiree health benefits expired at the end of the contract’s term. Although retirees tried to argue that reference to the singlular “program” indicated that the term limits did not apply to both retirees and active employees, the appeallate court found no merit in that argument, applying “program” to the entire agreement. Neither was the court persuaded by retirees’ reliance on CBIA terms providing lifetime survivors benefits, distinguishing the provision as referring to eligibility of individuals under the agreement, rather than to the duration of the agreement. Nor did similarity in language between the pension plan and the CBIA alter the presumption against vesting of retiree health benefits absent express language to the contrary. Finally, retirees’ claims of objective evidence were insufficient to demonstrate latent ambiguity.

As we stated in a similar case, “this story does not have a happy ending.”

February 25, 2006

Summary Judgment Denied in CBA Retiree Health Case

Filed under: Collective Bargaining, Litigation, OPEBs — Fuguerre @ 12:20 pm

Language in an ERISA plan must be given its common and ordinary meaning, interpreted in the way that a reasonable person in the position of the plan participant would have understood the words.

A district court has denied an employer’s request for declaratory judgment that would have recognized the employer’s legal right to unilaterally modify or terminate retiree health benefits provided under a collective bargaining agreement. The court also denied union requests for summary judgment to compel arbitration and exclude the employer’s expert testimony. [Rexam v. USW and IAM et al, D. Minn., Civ. 03-2998 ADM/JJG]

Rexam is a large aluminum beverage can manufacturer that employs members of the United Steel Workers of America (USW) and the International Association of Machinists and Aerospace Workers (IAM) covered under collective bargaining agreements with Rexam’s predecessors. In 2002 Rexam decided to increase retirees’ out-of-pocket expenses under its retiree prescription drug benefit plan. When the USW and IAM objected to the proposed changes, Rexam filed a lawsuit seeking declaratory judgment that it had the legal right to make the amendment. The unions filed counterclaims, alleging violations of the Labor Management Relations Act and the Employee Retirement Income Security Act. In October 2003, the district court denied a USW motion to dismiss Rexam’s lawsuit. In May 2005 three subclasses of retirees were certified, denying a Rexam motion to certify a single class since at least 11 different collective bargaining agreements would need to be considered in judging the dispute. In August 2005, the court recommended a jury trial for the steelworkers’ LMRA claim but a bench trial for its ERISA claim.

In the latest round of this extended dispute, the district court has denied Rexam’s motion for declaratory judgment. Rexam argued that the retiree welfare benefits were not vested, pointing to the absence of express vesting language in plan documents, reservation of rights clauses, continuation clauses, coordination of benefits clauses, and duration clauses. The district court addressed each argument in detail –

  • Express Vesting Language – Rexam overstates 8th Circuit law, according to the district court, stating that the issue depends on whether the parties intended benefits to vest, a determination for which the absence of a specific word is relevant without being dispositive. Conversely, language in several plan documents and SPDs informing retirees that benefits would continue until death, while supporting the unions’ claim that benefits were vested, could not be viewed in a vacuum, rather needed to be considered in the context of all provisions of the plan documents and CBAs.
  • Reservation of Rights (RR) Clauses – Most (although not all) plan documents included a clause reserving the employer’s right to terminate or amend benefits, which Rexam argued to be settled law as being inconsistent with a claim of vested benefits. Here, however, the court found the RR clauses ambiguous, since they included qualifications that would be interpreted as restricting the company’s rights to situations where the modification was required by a change in the law. The most recent, less ambiguous RR clause was rejected, since it had not be adequately reflected in plan SPDs.
  • Continuation Clauses – CBAs between Rexam and the union included statements that the company would continue to pay the cost of the plan. Continuation clauses have been recognized by the 8th Circuit as evidence of non-vesting, since otherwise such continuation clauses would be duplicative promises. The district court views that evidence as “slight,” to be considered in the context of the entire contract.
  • Coordination of Benefits Clauses – Plan documents and CBAs included provisions allowing benefits to be reduced if a third party, such as Medicare, provided duplicate benefits. Although 8th Circuit law has viewed a coordination of benefits clause evidence of non-vesting, again the district court sees the provision to be only one factor to be considered in the context of all provisions of the plan documents and the CBAs.
  • Duration Clauses – CBAs between Rexam and the unions included explicit statements that retiree welfare benefits were to remain in effect only until a certain date, usually either the CBA termination date or 90 days thereafter. Although the 8th Circuit has found duration clauses to be evidence of non-vesting, again the district court sees the provision to be only one factor to be considered in the context of all provisions of the plan documents and the CBAs.

Considered in the context of the entirety of the plan documents and CBAs, the court found the record ambiguous on intent to vest. Although there existed no express vesting language, there was language suggesting that benefits continue until a retiree’s death. Neither did the duration and coordination of benefits clauses outweigh the until-death language, while the continuation and RR clauses were found too ambiguous to aid resolution. Although both sides offered extrinsic evidence for their positions, the district court ruled that sufficient disputed facts made the case inappropriate for summary judgment for Rexam.

The unions also sought summary judgment, moving to exclude portions of Rexam’s expert testimony, although they acknowledged that the request would normally be sought as a motion in limine at trial. The district court denied the motion, although the court did advise that it would generally restrict expert witnesses from testimony explaining what the law provides.

Finally, the district court denied an IAM motion for summary judgment on its counterclaim to compel arbitration of the vesting issue, finding that IAM had waived its rights to arbitration by delay and inconsistent actions.

February 8, 2006

Retiree Health Care and Life after CBA

Filed under: Collective Bargaining, Healthcare, Litigation — Fuguerre @ 10:13 pm

[G]eneral contract law still applies, and in the event of a patent or latent ambiguity, a plaintiff may be entitled to a trial where extrinsic evidence may be introduced to establish the true intent of the agreement.

Finding no legally sufficient agreement to support retirees’ claims of entitlement to life-time retiree benefits, the 7th Circuit Court of Appeals has affirmed a district court ruling granting summary judgment for the employer, permitting the employer to unilaterally require retirees to pay a portion of premiums for future health care. [Barnett v. Ameren, CA7, 05-1496, 2/8/06]

If a collective bargaining agreement that provides for retiree health benefits is silent regarding the permanence of those benefits, then the 7th Circuit presumes that the benefits expire with the CBA. But general contract law remains applicable, the court observes, leaving the door open for litigation on the true intent of an agreement if a patent or latent ambiguity exists.

In this case, retirees claimed such ambiguities in both of the employer’s two pre-merger CBAs: (1) The first referred to “vesting service”; while (2) In the second, the employer and union actually documented their opposing positions regarding retiree health benefits, the employer claiming the right to amend or terminate while the union expressed the position that benefits of currently retired employees could not be terminated. The court found the references to “vested service” unambiguous in the context of a CBA that elsewhere explicitly reserved the right to revoke the benefits. As to the documented agreement to disagree, the court reminded plaintiffs that an ambiguity is “something that makes it possible to interpret a document reasonably in more than one way.” Here, the court found “that it is not reasonable to read this stark agreement to disagree as actually resulting in an agreement on [the employer]’s part to provide vested health-care benefits to retirees.” The court further found no latent ambiguities in the employer’s continuation of other benefits provided under the same CBA while imposing retiree premiums for health benefits. Absent ambiguities, the court was left with its basic presumption, that absent explicit CBA language to the contrary, the promise of retiree health benefits had no guaranteed life beyond that of the CBA.

January 25, 2006

Vacation Trust Payments Not Counted As Service Credits

Filed under: Collective Bargaining, Litigation — Fuguerre @ 5:57 pm

The trustees and the tax authorities have not been in the dark for over thirty-eight years.

Contributions made to a collectively bargained vacation trust do not generate service credits that need to be counted for purposes of pension accruals, according to a 9th Circuit ruling affirming the district court. [Mora v. Construction Laborers Pension Trust for Southern California, CA9, No. 04-55594, 1/25/06]  Contributions had been made on behalf of Mora to a “vacation trust,” which had been negotiated to some extent to fill the void left by some employers not giving their workers paid vacation time. However, rather than counting vacation trust amounts as paid vacation time, the pension trust treated the arrangement as a “savings type vehicle” in which was accumulated “simply payment for wages in the same manner as a wage paymentis for the hour worked.”

Had Mora’s vacation trust payments counted as hours of service for paid vacation time, he would have had sufficient additional service to increase his pension benefit. Mora pointed to DOL regulation 29 CFR 2530.200b-2(a)(2), which defined an hour of service as including “each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed . . . due to vacation . . . .”

Mora’s difficulty, stated the court, was that payments to the vacation trust were not made on account of time when no duties were performed, but were merely a part of the payment for the period during which services were performed. To count those payments as hours would constitute impermissible double crediting of service, as the court viewed the arrangement. The court found consistency with that characterization in a 1966 IRS ruling and a 1967 ruling of the state’s Franchise Tax Board. Altogether, the court found Mora’s claim “a confusion largely caused by a name,” that is, that the vacation trust might have done better to have not called itself that.

Dissenting opinion viewed the character of the trust as extending beyond its name, ensuring that the industry’s “transitory workers are provided with paid vacation benefits similar to those provided to employees in other industries.”

January 21, 2006

New York Transport Workers Reject New Contract

Filed under: Collective Bargaining, PERS — Fuguerre @ 2:17 am

Members of Transport Workers Union Local 100, whose strike shut down the New York City public transit system for 3 days in December, have narrowly defeated a compromise hammered out after the strike by a margin of only 7 votes, with 11,227 workers voting to ratify the contract against 11,234 voting to reject. [New York Times, 1/21/06]

The rejection is being blamed on a provision requiring union members to contribute 1.5% of pay toward their health insurance, that rate set to increase after 2006 by a rate equal to the excess of health care inflation over the general wage increase rate. [Memorandum of Understanding Between MTA NYCT and TWU Local 100]  In exchange, the New York City Transit Authority dropped its demand for less generous pensions for future new hires, and a pension refund provision was offered to older workers. Reports indicate that the deal left middle-aged workers feeling abandoned, with nothing to show for the employee health insurance premiums.

The Transit Authority indicates that it may seek arbitration, although that route has previously been rejected by the union. Neither side seems to think another strike might be in the cards, but neither is the possibility being ruled out.

January 19, 2006

8th Circuit Reverses District on Wal-Mart ERISA Case

Filed under: Collective Bargaining, Litigation — Fuguerre @ 4:13 pm

“[I]t is possible to determine whether the SPD’s terms are understandable and consistent with the plan documents without reference to substantive labor law.”

The 8th Circuit Court of Appeals has reversed a district court’s dismissal of an ERISA lawsuit, remanding the case for further proceedings on the suit’s claims. [Frank Lupiani v Wal-Mart Stores, CA8, No. 04-1392 (1/19/06)]

The dispute arose in connection with a unionization attempt by Wal-Mart employees. The union election was not held as the employees instead brought charges against Wal-Mart before the National Labor Relations Board, claiming that unionization efforts were improperly undermined by Wal-Mart’s Union Exclusion Clause in its 401(k) plan, profit-sharing plan, and health and welfare plan. Settlement discussions involving the NLRB are said to be in progress.

Separately, the employees brought a lawsuit under ERISA, claiming that the plans’ summary plan descriptions (SPDs) were misleading and inaccurate. The plaintiffs also argued that Wal-Mart violated fiduciary duties by placing the union exclusion in Associate Benefit Books.  The employees sought injunctive relief, monetary damages, and attorneys’ fees.

The District Court for the Western District of Arkansas dismissed the ERISA complaint, concluding that it lacked subject matter jurisdiction due to preemption by the primary jurisdiction of the NLRB under the National Labor Relations Act.  The 8th Circuit has reversed that dismissal, finding no conflict between ERISA and NLRA with respect to the claims raised. Although the plaintiffs relied on the plans’ union exclusion clause for actions still being addressed by the NLRB, the determination of whether the SPD and other plan documents satisfy ERISA is a separate issue subject to the federal court’s jurisdiction.  Similarly, the issue of ERISA fiduciary violation is separate from a decision as to whether the union exclusion clause violates NLRA.

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