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U.S. Court In Oregon Says Plan�s Elimination Of Retiree Health Benefits Did Not Violate ERISA


HLD, v. 33, n. 11 (November 2005)

U.S. Court In Oregon Says Plan�s Elimination Of Retiree Health Benefits Did Not Violate ERISA

            An employer�s decision to phase-out retiree health benefits after it decided to close the facility where the retirees had worked did not violate the Employee Retirement Income Security Act (ERISA), a federal district court in Oregon found. The court concluded that the retirees had no vested rights in the health benefits.

            Plaintiffs are former employees, or spouses of former employees, of Evergreen Mill, which was purchased by defendant Simpson Paper Company in 1990. The Association of Western Pulp and Paper Workers (AWPPW) negotiated a collective bargaining agreement (CBA) involving an early retirement incentive plan. The initial plan provided health insurance for early retirees until they reached age sixty-five. Spouses were covered until age sixty-five or for a total of fifteen years, whichever occurred first. Two additional CBAs were subsequently executed, all with similar retiree health insurance benefits. In 1996, defendant decided to close the Mill. Defendant announced in 2002 that it was phasing-out retiree health coverage by 2004.

            Plaintiffs sued defendant, arguing that the company wrongfully terminated their health insurance benefits in violation of the CBA and plaintiffs� vested rights. Plaintiffs contended that defendant had violated ERISA and � 301 of the Labor-Management Relations Act because once their health insurance benefits vested, they could not be terminated lawfully and that plan fiduciaries had misrepresented that their health benefits would vest upon retirement. Both parties moved for summary judgment.

            The U.S. District Court for the District of Oregon granted summary judgment in favor of defendant. Unlike pension plans, welfare plans are not subject to vesting requirements, although employers and employees can specify by agreement specific terms on this issue. Here, plaintiffs failed to bear the burden of showing the contract provisions so provided, the court said. In so holding, the court noted two aspects of the plan that refuted plaintiffs� contention that the benefits had vested--namely, that the benefits would be flexible to the same extent they were for active employees and that the CBA contained a reservation clause specifying defendant could alter or cancel welfare plan benefits at any time subject to negotiation with the AWPPW.

            With respect to the reservations clause, the court rejected plaintiffs� contention that its reference to "welfare plan benefits" did not include health insurance benefits. The court also found unavailing plaintiffs� argument that defendant�s failure to negotiate with AWPPW before changing the benefit was relevant to determining whether the rights at issue vested. "[T]he true significance of the reservation clause is that it serves as further evidence that both defendant and plaintiffs� union recognized that retirement health benefits were subject to periodic modification," the court noted. The court further rejected plaintiffs� argument that the reservation clause only applied to active employees, noting that plaintiffs had already acknowledged that retiree medical benefit coverage was to be treated on the same basis as active employees. Thus, the court concluded that summary judgment must be granted to defendants related to the vesting issue, including their � 301 claims.

            The court next found defendant was entitled to summary judgment on plaintiffs� claims that defendant breached its fiduciary duty by misrepresenting its power to alter future benefits under the plan. Plaintiffs contended that one of defendant�s agents failed to alert employees about the potential loss of benefits when discussing the retirement option. But the court found otherwise, concluding that plaintiffs were given sufficient information to alert them to the possibility that the benefits at issue would be changed or terminated. While the statement provided by defendant did not directly address the explicit possibility of the benefits terminating, it did "provide plaintiffs a degree of warning regarding the non-vested nature of the benefits."

            Finally, the court refused to allow plaintiffs to amend their complaint and add an equitable estoppel claim under ERISA. The court found allowing plaintiffs to do this would be unfairly prejudicial to defendant and, in any event, futile given that plaintiffs failed to show any material misrepresentations or that reasonable minds could disagree about the non-vested nature of the retiree health benefits.

            Poore v. Simpson Paper Co., No. CV 03-535-HA, 2005 WL 2620533 (D. Or. Oct. 14, 205).


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