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Throughout the years, employers have been offering post-retirement welfare benefits to their employees. Typically, retiree welfare benefits consist of health and/or life insurance coverage, which becomes effective if and when an employee retires — i.e., terminates employment after reaching a certain age and/or accumulating a specified number of years of service. Today, spurred on by the abruptly rising cost of health care and life insurance, particularly for the elderly, employers are looking for ways to cut back on the retiree welfare benefits they are providing. Such cutbacks take the form of providing less expensive types of coverage, requiring the retirees to pay a larger share of the cost or eliminating retiree coverage altogether. One important recent case is AARP v. Equal Employment Opportunity Comm’n, No. 05-CV-509, 2005 U.S. Dist. Lexis 5078 (E.D. Pa. March 30, 2005). There, a federal district court permanently enjoined the Equal Employment Opportunity Commission from implementing a regulation, under which an employer could, without violating the Age Discrimination in Employment Act, alter, reduce or eliminate the retiree health benefits being provided to a retiree at the time he or she first becomes eligible for Medicare. This case gives rise to the concern that an employer that needs to cut costs, and that might have been willing to do so by altering a Medicare-eligible retiree’s health benefits, now may have no choice but to change, reduce or eliminate the retiree health benefits for all retirees. What, then, can retirees do to enforce any promise their employers may have made to provide retiree welfare benefits? That is what this article discusses below. ENFORCEABILITY OF PROMISES: VESTING UNDER ERISA Any plan or arrangement of an employer that provides retiree welfare benefits will be subject to the requirements of the Employee Retirement Income Security Act of 1974, as amended. ERISA, then, is the statute under which a promise to provide retiree welfare benefits may be enforced. Under ERISA, this promise becomes enforceable by a retiree if the benefits are vested. But how does this vesting arise? Under � 3(1) of ERISA, any plan or arrangement of an employer that provides retiree welfare benefits will be treated as a “welfare plan.” Under � 201(1), welfare plans are specifically exempted from the statutory vesting requirements of ERISA. Therefore, the courts have said that employers are generally free, under ERISA, to adopt, modify or terminate welfare plans (and the benefits they provide) for any reason and at any time. Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73 (1995). The courts have further said that employers may vest welfare benefits if they choose to do so. See Inter-Modal Rail Employees Ass’n v. Atchison, Topeka & Santa Fe Ry. Co., 520 U.S. 510 (1997). However, the courts continue, since the vesting of welfare-plan benefits is not required by ERISA (or any other law), an employer’s commitment to vest such benefits is not to be inferred lightly. It must be found in the plan documents for the welfare plan. The majority of the courts say that it must be stated in clear and express language. See, e.g., Bland v. Fiatallis North America Inc., 401 F.3d 779 (7th Cir. 2005). A minority say that the commitment must be expressed in language that is reasonably susceptible to interpretation as a promise. Abbruscato v. Empire Blue Cross and Blue Shield, 274 F.3d 90 (2d Cir. 2001). It is the retiree’s burden to prove that the employer has made the commitment to vest the benefits. Stearns v. NCR Corp., 297 F.3d 706 (8th Cir. 2002). Thus, the question of whether retiree welfare benefits are vested is reduced to two issues. The first is what language must be included in the plan documents to establish an employer’s commitment to vest the benefits. The second is what constitutes the plan documents in which this language must be found. These issues are discussed below. If the plan documents unambiguously indicate that retiree welfare benefits are vested — for example, they say that the benefits are vested and will be provided for retirees’ lifetimes and say nothing else — the courts will treat such benefits as being vested and will enforce the unambiguous language under ERISA. See, e.g., Abbruscato, supra. Conversely, if the plan documents unambiguously do not provide the retirees with vested benefits — for example, they state that the benefits end at termination of employment and say nothing else — vesting cannot obtain. See, e.g., Adams v. Tetley USA Inc., No. 3:03cv 649, 2005 U.S. Dist. Lexis 3504 (D. Conn. March 8, 2005). Other cases are not so clear, and the courts appear to decide them without regard to whether they believe that the language must be “clear and express” or “reasonably susceptible to interpretation as a promise” to establish the employer’s commitment to vest the benefits. The courts agree that the employer does not have to use the word “vest” itself. However, language that refers to “lifetime benefits” raises the question as to whether the employer is promising to provide retiree welfare benefits for life — an indication of vesting — or only lifetime coverage until it decides, in its discretion, to revoke or modify the coverage — an indication that there is no vesting. Further, language in the plan documents that indicates that retirees “will be insured” and “will continue to be covered at the same level,” that the employer will pay the “full costs” of the benefits, that “benefits are reduced upon retirement to a final figure” and the like raises the issue of how long the coverage will continue. That is, such language does not speak to the duration of the coverage, as a promise of vested benefits would. Such language raises the further question as to whether it refers to the scope of the benefits, and not to the commitment to vest the benefits. When the language in the plan documents gives rise to the above types of questions, the courts generally do one of two things. They may indicate that a trial is needed and that extrinsic evidence, such as letters describing retiree benefits and oral testimony, must be considered to interpret the plan documents and determine whether the employer made the requisite commitment to vesting. See, e.g., Karl v. Asarco Inc. and/or Its Asarco Admin. Comm., as Plan Fiduciaries, No. 02 Civ. 5565, 2004 U.S. Dist. Lexis 25956 (S.D.N.Y. Dec. 22, 2004). Alternatively, they may find that the language is not sufficient to establish the employer’s commitment to vest the benefits and indicate that the claim should thus be dismissed. See, e.g., Joyce v. Curtiss-Wright Corp., 171 F.3d 130 (2d Cir. 1999). Whatever language may be found in the plan documents that indicates the employer’s commitment to vest the retiree welfare benefits, if they contain an unambiguous “reservation of rights” clause, i.e., they expressly state that the employer reserves the right to amend or terminate the plan (or the benefits payable under the plan) at any time, the courts are unanimous in holding that this clause will defeat any claim that the employer has vested the retiree welfare benefits. See, e.g., Adams v. Litton Sys., Inc., 111 F.3d 137 (9th Cir. 1997). If the plan documents have sufficient language to indicate that an employer has made a commitment to vest the retiree welfare benefits, except that the plan documents also have an ambiguous reservation of rights clause, the courts will allow the retirees to have a trial and introduce extrinsic evidence to interpret the plan documents and prove the employer has made such commitment. See Abbruscato, supra; Stearns, supra. WHAT CAN SERVE ASPLAN DOCUMENTS? Clearly, any formal plan documents may serve as the plan documents here. What else will do? Courts almost unanimously indicate that summary plan descriptions will constitute, or may be treated as, plan documents for these purposes. See Adams, supra. If the retirees belonged to a union, the collective bargaining agreements will likewise be treated as plan documents. See Joyce, supra. Note that some particular rules and federal laws in addition to ERISA (e.g., the Labor-Management Relations Act) apply to collective bargaining agreements. See Maurer v. Joy Technologies Inc., 212 F.3d 907 (6th Cir. 2000). Insurance contracts are treated as plan documents. See Joyce, supra. One court has indicated that a letter to employees that describes their retirement benefits may serve as a plan document. See Karl, supra. Other courts have said that exit letters provided to employees may not so serve. See Tetley, supra. Further, written “statements of acceptance” of available benefits signed by the retirees or written representations of available benefits given to the retirees by the employer and other informal communications are not plan documents, unless they take the form of formal plan documents or formal plan amendments. See Sprague v. General Motors Corp., 133 F.3d 388 (6th Cir. 1998). One court indicated that, in the absence of formal plan documents, a plan’s application form may have the status of a plan document. See McMunn v. Pirelli Tire LLC, 161 F. Supp. 2d 97 (D. Conn. 2001). Based on this reasoning, if there are no formal plan documents, written company policy could be treated as the plan document. Oral statements are not treated as being plan documents. See Sprague, supra. One important matter is what plan documents apply to the retirees. The courts tend to look at the promise to provide retiree welfare benefits in a plan as a contractual matter. Thus, the relevant documents are those that were in effect at the first time that the retirees — then employees — performed services for the employer while the promise was in effect. See Devlin v. Empire Blue Cross and Blue Shield, 274 F.3d 76 (2d Cir. 2001). Finally if the retirees cannot establish that their welfare benefits are vested, they may be able to prevent the employer from terminating or changing the benefits on the basis of promissory estoppel or breach of fiduciary duty under ERISA. See, e.g., Tetley, supra. Stanley D. Baum is a counsel in the New York office of Dechert, specializing in employee benefits and executive compensation practice.

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