Determining Whether Retiree Benefits Vest for Life: A Backgrounder on the M&G Polymers v. Tackett Decision

Published February 20th, 2015 -  - 02.20.159


Before the Supreme Court decided M&G Polymers USA v. Tackett, the 6th Circuit assumed that parties to a collective bargaining agreement intended retiree health benefits to vest for life, unless contractual language or extrinsic evidence indicated otherwise. In the Tackett case, about 500 retirees sued M&G Polymers USA after the company announced that the former employees must contribute to their healthcare costs. Like many collective bargaining agreements, the contract between the workers’ union (the United Steelworkers) and the employer did not explicitly address whether healthcare benefits would vest for life. The 6th Circuit sided with the plaintiffs, finding that the company’s obligation to provide the retirees healthcare did not end with the expiration of the collective bargaining agreement. Justice Thomas, writing for the majority, reversed and instructed the lower court to apply “ordinary contract principles” when determining the duration of collectively bargained benefits.

The Facts

The plaintiffs worked for the Point Pleasant Polyester Plant in Apple Grove, West Virginia. In 2000 M&G Polymers bought the plant from Shell and entered into a collective bargaining agreement with the Union. The agreement provided that retirees who had achieved a certain level of seniority would receive contribution-free healthcare, but did not specify for how long the former employees would be eligible to receive those benefits. While former plant owners had continued to pay benefits until the retirees died, in 2006 M&G Polymers announced that retirees would now be required to contribute to their healthcare. The retirees sued, alleging breach of contract in violation of the Labor Management Relations Act and ERISA.

Initially, the monthly cost for former employees old enough to receive Medicare was $144.44, and $856.22 for younger retirees. By 2011, the costs for the two groups had increased to $452.01 and $957.92 respectively. Freel Tackett, one of the named plaintiffs, said his contribution “is a huge amount of money when you are on a fixed income. I had to spend a big part of my pension on health insurance.”

The Supreme Court’s Decision

The 6th Circuit, applying the reasoning from a previous case, used the context of labor negotiations to resolve the ambiguous contractual language. The court said that the Union was not likely to leave benefits as important as retiree healthcare to the “contingencies of future negotiations.” Moreover, a provision of the contract provided that the company would pay the benefits of early retirees once they turned 65. If healthcare benefits ended with the termination of the contract, this promise would be illusory.

The Supreme Court rejected the lower court’s reasoning, stating that “placing a thumb on the scale in favor of vested retiree benefits” violated ordinary contract principles. The majority listed several of these principles, including the presumption that the written document encompasses the entire agreement between the parties, that courts should not interpret ambiguous language to create lifetime promises, and that contractual promises terminate with the end of the agreement. While courts can look to context in interpreting ambiguous language, Justice Thomas argued that the lower court’s assessment of the parties’ intentions was too speculative. In sum, “when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.”

In a separate concurrence, Justice Ginsburg argued that the plaintiffs could still prevail under the stricter standard. She urged the lower court to examine the entire agreement when deciding whether the healthcare benefits would vest for life. She pointed to two particular provisions: one stated that retirees would receive healthcare benefits if they were also receiving a pension, and another provided that a surviving spouse would receive the retiree’s healthcare benefits until death or remarriage.

The Implications

As Justice Ginsburg’s concurrence indicates, the Tackett decision does not put a thumb onM% the scale in favor of employers. Rather, the case rejects the 6th Circuit’s inference that retiree health benefits vest for life and instructs courts to apply ordinary contract principles.

 The Wall Street Journal likened the Tackett decision to “the job of a baseball catcher who stops wild pitches from heading to the stands.” The Journal applauded the Court for preventing plaintiffs from “rewriting” contracts. Similarly, M&G Polymer’s attorney, Allyson Ho, said the ruling “sends a strong message that restores a level playing field in benefits litigation nationwide.”

The Union points out that the plaintiffs worked hard to earn their retirement healthcare benefits. Moreover, the absence of language explicitly addressing the duration of benefits is not unusual. Tackett, who helped negotiate three collective bargaining agreements while he was an employee of the plant, believed that the contract guaranteed lifetime healthcare.

The Supreme Court remanded the case, which has not yet been decided in accordance under the new standard.

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