Kraft retirees had no vested right to health care benefits beyond termination of CBAs

Kraft did not violate ERISA when it terminated retiree health care benefits for retired hourly workers, ruled a federal district court in Wisconsin. The employer argued that no language in a collective bargaining agreement (CBA), memorandum of agreement (MOA), or summary plan description (SPD) promised to provide medical benefits to retirees that would continue beyond the termination of the CBA in effect when they retired. Here, the court agreed with the employer that under binding ERISA caselaw, the retirees had no vested right to health care benefits upon retirement. Accordingly, it granted the employer’s motion for summary judgment.
The retirees worked as hourly employees at an Oscar Meyer meat packing plant until they retired. While employed, the retirees were represented by a union, and the terms and conditions of their employment was governed by a series of CBAs between the union and employer. Here, the plaintiffs seek to represent a class consisting of former union-represented employees who were participants in the Kraft retiree health and prescription drug insurance plans, and who were age 65 and older.

Retiree healthcare benefits.

The employer and union did not negotiate over healthcare benefits for retired employees before entering into a 1989 CBA. According to the 1989 CBA, it remained in effect through midnight, September 6, 1992. A 1989 MOA specifically referenced medical benefits for retirees. Over time, Kraft has provided health and prescription drug insurance to employees and retirees represented by the union in accordance to the terms of its CBAs. The three named plaintiffs each retired under the terms of a different CBA beginning in 1990.
During negotiations leading up to the 2000 CBA, Kraft proposed converting all existing medical coverage to the “Kraft Chose Plan.” Thereafter, the union agreed that the “Kraft Chose Plan” would be the only medical coverage option offered to active employees, effective January 1, 2001. As a result, if an employee retired during the term of that CBA, the individual would be offered coverage under the Kraft Chose Plan. The Kraft Chose Plan includes a specific section entitled “Retiree Coverage.” It stated circumstances under which retiree coverage would end, and stated that Kraft retained the right to amend or terminate the plan.
Ultimately, the 2004 CBA contained no reference to retiree medical benefits. A separate document provided that retiree medical coverage would not be provided for those hired after December 1, 2004.

Plan termination.

By letter dated September 2, 2015, Kraft notified retirees that effective January 1, 2016, their current retiree health and prescription drug insurance plans would be terminated. For certain retirees, it provided an option of participating in a privately operated Medicare insurance exchange. Retirees would pay all premiums, with Kraft making annual contributions to a health reimbursement account (HRA) in an amount equivalent to the cost of obtaining health and prescription coverage. The retirees contended even with the HRA, their premiums exceeded what they currently pay.
Kraft did not negotiate with the union about these changes, and the union did not agree to the termination of the prior health and prescription drug plans. Accordingly, the retirees and union allege that these unilateral changes in coverage constitute a breach of the applicable CBA, and a violation of ERISA. Both claims rested on the contention that the retirees had vested rights to the pre-2016 health and prescription drug insurance coverage.

Vesting of retiree benefits.

The ultimate issue was whether the retirees’ health care benefits survived the termination of the CBAs. The parties agreed that the benefits at issue are welfare benefits governed by ERISA. Unlike pension benefits, ERISA does not mandate the vesting of welfare benefits. Rather, employers and unions may choose to enter agreements for welfare benefits to vest. Under Seventh Circuit precedent, any agreement for the vesting of welfare benefits under ERISA “must be contained in the plan documents and must be stated in clear and express language.”
Kraft contended there was nothing in the language of the relevant CBAs, MOAs or SPDs that promised to provide medical benefits to retirees that would continue beyond the termination of the CBA in effect when the individual retired or that the medical benefits could never be changed. The court pointed out that the CBAs were each silent on the continuation of health care benefits for retirees past the agreement. Silence indicates that welfare benefits are not vested. Moreover, considering all of the documents, the relevant SPDs both expressly provide a right to “amend or terminate” the health plan at any time, and the 2004 SPD specifically provided that coverage ends on “the date retiree coverage under the plan terminated.” If the CBAs and the plan documents provide that the benefits can be modified or revoked, then the benefits do not vest as a matter of law.
Finding no ambiguity in the various CBAs or related documents, the court declined to consider extrinsic evidence offered by the union in an effort to demonstrate vested rights. Accordingly, the court was compelled to conclude as a matter of contract interpretation and ERISA that none of the plan documents vested retiree health care benefits past the respective termination dates of each of the three CBAs at issue.

SOURCE: Gruss v. Kraft Heinz Foods Co., Inc., (W.D. Wis.), No. 15-cv-788-wmc, September 15, 2017.
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