Benefits for Life:
By Rudman Winchell Attorney Brent A. Singer
Many employee benefit plans of private employers, such as the health benefit plans, are governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (ERISA does not govern employee benefit plans of state or local governments). Under ERISA, benefits are either “pension” or “welfare” benefits. Health benefits are considered “welfare benefits.”
ERISA contains stringent vesting requirements for many pension benefits, but it does not require automatic vesting for welfare benefits. Instead, employers are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans, as long as such changes do not discriminate on the basis of sex, religion, age, or other protected categories, and as long as the resulting terms of the plan do not violate substantive rules (such as, e.g., that now under the new health plan laws, there can be no pre-existing condition exclusions for enrollees under the age of 19).
This does not mean that welfare benefits can never “vest,” or that benefits cannot be “promised for life,” or promised for some other duration. On the contrary, an employer can obligate itself contractually to maintain benefits for life, or for some other duration, that otherwise would not be mandated by any law.
Furthermore, although courts in some parts of the country apply a rule that health or other welfare benefits do not vest unless there is clear and express language in a governing plan document indicating that they do, legal authority for Maine is that there is no presumption about vesting one way or the other. This applies for both collectively bargained plans and to plans outside the collective bargaining process. Senior v. NSTAR Elect. and Gas Corp., 449 F.3d 206 (1st Cir. 2006); Balestracci v. NSTAR Elec. and Gas Corp., 449 F.3d 224 (1st Cir. 2006). In Maine, Courts simply look at the plain, ordinary meaning of the language used in the plan documents, to determine whether the intent of the employer was to promise benefits for life, or for some other duration, or instead, to reserve the right to amend or terminate the benefits at any time.
ERISA also provides that every welfare benefit plan must “provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan.” ERISA § 402(b)(3). Maine’s federal district court, when applying this law, agreed that “‘any modification or amendment to an ERISA plan can be implemented or applied only after the amendment has been appropriately adopted in a formal, complete and written form.’” Coffin v. Bowater, Inc., 385 F. Supp. 2d 38, 53 (D. Me. 2005) (quoting Smith v. Nat’l Credit Union Admin. Bd., 36 F.3d 1077, 1081 (11th Cir. 1994)). Accordingly, the Court said that “amendments to an ERISA welfare benefit plan must be adopted in writing and pursuant to the terms set forth in the benefit plan.” Id.
We therefore highly recommend that employers review their welfare plan documents to make sure they include the procedure for amending or terminating the plan, and also unambiguously reserve the right to amend or terminate the benefits at any time—unless, of course, the employer’s intent is to promise benefits for life, or for some other duration.
For additional information, the U.S. DOL has also published a short brochure that touches upon this subject, which it calls “Can the Retiree Health Benefits Provided By Your Employer Be Cut?”