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Supreme Court Makes it Easier for Employers to Terminate Retiree Health Benefits

Publications - Client Alert | February 9, 2015

In a recent unanimous decision, M&G Polymers USA, LLC v. Tackett, the United States Supreme Court overturned UAW v. Yard-Man, Inc., a highly favorable case protecting retiree health benefits. Yard-Man held that courts should infer that parties to a collective bargaining agreement intended retiree health benefits to continue until retirees’ death or reemployment (the “Yard-Man inference”). The M&G Polymers USA decision could significantly impact retiree health benefits in the future.

Under prior law, employers had to meet a high bar to show that they did not intend for retiree health benefits to continue. For example, the Yard-Man inference extended retiree health benefits even if a collective bargaining agreement had general termination provisions. However, other federal courts rejected the Yard-Man inference, leading to a split among courts in the country. The Supreme Court agreed to hear M&G Polymers USA to resolve the issue of whether courts should continue to apply the Yard-Man inference.

In rejecting the Yard-Man inference, the Supreme Court set forth a few key principles. First, the Supreme Court established that retiree health benefits provisions are not entitled to a special presumption that they are intended to last indefinitely. As a result, general termination provisions in a collective bargaining agreement may be effective to terminate retiree health benefits. The Supreme Court also rejected the argument that retiree health benefits should be presumed to continue indefinitely because unions did not intend to risk these benefits being subject to cutback in later negotiations.

In the wake of M&G Polymers USA, both employers and unions need to revisit their collective bargaining agreements to determine how retiree health benefits provisions will be affected. Employers will need to consider whether they can and should eliminate lifetime retiree benefits. Because of the wide-reaching impact of the M&G Polymers USA decision, all parties should expect significant changes to future retiree health benefits.

Additional Information

If you have questions regarding your retiree health benefits, please contact your Kutak Rock LLP attorney or a member of our Employee Benefits Practice Group.