Can companies take away life insurance benefits from retirees?

Employees who were promised life insurance or health insurance upon retirement, only to find out that such benefits are being cut off, may feel like they have either had the “wool pulled over their eyes” or “the rug pulled out from under their feet.” ERISA doesn’t tolerate it either. However, it may be permitted if the benefits sought were not actually vested but only long-provided support without a promise it was permanent. The key will be the language in the plan document. A recent case illustrates how (Bellon v. The PPG Emp. Life & Other Benefits Plan, No. 21-1812, at *12 (4th Cir. July 15, 2022).

In December 2015, PPG terminated life insurance benefits across the board for all retirees. These employees had worked for the company for many years, from 1969 to 1984, and had earned a vested retirement benefit with a life insurance benefit at no cost to them. Many retired before 2015.

The company had a change in ownership with the transfer of the pension plan (A strong pension plan makes a company a good target, as the new company will take over those pension assets and then look for ways to trim back benefits). Companies are obliged to make periodic contributions toward the pension plan benefits. What better way to make the company more profitable than to reduce those ongoing contributions by pulling the rug out from under the feet of retirees? They were an easy target.

A class action was filed in Bellon. This particular retirement and life insurance benefit began being offered in 1969, before ERISA in 1974. The plan did not contain a reservation of rights permitting a modification or amendment of that benefit.

The district court, however, reasoned that the plan came to be governed by ERISA in 1974 and that welfare benefits did not have the same protections under ERISA as the retirement benefit. The life insurance benefit could be stripped away at any time. On appeal, the Fourth Circuit reversed on that issue.

In Bellon at *12, the appeals court agreed with the plaintiff, noting
“As explained below, we agree with the plaintiffs that if their retiree life insurance coverage were ever a vested benefit, PPG could not rely on the later-added reservation of rights clause to terminate that coverage.”

Even though life insurance benefits are welfare benefits with less protection under ERISA than pension or retirement benefits, when you add them to a pension or retirement plan and fail to reserve the right to amend or modify plan benefits after they have vested, the employer cannot later take that away.

The court continued, “As the Sixth Circuit has succinctly put it, “[t]o vest benefits is to render them forever unalterable.” See Sprague v. Gen. Motors Corp., 133 F.3d 388, 400 (6th Cir. 1998).” Id. at *13.

A welfare benefit promised to be permanent, whether a retirement or welfare benefit, cannot be taken away. However, a welfare benefit that has been provided for even 10 or 20 years to a retiree, can be taken away if the company reserves the right to amend, modify, or terminate that benefit, even if the pension benefit cannot be altered. If your client runs into an issue like this one, we are happy to help.

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