In M&G Polymers v. Tackett, the U.S. Supreme Court ruled that ordinary contract principles govern whether a collective bargaining agreement vests retirees in health coverage (and the contributions they are required to pay for health coverage). The decision essentially overturns the decision by the U.S. Court of Appeals for the Sixth Circuit in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc., which has governed and influenced many retiree health benefits cases since it was issued in 1983.

The Supreme Court viewed the 1983 decision as placing a “thumb on the scale” in favor of vesting retiree health benefits and giving little or no effect to the general termination provisions of a collective bargaining agreement. The Court did not view this sort of presumption as warranted for welfare benefits, which are not subject to the specific vesting requirements that apply to qualified pension plans.

M&G Polymers does not reach the ultimate question of whether any of the plaintiff retirees’ rights to health coverage vested. That question was sent back to the Circuit Court, which will need to make that determination based on the intent of the parties. In a concurring opinion, four justices observed that this determination should be made by reviewing the entire agreement. The justices warned against a reverse presumption that would require the collective bargaining agreement to state expressly that the retirees’ rights to health coverage have vested.

Employers negotiating with unions will wish to consider how relevant provisions in their collective bargaining agreements will be interpreted in the absence of general presumptions about the parties’ intent.

Although the specific case arises in the context of a collectively bargained, private sector plan, the decision has potential implications for non-bargained and public sector plans as well. For decades, most employers have made concerted efforts to preserve their rights to amend and terminate retiree health coverage through clear provisions in plan documents, summary plan descriptions, and other relevant materials. We continue to recommend that employers clearly reserve the right to amend and terminate retiree health coverage, leaving little room for a court to restrict that right.