On a single day when the Seventh Circuit released 17 published opinions (a more typical weekly haul), there are two opinions about retiree benefits. These address, respectively, (1) whether a plan can make a limited-time offer to allow a departing employee to withdraw benefits in a lump sum; and (2) whether a union may arbitrate a claim concerning retiree benefits on behalf of retired employees.
McCarter v. Retirement Plan for the District Managers of the American Family Insurance Group, No. 07-4023 (7th Cir. Sept. 2, 2008): Is it okay for an employer to offer departing employees a choice — one that expires after 90 days — between leaving their retirement benefits in the plan (to mature into an annuity at a later date) or taking it out in a lump sum? The class of participants believed that they found a clever argument that allowed them to obtain both, but ERISA seldom awards such cleverness (by participants).
The employer emplaced the 90-day limit to protect plan assets: “American Family tells us that it gives departing employees only 90 days to choose because an indefinitely long window would lead to adverse selection. Ex-employees would be tempted to wait to see how their health and family circumstances developed.” Citing 26 C.F.R. §1.411(a)-11(c)(2)(i), the participants argued that the 90-day limit violated ERISA substantive law. The regulation provides that:
“[n]o consent [to immediate distribution of a lump sum] is valid unless the participant has received a general description of the material features of the optional forms of benefit available under the plan. In addition, so long as a benefit is immediately distributable, a participant must be informed of the right, if any, to defer receipt of the distribution. Furthermore, consent is not valid if a significant detriment is imposed under the plan on any participant who does not consent to a distribution. Whether or not a significant detriment is imposed shall be determined by the Commissioner by examining the particular facts and circumstances.” [Emphasis added.]
This regulation does not help plaintiffs, holds the panel in an opinion authored by Judge Easterbrook: “[A]lthough subsection (c)(2)(i) when read alone sounds like a substantive regulation of pension plans, the context shows otherwise. This is a tax regulation, and it defines whether a pension plan is qualified for favorable tax treatment (principally deferral of income tax on the value of pension contributions).” Thus a violation of the regulation might cancel out the favorable tax treatment that such trusts enjoy, but does not render the plan unenforceable. And in any event, no “significant detriment is imposed” by giving an employee two valuable alternatives: “Adding a lump-sum option to an existing (and entirely lawful) pension annuity does not create a ‘detriment’ of any kind; it bestows a benefit by making the package of options more valuable. Participants do not lose anything (other than the opportunity to receive an immediate distribution) by turning down the lump sum offer.”
Exelon Generation Company, LLC v. Local 15, International Brotherhood of Electrical Workers, AFL-CIO, No. 07-4065 (7th Cir. Sept. 2, 2008): In collective bargaining, the presumption typically is that a union does not represent retirees (Allied Chem. & Alkali Workers of Am., Local Union No. 1 v. Pittsburgh Plate Glass Co., 404 U.S. 157, 172 (1971)). But the presumption may be rebutted, as this case demonstrates.
The collective bargaining agreement (CBA) in this case was silent about whether the union represents retirees, or whether the arbitrator had authority to adjudicate retirees’ claims. The source of the litigation was that “Exelon made various unilateral changes to the retiree medical benefits. These changes immediately affected certain retirees and may also affect current employees when they retire.” Management sought declaratory relief in federal court against having to arbitrate a claim (for seven retirees, who consented to representation by the union) against the amendments that was pursued by the union.
But the panel, affirming the judgment below in favor of the union, found that the CBA did in fact confer such authority on the arbitrator:
“Exelon is correct that the mere fact that a CBA creates the retirees’ rights to medical benefits may be insufficient to establish that the company agreed to arbitrate disputes over retiree medical benefits. . . . The CBA here, however, does not define an arbitrable grievance as one between the company and an employee. Nor does the CBA in this case expressly restrict arbitration to grievances by employees. The arbitration agreement is broader than that. The grievance procedure applies to ‘any dispute or difference . . . between the Company and the Union or its members as to the interpretation or application of any of the provisions of this Agreement . . . .’ Exelon has agreed that a dispute exists between it and the Union regarding the interpretation and application of the retiree medical benefit provisions of the [Memoranda of Understanding], which are part of the CBA.”
At bottom, “[t]he parties could have written the CBA to exclude retiree grievances from the arbitration agreement if they had intended to, but they did not.” So assuming that a union may bargain for retirees without wrenching a conflict with current employees, unions under this opinion (and a loosely-worded CBA) may have a new recruitment tool: no-cost representation of retired employees! Watch out AARP — here comes the IBEW!!