One of the great things about writing this blog is learning something new. I sometimes fall into the trap of determining the law on a particular issue in the circuit in which I practice most (the Second), and assume that other circuits are the same. Sometimes, though, it turns out that one circuit is not in step with the others, and one case can throw a monkey wrench into my world view.
The case that drew back the curtain for me on vesting of welfare benefits (an exciting topic, I know!), is Price v. Bd. of Trustees of Indiana Laborer’s Pension Fund, — F.3d –, 2013 WL 561354 (6th Cir. Feb. 15, 2013) (“Price II”). Price II held that an ERISA fiduciary could enforce a plan amendment shortening the length of time disability benefits would be payable against a participant who was on claim at the time of the amendment.
At first read, the decision seemed bizarre, because I knew (or thought I knew) that welfare benefits like disability benefits could not be changed for a participant who was “on claim.” As the Second Circuit held: “as a matter of law[,] …absent explicit language to the contrary, a plan document providing for disability benefits promises that these benefits vest with respect to an employee no later than the time that the employee becomes disabled.” Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202, 1212 (2d Cir. 2002). This rule means that you look to the plan language when the disability allegedly began, and subsequent amendments are irrelevant.
Though on re-reading Feifer, it was clear that the court recognized that other circuits approached this issue differently, that kind of caveat was not something that stuck with me. Then along came Price II and caused me to revisit the issue.
Price I and II
Price involved a multi-employer pension plan that also provided for disability benefits. The plan permitted amendments, with the following language:
Any amendment to the Plan may be made retroactively … in order to bring the Plan in compliance with [ERISA] and any subsequent amendments thereto. It is the desire of the Board of Trustees to maintain the Plan as a qualified Plan and Trust[.] … However, no amendment shall be made which results in reduced benefits for any Participant whose rights have already become vested under the provisions of the Plan on the date the amendment is made, except upon the advice of counsel and of an enrolled actuary.
Price was receiving benefits under the plan’s Occupational Disability Benefit. When he went on claim, this Benefit was payable until he reached early retirement age in September 2012. Some years later, the plan was amended to provide that an Occupational Disability Benefit would be payable through the earlier of early retirement age or December 31, 2006. Thus, Price stood to lose almost six years of benefits. He sued, and the district court ruled in his favor.
The Sixth Circuit reversed and remanded in 2011. Price v. Bd. of Trustees of the Ind. Laborer’s Pension Fund, 632 F.3d 288 (6th Cir.2011) (“Price I”). Price I began by observing that “disability benefits are a welfare-type benefit under ERISA, and as such, ERISA’s statutory vesting requirements do not apply.” Though ERISA therefore does not preclude an employer from modifying or terminating a non-vested benefit, “the parties may nevertheless provide for vesting of welfare benefits through agreement.” Price I then considered various different inferences that it had previously drawn about whether parties in tended a welfare benefit to vest.
First, there was the “Yard-Man inference,” based Int’l Union, United Auto., Aerospace, & Agr. Implement Workers of Am. (UAW) v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983). The Yard-Man inference provides that retiree insurance benefits under a collective bargaining agreement vest (and continue beyond the expiration of the CBA), where the CBA is ambiguous and extrinsic evidence shows the parties intended the benefits to vest. But Price I held that the Yard-Man inference applied only in the case of vesting of retiree health benefits, and not disability benefits.
Next, Price I considered what could be called the “Sprague inference,” based on Sprague v. General Motors Corp., 133 F.3d 388, 400 (6th Cir.1998) (en banc), which provides “that when a benefit is unilaterally provided by an employer, the plan documents must contain a clear and express statement of intent to vest.” (You’ll note that this is directly contrary to the Second Circuit. In Feifer; silence in a voluntary plan leads to vesting; in Sprague, silence leads to no vesting). However, Price I, held that the Sprague inference did not apply either, because the plan in Price I was part of a bargained-for benefit package, and not unilaterally offered.
Having found that these two inferences did not apply, Price I held that “the only possible source for vesting of Price’s benefits is the Plan itself.” Price I also held that, because the Plan gave discretionary authority to the administrator, the issue was whether the administrator had reasonably determined that the Occupational Disability Benefit did not vest based on the terms of the plan.
On remand, the district court held that, because the administrator’s decisions did not explain why it had determined that the disability benefits did not vest, the determination was arbitrary and capricious. On a second appeal, Price II held that the district court conducted the wrong inquiry, by considering “whether the Board’s decision letters were arbitrary and capricious because they lacked reasoning” rather than considering whether the decision itself – i.e., that Price’s benefits had not vested, was arbitrary and capricious. Price II held that the decision was reasonable:
Therefore, we begin with the terms of the Plan itself. Section 15.1 reads, “Any amendment to the Plan may be made retroactively by the majority action….” In the following paragraph, the Plan states, “[N]o amendment shall be made which results in reduced benefits for any Participant whose rights have already become vested under the provisions of the Plan on the date the amendment is made.”
With the actual terms of the Plan in mind, we turn to a hypothetical version of the Plan. If Plan Section 15.1 had slightly different language so that it read, “Any amendment to the Plan may be made retroactively, and that is true even with respect to disability benefits after the disability occurs, by the majority action …,” then there would be no doubt that the Board could terminate Price’s benefits. Absent language elsewhere in the Plan that contradicted the right to amend disability benefits, it would be nonsensical to think that disability benefits had vested with this clear reservation of the right to terminate disability benefits after the disability occurs.
The fact that Plan Section 15.1 lacks the specificity of the hypothetical Plan described above does not render the Board’s interpretation of the Plan unreasonable. Indeed, the lack of specificity merely creates ambiguity, which renders Section 15.1 capable of multiple interpretations, including an interpretation that permits amendment of disability benefits after the disability occurs. Without stretching the language of the Plan, the Board, exercising its authority to interpret the plan, could reasonably conclude that “Any amendment” included amendments to disability benefits after the disability occurs. The Plan has no other language that would render the Board’s interpretation unreasonable. Price, 632 F.3d at 296–98. To the contrary as shown in Price I, the term “vesting” in the Plan plainly refers to retirement-related, not disability-related, benefits. For these reasons, the Board’s interpretation was reasonable, and as a result, the decision was not arbitrary and capricious. Therefore, the Board is entitled to judgment as a matter of law.
Of further interest, Price II noted in a footnote that the amendment to the Plan was not really retroactive at all, because “retroactive amendments are those that affect a party’s expectation to a vested or accrued benefit.” Because the disability benefit in question did not vest, the amendment was not retroactive.
Re-Examining the Law
There is no dispute that ERISA does not require vesting of welfare (i.e., non-pension) benefits:
[W]e are mindful that ERISA does not create any substantive entitlement to employer-provided health benefits or any other kind of welfare benefits. Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans. Nor does ERISA establish any minimum participation, vesting, or funding requirements for welfare plans as it does for pension plans. Accordingly, that Curtiss–Wright amended its plan to deprive respondents of health benefits is not a cognizable complaint under ERISA; the only cognizable claim is that the company did not do so in a permissible manner.
Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78, 115 S. Ct. 1223, 1228, 131 L. Ed. 2d 94 (1995) (citations omitted).
Feifer, the Second Circuit decision, agreed that the question of vesting must be answered by looking at the plan: “Under the principle that an employee benefit plan is effectively a unilateral contract, a benefit becomes ‘vested’ if the employer has promised not to amend or terminate it, and the employee has accepted this offer by beginning or continuing in employment.” But, Feifer, continued, the plan in question contained “no explicit language that either promises vested disability benefits or reserves [the employer’s] right to amend or revoke such benefits.” Feifer then explained:
Other circuits are divided on the question whether silence in a plan document regarding vesting should be interpreted as implying a promise to provide vested benefits. See [Am. Fed’n of Grain Millers v. Int’l Multifoods Corp., 116 F.3d 976, 980 (2d Cir.1997)] (collecting cases). We have not yet confronted this issue with regard to a plan document promising disability benefits. For plans promising other types of benefits, however, we have held that the vesting question cannot be determined as a matter of law where a plan is not explicit one way or the other. For example, in the case of severance benefits, we have held that the question of vesting is for the trier of fact, so long as the plaintiff can “point to written language capable of reasonably being interpreted as creating a promise on the part of [the employer] to vest … benefits.” Schonholz, 87 F.3d at 78. And we have held that this same standard applies in the context of retiree health insurance benefits, see Joyce v. Curtiss-Wright Corp., 171 F.3d 130, 134 (2d Cir.1999), and life insurance benefits, see Devlin, 274 F.3d at 83.
But, Feifer held that a different rule should apply to disability benefits:
The vesting question with regard to these plaintiffs, then, is whether DNLP promised disability benefits that it would not be able to alter or revoke after an employee became disabled. Because of the particular circumstances regarding disability benefits, and in light of the rule in this Circuit that an otherwise ambiguous plan “should be construed against the interests of the party that drafted the language,” Perreca v. Gluck, 295 F.3d 215, 223 (2d Cir.2002), we conclude as a matter of law that, absent explicit language to the contrary, a plan document providing for disability benefits promises that these benefits vest with respect to an employee no later than the time that the employee becomes disabled.
Feifer explained that it had policy reasons for this special rule applying to disability benefits:
As indicated above, the theory of a unilateral contract of the sort represented by the Program Summary is that the document containing the contract’s terms is an offer that is accepted by the employee’s commencing or continuing to work for the offeror. If the employee does not like the terms, he or she can decline and seek better terms elsewhere. But this choice is one that an employee, once disabled, cannot make. Nor does a disabled employee generally enjoy the retiree’s advantage of being able to select, or at least predict, his or her date of separation from the company, and plan accordingly. If the DNLP plan did not vest with respect to the amount of long-term disability payments even after the plaintiffs became disabled, and DNLP could therefore reduce the amount of those payments by changing the plan to institute the offsets, then DNLP could also have amended the plan to reduce payments by, say, fifty percent, or simply to withdraw them. Despite the severe impact any such change would have on employees like the plaintiffs, their very disabilities would likely leave them with no alternative place to seek employment income. The nature of this benefit strongly suggests, then, that the parties did not intend or expect that DNLP could unilaterally change the terms of long- or short-term disability benefits after the date of disability absent an explicit provision to that effect.
But contrast Feifer with rules in other circuits, including the Sixth, in Price.
In Chiles v. Ceridian Corp., 95 F.3d 1505 (10th Cir. 1996), the court held that, because the disability plan expressly provided for the continuation of benefits if the plan terminated while a participant was totally disabled, “it is proper to infer that the right to make other changes to disabled participants’ benefits was reserved.” Thus, it was proper for the employer to amend its plan to eliminate a provision that the employer would pay all health insurance premiums for participants on disability, and to require those participants to pay a portion of the health premiums instead.
In Hutchins v. Champion Int’l Corp., 110 F.3d 1341, 1345-46 (8th Cir. 1997), the court held: “Hutchins’ benefits did not vest under the terms of the plan. The plan specifically provided Champion with the authority to terminate or modify it. In the absence of contrary language in the plan, Hutchins did not have a right to vested benefits.”
In Grosz-Salomon v. Paul Revere Life Ins. Co., 237 F.3d 1154, 1160-61 (9th Cir. 2001), the court held:
Nothing in Reznik’s policy with Paul Revere assured employees that their rights were vested. On the contrary, the policy provided that Paul Revere could change the group policy upon written request from the policyholder and that the insured’s consent was not needed to make a policy change. … That [plaintiff] became permanently disabled and filed her disability claim while the first policy was in effect is irrelevant; it does not entitle her to invoke that plan’s provisions in perpetuity. Because no employees’ rights were vested, Reznik was at liberty to change its long-term disability plan. It did so in October 1993. Because Grosz-Salomon’s cause of action accrued several years later, in December 1997, this court must look to the revised plan to determine the appropriate standard of review.
A week ago, I rested comfortably in the belief that the question of vesting of welfare benefits was straightforward. But the review prompted by Price II has caused me to re-evaluate. Vesting is a minefield, with most courts looking to the plan language (and possibly extrinsic evidence), but starting with vastly different presumptions and engaging in inconsistent analyses. The only conclusion I can draw now is that every vesting dispute must be considered on its own.