Paul Alan Levy
(Counsel of Record)
Alan B. Morrison
Public Citizen Litigation Group
John T. Ward
Quinn, Ward and Kershaw
February 9, 1995 Attorneys for Petitioners
1. Was the court of appeals correct in ruling, contrary to the vast majority of the other courts of appeals that have considered the issue, that the Employee Retirement Income Security Act ("ERISA") gives employers a statutory right to terminate welfare benefits at any time, for any reason, and consequently plan beneficiaries must show a clear and express waiver of that right in order to claim such benefits?
2. In deciding whether to enforce a claim that retiree health benefits were terminated in violation of employer commitments to the contrary, what evidence of employer promises to continue the plan may the court consider?
All parties to the proceedings in the lower courts are listed on the cover.
Robert Gable, Harvey Spies, John Foley and Eugene Foreman, on behalf of themselves and as representatives of a class of persons similarly situated, petition the Court to grant certiorari to review the judgment of the United States Court of Appeals for the Fourth Circuit in this matter.
The opinion of the court of appeals is reported at 35 F.3d 851, and is set forth in the Appendix to this Petition at 1a to 15a ("App. 1a-15a"). The unreported report and recommendation of the magistrate judge, granting summary judgment to respondents, is set forth at App. 25a-44a, and the unreported orders of the district court adopting this report and recommendation are set forth at App. 18a-24a.
The court of appeals issued its opinion and judgment on September 18, 1994, and denied a timely petition for rehearing in an order dated October 12, 1994, that is set forth at App. 16a-17a. On December 21, 1994, the Chief Justice extended the time to file a petition for a writ of certiorari until February 9, 1995. This Court has jurisdiction under 28 U.S.C. § 1254(1).
The Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq., contains the following relevant provisions:
Part I -- Reporting and Disclosure
Section 101 [29 U.S.C. § 1021] Duty of Disclosure and Reporting
(a) Summary plan description and information to be
furnished to participants and beneficiaries
The administrator of each employee benefit plan shall cause to be furnished in accordance with section 1024(b) of this title to each participant covered under the plan and to each beneficiary who is receiving benefits under the plan --
(1) a summary plan description described in section 1022(a)(1) of this title.
Section 102 [29 U.S.C. § 1022] Plan description and summary plan description
(a)(1) A summary plan description of any employee benefit plan shall be furnished to participants and beneficiaries as provided in section 1024(b) of this title. The summary plan description shall include the information described in subsection (b) of this section, shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan. . . .
Part II -- Participation and Vesting
Section 201[, 29 U.S.C. § 1051] Coverage
This part shall apply to any employee benefit plan . . . other than
(1) an employee welfare benefit plan;
During the period of tremendous economic growth and rising standards of living from the end of World War II through the 1970's, employers provided employees with increasing levels of fringe benefits as well as wages, and encouraged them to rely on their expectations of receiving such fringe benefits in planning for financial security after they retired. Such provisions were intended to encourage employees to remain with their current employer, and were seen as such by both employers and employees. The provisions thus benefited employers, by ensuring a stable work force and reducing their costs for recruitment and training new employees. However, particularly since 1980, many companies have tried to save money by reducing their financial obligations, and spiraling health care costs have led companies to drop prior commitments to provide full health insurance for their employees. One particularly easy target for such savings has been retirees, on whose good will and continued productivity these companies no longer rely.
As a consequence, courts have increasingly had to deal with cases in which retirees have tried to enforce what they considered to be binding promises of continued health insurance during retirement, against companies that claim that they never made such promises. Unfortunately, the lower courts are hopelessly divided over the analytic approach to be used to resolve these disputes. This case presents the questions of what standard should be followed in deciding whether an employer's promise is enforceable, and what evidence of employer promises should be considered in resolving the question.
Because the court below affirmed the district court's grant of summary judgment dismissing the action, the following account is based on the evidence on which petitioners relied in opposition to summary judgment. Petitioners are retirees who spent their working careers in the employ of the Maryland Cup Corporation (which was later purchased and administered by the various respondents that were named as defendants in this action), and who all retired before October 1, 1985.(1) In the mid-1950's, Maryland Cup established a retirement health care plan, and purchased a group insurance policy providing this and several other benefits from the John Hancock Insurance Company. Although the policy was amended in several respects over the years, beginning in 1972 it consistently provided that, although individual workers would lose coverage upon leaving the company's employ, those who left their employment by retirement would continue to receive health insurance coverage (supplemental to social security or medicare coverage) and that, once the retiree died, coverage would continue "for the lifetime of the dependent spouse."
The Employee Retirement Income Security Act ("ERISA") requires employers to "vest" their employees' pension rights after a minimum term of years, but does not require employers to vest their employees' rights under welfare plans. Nevertheless, such rights may be vested if the employer makes a binding commitment to do so, and the ultimate question in this case is whether the health coverage promised to retirees became "vested."
It was undisputed that Maryland Cup repeatedly told its employees over the years that their health benefits would continue into their retirement at company expense. According to the uncontradicted testimony of employees, managers, and former directors of Maryland Cup, these promises were delivered orally, both individually and at group meetings and presentations, and in writing, particularly when employees were contemplating retirement.
For example, as the court of appeals recognized, "Maryland Cup also issued to its retiring employees a document known as Schedule II, which described the level of health care benefits that each individual employee would receive after retirement. The Schedule II forms told the retiring employees that the company would 'continue this Coverage for you during the remainder of your lifetime at company expense.'" App. 4a. The Schedule II forms also promised that "Maryland Cup will continue to carry this insurance on your dependent spouse . . . at company expenses [sic] for the remainder of her (or his) lifetime . . .."(2) According to a "Schedule III" that was also distributed to employees who stated their intent to retire, the Schedule II's and other documents referenced in the Schedule III "constitute, in their entirety, the official record of Benefit Entitlement under these plans." And in other documents given to employees, Maryland Cup repeatedly portrayed its promises of health care coverage after retirement as part of the package of "future security" that workers were earning through their continued loyalty to their employer, and that would cost workers thousands of dollars if they were not employed by the company.
When ERISA was enacted, Maryland Cup never formulated a separate "plan document" describing the benefits and conditions of its employees' health care coverage. Instead, it simply filed its existing insurance policy with Department of Labor. Buried on page T-62 of this 200-page document appeared the following disclaimer:
This policy may be amended or discontinued at any time by written agreement between the company [John Hancock] and the holder thereof [Maryland Cup] without the comment or notice to any employee or beneficiary . . ..
Copies of the policy were never distributed to the employees themselves. Nor was any Summary Plan Description ("SPD") containing this reservation, or indeed any other disclaimer that might arguably reserve the right to revoke the company's repeated promises of lifetime health benefits, ever distributed to the plaintiff class before they retired.(3) The only simplified explanations of their welfare benefit plans that were distributed to employees contained the promises of medical insurance during retirement at company expense, with no disclaimer that the company would not pay for such benefits if it changed its mind about doing so.
In 1983, Maryland Cup Corporation was purchased by respondent Fort Howard Corporation, which in turn established it as respondent Fort Howard Cup Corporation. In 1985, the Fort Howard respondents opted to convert their insurance-based welfare plan to a self-funded plan, and in connection with this change they issued a formal plan document that purported to establish a new welfare benefit plan for those who continued in its employ.(4) Although the new plan provided significantly lower benefits for active employees, respondents assured the pre-October 1985 retirees that they would continue to receive "the same level of coverage indicated in your retirement package with no change in your program" (emphasis in original). This new plan contained a specific reservation of the right to amend, and in 1986 an SPD was written and distributed to employees, which specifically reserved respondents' right to "modify, change or even terminate the medical coverage for retirees" that was provided by that plan.
In 1989, respondent Sweetheart Holdings, Inc. acquired respondent Fort Howard Cup and established respondent Sweetheart Cup Company, Inc. Then, effective June 1, 1989, respondents drastically reduced the health benefits that the pre-October 1985 retirees had been receiving, by both requiring retirees to pay premiums for the coverage, and decreasing the level of benefits that would be provided, even with these payments.
B. Proceedings Below.
Petitioners filed this action in the United States District Court for the District of Maryland on January 24, 1990, asserting jurisdiction under 29 U.S.C. § 1132. Their amended complaint alleged that respondents had promised petitioners that, upon retirement, they and their spouses would receive fixed levels of medical benefits for life, that respondents had never notified them through SPD's or otherwise that these benefits might be revoked, and that respondents had breached these promises. Under Rule 23(b)(2) of the Federal Rules of Civil Procedure, the district court certified a class consisting of all retired employees of respondent Sweetheart Cup Corporation (and its predecessors) who had retired before October 1, 1985, but remained participants in the medical plan on June 1, 1989, as well as their spouses.
The parties joined issue over whether respondents had made an irrevocable promise of lifetime health benefits for the class, or whether the hidden reservation in Maryland Cup's insurance policy gave it the right to terminate any and all health insurance benefits at any time for any or no reason. Petitioners advanced a number of arguments to support their contention that such an irrevocable promise had been made. They pointed first to the language in the policy itself, which provided for payments for full medical insurance for retirees and their dependent spouses up to age 65, and thereafter for major medical coverage to supplement Medicare A and B. The policy further provided that, after the employee died, a dependent spouse would receive medical insurance for the balance of his or her lifetime. These promises, they argued, were confirmed both by the original Schedule II promises to provide coverage "for you during the remainder of your lifetime at company expense," and the statements in later Schedules II providing for "lifetime maximum" payments.
Petitioners next argued that a promise of "lifetime" health benefits would be meaningless if the company could, at its election, decide at any point during any retiree's life to eliminate those benefits. There was, therefore, an inconsistency between the promise of lifetime benefits and the provision for termination of the policy, and this inconsistency rendered the plan documents ambiguous even if only the policy could properly be considered. They also pointed out that, even if an employee had received and reviewed the insurance policy and deciphered the provision allowing the "policy" to be "terminated," he could reasonably have understood that to mean only that the employer reserved the right to terminate John Hancock's participation and switch to another company, not that the health benefits themselves might be eliminated. This argument was supported by several of the officers, directors, and personnel managers of Maryland Cup who testified that, when they made the promises of lifetime benefits on behalf of the employer, it was their intention to make a binding, irrevocable commitment to provide at least that level of retiree health benefits, and that the right to terminate the policy was not intended to vitiate that promise.
Respondents contended, for their part, that references to payment by the company for health coverage with a "lifetime maximum" should not be construed as a promise of lifetime coverage. Moreover, they argued that on each occasion when they had told employees about the provision for lifetime retiree health benefits, they had only been referring to benefits as they were provided at that time, and pointed to the language in the insurance policy itself, stating that the policy could be terminated. Respondents also objected to petitioners' reliance on Schedules II and III on the theory that they were not plan documents.
The parties also disagreed about whether respondents had properly told the beneficiaries of their alleged reservation of the right to revoke the lifetime health benefit. Respondents contended that the SPD distributed in 1986 had specifically reserved the right to modify or even terminate the medical coverage for retirees. Petitioners argued, however, that the SPD had not been distributed to all members of the class, and that in any event, by the time it was disseminated to those class members who did receive them, those class members had retired, continuing in respondents' employ in reliance on the lifetime benefits that had already been promised, and so it was too late for the company to revoke them.
In a report that was adopted by the district judge, Magistrate Judge Catherine Blake granted respondents' motion for summary judgment. She began with the proposition that, unlike pension plans, which must vest after a minimum period, ERISA does not require the vesting of welfare benefits, and consequently such benefits may be changed unless the employer has made a commitment not to do so. App. 26a-27a. In deciding whether the employer has made such a commitment, courts are to look to the intent of the parties, as expressed in the written plan, and the plan is to be construed in accordance with the principles of contract law. Id. 27a. In that regard, courts must look first to the actual language of the plan, but if that language is ambiguous, the court should consider extrinsic evidence. Id. 27a-28a.
After a discussion of the caselaw in the Fourth Circuit and elsewhere on the question of whether an employer has adequately reserved the right to terminate health benefits after retirement, the magistrate stated that a "related, more fundamental" question had to be answered: "does the plan unambiguously demonstrate the employer's intent to vest these benefits upon an employee's retirement?" Id. 34a. In that regard, the magistrate acknowledged that, considered by itself, the language pertaining to health benefits for retirees and their surviving spouses could be construed to contain an "apparent promise of vesting." Id. However, in the magistrate's view, the policy's other language providing for termination of the "policy" overcame any such promise of vesting of "benefits." Id. Thus, even though she acknowledged that the extrinsic evidence was sufficient to bar summary judgment for the respondents, id. 36a n.12, she concluded that such evidence could not be considered under the existing legal standard.
Turning from the issue of the construction of plan documents to respondents' communication of their reservation of the right to amend or terminate benefits, the magistrate judge decided that, although certificates of insurance recited the existence of the power to amend, they did not qualify as SPD's, both because they did not contain the information required by law, and because they were not written in language calculated to be understood by the average plan participant. Id. 42a. Moreover, other documents, such as the Schedule II's and various brochures given to employees, clearly told employees that they were guaranteed lifetime health benefits, without any indication that those benefits might be revoked at the employer's whim. Id. 38a-40a. Thus, it was not until the 1986 SPD's that respondents clearly explained to beneficiaries that the company had reserved the power to revoke their retiree health benefits. Id. 40a.
However, the magistrate declined to afford petitioners any relief based on a failure to give proper notice because such notice was properly given in the 1986 SPD's, three years before the right to amend was actually invoked, even though the entire class of petitioners was already retired. In those circumstances, she found it unlikely that the lack of notice had caused prejudice to any petitioner. Accordingly, she recommended that respondents' motion for summary judgment be granted, but that petitioners be given an opportunity to request reconsideration if individual class members could show specific prejudice from the failure of notice. Id. 43a-44a. The district judge adopted this recommendation, id. 19a-24a, and when petitioners presented no such evidence within thirty days, judgment was entered against petitioners. Id. 17a-19a.
On appeal, petitioners focused their argument on the portion of the magistrate's report that made the success of their claim depend on a showing that the Plan "unambiguously demonstrate the employer's intent to vest these benefits upon an employee's retirement." This approach, they argued, amounted to a strong presumption against vesting, and stood on its head the normal rule that extrinsic evidence may be considered in determining the meaning of a contract so long as the contract's language is ambiguous. Moreover, petitioners objected to the district court's failure to consider Schedules II and III as plan documents in deciding whether the plan's promise of vesting was sufficient to avoid summary judgment. And, with respect to the supposedly unambiguous reservation of the right to amend, petitioners argued both that the reservation, by referring to the "policy," rather than the benefits, itself created ambiguity, and that there was a fundamental inconsistency (which created a further ambiguity sufficient to warrant consideration of the extrinsic evidence) between the reservation of a right to amend or terminate the policy and the promises to provide "lifetime" health benefits to retirees and their surviving spouses.
Petitioners also argued that, regardless of whether the plan itself vested their lifetime health benefits, respondents' failure to provide beneficiaries with an SPD notifying employees of their alleged right to reduce or eliminate those benefits precluded the invocation of that right of amendment. Even the 1986 SPD was not effective for this purpose, they contended, because it applied only to the medical plan that took effect after petitioners retired.
Nevertheless, in an opinion by Honorable J. Harvie Wilkinson, the court of appeals affirmed. It began with the proposition that ERISA requires employers to vest pension benefits, but not welfare benefits. App. 7a. According to the court, this exception gives employers "a statutory right to amend the terms of the plan or to terminate it entirely." Id. (punctuation omitted). Having phrased its analysis in terms of a statutory right, the panel proceeded to apply a waiver standard to petitioners' argument that respondents had made a contrary commitment. Thus, the court said, quoting the Fifth Circuit's decision in Wise v. El Paso Natural Gas Co., 986 F.2d 929 (1993), an employer "may waive its statutory right to modify or terminate benefits," but "courts may not lightly infer the existence of an agreement to vest employee welfare benefits." Id. Rather, the right to a fixed level of lifetime benefits "must be found in the plan documents and must be stated in clear and express language." Id. 7a-8a. Petitioners had not met this burden because the insurance policy contained a modification clause that expressly reserved the right to amend the "policy," and
this express reservation of the company's right to modify or terminate the participants' benefits is plainly inconsistent with any alleged intent to vest those benefits. Therefore, we hold that the modification clause, standing alone, is more than sufficient to defeat plaintiffs' claim that the company provided vested benefits and thus waived its statutory right to modify or terminate the health benefit plan.
Id. 8a (punctuation and citations omitted).
The panel continued that the modification clause's use of the word "policy" "does not limit the company's amendment right," because the policy constituted the entirety of the plan. Id. 9a. The panel further held that the modification clause applied to all beneficiaries, both active employees and retirees. Id. 9a-10a. Nor did the Schedule II's "nullify the company's right to modify," because, even though they referred to "lifetime benefits," they were informal communications that do not govern the company's obligations under the plan. Id. 10a. The panel recognized that companies often provide plan participants with communications about their benefits that "tend to sound promissory by their very nature," but it ruled that companies should not be bound by such apparent promises lest the predictability of their future liabilities be undermined. Id. 11a.
Benefit descriptions cannot be translated into guarantees that benefits will never be altered, especially where, as here, the descriptions fall well short of the precise language denying the right to withdraw benefits that courts require to find the creation of a vested right. [citation omitted] Therefore, we hold that the plaintiff retirees' benefits did not vest, and that the company retained its statutory right to modify or terminate the plan at any time.
The panel also rejected petitioners' claims based on respondents' failure to provide an SPD giving proper notice of its right to amend. First, the court said, the right to amend is provided by the statute itself, and SPD's need not notify plan participants that it has given up that right. Id. 12a. And, in any event, the right to receive notice in an SPD is satisfied so long as the employer provides that notice at some time before the modification or termination occurs. Here, the 1986 SPD's asserted the right to alter the health benefits for retirees "at any time in the future," and that right was not exercised until 1989, years after the last members of the petitioner class retired. Id. 13a. And although the plaintiff class claimed that they did not receive these SPD's, none of them was able to show harm based on the failure to receive the 1986 SPD's. Thus, "the plaintiffs failed to carry their burden of proving that the 1986 SPD was insufficient to provide proper notice of the company's right to modify or terminate the plan." Id. 14a.
Petitioners' petition for rehearing and suggestion of rehearing en banc were denied.
1. The Standards Issue.
It is common ground that an employer's obligation to provide benefits that are not required by ERISA is based on contract; in this situation, ERISA's role is to provide an effective way for retirees to enforce the employer's promises embodied in such contracts. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 112-113 (1989); Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 148 (1985); Nachman Corp. v. Pension Benefit Gar. Corp., 446 U.S. 359, 374-375 (1980). The Court in Firestone was reluctant to approve a standard of review for enforcing trust agreements "that would afford less protection to employees and their beneficiaries than they enjoyed before ERISA was enacted." 489 U.S. at 113-114. Because the pre-ERISA common law called for the application of ordinary contract principles, no weaker standard should be applied under ERISA. And, in fact, the courts of appeals have routinely applied contract principles to decide whether an employer has violated a promise to provide any benefit that is not required by ERISA itself, and they have used contract principles specifically in cases involving employer claims of the right to terminate retiree health insurance. E.g., Jensen v. SIPCO, 38 F.3d 945, 949 (8th Cir. 1994); Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th Cir. 1993); Stewart v. KHD Deutz of America Corp., 980 F.2d 698, 701-702 (11th Cir. 1993); Policy v. Powell Pressed Steel, 770 F.2d 609 (6th Cir. 1985); Bower v. Bunker Hill Co., 725 F.2d 1221, 1223 (9th Cir. 1984).
The court below never embraced the proposition that contract principles should be applied, even though previous decisions from the same circuit had treated plan interpretation as a matter of contract. E.g., Glocker v. W.R. Grace & Co., 974 F.2d 540, 544 (4th Cir. 1992) ("the principles of contract law [are applied] to ascertain the intent of the parties, or the settlor if the Plan was not negotiated"). Instead, the court treated ERISA's failure to require vesting of retiree health benefits as the creation of a statutory right to revoke such benefits at will, App. 7a, and then proceeded to require employees claiming a promise not to revoke to prove that the employer had "waived" this "statutory right" using the standard often applied to claims of waiver -- whether the waiver was expressed in "clear and express" language in the plan itself. Id. 7a-8a. Cf. Metropolitan Edison Co. v. NLRB, 460 U.S. 693, 708 (1983). In this regard, the Fourth Circuit followed the Fifth Circuit in Wise v. El Paso Natural Gas Co., 986 F.2d 929, 937 (1993). Under this approach, if the contract is ambiguous, then that is the end of the case -- the retirees lose their claim because the waiver is not crystal clear.
This elevation of ERISA's failure to require the vesting of retirement health benefits into a right not to provide them, which may only be defeated by express language in the single plan document, is inconsistent with this Court's decisions and with the decisions of most lower courts that call for the application of contract principles. Although these other circuits have not been able to agree on a single approach to this question, they have uniformly refused to erect the Fourth and Fifth Circuit's formidable barrier to the claims of retirees. In every other circuit, it is enough that the benefit plan contains ambiguous language that might be read to imply a commitment to provide lifetime health benefits. In that event, the courts resort to other construction aids, including such extrinsic evidence of the parties' intent as expressions of intent by the sponsor, expressions of understanding by the beneficiaries, past practice under the agreement, and the like. Bidlack v. Wheelabrator Corp., 993 F.2d 603, 609 (7th Cir. 1993); Stewart v. KHD Deutz of America Corp., 980 F.2d 698, 702 (11th Cir. 1993); Alexander v. Primerica Holdings, 967 F.2d 90, 96 (3d Cir. 1992); Policy v. Powell Pressed Steel Co., 770 F.2d 609, 613 (6th Cir. 1985); Bower v. Bunker Hill Co., 725 F.2d 1221, 1223 (9th Cir. 1984).
Even among these circuits, there is great disagreement about whether language conferring health benefits on retirees should be presumed to vest such benefits or presumed not to vest them, and, in either case, how strong the presumption should be. The approach most favorable to retirees was taken by the Sixth Circuit in UAW v. Yard-Man, 716 F.2d 1476 (1983). That court held that the very provision of health benefits, which accrue upon the achievement of retiree status, creates an inference that the parties providing the benefits likely intended those benefits to continue as long as the beneficiary remains a retiree, notwithstanding any general provision providing for the amendment of the agreement. Id. at 1482.(5) Although Yard-Man was itself decided in the context of a suit to enforce a collective bargaining agreement under section 301 of the LMRA, the Sixth Circuit has since repeatedly applied it in ERISA suits. Smith v. ABS Industries, 890 F.2d 841, 845-846 (1990); Policy v. Powell Pressed Steel Co., 770 F.2d 609, 613-614 (6th Cir. 1985). Accord, Steelworkers v. Connors Steel, 855 F.2d 1499, 1505 (11th Cir. 1988) (expressly endorsing Yard-man); Steelworkers v. Textron, 836 F.2d 6, 9 (1st Cir. 1987) (Breyer, J.) (finding likelihood of success in preliminary injunction context where agreement said retiree medical benefits "shall be provided" and "Company shall pay", citing Yard-Man inference); Joyce v. Curtiss-Wright Corp., 810 F. Supp. 67, 72 (W.D.N.Y. 1992) ("most circuits have adopted the Yard-Man approach"). See generally Payne, Lawsuits Challenging Termination or Modification of Retiree Welfare Benefits: A Plaintiff's Perspective, 10 Labor Lawyer 91 (1994) (collecting cases).
The Yard-Man approach was endorsed by three judges concurring in the Seventh Circuit's en banc decision in Bidlack v. Wheelabrator Corp., 993 F.2d 603 (1993), which identified six alternative approaches to the problem, but concluded that, particularly for plans developed before 1980, a court should infer an intent to create irrevocable lifetime benefits absent proof to the contrary. Id. 611-613. See also Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 538-541 (9th Cir. 1990) (holding, in a case not involving retiree health benefits, that benefit provisions must be construed against the drafter under the rule of contra preferentum).
The plurality opinion in Bidlack, authored by Circuit Judge Posner, adopted still a third rule under which, when provisions concerning retiree health benefits are ambiguous with respect to duration, the proper course is to look at the extrinsic evidence bearing on the meaning that the parties gave to their contract, with the burden resting on the plaintiffs to show an intention to vest the benefits. The plurality rejected the proposition, adopted by the Fourth Circuit in the decision below, that a strong presumption against vesting is required to prevent retirees from presenting their extrinsic evidence in favor of vesting, on the ground that it was based on "an extreme mistrust of juries" that was "not easy to reconcile with the Seventh Amendment," and on the ground that any employer that wants to avoid that prospect need only use unambiguous language limiting the term of the promise. 993 F.2d at 609. Four dissenting judges, in an opinion authored by Judge Easterbrook, would have allowed vesting only if the agreement provided for the continuation of benefits "in explicit terms," id. at 617, an approach similar to the rule followed in the Fourth and Fifth Circuits.
The pension agreement in Bidlack contained a benefit provision which, as summarized by the plurality opinion, was in some respects similar to this one: "[t]hey say that once retired employees reach the age of 65 the company will pick up the full tab for their health insurance and that when they die their spouses will continue to receive supplemental health benefits, again at the company's cost." Id. at 608. The plurality found this language ambiguous, even though the agreement also had an explicit expiration date, and so the district court's grant of summary judgment was reversed, and the case remanded for trial on the meaning of the contract.
Here, the court of appeals never considered the extrinsic evidence to determine the meaning of the retiree health benefit provisions, because, contrary to almost every other circuit, its view was that once the court determined that the language of this provision did not unambiguously favor the retirees, its task was at an end. The other courts of appeals have been almost uniform in adopting other standards, but after fifteen years of grappling with this issue, following the seminal decision in Yard-Man, they have been unable to agree on a single approach. The time has come for this Court to intervene in the controversy, and to develop the rules that should be applied in such cases.
2. The Type of Evidence to Be Considered.
The second reason why the Court should grant review is to decide whether the courts below were correct in completely disregarding the numerous documents, issued by the respondents and provided to the plan participants, that described the retiree medical benefits as "lifetime" benefits on which employees and their families could rely in planning for their financial security. The court below refused to consider the various benefit brochures, or the schedules that were issued to employees and denominated by the company as "the official record" of their benefits upon retirement, because they were not "the plan document", and because the company did issue an SPD after the class in this case had all retired in which it asserted its right to unilaterally retract those health benefits. The court below explained that a company should be able to rely on its formal plan documents to predict its future liabilities.
But the Fourth Circuit's approach is analytically backward. ERISA is not concerned solely, or even primarily, with an employer's ability to predict its future liability for benefits. To the contrary, as this Court has stated, ERISA was enacted to enable employees to plan for their futures, and to enable them to enforce the company's promises of benefits. Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 374-375 (1980). To that end, section 102 of ERISA, 29 U.S.C. § 1022, requires every employer that creates a pension or welfare benefit plan to give all participants a "summary plan description ["SPD"], . . . written in a manner calculated to be understood by the average plan participant, and . . . sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." The lower courts are in accord that, when there is an inconsistency between more generous benefits provided in the SPD, and the less generous terms in the official plan document itself, the beneficiary may rely on the terms of the SPD. E.g., Senkier v. Hartford Life & Acc. Ins. Co., 948 F.2d 1050, 1051 (7th Cir. 1991); Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d 134, 136 (6th Cir. 1988). And in the recent case of Jensen v. SIPCO, 38 F.3d 945, 949, 952-953 (8th Cir. 1994), the Eighth Circuit held that summary descriptions are among the "ERISA plan documents" that must be considered both in determining the settlor's intent and in deciding whether the plan is sufficiently ambiguous to warrant consideration of extrinsic evidence.
Here, respondents failed to issue or distribute to its employees and beneficiaries any document that contained all of the features required in an SPD until after the petitioner class had retired. However, they did create a form document, describing the benefits on which prospective retirees were supposed to rely -- indeed, it described the packet as "the official record" of their benefit package -- which was routinely provided on the eve of retirement to each member of the petitioner class. They also distributed numerous brochures and personalized benefit statements that described "lifetime" retiree medical benefits, and assured employees that such benefits "will be paid."
The refusal of the court below to consider these documents in deciding whether the plan guaranteed lifetime retiree health benefits, or whether there was sufficient ambiguity in the company's various promises to warrant consideration of extrinsic evidence, is contrary to the various decisions that require the consideration of official communications from the company that purport to summarize the benefits of employee welfare benefit plans. For example, in Bidlack v. Wheelabrator Corp., 993 F.2d 603, 606 (7th Cir. 1993) (en banc), the plurality opinion expressly required the lower court to consider a form issued to each newly retired employee in deciding what the employer had promised.
Nor is the reasoning of the Fourth Circuit in refusing to consider any written communications apart from "official plan documents" persuasive. Although it may be unfair for an employer to be charged with the alleged oral statements of every one of its supervisors, there is no reason why it should not be bound by its official standard forms and benefit brochures in determining its future liabilities. Indeed, employers are required by the Act to provide their employees with readily-comprehensible statements of their rights and obligations under the company benefit plans, and there is no reason why the company should not honor all such standardized communications with employees, instead of just the single document that it has chosen to describe as its plan, especially when the forms, but not the policy itself, are provided to the employees.
As Judge Posner explained in Wheelabrator, an employer that is adamant against assuming perpetual obligations need only ensure that its descriptions of its plan's benefits are qualified by a definite expiration date. 993 F.2d at 609. An employer that fails to take such care has only itself to blame if a court later holds it liable.
Insofar as the lower court held that respondents were relieved of their responsibilities by the inclusion in the 1986 SPD of a proviso asserting that retiree health benefits might be changed at a later date, the decision is flatly contrary to Jensen v. SIPCO, 38 F.3d 945, 949, 952-953 (8th Cir. 1994). In that case, the employer followed a two-step process to revoke a prior commitment to lifetime benefits. First, in January 1989, SIPCO issued an SPD that notified beneficiaries that it reserved the right to abolish or modify this benefit for persons who retired after March 1, 1989; then in April 1989, it issued a second SPD, actually modifying the benefit for persons retiring between January 1 and March 1, 1989. When a class of persons retiring before March 1, 1989 sued, the court was willing to consider only the pre-1989 SPD's in deciding whether, at the time the class had retired, the employer had reserved the right to alter retiree health benefits. The holding below -- that post-1985 SPD's may be considered in deciding whether petitioners who retired on or before October 1, 1985, may enforce the promise to pay for major medical insurance for all retirees and their spouses during their retirement -- is squarely contrary to the decision in SIPCO, which provides still an additional reason why the Court should grant certiorari.
The petition for a writ of certiorari should be granted.
Paul Alan Levy
(Counsel of Record)
Alan B. Morrison
John T. Ward
Quinn, Ward and Kershaw
Attorneys for Petitioners
February 9, 1995
1. For the purpose of this petition, there is no significant difference between the status of the various respondents. Thus, when referring to actions of Maryland Cup Corporation, the petition refers generally to "respondents," although technically Maryland Cup is not itself a party to the case.
2. Subsequent Schedule II's were worded differently, stating with respect the retiring employee that Major Medical "is limited to a maximum amount . . . for your lifetime and is subject to your deductible amount of $100 . . .. The cost of this coverage is paid for you by Maryland Cup Corporation. This lifetime maximum is not subject to reinstatement." Coverage for dependent spouses was described in similar language, with the added proviso that "[i]n the event your Dependent Spouse survives your death, (s)he will continue to be covered by Maryland Cup Corporation so long as (s)he does not thereafter remarry."
3. No SPD was distributed to the members of the petitioner class while they were still employed. During calendar year 1985, after Maryland Cup had been purchased by respondent Fort Howard, but before the new employer issued a plan document containing an express right to suspend or terminate retirement health benefits, about 35 members of the class who retired during that period received Schedule II's on which a claimed right to alter or amend had been typed in.
5. ERISA expressly requires benefit plans to provide for the amendment of the plan. Section 402(b)(3), 29 U.S.C. § 1102(b)(3). If the mere existence of such a provision were sufficient to negate employer promises of lifetime health benefits for retirees, then employers could routinely make such promises, induce employees to remain on the basis of such promises, and then break their promises at will.