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Employer Cannot Terminate Employee’s Vested Retiree Life Insurance Benefits

by | Jul 28, 2022 |

The U.S. Court of Appeals for the Fourth Circuit, in Bellon v. The PPG Employee Life, has ruled that an employer cannot terminate retiree life insurance coverage of employees for whom it had previously vested this coverage through plan provisions.

Facts. The employer’s welfare benefit plan provided retiree life insurance coverage for participants who worked a specified number of years and who were eligible for a pension benefit at the time of retirement. Initially, the employer had reserved the right to amend or terminate its welfare benefit plan at any time.

In 1969, however, the employer removed the earlier reservation of rights to amend or terminate the retiree life insurance, because, according to corporate notes, that reservation of rights clause “caused doubt in the minds of retirees and the sense of security that retirees look for was absent.”

In 1984, the employer inserted a new reservation of rights clause that applied to retiree life insurance coverage.  The employer then sent a newsletter to the participants announcing the new reservation of rights clause and advising that, “it reserves the right to modify or amend the provisions, terms, conditions and benefits of those policies for retirees who retire on or after September 1, 1984.”

In 2015, the employer terminated the retiree life insurance coverage.

Employees who worked for the employer between 1969 and 1984 sued the employer in federal district court, saying that the employer was attempting to deprive them of their vested benefits.  However, the district court ruled in favor of the employer, saying that even if the benefit had been vested, the vesting did not apply to participants who terminated employment after 1984.

Appeals Court. The Appeals Court began its analysis by noting that ERISA, by itself, does not prohibit an employer from modifying or terminating a welfare plan.  However, an employer can elect to waive its statutory right to modify or terminate benefits “by voluntarily undertaking an obligation to provide vested, unalterable benefits.”

It then ruled that while the 1984 amendment allowed the employer to modify or terminate the retiree life insurance coverage, it did so only for those plan participants hired after the amendment’s adoption in 1984.  If the retiree life insurance coverage constituted a vested benefit between 1969 and 1984, it could not subsequently be taken away from the eligible participants who worked during that 15-year period.

The case was returned to the district court to determine if the plan provisions had, in fact, vested the retiree life insurance benefits.