Academic journal article Journal of Accountancy

Funding Retiree Health Benefits

Academic journal article Journal of Accountancy

Funding Retiree Health Benefits

Article excerpt

Is an employer responsible for fully funding its retirees' lifetime health benefits? The Sixth Circuit Court of Appeals recently affirmed a district court's decision that, indeed, an employer does have such a responsibility

The plaintiffs were retirees or surviving spouses of retirees of J.I. Case Co., which was a wholly owned subsidiary of Tenneco until 1994 when it was spun off and renamed Case Equipment. It is now CNH America. In 1996 Tenneco merged with El Paso National Gas to form El Paso Tennessee Pipeline.

The United Auto Workers (UAW) had negotiated collective bargaining agreements with Case that required the agreed-upon group insurance and pension plan to run concurrently In 1995 the UAW and Case signed a letter of agreement that seemed to cap Case's liability. During the years 1998-2003, El Paso increased the retiree portion of health insurance premiums from $0 to $561 per month.

The plaintiffs sought an injunction in district court alleging that El Paso had breached its labor agreements under the Labor-Management Relations Act and the Employee Retirement Income Security Act. The district court granted their request. El Paso appealed the decision.

Result. For the plaintiffs. The Sixth Circuit held that while employee medical benefits don't normally come with the same vesting rights as pensions, parties can agree that these benefits should vest. …

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