Thursday, November 5, 2009

Death, taxes and . . . retiree health benefits?

Death and taxes. I’m sure you’ve heard that, in life, these are the only guarantees. But if some members of the House get their way, something else might be guaranteed – the continuation of retiree health benefits.

Can employers reduce benefits now? Generally, if employers have reserved the right to do so in their plans and summary plan descriptions, they are free to reduce retiree medical benefits in an ERISA-covered employee welfare benefit plan. The ERISA vesting rules don’t apply to such plans as they do to pension plans. Nevertheless, the courts are replete with cases in which retirees claim that an employer intended to provide vested benefits (Wolters Kluwer subscribers can read more about this issue at ¶26,050 in the Employee Benefits Management product).

What would the House bill do? Section 110 of the 1,990-page House bill (H.R. 3962) would prohibit employers with group health plans from reducing retiree health benefits below what was offered to retirees at the time of their retirement unless reductions are also made to active workers’ health benefits.

What’s a reduction? The House bill provides that a reduction in benefits occurs when:

1. a participant’s share of the total premium (or, in the case of a self-insured plan, the costs of coverage) of the plan substantially increases or

2. there is a substantial decrease in the actuarial value of the benefit package under the plan.

The term “substantial” means “an increase in the total premium share or a decrease in the actuarial value of the benefit package that is greater than 5 percent.’’

Are there any exceptions? An employer may apply for a waiver from this provision if the employer can reasonably demonstrate that meeting the requirements would impose an undue hardship on the employer.


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