Background
Providing for health care is an
important part of retirement. Some employees are fortunate: they belong to
employer-provided health care plans that carry over to retirement.
However, an important question arises
for employees and retirees: How secure are my health care benefits after retirement? Under
what circumstances can the company reduce or terminate my health benefits?
Employees and retirees should know
that private sector employers are not required to promise retiree health benefits.
Furthermore, when employers do offer retiree health benefits, nothing in federal law
prevents them from cutting or eliminating those benefits--unless they have made a specific
promise to maintain the benefits.
The key to understanding your retiree
health benefits lies in the documents governing your plan.
Review Your Plan Documents
To understand the terms of
employer-provided retiree health benefits, you should first review your plan documents.
 | The Summary Plan Description (SPD)
is a summary of the terms of the plan. Employers are required to provide a copy to you
within 90 days after you become a participant in the plan.
|
| For retirees, the SPD that was in
effect when you retired may be the controlling document. You should save a copy of it. You
also should save any SPD changes affecting your benefits after you retire.
|
| In addition, there may be formal
written documents that outline how your health plan is operated. These may include a
collective bargaining agreement or an insurance contract.
|
You Should Know - Coverage Can Change
If your employer has reserved the
right in the SPD and controlling plan document to change the terms of the plan, you may
lose coverage at any time during your retirement. If your employer made a clear promise
that you will have specific health care benefits for a definite period of time or for
life, and did not reserve the right to change the plan, you should be covered.
What to Look for in Plan Documents
Check all your plan documents with
the following questions in mind:
| Do the SPD or other plan documents promise that health benefits
after retirement will continue at a specified level for a certain period of time?
|
| If there is no specific language
describing retiree health benefits in your plan documents, it is unlikely that you have
coverage.
|
| If there is such language, how
specific is it?
|
Sometimes language covering retiree
health benefits is included in the documents, but it is too vague to stand up to a test in
the courts. Conversely, there is language on employee health benefits that has held up in
court. Here is an example:
"Basic health care coverages
will be provided at the company's expense for your lifetime."
Even if a specific promise is made, is there also
language that gives your former employer the right to change or terminate that specific
promise or to amend or terminate the entire plan? Typical language giving the employer
that right might read:
"The company reserves the right
to modify, revoke, suspend, terminate, or change the program, in whole or in part, at any
time."
This is an actual example, but other
similar language may be found anywhere in the plan documents.
If you are an employee reviewing the
current plan, it is important to remember that it can change in the future. The documents
in effect when you retire are the ones that will determine your health benefits, if any,
in your retirement. However, court rulings in these matters have not been uniform.
What If the Language is Conflicting or
Ambiguous?
Benefit plan documents are often not
easy to interpret, and the language, described above, providing an employer's right to
change benefits may be contained in any part of the documents.
| Some courts may not enforce what
seems like clear "promise" language if the plan document contains general
language reserving the employer's right to amend or terminate the plan.
|
| On the other hand some courts have
enforced clear promise language in an SPD, even in cases where the plan document contained
a right by the employer to amend the promise. You need to check all documents.
|
Review Any Employer Communications on
Retiree Health Benefits
You should obtain whatever
information is available indicating the intentions of your former employer with respect to
retiree health care benefits.
| Has your employer sent any correspondence--letters, brochures,
medical plan booklets, employee handbooks or other written materials--containing promises
concerning the duration of retiree health benefits? |
| Are there records of meetings
where your employer made such promises?
|
You should know that some courts may
take into account any informal communications that you have had with your employer
concerning retiree health care benefits, at least where the plan document and SPD are
ambiguous.
If You Retire Early, Review Any
Agreements or Correspondence from Your Employer Concerning Your Early Retirement
If you retire early and have a
special agreement with your employer, carefully consider the materials you have received
concerning the terms of your early retirement.
| Do any of these documents contain language regarding the
duration of your retiree health benefits?
|
| Are there any records of meetings
that your employer may have had with you concerning an early retirement offer?
|
You should know that some courts have
permitted plans to change promises made with respect to early retirement offers even if
the formal plan document, collective bargaining agreement or SPD contain language allowing
the employer to terminate or amend the plan.
If you are considering an early
retirement, you may wish to protect yourself by negotiating a written contract with your
employer that includes the specific terms of health care benefits and the circumstances,
if any, under which they can be changed.
Given the uncertainty of the law in
this area, you may wish to seek legal advice in negotiating such arrangements with your
employer.
Get Help in Clarifying Documents
and Promises
This brief was prepared to help you
understand the terms governing your health benefits after retirement. If there are
questions or disputes about your individual retirement benefits or about the possibility
of changes and cuts for you and other employees or retirees, you should consult your union
representative or an attorney who is familiar with employee benefits.
Legal action can help interpret or
enforce retirement health care promises.
For More Information
As an employee or retiree, you are
entitled to a copy of your SPD. You can request a copy from your employer or from the
Department of Labor at any time and receive it within 30 days. There may be a reasonable
charge (not to exceed 25 cents per page).
However, you have a right to examine
plan documents at no cost to you.
To obtain copies of other plan
documents, you must submit a written request to your employer. Again, there may be a
reasonable copying charge.
If you have questions or need
assistance in obtaining these documents you may contact:
Pension and Welfare Benefits Administration
Division of Technical Assistance and Inquiries
U.S. Department of Labor
200 Constitution Ave., N.W.
Rm. N-5625
Washington, DC 20210
(202) 219-8776
Internet: http://www.dol.gov/dol/pwba
Publication Hotline: 1-800-998-7542
* This bulletin was produced by the Pension and Welfare Benefits
Administration, Division of Public Affairs, with the cooperation of the Office of the
Solicitor, Pension Benefits Security Division. (Revised 3/98)
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