Can my Employer Cut my Health Benefits after I Retire?

Rochester, NYVollmer v. Xerox Corp., an ERISA lawsuit pending in the Western District of New York, raises a question that weighs heavily on the minds of many retirees. Can an employer offer a valuable incentive to encourage workers to retire and then unilaterally change the deal after the employee is out the door? 

The latest turn in this class action lawsuit has Xerox seeking to trim its potential liability by limiting the class of retirees who may sue. The court has yet to reach the central question, though.

When is a promise a promise? As with all things ERISA, the answer is complicated.

The Vollmer’s Claim       

Paul Vollmer was employed by Xerox from 1964 to January 1987, when he chose to take early retirement under the Xerox Corporation 1986 Early Retirement Plan (the “ERP”).  At the time, Xerox was attempting to cut costs by reducing the size of its workforce.

Under the terms of the ERP, Vollmer and his wife, Marilyn, would be eligible for health and dental care coverage under the Xerox Medical Care Plan for Retired Employees and the Xerox Dental Care Plan (collectively the “Old Plan”). The terms of the Old Plan were undeniably generous.

The official summary of the medical portion of the Old Plan, states:

“Your Xerox Medical Plan costs you nothing. It is not a contributory plan; there are no deductions from your pay to cover the cost. Xerox assumes the full cost of the plan. Benefits and Administration. [sic].”

Similarly, the official summary of the dental portion of the Old Plan states that:

“Xerox is directly involved – and here the Dental Care mirrors the Medical Plan. There are no deductions from your pay for this Plan. … Xerox provides the money for benefits as well as administration.”

Significantly, the terms of the Old Plan do not reserve to Xerox the right to change its terms at a later date. Later versions of the Medical and Dental plans include a statement that “the Company, at its discretion, may at any time terminate any of these plans and policies or the statements made in this booklet.”

The ERP

The Vollmers’ rights to benefits under the Old Plan comes via the ERP.  There was a lot of written communication, both more and apparently less official, about the terms of the ERP. Some of these communications appear to require participants in the ERP to share the cost of premiums and deductibles.

In October 25, 2018, the Vollmers received letters informing them that they would have to pay premiums for their medical and dental coverage, of $260.47 each. In late 2019 their premiums were increased to $282.32. In October 2020, they were informed that their cost sharing would increase to 60% and their premiums would go up to $313.40 each.

They brought an ERISA lawsuit under both the fiduciary breach provisions of the law and against the fiduciaries for failing to administer the plan under its express terms. In an earlier attempt to limit its potential liability, Xerox moved and was successful in having the first claim dismissed as time-barred. All that remains at this stage are the explicitly document-based claims.

How Secure are my Health Care Benefits after Retirement?

According to the Department of Labor:

“[P]rivate-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.” (Emphasis added.)

The DOL suggests that workers who are contemplating retirement focus on the official summary of the plan document, known as the Summary Plan Description, or SPD. Three questions are important:

First, does 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 guaranteed coverage.

Second, how specific is the language that appears to promise benefits for a specified period of time? The following example has been found to bind an employer to lifetime coverage: “Basic health care coverage will be provided at the company’s expense for your lifetime.”

Finally, has your employer reserved the right to change or terminate that specific promise or to amend or terminate the entire plan? A typical provision reads: “The company reserves the right to modify, revoke, suspend, terminate or change the program, in whole or in part, at any time.”

How the Vollmers’ ERISA lawsuit will be decided (or on what terms it may settle) has yet to be resolved. If you have questions about your own employer-provided health benefits in retirement, it would be a very good idea to seek experienced legal advice before making any moves that may jeopardize your retirement security.