Lawyers may be the only persons capable of arguing, while maintaining a straight face, that something designated as a “lifetime” benefit may not be available “for life.” Unfortunately, the distinction is sometimes made in the context of employee benefit plans, resulting in dire consequences for working or retired plan participants or their current or ex-employers.
Consider the recent decision rendered by the Seventh Circuit Court of Appeals here in Chicago in Bland v. Fiatallis North America, Inc. The suit was filed by retired salaried and hourly employees of Fiatallis North America, Inc. (“FANA”). The claimants retired during a period beginning in the late 1970s and continuing through 1988. Before or upon retirement, each of the claimants received summary plan descriptions (“SPDs”) which described the medical and dental benefits they would receive and that allegedly contained promises that each retiree and his or her spouse would continue to receive such benefits at little or no cost until death.
As benefits costs rose over the years, FANA sought to cut such expenses. In 1989, it published a new SPD for active employees in which it expressly reserved the right to modify benefits. The new SPD did not reference retirees and was not provided to them. In 2000, however, the claimants received notices that their benefits costs would increase dramatically and that future modifications of benefits were possible. The claimants challenged these actions, relying upon their SPDs, which did not contain any express reservation of rights permitting FANA to modify benefits.
In evaluating the District Court’s grant of summary judgment in favor of FANA, the Court of Appeals noted that interpretation of benefit plan documents requires review of the documents as a whole to determine their overall intent and that outside information should be considered only if there is an ambiguity in the documents which is not otherwise clarified or resolved by the documents themselves. Here, the Court of Appeals ruled against the general interpretation that “lifetime” benefits or benefits “for life” means “unless terminated or modified,” because the cases in which that interpretation has been applied involved plans with language that in one form or another included a reservation of rights by the employer. Since no such reservation of rights language appeared in the FANA claimants’ SPDs, there was at least an ambiguity as to whether the claimants’ benefits were vested for the claimants’ and their spouses’ lifetime. Consequently, the Court of Appeals sent the case back to the District Court for further evaluation of the plan documents and consideration of relevant extrinsic evidence.
The claimants thus await further “lawyering” over their benefits, and FANA faces substantial costs associated with a core of benefits it may have to maintain for a long period of time while medical expenses continue to rise. If FANA intended to have the right to change benefits, it could have avoided this risk by inclusion of a reservation of rights provision.
If you have any questions about whether your benefits are subject to a reservation of rights, please call us to discuss your plan documents.