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Taking Away Welfare Benefits: The Question of Vesting

Posted in Court Cases, Plan Administration, Welfare Plans

Even when it is not all about PPACA, it can still be about PPACA.  I happened to be reading some recent court decisions and came upon a decision from the 6th Circuit Court of Appeals that has an impact on welfare benefits generally, but also a possible impact on PPACA health plans, so I thought I would share it.

In Price v. Laborers Pension Fund, the 6th Circuit was considering a case related to disability benefits.  Price was granted disability back in 1990.  In 2006, because of an amendment to the plan, his disability benefits were eliminated and he promptly filed a lawsuit.  In affirming the termination of his disability benefits, the Court made a couple critical observations that are important to all plan sponsors.  First, the Court affirmed the proposition that welfare benefits (as opposed to retirement benefits) do not generally "vest."  Welfare benefits can generally be terminated at any time so long as the termination is consistent with the terms of the plan.

Second, the Court resolved the issue by looking at the specific terms of the plan where the trustees had reserved the right to amend or terminate benefits, even retroactively.  The Court found that the specific language of the plan was such that it allowed for elimination of disability benefits at any time, thereby precluding an argument that the right to receive these benefits was "vested" or guaranteed. So in terms of these "welfare" type benefits, if a plan sponsor has reserved the right to amend or terminate benefits in the plan language and follows the terms in the plan when it takes action, it can generally avoid a claim that the right to the benefits has vested.

Under PPACA, many plan sponsors are considering eliminating or curtailing welfare benefits (like health, vision and dental coverage) for cost concerns.  All well and good provided that the plan sponsor has reserved the right in the plan to change, amend or terminate these welfare benefits at any time.  While ERISA might generally give a plan sponsor the right to act, if you are considering eliminating health insurance coverage for employees because of PPACA, a good place to start is to see if your health plan has a provision giving you the ability to amend or terminate coverage at any time.  Having a provision like this goes a long way to defeating any argument that the benefits have "vested."