Every quarter, I prepare a recap of developments in the benefits and compensation areas for Institutional Investment Consulting. Although many of the items have been reported in previous blog entries, I do a deeper dive for the IIC report. Below is a copy of the most recent report, covering April through June.
We keep track of proposed legislation that may affect employers' future plans, even though most proposed legislation either goes nowhere or has several cycles as "proposed" before it gets passed.
The above Bill (which has both bankruptcy and non-bankruptcy benefits proposals) introduced earlier in the month is in this category. For companies in bankruptcy, it would toughen the standard for eliminating certain kinds of benefits (the changes would need to be the "minimum necessary to prevent liquidation" instead of simply "necessary to permit reorganization" and changes for rank and file employees would need to apply to officers and directors).
The more important change to watch relates to retiree medical. The bill would create a presumption that those benefits were vested when someone has completed 20 years of service or retired. The presumption could only be rebutted by "clear and convincing evidence" that the plan terms permitted the benefits to be eliminated AND that the participant was apprised of that fact before becoming a participant.
I'm not concerned yet, but note that this is at least the second time in recent memory that Congress has considered limits on an employer's ability to eliminate retiree medical (the Supreme Court is looking at the question in the collectively bargained context, as reported elsewhere in this blog). Employers that are considering changes to or terminations of retiree medical coverage may want to evaluate the timeframe for that action, in case one of the legislative efforts gets some traction.
The trend over at least the past decade has been toward eliminating retiree medical plans or shifting their cost to employees. Making that kind of change has been especially difficult where those benefits were established as a result of bargaining with a union, because of the possibility that the bargained benefits were vested and, therefore, not changeable by the employer. Under the so-called Yard-Man inference, in the Sixth Circuit, there is an inference that bargained retiree medical benefits are vested unless there is clear language rebutting that inference. Other Circuits do not apply that inference.
The U.S. Supreme Court will consider whether there should be such an inference, in the case of M&G Polymers v. Tackett. The decision being reviewed found that retiree benefits were vested (so, the company could not begin to charge retirees for coverage). Cert. was granted last week, but a decision is not expected until the 2014-15 term.