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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. |
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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. |
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To understand the
terms of employer-provided retiree health benefits, you should first
review your plan documents.
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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.
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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.
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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.
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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.
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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?
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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?
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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?
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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."
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This is an actual
example, but other similar language may be found anywhere in the plan
documents.
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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.
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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.
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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.
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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.
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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?
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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.
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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?
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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.
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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.
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Given the uncertainty
of the law in this area, you may wish to seek legal advice in negotiating
such arrangements with your employer.
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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.
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Legal action can help
interpret or enforce retirement health care promises.
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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 25ยข 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, contact EBSA's Toll-Free Employee & Employer Hotline
number, 1.866.275.7922, or write us at:
U.S. Department of Labor
Employee Benefits Security Administration
Division of Technical Assistance and Inquiries
200 Constitution Avenue, N.W, Suite N-5619
Washington, DC 20210
Tel 202.693.8632
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