The Importance Of Being ExplicitSusan B. Garland
Promises, promises. That's what the courts are looking for in the growing number of suits by disgruntled retirees whose health-care benefits are getting blown away.
At first sight, the law seems stacked against retirees. There is no statute giving them a legal claim to specified medical benefits after a certain time on the job. Unlike pensions, medical benefits don't vest. But courts also have said that retirees may receive medical coverage if their employer has made promises in employee handbooks, filmstrips, health-plan summaries, meetings, or exit interviews. Those pledges, in effect, become binding contracts.
Courts tilt against retirees, though, when employers include explicit caveats in their plans. "The legal issue usually focuses on whether the company has made it unambiguously clear that it retains the right to modify the benefits or eliminate them," says Christopher G. Mackaronis, a Washington lawyer representing 84,000 salaried retirees who are suing General Motors Corp. after the company required them to pay part of the health tab.
Benefits consulting firms are advising companies not to promise anything. Instead, they counsel that all written and oral communications to workers should specifically and consistently state that the company can change benefits at any time. "Companies that have thought about this are taking action to keep their options open," says Henry Saveth, a principal at A. Foster Higgins & Co., a consulting firm.
To ease the burden on companies that are locked into past commitments, industry has been urging Congress to enact tax breaks for funding health benefits in advance. That would give them the same tax treatment as pensions. But lawmakers probably won't do that unless companies guarantee retiree health benefits, too. That may be too high a price for companies to pay.