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News Items, by Subject

Health plans - retiree coverage


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[Opinion] Public Retirees Being Shifted to Private Insurance Exchanges
"Instead of paying a 70 percent premium subsidy towards the government-sponsored health plan, Memphis is paying into the HRAs an amount that reduces their post-employment benefit obligation by $300 million, a savings for Memphis of 42 percent! That's great for their city budget, but what does that do for the retirees?" (Physicians for a National Health Program [PNHP])
California Governor Cut Retirement Debt Bigger Than Pensions
"[As] Gov. Brown leaves office, ending what he called the 'anomaly' of retirees paying less for health care than current workers is part of one of his accomplishments ... The state no longer pays for Medicare Part B. And five more years of service are needed to receive state payment of retiree health care premiums, beginning with 50 percent after 15 years and increasing 5 percent a year to 100 percent after 25 years.... [T]he major part of Brown's retiree health care reform applies to workers hired before the reform, not just new hires. All workers are beginning to contribute to a pension-like investment fund to help pay future retiree health care costs." (Calpensions)
Michigan High Court to Rule on Changes to Retiree Health Benefits
"In oral arguments Nov. 19, retirees will ask the state's highest court to stand apart from federal courts that have found retiree health benefits can be changed or cut in the absence of "vesting language" in a labor contract. In the other corner are Michigan towns, cities, counties, and the state bar, which argue federal rules favoring governments should apply in Michigan as well. The ruling could greatly affect how tightly Michigan's 1,800 local governments will be held to roughly $10.13 billion in unfunded liabilities for retiree health-care benefits. A July 2017 state report found those liabilities exceeded by nearly $3 billion the local unfunded pension liabilities." (Bloomberg BNA)
Medicare Advantage Plans Shift Their Financial Risk To Doctors
"The 'global risk' model is increasingly used by Medicare plans such as Humana and UnitedHealthcare to shift their financial exposure from costly patients, giving doctors' groups more money upfront and control over patient care." (HealthLeaders Media)
GAO Report: Postal Retiree Health Benefits -- Unsustainable Finances Need to Be Addressed
"About 500,000 postal retirees receive retiree health benefits. The Postal Service Retiree Health Benefits Fund pays most of the costs. The Postal Service has not made $38.2 billion in required payments to this fund through fiscal year 2017. If it makes no more payments, [OPM] projects the fund will be depleted in fiscal year 2030. [GAO] highlighted several approaches to address this shortfall, such as requiring most eligible retirees to participate in Medicare, increasing cost-sharing, or reducing benefits." [GAO-18-602: Published: Aug 31, 2018. Publicly Released: Oct 1, 2018] (U.S. Government Accountability Office [GAO])
Determining Whether Prescription Drug Coverage Is Creditable (PDF)
"Employers with insured plans should ask their health insurance carriers if they have made this determination for the insured product. If an employer must make the determination itself, it may be able to use a simplified method, depending on the plan's design. When a plan's design is not eligible for the simplified method, an actuarial determination must be made." (Cowden Associates, Inc.)
Ninth Circuit Revives Implied Contract Claims Concerning Retiree Heath Care Benefit
"Contract claims asserted by retirees with regard to a county's reduction in the Grant Benefit paid to retirees to defray the cost of health care premiums were revived by the Ninth Circuit.... [B]ecause employers are not required to provide post-retirement benefits at all, the county did not violate the California Fair Employment and Housing Act (FEHA) by treating retirees as a separate force and making cost calculations accordingly, taking into account the age distribution of the retiree group as a whole." [Harris v. County of Orange, No. 13-56061 (9th Cir. Sept. 5, 2018)] (Wolters Kluwer; free registration required)
[Guidance Overview] FASB Makes Minor Changes to Disclosure Requirements for Sponsors of DB Plans and Other Postretirement Benefits (PDF)
"The guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. The guidance is effective for fiscal years ending after 15 December 2020 for public business entities and fiscal years ending after 15 December 2021 for all other entities. Early adoption is permitted." (EY)
New Jersey Lawmakers Try to Wrangle Pension Problem
"Pension and health-care costs will eat up nearly a quarter of the state's $45 billion budget by fiscal year 2023, fueling a $3 billion deficit ... One of [the] proposals shifts new state employees and those employed for less than five years of service to a hybrid pension and 401(k)-style plan. Another moves public employees to less expensive health-care plans and requires future retirees to pay more for health care." (The Wall Street Journal; subscription may be required)
[Guidance Overview] Michigan Law Requires More Disclosure from Local Governments
"Some of the disclosure information will be available from various financial and actuarial reports that are already prepared each year for the units, some information is new with this law and will require the units to have additional work done by service providers ... For both retirement health systems and pension systems, if a unit is determined to have a system that is underfunded, it will be required to establish a corrective action plan. For fiscal years ending before December 31, 2017, the first reporting of funded status to the Treasury is due by six months after the end of the fiscal year, but no sooner than January 31, 2018." (Watkins Ross)
[Official Guidance] Text of IRS PLR 201833014: Amendment of Welfare Benefit Trust to Provide Benefits for Active as Well as Retired Employees Does Not Cause Disallowance of Deduction for Prior Contributions (PDF)
"Taxpayer took deductions in previous years for contributions to Trust ... The amendment of Trust will require amounts that were originally contributed to provide for the payment of postretirement health benefits to collectively bargained retirees to be used instead to provide for the payment of health benefits to active collectively bargained employees. The amendment of Trust to transfer assets to a separate subaccount to provide for the payment of health benefits to active collectively bargained employees is not fundamentally inconsistent with the premise on which the Taxpayer's earlier deduction was based because Trust continues to be a separate welfare benefit fund under a collective bargaining agreement within the meaning of section 419A(f)(5) of the Code. Therefore, the tax benefit rule does not apply." [Issued May 10, 2018, released Aug. 17, 2018.] (Internal Revenue Service [IRS])
Retiree Health Benefits Education: What Boomers Want and Need
"If you offer an HSA, it's important that Baby Boomers understand how a health savings account works with Medicare.... For those just a few years out from retirement, your education plan may include helping them understand eligibility requirements for both Social Security and Medicare, as well as any penalties that might arise from applying late to Medicare.... If you have a health & wellness program in place, take measures to boost participation and steer employees, especially older participants, toward healthy habits to help them live well and be productive." (Corporate Synergies)
Healthcare Costs and Outliving Savings Dampen Employer Confidence in Employees' Retirement Futures
"[N]early half of nonprofit and corporate, for-profit employers are only somewhat confident in their employees' retirement futures and one in five say they are not at all confident. Nearly all surveyed cited rising healthcare costs (91 percent) followed by outliving retirement savings (77 percent) as their biggest concerns, yet surprisingly few have built retirement plan offerings that solve for these challenges.... [M]ore than half (51 percent) of all employers think their employees would prefer receiving $2,700 a month for life rather than a $500,000 lump sum at retirement[.]" (TIAA)
A View into the Future of Employer-Provided Retiree Healthcare Benefits
"Employers can reasonably expect that, in this environment, their employees will be reluctant to leave behind active-employee coverage... [It] may simply be easier for employers to consider a retiree healthcare plan as the most expedient means to achieve corporate goals. [To] the extent a traditional retiree healthcare program remains too unpalatable, then employers may consider alternatives, such as Retiree-Only Health Reimbursement Accounts." (Trucker Huss)
[Guidance Overview] The New ASOP 6: Implications for OPEB Reporting (PDF)
"In the most extreme case, let's consider a small plan sponsor in a pooled health plan where retirees pay 100% of the premiums. Under GASB 45 and the previous version of ASOP 6, this entity would not have any OPEB liability, because retirees are paying the entire premium and the community-rating exception allowed for the implicit rate subsidy to be ignored. Under the new ASOP 6 and GASB 74/75, the entity will have a liability due to the 'implicit rate subsidy,' which must now be recognized even in community-rated plans.Another type of plan where the impact will be large is one where the sponsor contributes a flat dollar amount per month to retirees in a pooled health plan." (Milliman)
Health and Welfare Trusts Seek Increased Guidance Regarding Continuation Value (PDF)
"A variety of methods can be utilized to assess the financial status of a health and welfare trust. One of the most common methods is to estimate continuation value, or the amount of time that the trust can continue to cover the cost of benefits to its participants and pay for associated administrative, operating, and professional expenses, assuming no future income.... But what level of continuation value should a health and welfare trust target? While the question is common, the answer is complex and requires assessment and understanding of a variety of factors" (Milliman)
Pension/OPEB 2018 Assumption and Disclosure Study, with Analysis of New Accounting Standards Updates (PDF)
29 pages. "The 2017 median discount rate for pension plans in the study decreased 48 basis points since 2016 and more than two and half percentage points since 2007 ... Median plan funding levels increased from 2016, with pension plan assets equal to approximately 86% of the projected benefit obligation (PBO) in 2017 compared to 82% in 2016.... The 2017 median discount rate for OPEB plans in the study decreased 42 basis points since 2016 and more than two and a half percentage points since 200 ... The percentage of funded OPEB plans in the study has remained nearly unchanged since 2007 with 52% of plans being funded in 2017 compared with 49% in 2016 and 52% in 2007." (PwC)
Honeywell Cleared of Liability for Retiree Lifetime Health Care
"The retirees weren't vested with lifetime health-care coverage because the collective bargaining agreements and the plan documents at issue didn't include a promise to continue providing such coverage, [according to a federal judge in Michigan]. The ruling means that Honeywell isn't required to provide health-care coverage or make any minimum premium contributions related to the plan starting Aug. 1." [International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW) v. Honeywell Int'l Inc., No. 11-14036 (E.D. Mich. July 25, 2018)] (Bloomberg BNA)
Sixth Circuit: No Lifetime Health Care Benefits for Honeywell Retirees
"Reversing a district court's conclusion that Honeywell retirees were entitled to lifetime health care benefits, the Sixth Circuit ... noted that ... because the language of the collective bargaining agreements was clear, there was no need to look to extrinsic evidence ... [T]he CBAs specifically provided for lifetime health care benefits to surviving spouses and dependents, but did not provide such lifetime benefits to retirees themselves." [Fletcher v. Honeywell International, Inc., No. 17-3277, (6th Cir. June 8, 2018)] (Wolters Kluwer Law & Business)
Successor Not Liable for Misrepresentations by Past Fiduciaries Regarding Retiree Health Care
"Retired security guards had brought suit seeking to restore health care benefits to prior levels, alleging that they were promised stable premiums and retirement benefit levels similar to what they received as active employees. However, because the contractor did not assume control of the health care plans until after these representations had been made, the court granted its motion for summary judgment on the misrepresentation claim." [Hatmaker v. Consolidated Nuclear Security, LLC, No. 15-351 (E.D. Tenn. May 30, 2018)] (Wolters Kluwer Law & Business)
Retiree Healthcare Back in Focus
"[E]mployer plan eligibility rules must be amended to include any class of employees not actively at work or the plan may find itself with uncovered stop loss claims. If the employer prepares its reporting under Generally Accepted Accounting Principles, rules require that the cost of retiree benefits be accrued in the year the liability arises (i.e. during the working years) and actuarial studies are required." (Frenkel Benefits)
Medicare Financial Outlook Worsens
"[T]he trustees projected lower wages for several years, which will mean lower payroll taxes, which help fund the program. The recent tax cut passed by Congress would also result in fewer Social Security taxes paid into the hospital trust fund, as some higher-income seniors pay taxes on their Social Security benefits. The aging population is also putting pressure on the program's finances." (Kaiser Health News)
Hacking Longevity: Understanding the Implications of Living to 100
"[This] research ... explores the key inflection points that people face as they enter each new stage of their lives between ages 35 to 80+, and how living longer informs their planning, expectations, and perceptions across domains such as health, finance, social connection, and learning." (AARP)
[Guidance Overview] Pension and OPEB Underfunded Status of Michigan Local Government Plans under the 'Protecting Local Government Retirement and Benefits Act' (PDF)
"[U]ntil the state treasurer publishes the first set of annual assumptions, considerable uncertainty remains as to what the impact will be on each plan's liability. In fact, it is possible that a particular plan might be considered fully funded under the current actuarial assumptions that are being used for determining contributions to the plan or for satisfying financial reporting requirements, yet be considered underfunded based on new mandated assumptions. This paper aims to help stakeholders of Michigan's many local government pension and other post-employment benefit (OPEB) programs develop informed expectations, based on the range of outcomes that could result from the state treasurer's decisions." (Milliman)
[Opinion] Why Employers Need to Offer Retiree Healthcare Benefits
"Employees may postpone their retirement date to save more and maintain coverage through their employer's health plan. This may affect the employer's ability to renew the workforce or bring in new talent. This could also impact total compensation strategies and active health insurance risk pools, as older workers typically earn more and drive higher overall health insurance costs than younger employees." (Voya)
Facts About Medicare That All Employers Should Know
"[1] For most health plans, Medicare will take on the role of the 'Secondary Payer,' while your health plan will be the 'Primary Payer.' ... [2] For employers with less than 20 employees, Medicare will generally act as the Primary Payer for Medicare-entitled employees.... [3] [If] an employee's spouse receives coverage through your plan as a dependent, and the spouse retires but the employee continues to work, your plan will typically act as the Primary Payer for the retired spouse, and Medicare will be the Secondary Payer." (HR Daily Advisor)
[Guidance Overview] GASB 74/75: OPEB Expense and Balance Sheet Items (PDF)
"The OPEB expense on the income statement now arises from changes in the Net OPEB Liability (NOL) over the measurement period, which is calculated as the Total OPEB Liability (TOL) minus the Fiduciary Net Position (FNP).... Plans that provide OPEB benefits to fewer than 100 members may use the alternative measurement method, which simplifies some assumptions and calculations.... The Required Supplementary Information (RSI) is now to include several 10-year schedules." (Milliman)
Cumulative Out-of-Pocket Health Care Expenses After Age 70
"For those who die at age 95 or later, the median cumulative out-of-pocket expense after age 70 until death is slightly above $27,000.... Nursing home expenses are one of the biggest contributors driving the skewness of the distribution.... For all surveyed people, the median out-of-pocket nursing home expense is zero.... Longevity has a strong positive correlation with nursing home entry, total out-of-pocket health care expenses, and out-of-pocket nursing home expenses. One-in-three of the surveyed retirees are covered by Medicaid after age 70." (Employee Benefit Research Institute [EBRI])
The HSA in Your Future: Defined Contribution Retiree Medical
"This variant will ... likely be limited to Medicare-eligible retirees, using a Medicare Advantage or Medigap exchange, where coverage is retiree pay all -- financed by accumulated Health Savings Account assets.... [T]his alternative is all about reducing expense while improving both the real and perceived value of the Total Rewards Package." (Plan Sponsor Council of America [PSCA])
$280k Is What a Couple Retiring This Year Will Need to Cover Health Care
"A 65-year-old couple retiring this year will need $280,000 to cover health care and medical expenses throughout their retirement, according to Fidelity Investments. This is a 2% increase from 2017 -- and a 75% increase from Fidelity's first estimate in 2002. Fidelity says the cost breaks out to $133,000 for men and $147,000 for women, primarily because of their expected longer lifespans." (PLANSPONSOR)
How Fear of Catastrophic Health Care Expenses May Cause Retirees to Inefficiently Self-Insure (PDF)
"[M]edian cumulative out-of-pocket medical expenses for the long-lived elderly is quite modest at $27,000. At the same time, it is true that some long-lived elderly report very high cumulative out-of-pocket medical expenses: 10 percent of this older cohort say they racked up more than $172,000 in out-of-pocket medical expenses, and 5 percent report spending more than $269,000 in out-of-pocket medical expenses.... While most (61 percent) long-lived elderly do enter a nursing home, less than one-third (32.2 percent) incur out-of-pocket nursing home expenses." (Employee Benefit Research Institute [EBRI])
Whirlpool Retirees Get Union Support in Health Care Dispute
"The unions are urging the U.S. Court of Appeals for the Sixth Circuit to affirm a district court ruling that blocked Whirlpool from raising health insurance costs to retirees, according to a friend-of-the-court brief filed April 12 by unions that represent approximately 1.3 million auto workers and steelworkers. The unions' support for the retirees comes three months after the Michigan attorney general filed a brief in the same case criticizing the 'uncertainty and inconsistency' of the Sixth Circuit's recent case law." [Zino v. Whirlpool Corp., 6th Cir., Nos. 17-3851, 17-3860, amicus brief filed Apr. 12, 2018] (Bloomberg BNA)
Kraft Heinz Beats Another Lawsuit Over Retiree Health Benefits
"Each relevant bargaining agreement contained an unambiguous 'reservation-of-rights' clause allowing Kraft to modify or terminate its benefit plans at any time ... The retirees therefore had no vested right to lifetime health coverage, and Kraft was within its rights to move them to a less generous benefit plan, the judge said." [Beale v. Kraft Heinz Foods Co., No. 16-119 (S.D. Iowa Mar. 27, 2018)] (Bloomberg BNA)
Exploring Retiree Health Care Options
"Over the last decade, plan sponsors of traditional retiree group health coverage have increasingly turned to private Medicare Marketplaces and Employer Group Waiver Plans (EGWP) to find better value for their Medicare-eligible retirees. While the retiree experience in EGWPs more closely resembles that of traditional retiree coverage, private Medicare Marketplaces can offer greater value for both plan sponsors and retirees. Plan sponsors who offer traditional retiree group coverage should consider these alternatives as they seek efficient ways to honor their benefit obligations to Medicare-eligible retirees." (Willis Towers Watson)
Trend Favors Employers in Retiree Medical Litigation
"CNH and Cooper should put to rest any dispute that M&G Polymers dramatically changed the framework for assessing retiree medical claims in the CBA context. Absent explicit language to the contrary, general durational clauses govern the duration of retiree medical benefits, and the obligation to provide such benefits expires with the applicable CBA." (Morgan Lewis)
[Opinion] Congressional Letter to CMS Requesting Changes to 2019 Advanced Notice and Call Letter (PDF)
"For CY 2019, CMS is proposing to fully phase-in a new payment methodology ... [which] is not set based on actual bids submitted by the Employer Group Waiver Plans (EGWPs), but is instead based off bids submitted by non-EGWP plans. This new payment methodology may reduce employers' ability to provide retiree benefits through a consolidated health plan encompassing both Medicare benefits and supplemental retiree offerings, thus reducing beneficiary choice.... [We] request that CMS reconsider the changes finalized by the previous Administration as part of the CY 2017 Final Notice and instead find a payment methodology that will best account for the difference in the proportion of beneficiaries who are enrolled in a Health Maintenance Organization (HMO) versus a Preferred Provider Organization (PPO)." (Energy and Commerce Committee, U.S. House of Representatives)
Supreme Court Again Rejects Sixth Circuit Finding of Lifetime Retiree Medical Benefits
"The Supreme Court granted certiorari and reversed the Sixth Circuit in a single order and unanimous per curiam opinion, without the normal requirement of briefs by the parties on the question presented. In doing so, the Supreme Court sent a clear message that the Sixth Circuit's interpretation of Tackett was wrong, and that Judge Sutton's dissent correctly states the law." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (McGuireWoods)
Evaluating Options to Finance Retiree Medical Commitments
"With health care reform and tax reform as key legislative initiatives, employers have increased interest in alternative financing and annuity buyout strategies.... An annuity purchase eliminates the organization's long-term obligations with retiree medical benefits ... Annuity buyouts and other exit strategies would not be possible if retirees did not have ready access to individual health insurance coverage.... Employers can take a multiyear approach to solving this problem, which can help to make transitions easier on beneficiaries." (Willis Towers Watson)
Supreme Court Orders Sixth Circuit to Clean Up Its Retiree Health Benefits Case Law 'Mess'
"The Court stressed that a contract is not ambiguous unless it is subject to more than one reasonable interpretation, and the inferences made by the Sixth Circuit under its own precedent cannot generate a reasonable interpretation because they are not 'ordinary principles of contract law'. Six days after Reese, ... the Court granted certiorari to another Sixth Circuit case ... immediately vacated the lower court's judgment, and remanded the case for further consideration in light of Reese." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (Jackson Lewis P.C.)
Supreme Court Reaffirms Ordinary Principles of Contract Law Apply When Interpreting Collective Bargaining Agreements
"The agreement at issue contained a general durational clause that applied to all benefits unless otherwise specified. As such, the Court held that the general durational clause meant the agreement unambiguously provided that CNH retirees were entitled to company-provided health benefits only until the agreement expired and not indefinitely." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (Seyfarth Shaw LLP)
Supreme Court Once Again Finds Retiree Health Benefits Are Not Vested
"The Court reiterated that CBAs must be interpreted through 'ordinary principles of contract law' and firmly rejected the Sixth Circuit's holding that courts can consult extrinsic evidence to determine whether retiree health benefits are vested for life. The Court rejected the pro-vesting inference -- namely that the CBA's alleged 'silence' on the duration of health care benefits showed that the labor contract was ambiguous, and therefore needed to be interpreted by reference to facts existing outside the written contract." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (Ogletree Deakins)
Localities Want to Make Retiree Bills More Affordable, So Why Won't States Let Them?
"Michigan's local governments had put together a meaningful proposal last year to reform other post-employment benefits (OPEB) ... [L]ocalities were asking lawmakers to let them make the hard decisions to pare back health-care costs and bring them in line with the private-sector market.... In December, the legislature declined localities' request for more leeway." (Governing)
How Public Sector Employers Can Manage Retiree Health Liabilities (PDF)
"Changes in the Governmental Accounting Standards Board (GASB) reporting requirements will increase the [retiree health] liabilities of many state and local government health plans in 2018.... This article describes strategies that many private companies have used to avoid a significant liability increase and can serve as a road map for public sector employers in dealing with GASB changes." (Benefits Quarterly, published by the International Society of Certified Employee Benefit Specialists [ISCEBS])
Supreme Court: Union Retiree Health Benefits Weren't Vested for Life
"In a unanimous decision, the Supreme Court reversed, determining that under ordinary contract principles the retiree health care benefits did not vest for life. The 1998 agreement was not ambiguous unless it could reasonably be interpreted as vesting health care benefits for life, the court noted. That was not possible in this case with the clause that ended the agreement in 2004. There also wasn't ambiguity from the tying of retiree benefits to pensioner status, according to the court." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (Society for Human Resource Management [SHRM])
Supreme Court Once Again Refuses to Infer Lifetime Retiree Health Benefits
"A unanimous Supreme Court recently increased flexibility for employers struggling to manage retiree health costs. It ruled that, absent specific language to the contrary, retiree health benefit rights expire along with the collective bargaining agreement containing them -- meaning that an employer can modify those benefits after the CBA expires. This ruling follows the Court's 2015 decision to strike down the longstanding 'Yard-Man inference,' under which retiree health benefits were presumed to vest for life unless a collective bargaining agreement expressly provided otherwise." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (Conduent)
Supreme Court Provides Good News for Sponsors of Union Retiree Medical Benefit Plans
"[T]he Supreme Court again admonished the Sixth Circuit not to rely on inferences. The Court held that a contract is not ambiguous unless it is subject, by its terms, to multiple interpretations and that the Sixth Circuit -- which was unique in its approach -- erred in its reliance on special inferences in favor of retirees." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (Mayer Brown)
Supreme Court Concludes That Retiree Health Benefits Expired with CBA
"[T]he Supreme Court applied its 2015 Tackett holding in concluding that ordinary principles of contract law governed a dispute between retirees and their former employer over whether health benefits had vested under a collective bargaining agreement. Reiterating its rejection of the Sixth Circuit's Yard-Man inferences, the Court held that the health benefits at issue in this case expired with the collective bargaining agreement." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (Thomson Reuters Practical Law)
Supreme Court Again Tells Sixth Circuit to Rethink Retiree Health Benefits
"The justices once again rejected the U.S. Court of Appeals for the Sixth Circuit's way of handling these disputes, which the justices said was rooted in inferences and assumptions and not the text of the applicable collective bargaining agreements. The result is a victory for CNH Industrial, which was sued for its attempt to modify the health-care benefits it provides for union retirees." [CNH Industrial N.V. v. Reese, No. 17-515 (U.S. Feb. 20, 2018, per curiam)] (Bloomberg BNA)
Court Determines Retiring Employees Had Vested Right to Benefits, But Required Scope of Benefits Is Jury Question
"Retired county workers who alleged their former employer breached its promise of cost-free retiree health coverage for life at the same level the employee enjoyed on his last day of employment will present their contract claims to a jury ... The court found the employees had a vested right to receive the same level of healthcare benefits in retirement as they received on their last day of work. However, it concluded that a jury would have to determine precisely what that level of benefits was supposed to be." [Wood v. Unified Gov't of Athens-Clarke County, Ga., No. 14-43 (M.D. Ga. Jan. 22, 2018] (Wolters Kluwer Law & Business)
The Cost of Healthcare for California Government Workers When They Retire Rises Sharply
"California taxpayers are on the hook for more than $91.5 billion to provide health and dental benefits to state government workers when they retire ... That's a substantial increase from last year's estimate, a result of changes in the way the total debt is calculated and changes in the projected cost of healthcare in the coming decades. Last year's report put the total liability at just under $77 billion." (Los Angeles Times)
[Official Guidance] Text of GASB Implementation Guide No. 2017-3: Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions
248 pages. "Questions and answers in this Implementation Guide address issues related to accounting and financial reporting for postemployment benefits other than pensions and for plans that are used to administer those benefits." (Governmental Accounting Standards Board [GASB])
Retiree Health Benefits Ended When CBA Expired
"The Sixth Circuit Court of Appeals ... determined that an employer's promise to provide healthcare benefits for its retirees expired when the collective bargaining agreement (CBA) containing the commitment expired. In particular, the court found that the CBA's general-duration clause applied to the employer's promise to provide retiree healthcare benefits." [Watkins v. Honeywell International Inc., No. 17-3032 (6th Cir. Nov. 8, 2017)] (The Wagner Law Group)
Sixth Circuit Rejects Honeywell Retiree Claims that CBA Provided Lifetime Health Insurance Benefits
"The Sixth Circuit affirmed a district court's dismissal of a suit by retirees of Honeywell claiming the employer promised, in a collective bargaining agreement, to pay lifetime health insurance. The appeals court found that the general-durational clause in the CBA applied to the employer's promise to provide health care.... None of the retirees' evidence showed that the duration of the agreement contained a patent ambiguity that clearly appeared on the face of a document arising from the language itself." [Watkins v. Honeywell International Inc., No. 17-3032 (6th Cir. Nov. 8, 2017)] (Wolters Kluwer Law & Business)
Text of Amicus Brief to Supreme Court on Vesting of Retiree Health Benefits
28 pages. "Employers and employees cannot meaningfully bargain or reliably plan for the future in the chaotic legal landscape the Sixth Circuit has created. The massive unexpected costs and unpredictable benefits packages that will result (and, indeed, have already resulted) hurt employers and retirees alike.... [T]he Sixth Circuit's effective presumption in favor of vested, frozen-in-time benefits makes it more difficult for parties to achieve the flexibility they intended. Moreover, the Sixth Circuit's outlier rule will undoubtedly result in large-scale forum shopping." [CNH Industrial N.V. v. Reese, No. 17-515, cert. pet. filed Oct. 3, 2017; appeal from Reese v. CNH Industrial N.V., No. 15-2382 (6th Cir. Apr. 20, 2017)] (Chamber of Commerce of the United States of America, National Association of Manufacturers, American Benefits Council, and Business Roundtable)
Accounting for Pensions and Other Postretirement Benefits, 2017 (PDF)
28 pages. "At fiscal year-end 2016, the average discount rate used to calculate the present value of pension obligations decreased to 4.03%, compared with the 2015 rate of 4.33%.... The average projected benefit obligation (PBO) funded status (plan assets/PBO) was 81% at fiscal year-end 2016, a minor uptick from the 2015 level of 80%.... The fiscal year-end 2016 discount rate for other postretirement benefits ranges from 2.84% to 6.63% in the current survey, with an average of 4.04%. At fiscal year-end 2015, discount rates for companies included in this year's report ranged from 3.25% to 6.47%, with an average value of 4.28%." (Willis Towers Watson)
ERIC Files Amicus Brief with the Supreme Court in Critical Retiree Health Case
"ERIC's brief lays out two reasons the Court should review the case: The Sixth Circuit's decision violates the Supreme Court standard set by the M&G Polymers v. Tackett case regarding how the duration of a retiree health benefit should be interpreted, and The Sixth Circuit's decision was reached by applying a test which the Supreme Court had affirmatively thrown out in Tackett." (The ERISA Industry Committee [ERIC])
Five Important Ages for Retirement Planning
"At age 50, your employees will become eligible to save more the standard amount in their 401(k) and IRA accounts ... By waiting until the age of 59-1/2 to take a withdrawal, your employees will get to keep an additional 10% of their money.... Your employees will be able to sign up for Medicare during a seven-month period starting three months prior to their 65th birthday.... Baby boomers born between 1943 and 1954 will be eligible to begin claiming the full Social Security benefit they've earned at age 66.... Whether it's needed or not, they'll be required to take distributions from their traditional IRAs, traditional 401(k)s and Roth 401(k)s after age 70-1/2." (Voya)
Kraft Retirees Had No Vested Right to Health Care Benefits Beyond Termination of CBAs
"Kraft contended there was nothing in the language of the relevant [collective bargaining agreements (CBAs)], [memoranda of agreements (MOAs)] or SPDs that promised to provide medical benefits to retirees that would continue beyond the termination of the CBA in effect when the individual retired or that the medical benefits could never be changed.... [T]he relevant SPDs both expressly provide a right to 'amend or terminate' the health plan at any time... [T]he court declined to consider extrinsic evidence offered by the union in an effort to demonstrate vested rights." [Gruss v. Kraft Heinz Foods Co., Inc., No. 15-788 (W.D. Wis. Sept. 15, 2017)] (Wolters Kluwer Law & Business)
[Guidance Overview] Retiree HRAs Receiving More Attention from California Public Employers
"Retiree-only HRAs [RHRAs] can provide significant tax-free health benefits and, if structured properly, can help [California] public employers address budgetary and compliance problems ... An RHRA can be used to automatically and, on a mandatory basis, convert some or all of the accumulated PTO into nontaxable retiree health benefits. [California agencies] that wish to eliminate or cut back their FLSA/overtime exposure can offer RHRA contributions in place of current cash-in-lieu benefits." (Best Best & Krieger LLP)
Ninth Circuit Faults Retiree Plan's Disclosure of Lifetime Maximum
"The ACA's detailed amendments to the Public Health Service Act (PHSA) included a prohibition on group health plans or their insurers setting lifetime limits on benefits for any participant or beneficiary.... [A] blanket provision [stated] that the amended PHSA provisions would apply to ERISA group health plans 'as if included in this subpart.' This part of ERISA (Part 7) includes an exception for certain plans with fewer than two active employees. However, King argued that the ACA superseded this provision, especially since it eliminated a similar PHSA provision for certain retiree-only plans. The court ruled that the ACA ban did not apply to retiree plans ... Any inconsistency that was created between PHSA and ERISA is not so drastic that plans cannot comply with both, [the judge wrote]." [King v. Blue Cross and Blue Shield of Ill., No. 15-55880 (9th Cir. Sept. 8, 2017)] (HR Daily Advisor)
 
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