Pay attention to the language in your employee handbook!

In summary judgement this week, US District Judge Lynn Adelman in Milwaukee dismissed a suit filed by General Electric (“GE”) retirees claiming the plaintiffs have “not shown that they were cognizably harmed by GE’s fiduciary conduct with respect to the plans.”. In 2012, GE eliminated its supplemental Medicare health care plans for retired salaried workers who had not attained the age of 65 prior to January 2015 – approximately 65,000 retirees, who had previously been paying no more than 10% of the cost of their supplemental plans with GE, would now receive their benefits through a private exchange. GE offered to retirees $1000 annually to cover costs.  General Electric said in its annual report filed with the Securities and Exchange Commission that these changes would reduce future postretirement obligation by approximately $3.3 billion.

Key Takeaways & Lessons to be learned?

Unlike pension plans under which employers may not reduce benefits which have already been earned or accrued, most employer sponsored retiree health plans may be amended, modified or terminated at any time, including for those retirees already receiving benefits.  Many retirees rely on these benefits and are unaware that such benefits are not guaranteed.

The most important thing is to ensure that all communications related to such plans to employees & retirees state that the employer may “amend, modify or terminate the plan at any time”.

The key facts that allowed GE to prevail are:

  • GE distributed a handbook in 2012 on retiree benefit plans that included pro-forma language that said GE “expects and intends” to continue offering its plans “indefinitely,” while reserving the right to terminate the programs.
  • In September 2012, GE’s Board of Directors announced that salaried retirees and spouses who have not reached age 65 before January 2015 would no longer be eligible for the plans by relying upon the previously communicated language provided to employees & retirees.
  • As a result, the judge agreed that GE had the right to make such a change and the case was dismissed.

If you’d like more information, contact:

Parker Elmore (pelmore@odysseyadvisors.com) or Francis Fraine (ffraine@odysseyadvisors.com)

 

 

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