Retirement benefits case stands

April 04, 1995|By Lyle Denniston | Lyle Denniston,Washington Bureau of The Sun

WASHINGTON -- The Supreme Court yesterday cleared away much, if not all, doubt that companies have the right to cut off or sharply lower the health coverage they provide for retired workers.

The justices voted to leave intact a broad ruling by a federal appeals court that --ed the hopes of more than 600 pensioners -- including many Marylanders -- of regaining free lifetime health benefits from the company that formerly was Maryland Cup Co.

The 4th U.S. Circuit Court of Appeals in Richmond, Va., the court that decides federal issues for an area including Maryland, ruled in September that a federal law governing workers' benefits gives companies a right to amend or terminate employee benefit plans -- a right that the appeals court said exists automatically, unless the company voluntarily surrenders it.

By declining to review that decision, the Supreme Court did not endorse it directly. But the justices' action left in place a precedent that goes further than any other federal court ruling to protect management changes in many benefit plans.

The appeals court ruling applies to all benefit plans except pensions. Under the 1974 law, if a worker has earned a pension -- that is, has gained a vested right to it -- the company must pay the pension as promised, the appeals court stressed.

But, it added, there is no similar "vesting" guaranteed by law for any other type of employment benefit. So all of those may be scuttled by the company unless it is bound by a union contract to honor them.

The decision permits companies to end health coverage or reduce it significantly. But it could extend beyond that, for example, to such things as vacation time or sick days.

In the case of the Maryland retirees, the benefit at issue was health coverage after retirement. The company is Sweetheart Cup Co., which was once Maryland Cup Co. and then Fort Howard Cup Corp. Sweetheart continues to operate a cup-making plant in Owings Mills, and company officials said last month that they are considering moving Sweetheart's headquarters to that Baltimore suburb.

Effective June 1, 1989, the company drastically reduced the health benefits it had been providing to all retirees who had left the payroll before 1985. Instead of free lifetime health coverage, the company began requiring retirees to pay for health coverage. The level of benefits was lowered significantly.

Four retirees, acting on behalf of a group numbering more than 600, went to court, claiming that they could prove that the company had promised to provide them with free health coverage for the rest of their lives and, if they died, for the rest of their spouses' lives.

But the appeals court said a federal judge had no need to consider that evidence because the only thing that mattered was what the company said in the document that describes retiree health benefits -- an insurance policy.

Because that document reserved the company's right to change retiree health benefits, the appeals court said, the company had not waived its right to modify or end coverage under the Employee Retirement Income Security Act.

The retirees' lawyer, John T. Ward of Baltimore, said the court's order yesterday "shows a further evisceration" of the 1974 law's safeguards for workers.

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