Opinion ID: 164993
Heading Depth: 2
Heading Rank: 2

Heading: Vesting Under A Welfare Benefit Plan

Text: 18 ERISA regulates two types of benefit plans, pension benefit plans that create vested rights and welfare benefit plans that need not create vested rights. Member Servs. Life Ins. Co. v. Am. Nat'l Bank & Trust Co. of Sapulpa, 130 F.3d 950, 954 (10th Cir.1997). The Coleman LTD Plan is a welfare benefit plan because disability insurance plans are considered welfare, not pension, benefits. Chiles, 95 F.3d at 1510. Welfare benefit plans are 19 exempt from the statutory vesting requirements that ERISA imposes on pension benefits. Accordingly, an employer may amend the terms of a welfare benefit plan or terminate it entirely. However, benefits under a welfare benefit plan may vest under the terms of the plan itself .... [and] an amendment to any ERISA plan may not operate retroactively if that amendment deprives a beneficiary of a vested benefit. 20 Member Services, 130 F.3d at 954 (citations and quotation marks omitted) (emphasis added). See also Chiles, 95 F.3d at 1510 (Benefits provided under a welfare benefit plan need never vest.... An employer or plan sponsor may unilaterally modify or terminate welfare benefits, unless it contractually agrees to grant vested benefits.). [P]laintiffs carry the burden of showing an agreement or other demonstration of employer intent to have company-paid [benefits] vest under the plan. Chiles, 95 F.3d at 1511. 21 Because UNUM retroactively applied Amendment 23 (which was enacted August 6, 1998) to limit benefits for Ms. Welch's disability (which began January 31, 1998), we must determine whether the Coleman/UNUM LTD plan included a contractual promise that benefits would vest upon the occurrence of some condition. Because an employee benefit plan must be established by a written instrument, a promise to provide vested benefits must be incorporated, in some fashion, into the formal written ERISA plan. Id. (internal quotation marks omitted). We interpret the terms of the LTD plan de novo to determine whether the plan included a promise to vest benefits. Id. If it did, and if Ms. Welch's benefits had indeed vested under it, then it was inappropriate for UNUM to retroactively apply Amendment 23 to Ms. Welch's claim. 22 UNUM contests (1) the magistrate judge's finding that the LTD plan vested benefits upon the termination of the plan; as well as Ms. Welch's arguments that the LTD plan vested benefits upon (2) the conclusion of the elimination period, and (3) the attainment of her disability. We address each contention in turn. Because we conclude that Ms. Welch's benefits were not vested under the LTD plan, we hold that it was not improper for UNUM to retroactively apply Amendment 23 to Ms. Welch's claim for benefits.
23
24 The initial LTD plan contained a provision which stated, [t]ermination of this policy under any conditions will not prejudice any payable claim which occurs while this policy is in force. Aplt's App. vol. I, at 63. The magistrate judge found that this provision constituted a contractual promise to vest benefits in the event of the plan's termination. See Aplt's App. vol. II, at 574 (reasoning that a reasonable person in the position of [Ms. Welch] would read the termination provision in the [initial] plan ... as allowing UNUM/Coleman to change the terms of the plan, but if the plan terminates, her disability benefits may not be prejudiced, e.g., reduced or withdrawn, if she had a `payable claim' before the plan was terminated). Subsequently, the magistrate found that the enactment of Amendment 23 caused the plan to terminate, triggering the vesting of Ms. Welch's benefits, such that it was improper for UNUM to retroactively apply Amendment 23 to limit Ms. Welch's disability benefits. Id. at 576-77. Because we hold, as discussed below, that the initial LTD plan did not terminate, it is unnecessary for us to decide whether or not the plan's termination clause included the clear and express language necessary to guarantee the contractual vesting of a welfare benefit. Chiles, 95 F.3d at 1513 (internal quotation marks omitted). 25
26 The magistrate judge found that Amendment 23 effectively terminated the initial LTD plan and replaced it with a new plan. To reach this conclusion, the court relied on (1) the language of Amendment 23, which stated that [t]he entire policy is replaced by the policy attached to this amendment, Aplt's App. vol. I, at 118, and (2) a review of the history of the Coleman/UNUM long-term disability plan, which showed that 27 [i]n the past, some `amendments' purported to simply modify portions of the plan by changing only specific sections of the plan and substituting a few new pages in the policy.... However, other `amendments'—including Amendment 23 which is relevant here—purported by their own terms to entirely replace the old plan, with a completely new policy attached to the amendment. 28 Aplt's App. vol. II, at 576-77. 29 As the magistrate judge noted, there is a scarcity of guidance on questions of welfare plan termination. Chiles, 95 F.3d at 1516. Thus, we must evaluate all of the circumstances surrounding the enactment of Amendment 23 to determine whether it actually effected a termination of the initial plan. We conclude that the factors considered by the magistrate are not dispositive of a plan termination. Rather, we hold that the facts of this case show that the LTD plan was modified, not terminated. 30 First we observe that UNUM did not undertake any administrative steps that would indicate that Amendment 23 terminated the initial plan and created a new plan. UNUM did not follow the guidelines set forth in the plan documents for terminating the plan. With respect to termination of a welfare plan, ERISA only requires that `[t]he assets of a welfare plan which terminates shall be distributed in accordance with the terms of the plan except as otherwise provided in the regulations of the Secretary.' Chiles, 95 F.3d at 1516 (quoting 29 U.S.C. § 1103(d)(2)). The initial Coleman LTD plan only specifies that if the company terminates the plan, it must giv[e] written notice to the policyholder[s] at least 31 days in advance. Aplt's App. vol. I, at 63. The Coleman LTD policyholders did not receive notice of a plan termination at the time of the enactment of Amendment 23. Moreover, Coleman employees were not presented with an opportunity to opt in or out of a new plan. Although Amendment 23 made substantive changes to the plan that affected particular claims for benefits, like Ms. Welch's, the employees' coverage under the plan was not disrupted in a way that would indicate that the initial plan had terminated and a new plan had been initiated. 31 Indeed, this case bears little resemblance to cases in which we have held that there was a plan termination. In Chiles, 95 F.3d at 1515-16, when an employer sold one of its divisions to another company, new trustees were appointed to a replacement LTD plan instituted by the buyer, the buyer became the administrator of the new plan, the seller transferred money to fund the new plan, and the buyer assumed all of the seller's obligations with respect to LTD plan participants. We held that [g]iven the facts of this case, the [seller's] Plan terminated with respect to [the] division employees when [the seller] was released from its obligation to fund the plan with respect to those employees and the employees could look to the [buyer's] LTD Plan for benefits. Id. at 1516. Accord, Courtney v. Am. Airlines, Inc., 40 F.Supp.2d 389, 396 (N.D.Tex.1999) (holding that LTD plan terminated upon the merger of two companies). Clearly, none of these factors are present in the case at bar. The enactment of Amendment 23 did not affect Coleman's control of the plan or its obligations under it. Accordingly, we cannot find that the plan terminated under the reasoning of Chiles. 32 Finally, we note that the changes to the plan were effected by an amendment. Despite UNUM's choice of words that the amendment entire[ly] ... replaced the initial plan, Aplt's App. vol. I, at 118, it is apparent that UNUM intended to merely modify or amend the initial plan, not to end it and institute a completely new one. In fact, Amendment 23 seems to have made few substantive changes to the plan. For instance, the benefit percentage remains the same, as does the waiting period, the elimination period, and the maximum benefit period. Compare Aplt's App. vol. I, at 48-49 with id. at 123. Although the language on the face of Amendment 23 indicated that [t]he entire policy is replaced by the policy attached to this amendment, id. at 118, and a complete copy of the new plan was attached to Amendment 23, we deem it plausible that UNUM used these words to indicate its intention to provide Coleman's employees with a complete, integrated copy of the plan in the interest of convenience. This wording is not ideal, but it does not amount to termination of the plan, especially since UNUM retained the right to change the plan in whole or in part. Id. at 65. 33 Taking into account all of the circumstances, we hold that Coleman's initial LTD plan was amended, not terminated, by Amendment 23. Therefore, assuming without deciding that the initial LTD plan contained language sufficient to contractually vest Ms. Welch's benefits upon plan termination, the enactment of Amendment 23 would not have triggered the vesting of Ms. Welch's benefits. 34
35 UNUM contests Ms. Welch's arguments, which she raised below and which she reasserts on appeal, that her LTD benefits were capable of vesting and did vest, at the conclusion of the waiting [i.e. elimination] period, Aple's Br. at 15, or upon the date she became disabled. Id. at 16-17. 36 We reiterate that [a]n employer or plan sponsor may unilaterally modify or terminate welfare benefits, unless it contractually agrees to grant vested benefits. Chiles, 95 F.3d at 1510. With regard to the payment of disability benefits, the initial LTD plan provides that 37 When the Company receives proof that an insured is disabled due to sickness or injury and requires the regular attendance of a physician, the Company will pay the insured a monthly benefit after the end of the elimination period. The benefit will be paid for the period of disability if the insured gives to the Company proof of continued: 1. disability; and 38 2. regular attendance of a physician. 39 ... 40 Disability benefits will cease on the earliest of: 41 1. the date the insured is no longer disabled; 42 2. the date the insured dies; 43 3. the end of the maximum benefit period; 4. the date the insured's current earnings exceed 80% of his indexed pre-disability earnings; 44 5. the date the insured receives retirement benefits under the employer's retirement plan due to his voluntary election to receive such benefits. 45 Aplt's App. vol. I, at 57, 60. The plan also advises that [t]his policy may be changed in whole or in part. Id. at 65. 46 Contractual vesting of a welfare benefit is an extra-ERISA commitment that must be stated in clear and express language.... [It] is a narrow doctrine. Chiles, 95 F.3d at 1513 (internal quotation marks omitted). There is no language in the LTD plan that provides for the vesting of claims for benefits upon disability or at the end of the elimination period, and the plan specifically reserves UNUM's right to change the plan. We cannot read a vesting requirement into the contract. See id. (declining to read LTD plan as providing for vesting upon the unexpressed condition of attaining disability when the plan clearly pinpoint[ed] plan termination, not employee disability, as the vesting trigger). Therefore, we hold that Ms. Welch's benefits did not vest upon her attaining disability or at the conclusion of the elimination period. 1