Opinion ID: 799219
Heading Depth: 3
Heading Rank: 4

Heading: Vesting of Medicare Part B Premium Reimbursement

Text: Retirees were required to enroll in Medicare Part B and, until 1980, retirees were reimbursed for the entire cost of the Medicare Part B premium from the Pension Plan. Indeed, the CBAs prior to 1980 called for amendment of the Pension Plan to pay a benefit equal to the amount of the Medicare Part B premium ( i.e., 1971 CBA calls for Pension Plan to pay Medicare benefit of $5.60 per month for retirees and spouses). Pension benefits are subject to mandatory vesting under ERISA, and no right to modify or terminate the pension benefit is asserted by defendants in this case. The last increase in this benefit was adopted by way of an Amendment to the Kirsch-UAW Retirement Income Plan. Adopting a cap on this benefit, the pension plan provided that: Effective July 1, 1980, and adjusted on each July 1 thereafter, the monthly amount payable [for this benefit], shall be the rate then in effect for Medicare Cost ... but not to exceed in any event the amount of $11.70.  (Emphasis added.) At that time, the rate was $9.60. As a practical matter, however, once the Medicare Part B premium exceeded $11.70 (when that occurred exactly is not clear), retirees continued to be reimbursed in full for the premiums with the difference being contributed by the employer. The question is whether the parties' intended that the portion reimbursed by the employer would vest at the time of retirement. Defendants main argument is that there was no contractual right to receive reimbursement for Medicare Part B premiums in excess of the pension benefit. The district court found that the right had its origin in the 1980 Addendum to the 1977 CBA, which made changes to benefits for active employees out of concerns related to the Age Discrimination in Employment Act (ADEA). Specifically, this Addendum eliminated mandatory retirement at age 65, and provided that: Active employees attaining age 65 will be required to subscribe to Medicare Part B with Kirsch Company reimbursing said employees for the full cost of such Medicare coverage. This will allow active employees, age 65 and over, to maintain the same level of benefits enjoyed prior to age 65. (Emphasis added.) The district court reasoned that this right was then extended to retirees by provisions that gave the retirees all the health benefits given to active employees as of June 1, 1980. Bender, 725 F.Supp.2d at 648. However, as defendants point out, the CBA actually gave retirees the same benefits as for the employees and their dependents as of July 1, 1980. (Emphasis added.) Because the Addendum expired before July 1, 1980, and this language was omitted from subsequent CBAs, plaintiffs concede that the reimbursement benefit was not directly extended to retirees. While this error admittedly undermines part of the district court's reasoning on this issue, it is not clear that it requires a different result. Plaintiffs argue that it does not matter because the employees' right to full reimbursement continued under the evergreen clause in the absence of an express agreement to end it. That benefit, then, existed as of July 1, 1980, and was extended to retirees until it was modified by the 1998 Settlement Agreement discussed below. In fact, when the Addendum agreed to pay Medicare Part B premiums in full for active employees age 65 or older, the same Medicare Part B premiums for retirees were already being paid in full by the pension plan. The parties' understanding is more clearly reflected in a written Settlement Agreement entitled Medicare Part `B' Coverage, which provided in full: As part of the 1998 Settlement between the parties and the implementation of the Newell Pension Plan effective August 1, 1998, it is understood and agreed as follows. 1. The payment of Medicare Part B coverage that was provided for under the Pension Plan in effect in 1991, but deleted from the plan during 1991, and then reimbursed to retirees, from assets of the company, shall be continued for retirees of record as of July 31, 1998. 2. Effective August 1, 1998, the Company shall continue to reimburse retirees for said Medicare Part B coverage provided they retire to pension on or after August 1, 1998, but on or before July 31, 2002, and provided further, the Company reimbursement for said coverage shall not exceed forty three dollars and eighty cents ($43.80) per month for each eligible retiree and/or retiree spouse. 3. Employees retiring to pension on or after August 1, 1998 shall not be eligible for spouse reimbursement for Medicare Part B coverage unless they have selected a spousal form of pension benefit. 4. Employees retiring to pension on or after August 1, 2002 will not be eligible for Medicare Part B coverage reimbursement from the Company. Defendants argue that the agreement in paragraph 1 to continue to reimburse retirees of record as of July 31, 1998, for Medicare Part B coverage referred only to the pension benefit payment of $11.70 per month. Although not a model of clarity, it does say the Medicare Part B coverage reimbursed to retirees, from assets of the company, shall be continued for retirees of record as of July 31, 1998. This not only seems to refer to the reimbursements being made by the employer in excess of the pension benefit, but also would mean Newell was ending the reimbursement for existing retirees while merely phasing out the same reimbursement for future retirees. In fact, there is no dispute that the Settlement expressly created a cap on the employer reimbursement for those entering retirement on or after August 1, 1998, but before July 31, 2002; ended spousal reimbursement for those retiring on or after August 1, 1998; and ended the employer reimbursement completely for those retiring on or after August 1, 2002. The district court did not err in finding that this Settlement confirmed the arrangement in place since the 1980sthat the company would reimburse retirees for any cost of the Medicare Part B premium in excess of the pension plan benefit. Bender, 725 F.Supp.2d at 648. It was not error to conclude that the CBAs were ambiguous with respect to whether the right to full reimbursement of Medicare Part B premiums was vested for retirees of record as of July 31, 1998. The district court outlined the extrinsic evidence supporting the conclusion that the parties intended the Medicare Part B premium reimbursement benefit to vest for retirees of record as of July 31, 1998, id., at 651-52, and then summarized that evidence as follows: The evidence also demonstrates the intent to vest full reimbursement for Medicare Part B insurance. The 1985 bargaining summary, for example, states that the company will reimburse the retirees and their spouses for the cost of the Medicare Part B premium. The retirement letters and application packages sent by the company between 1988 and 1993 state exactly the same thing. Mr. Oetman, an International Representative for the union at the Sturgis plant from 1984 through 1995, and Mr. Webster, the International Representative for the union after Mr. Oetman, also confirmed that the company and the Union intended to vest full reimbursement for Medicare Part B insurance. Mr. Webster was also part of the team that negotiated the 1998 Settlement Agreement for Medicare Part B reimbursement, and he stated that the 1998 Settlement Agreement was intended to vest full Medicare Part B reimbursement for those who retired prior to August 1, 1998. Id. at 661. Mr. Oetman, stated that in the 1985 negotiations, `the Company agreed to pay the Medicare Part B reimbursement so long as the retiree was receiving Medicare. This meant for life.' Id. at 651-52 (citation omitted). Mr. Webster explained that he was contacted several times after the plant closed by pre-August 1, 1998 retirees who were not getting completely reimbursed. He testified, however, that once he contacted Newell the reimbursements were increased to cover the full amount of the new Medicare Part B premium. Defendants argue that the district court mischaracterized Mr. Webster's affidavit, which did not explicitly state that the Settlement Agreement intended to vest the right to full reimbursement. It may be inferred from what he did say, however: 3. I assisted the Local Union in negotiation of the agreement entitled Medicare Part `B' Coverage initiated on June 5, 1998,.... That agreement accomplished several things. First and foremost, it confirmed that the Employer's obligation to pay the Medicare Part B reimbursement to those who retired prior to August 1, 1998. For those two retired on or after that date, it confirmed the Employer's obligation to pay a flat amount$43.80towards the Medicare Part B reimbursement. This meant that those who retired on or after August 1, 1998 would not receive any additional reimbursement despite the fact that the Medicare Part B premiums would more than likely increase in the future. Defendants also claim the district court erred by ignoring the deposition testimony of Webster's counterpart, Joe Marotti, who negotiated the 1998 Settlement Agreement for Newell, because Marotti testified that he understood the first paragraph to represent a maximum premium reimbursement of $11.70. In fact, Marotti explained that he assumed that it did because the Pension Plan provided a benefit not to exceed $11.70, but acknowledged that he actually did not know. Marotti added that he intended that the Settlement Agreement would preserve the status quo with respect to past retirees and freeze the reimbursement at $43.80 for those future retirees who would retire between July 31, 1998, and June 31, 2002. Nor is it persuasive that McCurry, who had some human resources responsibilities at the Sturgis plant prior to its closing, questioned whether Newell was obligated to reimburse retirees for the increases in Medicare Part B premiums. McCurry made clear that she communicated this to someone at Newell, but was advised that she was wrong and instructed to pay the full amount of Medicare Part B reimbursements for anyone who retired as of July 31, 1998. Despite the misreading of the relevant date in the CBA, the evidence supports the district court's conclusion that the parties intended that full reimbursement of the Medicare Part B premiums in excess of the pension benefit would vest for those who retired on or before July 31, 1998.