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Legal Landmines for Employee Benefit Plan Sponsors During Bad Economic Times

Legal Landmines for Employee Benefit Plan Sponsors During Bad Economic Times

Employee Benefit Plan Review

September 17, 2009

Meanwhile the 2009 amendments to COBRA have added a new level of complexity to an already complicated law regulating group health plans. In a nutshell, the 2009 COBRA amendments allow employees who lose their job through no fault of their own between September 1, 2008 and December 31, 2009, to have the federal government pay for 65 percent of their COBRA premiums (the employer receives a payroll tax credit equal to 65 percent of the COBRA premium).

New laws mean new rules, new COBRA notices and new unanswered questions.


With the rapid decline in the U.S. economy has come an upsurge in employee benefit related lawsuits. For example, when Caterpillar and Alcoa announced reductions to their retiree medical benefit plans during 2008 they were immediately hit with class action lawsuits.

To no surprise, benefit reductions are very unpopular with retirees. While employers have generally convinced courts they are allowed to share costs with salaried retirees under ERISA regulated retiree medical plans, these same arguments have not fared as well in connection with retiree medical benefits covered under a union contract.

To make matters worse for employers trying to maneuver through the many obstacles associated with a decision to reduce benefits, the circuit courts of appeals have patently different opinions about when collectively bargained retiree medical plans can be changed.

The outcome of a retiree medical lawsuit increasingly depends on the analysis employed by the court in considering benefit reduction cases.

Retired union members favor the analysis employed by the Sixth Circuit for a very good reason. Of the 12 important retiree medical decisions arising under the Labor Management Relations Act in the Sixth Circuit, all 12 found retiree medical benefits were vested.


While federal courts in Ohio and Michigan appear to favor retirees in these disputes, the same cannot be said of the federal courts next door in Illinois and Wisconsin. Employers crowd the dockets in Illinois and Wisconsin because the Seventh Circuit has ruled retiree medical benefits are not vested in eight out of 10 published LMRA cases.

Consequently, where the lawsuit is filed, as opposed to the circumstances leading to the benefit reduction, will often be the determinative event in the outcome of a case.


The subprime mortgage crisis has had a profound effect on retirement plans regulated by the Employee Retirement Income Security Act of 1974 (ERISA).

The most obvious examples are the many lawsuits filed by 401(k) Plan Participants at Countrywide, AIG, Lehman Bros., Bear Stearns, and others alleging that plan fiduciaries knew or should have known it was imprudent to allow employees to ever invest in the stock of these companies.

Poll: How do you feel about crying at work?

Poll: How do you feel about crying at work?