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CCH® BENEFITS — 03/26/10

Increased Retiree Contributions Must Apply To All Teamsters, Not Just Local 705

from Spencer’s Benefits Reports: An increase in retiree health plan contributions must apply to all members of a collective bargaining agreement, not just those in one unit, said the Seventh Circuit U.S. Court of Appeals in Green and Cooper vs. United Parcel Service (Nos. 09-2445 & 09-2553). The decision involved a plan interpretation issue.

In its 2002 collective bargaining agreement with the International Brotherhood of Teamsters (IBT) and separately with a few IBT locals, including Local 705, the United Parcel Service agreed to provide health insurance to retirees “as outlined in the new UPS health and welfare package summary plan description (SPD).” The SPD covered all IBT retirees, not just those in Local 705.

The SPD stated that “The average annual cost per participant is defined as the total claims paid by the plan in a calendar year, divided by the total number of plan participants during that year…. If the average annual cost per participant exceeds $6,250, each retired employee will share equally in the cost above the $6,250 maximum by making an additional contribution. The $6,250 maximum cost per participant is subject to future negotiations. If required, the additional contributions would not be implemented until after the expiration of the current collective bargaining agreement” (Emphasis in original).

In October 2007, UPS notified all Teamsters retirees that the $6,250 threshold had been exceeded and that effective Jan. 1, 2008, the per retiree contribution would increase from $50 per month to $114.33. However, with the ratification of a new collective bargaining agreement with the Teamsters international union, UPS agreed not to collect the additional contributions from the international union retirees until the expiration of the agreement in 2013.

Meanwhile, Local 705 was negotiating a separate agreement, but its old contract did not expire until July 2008. As a result, UPS sent a separate notice only to retirees of Local 705 explaining that the $6,250 threshold had been exceeded and that additional contributions would become effective with the expiration of the current Local 705 contract in July 2008. The new contributions for Local 705 retirees would increase from $50 a month to “$157.58, $315.17, or $472.75 a month depending upon whether their family members also were covered.”

Must Apply To All Retirees

The retirees of Local 705 filed a class action suit with the district court which found in favor of the retirees on the claim that additional contributions could only be collected from all of the Teamsters retirees, not just Local 705, but the court refused to put off until 2013 the date when such contributions could be collected. The appellate court agreed.

UPS contended that the language in the SPD can apply only to Local 705 retirees because “the phrase ‘share equally’ concerns how the plan calculates average costs, not how it collects additional contributions. The district court found that this interpretation contradicts the plain language and was therefore arbitrary and capricious. We agree” (Emphasis in original).

The district court noted, “UPS concedes that only some retirees are making additional contributions because UPS has agreed not to collect additional contributions from the IBT international retirees until 2013. All retirees are not therefore ‘sharing equally’ because the method by which they must share equally—that is, ‘ by making an additional contribution’—has been nullified.” In ruling against UPS, the court said that it must collect additional contributions “from all IBT retirees.”

However, the Seventh Circuit agreed with the district court that the expiration of the Local 705 collective bargaining agreement referred to in notices about the increases in contributions applied to the contract expiring in 2008, not 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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