Can an employer modify or terminate the medical benefits of retired employees? The answer depends on the language in the employer’s medical benefit plan.

A recent federal court ruling highlights the importance of medical benefit plans unambiguously reserving the right to modify or terminate plan benefits. Without this language, an employer makes itself vulnerable to “he said/she said” disputes in which retirees claim that their former managers promised the retirees that their medical benefits would remain unchanged through retirement.

Generally, an employer may unilaterally modify or terminate retiree medical benefits at any time absent the employer’s contractual agreement to the contrary. Therefore, if no contractual provision exists that vests the retirees with continued and unchanged medical benefits, an employer may modify or terminate the benefits at will. Several courts have concluded that an unambiguous reservation-of-rights provision that is not otherwise contracted in the medical benefit plan is sufficient to defeat a claim that retiree medical benefits are vested.

This rule is illustrated in a recent class action brought by 5,000 retirees against Deere & Company. A class of retirees sued their former employer because of changes Deere made to their medical benefits. . . . After a two-week bench trial, an Iowa federal district judge ruled against the retirees because the reservation-of-rights in the plan documents unambiguously informed retirees that their medical benefits were subject to change.

. . . The Deere case emphasizes the necessity of including a clear reservation-of-rights in plan documents, and educating your supervisors and managers on this plan language. Similarly, in a union setting, employers should insist on language in the collective bargaining agreement explicitly permitting employers the right to modify or terminate retiree medical benefits.

The rest of the story . . . .