Wyatt Employment Law Report


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Walmart Announces Wage Increases

By Colby F. Block

On Thursday, Walmart announced several changes to its compensation and benefits structure—the most noticeable being its hourly wage increase. Walmart states that, by April 2015, its entry-level wage will start at $9 an hour, and it will go up to $10 an hour by early 2016.

Other new measures include additional training and opportunities for internal promotion, which Walmart CEO Doug McMillon states will create clearer paths to better jobs and higher pay.

wage increaseThese changes are significant—Walmart is the largest private employer in the country, and this will increase wages for 500,000 of its employees. The cost to Walmart over the next year is projected at one billion dollars, but this number is actually small considering the company’s almost $500 billion in annual revenue.

Walmart’s announcement has already created quite the media frenzy. And some—noting that it is not altruism behind these changes—are already questioning Walmart’s motives. Walmart is a business, after all, so there is a bottom line. Is the goal to Continue reading


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Sixth Circuit Reversed in Union Benefits Health Case: Supreme Court Rules Against Retired Workers

By Amanda Warford Edge

On Monday, in M&G Polymers USA, LLC v. Tackett, No. 13-1010, the U.S. Supreme Court ruled that ambiguous provisions in union contracts should not be automatically interpreted in favor of a company’s retired workers. The case concerned a union contract from the 1990s that provided free health care benefits to the retirees of a chemical plant in Apple Grove, West Virginia who received pensions. In 2000, M&G bought the plant, and in 2006, it sought to make its retirees contribute to the health care costs. The retirees sued, alleging that they had been promised free benefits for life. The contract, of course, did not directly state whether the parties intended lifetime investiture.

Medical Records & StethoscopeThe district court found for M&G—but according to the Sixth Circuit, the retirees’ benefits had, in fact, vested for life. The Sixth Circuit relied on a long line of precedent, dating back to 1983, in support of this holding. Essentially, this precedent presumed the existence of lifetime benefits, even when the contracts at issue did not specify them. In Tackett, the Sixth Circuit expanded upon this presumption, holding that Continue reading


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SIXTH CIRCUIT REJECTS RETIREES’ CLAIMS TO FIXED LIFETIME HEALTHCARE BENEFITS

by Leila G. O’Carra

The Sixth Circuit recently issued two opinions addressing retired employees’ claims to lifetime, unchangeable healthcare benefits. In both cases, the Sixth Circuit rejected the retirees’ claims.  In Reese v. CNH America LLC, Nos. 11-1359/1969, the parties’ collective bargaining agreement (CBA) promised healthcare benefits to eligible retirees and their spouses for life.  The lawsuit arose when the employer, CNH, attempted to modify the scope of the retirees’ healthcare plan.  The retirees claimed that CNH could not alter their vested benefits without union approval. 

In rejecting the retirees’ claims, the Sixth Circuit held that healthcare benefits, unlike other kinds of benefits, cannot be “fixed” because of the constant evolution of medical advances and the fluctuation of healthcare costs attendant to such improvements.  Accordingly, the court reasoned, the employer necessarily retains the right to make unilateral “reasonable” changes to the retirees’ healthcare plan.  Furthermore, the court noted, the retirees had not complained about prior to changes to the plan.

The Sixth Circuit remanded the case to the district court to determine whether the changes proposed by CNH were reasonable considering the following:

  • Does the modified plan provide benefits “reasonably commensurate” with the old plan?
  • Are the proposed changes “reasonable in light of changes in health care?”
  • Are the benefits “roughly consistent with the kind of benefits provided to current employees?”

Judge Bernice B. Donald dissented from the majority opinion, writing that the retirees’ vested right to receive health care benefits for life precluded CNH from making unilateral changes to the level of benefits provided.  Judge Donald agreed with the district court’s holding that any changes to the plan “must be reached though negotiation and agreement between the union and the employer.”

Four days after deciding Reese, the Sixth Circuit, in Wittmer v. Acument Global Technologies, Inc., No. 11-1793, permitted the employer, Acument, to eliminate retirees’ health benefits based on reservation-of-rights language found in the parties’ CBA.  The AcumentCBA promises “continuous health insurance” to retirees and their spouses “during the life of the retiree.”  However, the document also specifies that the employer “reserves the right to amend, modify, suspend, or terminate the Plan.”  Relying on this language, Acument terminated plan benefits in 2008.  A class of 64 retirees sued, claiming that Acument violated the Labor Management Relations Act and the Employee Retirement Income Security Act.  The Sixth Circuit viewed the matter as purely contractual, and determined that pursuant to the terms of the contract, Acument reserved the right to terminate benefits at any time. 

In so holding, the Court rejected the plaintiffs’ argument that the grant of “continuous” benefits “during the life of the retiree” created “vested, unchangeable benefits.”  The Court reasoned that, in context, the term “continuous” meant simply that benefits would not terminate automatically when the CBA expired.  The Court also rejected plaintiffs’ assertion that the reservation-of-rights clause applied only to pension benefits, finding that the CBA dealt with healthcare and pension benefits together, and used the term “pension plan” and “plan” interchangeably to cover all benefits.      

Dissenting Judge David Dowd, Jr., (United States District Judge for the Northern District of Ohio, sitting by designation) found ambiguities in the benefits provision of the CBA and would have remanded the case to the district court and allowed extrinsic evidence to prove the intent of the parties with respect to vesting of benefits. 


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Medical Loss Rebates Received By Employer-Sponsors of Insured Health Care Plans

By Mark C. Blackwell

The medical loss ratio (“MLR”) rule under the Patient Protection and Affordable Care Act (the “ACA”) is now in effect and over the next few weeks many of our clients will be receiving rebate checks from their health insurers.  These checks will “come out of the blue” for many clients and will surely raise questions – – for example, what is this for, what can I do with the money, does any go to employees, is it taxable?  Guidance by the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) has been provided for employers, summarized below.

[Note that this summary applies primarily to private employers who provide health insurance to their employees through a policy with an insurer who is subject to the MLR   Plans of governmental employers, churches and non-ERISA plans are not included in this summary.]

Background

Generally, the MLR rule requires health insurers to issue “rebates” to policyholders if the insurer’s MLR ratio exceeds 85 percent for the large group market, and 80 percent for the small group and individual market.  The MLR is basically the ratio of the insurer’s (i) claims and quality improvement expenses to (ii) total premium dollars earned (adjusted for certain taxes and fees).

An MLR rebate is required to be allocated by the sponsor of an applicable health care plan between the policyholder (usually the employer) and each enrollee covered by the policy insuring the employer health care plan (usually the employees participating in the plan) “in amounts proportionate to the amount of premium paid.”  DOL recently issued Technical Release 2011-4 which provides guidance for how such rebates may be used by sponsors of ERISA-covered plans, and the IRS subsequently issued FAQ’s that provide information on the federal tax consequences of rebate payments.

How Can the Sponsor of an ERISA Group Health Plan Use the Rebate?

DOL guidance provides generally that if the employer pays the entire cost of insurance coverage, the rebate may be retained by the employer.  If the employer and plan participants each contribute a portion of the premium, the employee share is treated as a plan asset and must be used within 3 months of receipt for a permitted purpose, which may include:

• Distribute rebate to participants;

• Enhance benefits provided by the applicable plan; or

• Reduce future participant premiums.

In deciding on how to apply the rebates to plan participants, the DOL guidance notes that a plan “may properly weigh the costs to the plan and the ultimate plan benefit as well as the competing interests of participants or classes of participants provided such method is reasonable, fair and objective.”  For example, if the cost of distributing the rebate to former participants approximates the amount of proceeds, the employer may decide to allocate the proceeds to current participants using a reasonable, fair and objective allocation method.  Or, again for example, if the payments would be de minimus in amount, the employer may use the rebate for other permissible purposes including applying the rebate to future participant premium payments or benefit enhancements.

 For plans that are exempt from ERISA’s trust and annual audit rules (i.e., unfunded group health plans that are insured), MLR rebates normally remain exempt from ERISA’s trust, annual audit and reporting requirements.

 Is a Rebate of Amounts Paid with Employee After-tax Dollars Taxable?

An employee is taxed on the rebate only to the extent the employee received a tax benefit from deducting the premiums.  Thus, if the employee did not deduct the premiums on his or her tax return, the rebate is not taxable.  And,  regardless of any prior deduction of premiums, no taxable income results (although any deduction for current year premiums is reduced) if the employer provides the rebate to all current employees participating in the health plan, without regard to who participated in the year the rebate relates.  In no event is the rebate allocated in this manner subject to employment taxes.

Is a Rebate on Amounts Paid with Employee Pre-Tax Dollars (e.g., 125 Plans) Taxable?

If the rebate is distributed as a premium reduction for the employee, then the amount paid for the coverage is less, resulting in increased taxable wages.  If the rebate is distributed in cash, then the rebate is treated as taxable wages, subject to income and employment taxes.