For that reason, having extended health coverage from one’s employer available throughout retirement is a highly valued benefit both for those approaching retirement and for those already retired. But what happens when “lifetime” benefits don’t turn out to be “lifetime” after all?
For many companies (and even provincial and federal governments), the cost of keeping up with retiree pension plans and benefits is becoming more and more onerous. For companies which are encountering current financial difficulties, such costs can become crippling. There are several reasons behind that scenario. First, as our population ages, the number of retirees grows in proportion to those who are still in the workforce and therefore still contributing to benefit and pension plans. Second, as individual longevity increases, companies and governments are required to make pension payments and cover benefits for a longer period of time per retiree than was perhaps contemplated at the time pension and benefit plans were established. Finally, the medical costs covered by such benefit plans (e.g., the cost of prescription drugs) are continually increasing.
Many companies, especially those facing financial difficulties of their own or those in declining industries, have taken a hard look at the cost of maintaining current pension and benefit coverage for their retired employees, deciding that those costs are simply not sustainable. Often what follows is a letter from the company to retirees advising them that benefits will be cut back or that the company will no longer cover the full cost of premiums. And retirees, who generally have both the time and the motivation to challenge such decisions, have fought back. In the past year, there have been two court decisions involving large companies which cut back on retiree health benefits and which subsequently had legal action taken against them by affected retirees.
What’s needed in this area – for both companies and their retirees – is some certainty. And unfortunately the recent court decisions do not provide that certainty. The short answer to whether the extended health benefits provided to a company’s retirees can be changed after retirement is that there is no short answer. There is no law, provincial or federal, which requires a company, in all cases, to maintain the same ongoing benefits package for employees or retirees. That said, it’s important to remember that all of the recent decisions dealt only with retirees’ health benefits and that nothing in those decisions affects retirees’ pensions (which are entirely separate and are governed by pension standards legislation).
The reason that there is no law or invariable general rule with respect to retirees’ health benefits is that, in each case, the court’s decision on whether the company had the right to alter those benefits (or was prohibited from doing so) is based on its interpretation of the agreement between the particular company and its employees that provided for those benefits.
In both the recent cases, the retirees had been salaried employees of the company but none had entered into individual employment contracts. Consequently, the courts had to look to all of the documents and communications which had, over the years, outlined or interpreted the terms of the benefits package provided to those employees. While the outcome in each case depended on the court’s assessment of the terms of each company’s benefits package, as defined by those documents and communications, there are some conclusions which can be drawn from the reasoning in both decisions.
First, companies have the right to make changes to post-retirement benefits, but only where that right is outlined in clear and unambiguous language in the documents and communications provided to the employee during his or her working life and at the time of retirement. Where there is the slightest ambiguity in the language, or the relevant documents don’t address that issue, the issue will be decided in favour of the retirees.
Second, making their determination, the courts will look at all sources of information which were made available to the employee, including benefits booklets, information provided during employee benefits or retirement planning seminars, and insurance policies. The language in those documents will be analyzed to determine whether the company made clear representations with respect to the provision of benefits post-retirement.
Decisions involving the competing rights of retirees and their former employers when it comes to post-retirement benefits are difficult ones. On the one hand, companies which seek to cut back on costs involving their retirees are generally companies encountering financial difficulty, and the continued financial health of the company is critical to the future of both current employees and retirees. On the other hand, retirees are in a particularly vulnerable position. Unlike current employees, they are generally living on a fixed income and are unable to respond to unwelcome changes in a compensation or benefit plan by seeking a better position elsewhere. Finally, in many cases, their retirement plans have been based on the assumption that the benefits which are now threatened would be available to them for the rest of their lives.
While the recent court decisions don’t provide an invariable rule that will apply to each such case, what is clear is that there will be many more of such cases before the courts as companies continue to seek to control their retiree costs while retirees themselves push to protect what they increasingly view as their retirement rights.