The 7th Circuit Court of Appeals has ruled on a case involving a change in treatment of unused sick-leave pay.
A 3-member panel at the court agreed 2-1 to uphold a lower court ruling that supported the ability of CUNA Mutual Insurance Society, Madison, Wis., to eliminate an unused sick-leave pay program.
CUNA Mutual, the defendant in the case — John Sullivan et al. vs. CUNA Mutual Insurance Society and Cuna Mutual Group Medical Plan for Retirees, Number 10-1558 — has a health plan for retirees. Starting in 1982, the company set up a system that let employees use unused sick-leave pay to help pay for the retiree’s portion of the retiree health coverage costs.
CUNA Mutual paid half of the premiums for the plan.
Management employees had to use their unused sick-leave pay to pay for their share of the retiree benefits premiums. Union workers could choose between taking the sick-leave balance in cash or using it to pay retiree health premiums.
In 2008, CUNA Mutual stopped paying for any portion of the retiree health plan’s costs, and it stopped letting management employees use unused sick-leave pay to pay for retiree health benefits.
If a retiree had been in the union and would have had the right to take some or all of the sick-leave balance in cash, CUNA Mutual would put that amount in an account to be administered by the retiree health plan. In that case, the retiree would have to use the account or private funds to pay 100% of the cost of the retiree health coverage.
John Sullivan and three other retired CUNA Mutual executives sued the company on behalf of a class of plaintiffs that included all CUNA Mutual retirees affected by the change in the unused sick-leave policy.
Chief Judge Frank Easterbrook writes in an opinion for the majority that, under the Employee Retirement Income Security Act (ERISA), pension benefits vest but welfare benefits do not.
“Employers are free to reduce or abolish benefits under welfare plans,” Easterbrook says.
Some plan documents, including enrollment forms, did not indicate that CUNA Mutual had the right to change required retiree health benefits contributions or eliminate the benefits altogether.