February 15, 2010: United Parcel Service of America Inc. violated the terms of a summary plan description when it imposed increased health care premiums on retirees who were represented by Teamsters Local 705 while not imposing the same increases on retirees of the Teamsters international union, the U.S. Court of Appeals for the Seventh Circuit ruled Feb. 10 (Green v. UPS Health and Welfare Package for Retired Employees, 7th Cir., No. 09-2445, 2/10/10).

Affirming a lower federal court, the three-judge appellate panel agreed with Local 705 retirees that the SPD language required that all retirees “share equally” in the cost of their benefits. The court found that by singling out Local 705 retirees, UPS had violated the terms of the SPD.

However, while the appeals court said it was wrong for UPS to impose the increased contributions on the Local 705 retirees, the court said UPS would not need to wait until the 2013 expiration of the Local 705's collective bargaining agreement before it could charge all retirees the increased premiums.

According to the court, UPS negotiates CBAs with the Teamsters international union and separately with a few Teamsters locals, such as Local 705. In its 2002 CBA with Local 705, UPS agreed to provide health insurance to retirees during the term of the agreement as outlined in the company's retiree benefit SPD. The SPD further stated that if retirees' contributions were raised, the increased rates would not be implemented until after the expiration of the “current” CBA.

The court said the SPD referenced in the 2002 CBA applied to all Teamsters retirees, not just retirees of Local 705. One provision of the SPD stated that if UPS's annual cost-per-retiree rose above $6,250, all retired employees would “share equally” in paying increased contributions.

In 2006, UPS's average annual cost per retiree exceeded $6,250. Consequently, in a summary of material modifications (SMM) sent to all Teamsters retirees, UPS informed the retirees that effective Jan. 1, 2008, the per retiree contribution of $50 per month would increase to $114 per month.

According to the court, UPS later reached an agreement with the international Teamsters in which UPS agreed that it would not collect additional contributions from retirees until the CBA with the international union expired. UPS did not extend this agreement to Local 705 retirees, and instead the Local 705 retirees received in October 2007 an SMM that explained that the company was raising their contribution rates.

The Local 705 retirees filed an Employee Retirement Income Security Act lawsuit contending that UPS had violated the SPD by collecting additional contributions from the Local 705 retirees without collecting the same contributions from other Teamsters retirees. The Local 705 retirees further argued that until their 2008 CBA expires in 2013, UPS could not impose the additional contribution costs on the retirees.

The U.S. District Court for the Northern District of Illinois ruled in favor of the retirees on their argument that UPS violated the SPD's terms by imposing the additional contribution costs on Local 705 retirees while not extending those costs to other Teamsters retirees.

But while the district court enjoined UPS from collecting additional contributions from the Local 705 retirees in excess of the minimum contribution required for all Teamsters retirees, the court rejected the retirees' contention that the contributions could not be raised until the expiration of the 2008 CBA in 2013. SPD Says All ‘Share Equally.'

On appeal, UPS argued that the district court erred when it concluded that UPS violated the SPD by collecting additional contributions from the Local 705 retirees without collecting additional contributions from other Teamsters retirees. The Seventh Circuit rejected this argument, finding that the SPD language applied to all Teamsters retirees and required that the contribution increase be shared equally among all retirees.

“[T]he Local 705 retirees have a right to rely on the [SPD] language, which unambiguously states that UPS must, if it collects additional contributions, collect them from all IBT retirees. UPS's interpretation to the contrary was therefore arbitrary and capricious,” Judge Terence T. Evans said in writing for the court.

The appeals court went on, however, to agree with the lower court that UPS did not have to wait until 2013 before it could impose the additional contributions on Local 705 retirees. The retirees had argued that the SPD referenced the “current” CBA, which would in their view be the 2008 CBA that was not set to expire until 2013. The court found that the SPD's mention of the “current” CBA was intended to reference Local 705's 2002 CBA with UPS that expired in 2008. In addition, the court said that even if the SPD was ambiguous, the SPD was amended in 2007 by the SMM sent by UPS to Local 705 retirees informing them that their contribution rates were being increased.

The court rejected the Local 705 retirees' contention that the SMM was defective because it failed to specify the amounts that would be collected from the retirees. “But the retirees fail to cite any provision, regulation, or case mandating this requirement. Rather, the regulations they cite pertain to requirements for the SPD (the validity of which is not at issue here), not the plan modification,” the court said.

“We find that the December 2007 SMM modified the SPD and made it reasonably clear that contributions would increase after the expiration of the ‘current' SPD—at that time, the 2002 CBA,” the court said in finding that it was correct for the district court to refuse to enjoin UPS from increasing the contribution rates until 2013.

The opinion was joined by Judges Richard D. Cudahy and Diane P. Wood.

The Local 705 retirees were represented by Jeffrey B. Gilbert of Johnson Jones Snelling Gilbert & Davis, Chicago, and Stephen J. Rosenblat of Baum Sigman Auerbach Neuman & Katsaros, Chicago. UPS was represented by Gary R. Clark of Quarles & Brady, Chicago.

By Jo-el J. Meyer

The full text of the opinion is at http://op.bna.com/pen.nsf/r?Open=jmer-82jn6x.