Wednesday, February 19, 2014
Life insurance provides important financial support for surviving family members when income-providers die. Although the surviving spouse is entitled to a Social Security widow(er)’s benefit—the Social Security benefit amount of the deceased spouse, if greater than the benefit amount of the surviving spouse—death may bring a significant drop in Social Security income. If couples were each receiving equal Social Security benefits, for example, the survivor will receive only half of what they were receiving as a couple—but it is unrealistic to expect that expenses will be cut in half by the death of one spouse. Yet life insurance receives far less statutory protection than health insurance; for example, the Genetic Information Non-Discrimination Act does not apply to either life or disability insurance. A recent 6th Circuit decision concluded that ERISA did not protect retirees against cutbacks in life insurance when employer promises were ambiguous. Haviland v. Metropolitan Life Ins. Co., 730 F.3d 563 (6th Cir. 2013).
The plaintiffs in Haviland were General Motors retirees who had been salaried employees. GM reduced their life insurance benefits to a maximum of $10,000. Some 42,000 of these retirees, those retiring between October 1, 1997, and December 1, 2011, have also faced pension plan changes; on June 1, 2012, these retirees were offered the choice of taking a lump sum benefit (supposedly calculated to be the actuarial equivalent of their prior defined benefit plan) or an annuity purchased by GM from Prudential. These retirees and their surviving spouses also lost GM health care benefits and Medicare part B payments at the age of 65, although with an offset of $300/month presumably to cover increased health care costs. So it is understandable that they were concerned about the additional cutback in the financial buffer provided by life insurance in case of death.
GM’s promises to retirees sent conflicting messages. On the one hand, GM reserved the right to make changes in the plan. On the other hand, the letter from Metropolitan Life, the issuer of the life insurance policy, stated that the plan “will remain in effect for the rest of your life,” without any further payment. The plaintiffs contended that MetLife had violated its obligations under ERISA when the plan changed. As important background, ERISA preempts state law claims, so plaintiffs’ state law claims such as breach of contract were dismissed; and ERISA does not provide vesting standards for life insurance, health insurance, or other benefits coming under the “welfare” plans provisions of the statute rather than the pension provisions. The 6th Circuit rejected all of the plaintiffs’ claims. For example, although recognizing that promissory estoppel claims can be brought against ERISA plan fiduciaries, the court limited this possibility to cases in which the plan documents did not unambiguously reserve the right to alter plan benefits. The court also concluded that GM had not violated ERISA fiduciary duties in what plaintiffs had been told; at the time the letters were sent, they correctly represented the plan in place at the time, even though the plan was subject to later change.
Retiree benefits impose costs that in many cases are considered to be unsustainable. However, individuals cannot undo retirement; once retired, they and their spouses are stuck with the circumstances of their retirement. Employers, by contrast, are not stuck, at least with welfare plans when they have reserved rights to change or discontinue. This asymmetry with respect to retiree welfare plans will only continue to exacerbate the impoverished economic circumstances of many retirees.