Wisconsin Supreme Court Holds Reimbursement of Medicare Part B Premiums Not a Vested Right for Milwaukee County Employees
February 12, 2015

Wisconsin Federation of Nurses and Health Professionals, Local 5001, AFT, AFL-CIO and Association of Milwaukee County Attorneys v. Milwaukee County, 2015 WI 12.

Today’s Wisconsin Supreme Court decision in Wisconsin Federation is the latest ruling in a string of opinions relevant to retiree benefits vesting cases, and the second Wisconsin Supreme Court ruling to address the matter since the enactment of Wisconsin Acts 10 and 32. Consistent with other recently-decided benefits vesting cases, the Wisconsin Federation opinion shifts the analysis away from a presumption of vesting toward a fact-specific contract-law approach, under which benefits may in some cases be changed prospectively.

Wisconsin Federation Ruling Summary

The case involved a dispute over whether union members Susan Schwegel and Susan Jaskulski had a vested right to Medicare Part B premium reimbursement by their employer, Milwaukee County, even though that benefit was eliminated before they retired. The plaintiffs contended that they had become vested in the benefit upon commencing employment with the county.

Affirming the Court of Appeals decision, however, a majority of the Wisconsin Supreme Court concluded that entitlement to Medicare Part B reimbursement did not accrue until actual retirement. Because the employees had not retired before the benefit was eliminated, they had no vested right to have the County provide reimbursement for those premiums.

Although the majority reached its opinion through both a detailed review of the applicable ordinance history and by distinguishing health benefits from pension benefits, Justice David Prosser’s concurrence appeared to be grounded in a more practical view:

It is not possible to conclude that county employees like Schwegel and Jaskulski have vested rights to Medicare Part B premium reimbursement before they retire——indeed from the time they were hired——without gravely impairing a county government's ability to manage its fiscal affairs.

In a vigorous dissent, two Justices concluded that, under the plain language of the law, Milwaukee County employees vest in all benefits at the time of initial employment. According to the dissenting Justices, “The majority opinion rules that the County need not keep its promise to employees.”

Factual Background

The Milwaukee County Employees Retirement System (MCERS) is governed by local ordinances because in 1965, the state legislature granted Milwaukee County “home rule” authority over their retirement system. Home rule gave the county the authority to make any changes to the retirement system which the County deemed “necessary or desirable.”

While Milwaukee County had been providing certain health insurance benefits to its employees since 1955, Milwaukee County General Ordinance (MCGO) § 17.14.(7) was revised in 1989 to limit the number of employees who would qualify for continuation of health insurance benefits upon retirement at County expense. Included in those limitations was that the County would only continue paying the full monthly cost of retiree health insurance for employees who began working for the County before July 31, 1989. To qualify, the employees would have to have 15 or more years of service at the time of retirement.

Subsequent amendments to that ordinance eliminated the reimbursement of the Medicare Part B premium by the County for different groups of employees in 2010, 2011 and 2012, so that the benefit was eliminated for all active MCERS participants after December 31, 2012.

Wisconsin Supreme Court Analysis

The union members named in this case, Ms. Schwegel and Ms. Jaskulski, were employed with the County prior to July 31, 1989, had accumulated 15 years of service with the County, and had reached retirement age. What they did not do was retire prior to the elimination of the benefit on December 31, 2012. Because they did not actually retire prior to the elimination of the benefit, the Wisconsin Supreme Court concluded that neither Ms. Schwegel nor Ms. Jaskulski accrued a vested right to Medicare Part B premiums reimbursements.

The Court explicitly rejected the argument that Ms. Schwegel and Ms. Jaskulski’s entitlement to have the County reimburse them for the Medicare Part B premiums commenced at the time of their initial employment.

The Court recognized that Chapter 138, Laws of 1945 governing MCERS provided that employees "shall have a vested right to such annuities and other benefits and they shall not be diminished or impaired by subsequent legislation or by any other means without his consent." The Court noted, however, that at the time this language was enacted, the county provided only pension and death benefits – not health insurance benefits. Accordingly, the Court reasoned, there could be no intent for this language to protect health insurance benefits from the date of initial employment. Further supporting this interpretation is that when Milwaukee County was granted home rule authority in 1965, this vesting language was moved to MCGO § 201 (relating only to pension benefits), without any mention of health insurance.

In arriving at its decision, the Court reiterated its reasoning in Loth v. City of Milwaukee, 2008 WI 129, 315 Wis.2d 35, 758 N.W.2d 766, which held that employees were not entitled to receive a vested health insurance retirement benefit if they had not satisfied all of the prerequisites to receive that benefit before it was eliminated. The prerequisites in Loth were the same as in the present case: (1) length of service; (2) reaching retirement age, and; (3) actually retiring.

The Wisconsin Supreme Court also distinguished this case from previous Court of Appeals decisions in Welter v. City of Milwaukee, 214 Wis. 2d 485, 571 N.W.2d 459 (Ct. App. 1997), and Rehrauer v. City of Milwaukee, 2001 WI App 151, 246 Wis. 2d 863, 631 N.W.2d 644, under which employees were found to vest in disability pension benefits upon commencement of employment, by noting that Welter and Rehrauer dealt with pension benefits, not health insurance. The court also drew contrasts between pension benefits, which accrue according to a formula, and health insurance benefits, which the County has amended “many, many times,” including with respect to required deductibles, co-pays and cost-sharing.

The Court observed that health insurance benefits, “by their nature . . . have always been fluid opportunities available for a limited period of time, which an employee may realize if he or she takes all actions necessary to convert the opportunity into an entitlement during the period in which it is available.”

Other Recent Benefits Vesting Cases

On January 26, 2015, the Supreme Court of the United States decided M&G Polymers USA, LLC v. Tackett, No. 13-1010 (January 26, 2015), holding that, absent specific language in a contract or collective bargaining agreement regarding vesting, there is no presumption that retiree health insurance benefits are guaranteed for the life of the retiree.

In addition, the Wisconsin Supreme Court issued another Milwaukee County benefits-related decision in December 2014 in Suzanne Stoker v. Milwaukee County, 2014 WI 130, __ Wis.2d __, 857 N.W.2d 102, holding that a reduction in the formula multiplier used to calculate pension benefits, applied prospectively, did not diminish or impair the accrued benefits of employees who had not yet retired.

Unusual Invocation of ERISA in a State Benefits Decision

We note with interest the concurring Justice’s mention, in Wisconsin Federation, of federal ERISA law (which does not apply to governmental benefit plans) as an example of needed protective legislation:

Years ago, Congress passed the Employee Retirement Income Security Act (ERISA) to protect private employees who participate in pension plans. Something similar may be necessary in Wisconsin so that we can step back from the immediacy of the fiscal crises faced by public employers and develop a strategy to protect public finances without betraying the trust owed to loyal public employees.

ERISA applies, indeed, not only to private sector pension/retirement plans, but also to health insurance plans. Several of the pension protections incorporated into ERISA, however, already exist in the public sector. Specifically, a majority of Wisconsin public employees participate in one of three large governmental pension plans: (1) the Milwaukee County Employees Retirement System (approximately 14,000 participants); (2) the City of Milwaukee Employees Retirement System (approximately 23,000 participants), and; (3) the Wisconsin Retirement System (approximately 570,000 participants).

The Wisconsin Federation decision, as well as the Stoker decision, reflects that benefits may be changed prospectively for Milwaukee County employees who have not yet retired.

These rulings are consistent with the sometimes misunderstood public retirement plan rules that, in fact, already function to protect accrued benefits. Under the Wisconsin Retirement System (WRS), which covers over 1500 public employers, for example, state statute has long provided that WRS benefits may be changed prospectively for service not yet earned. Benefits already accrued and relating to prior service may not be reduced, per Wis. Stat. §40.19.

What do these decisions mean for employers?

The Court’s extensive description, and parsing, of the statutory and ordinance language in today’s ruling underscores the importance that specific benefits language plays in each public sector vesting analysis. Whether a benefit is provided through a municipal ordinance (as in Wisconsin Federation), a municipal resolution (as in Loth), a collective bargaining agreement, or through a handbook or other policy, it can function as an offer, the employee acceptance of which (by performing requested employment acts) gives rise to a binding contract.

The Wisconsin Federation and Stoker rulings are consistent with Wisconsin legal precedent under which the act of retiring can be a permissible prerequisite to becoming vested in a retiree benefit, provided that the offer language is sufficiently clear on this point.

Wisconsin state law is also clear, however, that once a public sector benefit is fully vested, it may not be retroactively modified or eliminated. Employers considering potential changes in retiree benefit offerings for future retirees should therefore carefully review any current and prior collective bargaining agreements, handbooks, or other employee communications for language regarding whether or to what extent those benefits might be vested.

If you have any questions with respect to this article or employee benefits matters, generally, please contact your Davis & Kuelthau attorney.

 

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