A recent decision from the Wisconsin Supreme Court provides some welcome relief for public sector employers concerned about retiree claims for vested health benefits. In Loth v. City of Milwaukee, 2008 WI 129, the Wisconsin Supreme Court ruled against an employee who claimed he was entitled to no-cost retirement health benefits which he argued had allegedly vested under a policy no longer in effect. In doing so, the Supreme Court confirmed that public sector employers have some latitude to modify benefits for those employees who have not yet retired, in cases where retirement is a requirement to receive the benefit.
The facts of the case involved Albert Loth, an accountant for the City of Milwaukee who began employment in 1984 and retired in 2005. Before the City modified its health insurance benefit in 2002, the applicable health insurance benefit provided that those employees who retire at age 60 with at least 15 years of service were eligible for health insurance at the City’s expense until age 65. In 1999, Loth completed 15 years of service, but had not yet reached age 60. However, the City modified the health insurance benefit in 2002, such that individuals retiring during or after 2004 would need to contribute towards the cost of health insurance. Loth retired in 2005 at age 60, and he believed that he was eligible for no-cost health insurance, since he had met the 15-years of service requirement while the prior benefit was in effect. The City argued that in order to qualify for the no-cost health insurance, Loth would have had to actually retire at age 60 at the time the prior benefit was in effect.
After the trial court ruled in favor of the City, the Court of Appeals reversed the decision and ruled in favor of Loth. The Court of Appeals focused on the service requirement, finding that Loth had performed the requisite 15 years of service, and the City was thus obligated to keep its end of the bargain that was in place when Loth met the service requirement.
The Supreme Court Decision
The City appealed the decision to the Supreme Court, and the Supreme Court ruled in favor of the City. The Supreme Court rejected Loth’s argument that reaching age 60 and actually retiring were only conditions required for him to receive the benefit he had already earned. Instead, the Supreme Court was convinced that there were three requirements for the prior no-cost health insurance benefits: (1) the individual had to retire; (2) the individual had to be between the ages of 60 and 65; and (3) the individual had to have 15 or more years of service to the City. Loth met only one of these requirements when the prior benefit was in place, and thus, he was not eligible for the prior no-cost benefit.
The Loth decision stands in contrast to a series of prior retiree health decisions that had been decided in favor of the employee. In Roth v. City of Glendale, the Supreme Court of Wisconsin ruled that there is a presumption that, in the absence of contractual language or evidence indicating otherwise, retiree health benefits in a collective bargaining agreement vest at the time of the employee’s retirement. Roth was found not to be applicable in Loth because the City was not modifying a contractual obligation to Loth, since there was never any obligation on the part of the City to provide Loth with free health insurance benefits.
In another prior case, Champine v. Milwaukee County, the Court of Appeals ruled that an ordinance providing that employees were no longer entitled to a full payment of accrued sick leave could not be applied to sick leave benefits that employees had already earned, but could only apply to sick leave benefits not yet earned. The Loth court distinguished Champine as well, noting that the nature of the sick leave benefit allows employees to accrue benefits gradually, whereas the right to retiree health insurance is earned only on a single designated date.
The City’s victory in Loth provides a recent example of a court enforcing limitations on employee claims for vested retiree health benefits. However, each decision dealing with vesting of retirement health benefits is heavily dependent on the specific facts and circumstances of that case. Considering the nuances involved in the applicable cases, as well as the scope of public sector health insurance liabilities, we recommend that public sector employers concerned with the vesting of retiree health benefits contact a member of the Davis & Kuelthau, s.c. Employee Benefits Practice Group or your Davis & Kuelthau, s.c. attorney for guidance.