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Retirees Retain Healthcare in ERISA Appeal

Private equity investors are on the hook for health insurance after a federal appeals court ruled that ownership must abide by a benefits agreement made before it acquired the company. Retirees challenged the move by the Carlyle Group to cancel a 2002 agreement reached between an AFL-CIO local and the then-owners of a Riverdale manufacturer that entitles dependents and surviving spouses to subsidized care. The coverage embraces employees with 15 years of service and continued even after a new owner closed the plant two years later. Further corporate actions saw the obligation transferred to Signode Industrial Group and Carlyle opt to cancel the package ahead of selling that company to a Philadelphia-based competitor.

Retirees won a class action in district court that Carlyle appealed, contending that workers had to retire when the agreement was signed for coverage to remain in effect. Judges in the Chicago-based Court of Appeals for the 7th Circuit affirmed the lower court’s ruling, citing caveats on vesting of benefits packages under the Employee Retirement Income Security Act. They called provisions that expressly stated the benefits would survive the agreement’s expiration a matter of contract law.