On Second Thought: Modifying Retiree Health Plans - No Good Deed Goes Unpunished

Originally published September 3, 2002

"But you promised!" is a refrain heard by parents of toddlers and teenagers. Like these parents, employers too are often puzzled as to when, how, and the extent to which they have made certain promises to employees. These implied promises can be expensive and disruptive when they involve employee benefits, particularly retiree medical benefits allegedly promised on a "permanent" basis to former employees and retirees. This article reviews recent cases discussing such implied promises and suggests ways employers can limit their scope.

Employers first began to explore possibilities for altering retiree benefits in the 1980s, when a combination of factors converged to focus attention on the issue. First, the Financial Accounting Standards Board (FASB) issued Financial Accounting Statement 106 (FAS 106), which required corporations to reflect the value of future retiree medical liabilities on their financial statements. This in turn