Xerox Settles ERISA Lawsuit for $7.2 Million plus Free or Reduced-Cost Retiree Medical and Dental Coverage

Rochester, NY On June 15, plaintiffs revealed that Xerox Corp. has agreed to settle a class action ERISA lawsuit by paying the 900-retiree class $7.2 million to reimburse them for premiums paid since January 2019. In addition, Xerox committed itself to providing the retirees with premium-free medical coverage and reduced-premium dental coverage.

In Vollmer v. Xerox Corp. early retirees argued that Xerox had reneged on its promise to provide free medical and dental coverage in order to persuade them to retire. It seemed like a classic bait-and-switch.

Nonetheless, the lawsuit was complicated because of the limited protections ERISA offers for retiree health benefits and because the lawsuit was filed after the statute of limitations barred claims for breach of fiduciary duty under the law. The settlement does not put the retirees in the same place that they would have been had Xerox not reduced their benefits, but it does spare them the cost and time of a full trial of the issues.

What happened to Paul and Marilyn Vollmer  

   
Paul Vollmer worked for Xerox from 1964 to January 1987, when he chose to take early retirement under the Xerox Corporation 1986 Early Retirement Plan (the “ERP”).  At the time, Xerox was trying to cut costs by trimming its workforce.

Under the terms of the ERP, the Vollmers and others who took the offer, understood that they would be eligible for health and dental care coverage under the Xerox Medical Care Plan for Retired Employees and the Xerox Dental Care Plan (collectively the “Old Plan”). The terms of the Old Plan were very generous.

Some of the promises that Xerox made about this offer seem to be explicit. The official summary of the medical portion of the Old Plan, states:

“Your Xerox Medical Plan costs you nothing. It is not a contributory plan; there are no deductions from your pay to cover the cost. Xerox assumes the full cost of the plan. Benefits and Administration. [sic].”

Significantly, the terms of the Old Plan do not reserve to Xerox the right to later change its terms. Later communications did permit Xerox, at its discretion and at any time, to “terminate any of these plans and policies or the statements made in this booklet.”
That is exactly what happened. In October 25, 2018, the Vollmers received letters informing them that they would have to pay premiums for their medical and dental coverage in the amount of of $260.47 each. In late 2019 their premiums were increased to $282.32. In October 2020, they were informed that their cost sharing would increase to 60 percent and their premiums would go up to $313.40 each.

In November 2020, the Vollmers brought an ERISA lawsuit under both the fiduciary breach provisions of the law and against the fiduciaries for failing to administer the plan under its express terms. Xerox succeeded in having the breach of fiduciary duty claims dismissed as time-barred. All that remained, and all the settlement covers, is the claim that Xerox failed to pay benefits as required by the Old Plan.

Limited protections for health benefits  

According to the Department of Labor: “private-sector employers are not required to promise retiree health benefits. Furthermore, when employers do offer retiree health benefits, nothing in federal law prevents them from cutting or eliminating those benefits--unless they have made a specific promise to maintain the benefits.” Had the ERISA lawsuit continued, it would have focused on whether the promise to continue benefits was sufficiently explicit. The case law on the topic is not conclusive.

Especially given the skyrocketing cost of healthcare, retirees should probably assume that the default position under the law is that there is no guarantee of continued health coverage. Nonetheless, the following explicit promise in official employee plan documents has been found to bind an employer to lifetime coverage: “Basic health care coverage will be provided at the company’s expense for your lifetime.”

Most plan documents now also provide that employers retain the right to change or terminate specific promises or to amend or terminate the entire plan. Typical language may read: “The company reserves the right to modify, revoke, suspend, terminate or change the program, in whole or in part, at any time.” Generally, only very old plans (like the Old Plan) that have not been amended in many years fail to include this employer-protective language.

Workers who choose to take early retirement in reliance on a promise of continued health care coverage do so at their peril. The Vollmers and the other 900 individuals covered by the settlement agreement are comparatively fortunate.

No one should count on this. This is a situation in which advice of competent ERISA counsel, prior to accepting such an offer, could certainly be worthwhile.