In Absence Of Binding Promise, No Protection For Post-Retirement Insurance

In December 1974, the Douglas County, Nebraska Board of Commissioners passed a resolution which allowed employees of the County who retired between the ages of 55 and 65 to participate in the County’s health insurance plan until attaining age 65. The resolution did not specify the amount of premiums to be charged annually or promise that the amount would be the same as that charged to active employees.

Since 1974, retired employees have paid the same premiums to participate in the Plan as active employees. Each year when the Board voted on a resolution to set premium rates, the resolution did not draw any distinction between active employees and retired employees; rather, the resolution merely referred to “employees.”

In 2008 and 2009, the County was in a fiscal crisis. The County adopted a resolution that changed the amount retired employees paid toward premiums for the Plan in order to “adequately address the significantly increased health care costs impacting Douglas County’s health insurance budget, and the Government and Accounting Standards Board rules relating to the unfunded liability of employer health insurance for retirees.” The resolution set a rate for participating retired employees that was higher than the rate paid by active employees. For retired employees who had employee-only coverage, the change meant that they were required to pay 25% of the total premium, whereas an active employee had to pay only 7%.

A group of retirees sued the County, alleging that their rights to post-retirement health insurance were contractually protected. The Nebraska Supreme Court rejected the lawsuit.

The retirees argued that post-retirement health insurance was a protected benefit and that the County’s long practice of providing the retirees with health insurance benefits gave rise to a contractual obligation. The problem with this argument, the Court found, was that “the Plan is not a pension or deferred compensation. An employee’s participation in the Plan was purely voluntary, and obtaining coverage under the Plan was not contingent upon the rendering of services, but, rather, required the payment of premiums.

“Nebraska statutes differentiate between plans for health insurance for County employees and plans for retirement. A statute concerning employee benefit plans for a political subdivision, such as a county, requires only that the political subdivision may establish benefit plans for its employees which will provide medical coverage. The word ‘may’ when used in a statute will be given its ordinary, permissive, and discretionary meaning unless it would manifestly defeat the statutory objective. On the other hand, a County’s retirement system ‘shall’ be composed of all persons who are or were employed by member counties and who maintain an account balance with the retirement system, and all permanent full-time employees shall begin participation in the retirement system upon employment. As a general rule, the word ‘shall’ in a statute is considered mandatory and is inconsistent with the idea of discretion. Members of the retirement system are vested after three years of participation. There is no similar statutory vesting in a health insurance plan.

“Because the Plan is not a pension or deferred compensation, the retirees had no contractual right to participate in the Plan for the same premiums paid by active employees.”

Christiansen v. County of Douglas, 288 Neb. 564 (Sup. 2014).