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Compliance September 5, 2006
US Appeals Court Rejects Halliburton's Request to Reduce Retiree Benefits
September 5, 2005 (PLANSPONSOR.com) - The 5th US
Circuit Court of Appeals said that Halliburton could not
alter retiree health benefits for a company it bought in
1998, unless it did the same for active employees.
Reported by Adrien Martin
When Halliburton purchased energy service firm Dresser in 1998, workers and retirees were offered better plans than those offered to other Halliburton employees. The company then claimed that the terms of the merger gave it the right to alter or terminate the Dresser health insurance plans, claiming that it only had an obligation to provide health insurance for three years following the merger. One of the changes included capping monthly drug contributions at $22 per person.
Dresser retirees argued that the three-year limit only applied to employees who worked after the end of this timeframe, not for those who retired before. In December 2004, the district court threw out the 2003 decision by Halliburton to end the coverage for the retirees of Dresser (See Halliburton Move to Alter Benefits Shot Down by Court ). The company had expected the move to save the company $93 million.
In the district court’s ruling , US District Judge Lynn Hughes wrote that “The cost to Halliburton of this benefit is $93 million. This is about one-half of 1% of Halliburton’s revenue totaling $16.3 billion in 2003. This is a lot of money, but if Halliburton now considers it to be somehow too much, the solution is not to change the deal that it made in 1998. Halliburton agreed to this cost as a part of its payment to Dresser.”
The 2003 amendments provided that effective January 1, 2004, Halliburton’s contributions to the cost of medical coverage would be frozen at the 2003 contribution amounts, forcing plan participants to pay the difference. The amendments also required that as of January 1, 2005, Dresser retirees who had reached 65 years old and were eligible for Medicare would only be eligible for prescription drug coverage, and that all other medical benefits would be discontinued.
According to appeals court opinion , Halliburton amended the Dresser plan to “align the benefits in the three subplans more closely with the benefits provided to other Halliburton retirees,” but failed to make changes to the plans for its own active employees who were similarly situated.
Writing for the appeals court, Circuit Judge Carolyn King wrote: “We decline to allow Halliburton to unilaterally take away the ‘bargained-for rights’ that Dresser and Halliburton negotiated and made on the retiree program as a part of their merger agreement.”