Case Study- Unilateral Freeze of Defined Benefit Pension Plan

The hospital (employer) and nurses ’ union have maintained a bargaining relationship for over 20 years. The union represents a bargaining unit of 250 registered nurses employed by the hospital. The current labor agreement became effective on January 22, 2008, and was scheduled to expire on January 21, 2011. The labor agreement contained the following contract language under Article 9, Section 12, regarding pension and life insurance benefits:

1. Nurses shall participate in the Pension and Life Insurance Plans available to Hospital Employees on the same basis as other hospital employees.

a. Full-time and Part-time Regular Nurses shall be eligible for a free life insurance policy equivalent to one times the nurse ’ s annual earnings, starting the first day of the month following the nurse ’ s date of hire.

b. Full-time and Part-time Regular Nurses who have completed one (1) year of counted service and 21 years of age shall be eligible to join the Hospital ’ s contributory, defined benefit, pension plan. The normal retirement age is 65. However, reduced benefits are available for participants who elect early retirement at any time after their 55th birthday.

During the 2008 – 2009 time period the stocks in which the pension ’ s assets were invested significantly underperformed the expected rate of return. This resulted in the pension plan being underfunded by $14.7 million in relation to the projected benefit payments the fund would be required to pay plan participants. Pension law allows the plan provider (the hospital) a period of seven years in which to make up the underfunded condition. In addition to bargaining unit members, other non – bargaining unit members also participate in the hospital ’ s pension plan, although such individuals are not covered under the contract language contained in the nurses ’ labor contract. After internal discussions involving management personnel, the hospital announced a plan to freeze the pension plan for all hospital employees. While such a freeze would not eliminate or reduce already accrued pension benefits, it would stop the accrual of any additional pension benefits until such time as the freeze was removed. The hospital ’ s administrator invited the nurses ’ union to meet for the purpose of discussing the proposed pension plan freeze. The nurses ’ union responded that in its view, the contract language in Article 9, Section 12, of the con-tract obligates the hospital to offer a defined pension benefit plan to all nurses in the bargaining unit who have met the eligibility criteria. Since the contract was still in effect, the hospital had no right to unilaterally change the terms of the existing pension plan without the union ’ s consent. The union declined to voluntarily re-open the contract early for purposes of renegotiating language pertaining to the pension plan but indicated a willingness to include pension plan modifications during the next regularly scheduled contract negotiation period. The hospital was disappointed in the union ’ s refusal to immediately bargain over the proposed pen-sion plan freeze. Hospital management believes that the language in the first part of Article 9, Section 12, gives it the right to make changes in the pension plan so long as the changes apply to all hospital personnel equally. The hospital administrator referred to previous minor changes in the pension plan applicable to all covered plan participants, which had been implemented by the hospital without comment from or negotiations with the union. On January 2, 2010, the hospital implemented the pension plan freeze applicable to all plan participants, including the nurses in the bargaining unit. The nurses ’ union filed a grievance, and the parties proceeded to submit the contract dispute to an arbitrator for resolution.

1. Did the hospital violate Article 19, Section 12, of the labor agreement when it unilaterally implemented a pension plan freeze effective January 2, 2010? Explain your reasoning.Copyright | CENGAGE Learning | The Labor Relations Process |