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«_ Employer Trustees of the Graphic Communications International Union OPINION AND AWARD Local 1-B Health & Welfare Fund and FMCS Case No. ...»

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In the Matter of Arbitration Between

_____________________________________

Employer Trustees of the Graphic

Communications International Union OPINION AND AWARD

Local 1-B Health & Welfare Fund

and FMCS Case No. 071013-50354-7

Union Trustees of the Graphic

Communications International Union A. Ray McCoy

Local 1-B Health and Welfare Fund Arbitrator

October 28, 2008

_____________________________________

Appearances For the Employer Trustees Thomas P. Kane, Attorney Scott R. Carlson, Attorney Hinshaw and Culbertson LLP 333 South Seventh Street Suite 2000 Minneapolis, MN 55402-2431 For the Union Trustees Scott A. Higbee, Attorney Peterson, Engberg & Peterson 700 Old Republic Title Building 400 Second Avenue S.

Minneapolis, MN 55401-2498

JURISDICTION

The parties are trustees of the Graphic Communications Local 1B Health and Welfare Fund “A” (hereinafter “The Fund”) originally established in approximately 1953 by agreement between the Printing Industry of Minnesota Inc. and the Graphic Communications International Union Local 1B. The Agreement and Declaration of Trust (hereinafter “Declaration

of Trust”) for the Fund contains the following:

Section 4.6- Arbitration.

In the event that the Trustees deadlock on any question of the administration of the Fund, the Trustees shall, upon written application of the Trustees appointed by the Union or the Trustees appointed by the PIM, submit such dispute to an impartial umpire in accordance with the American Arbitration Association’s Impartial Umpire Rules for Arbitration of Impasses Between Trustees of Joint Employee Benefit Trust Funds. The decision of said umpire shall be final, binding and conclusive upon the Trustees and all persons concerned. (Er. Tr. Ex 2, Hereinafter referred to as “Declaration of Trust” at p.2) The parties agreed, as discussed more fully below, that a deadlock occurred and that the matter was properly before the arbitrator for resolution. The parties notified the arbitrator of his selection by letter dated February 7, 2008. The parties selected June 4 and 5 for the hearing of this matter. The hearing was held at the Federal Mediation and Conciliation Services office in Minneapolis, Minnesota. At the end of the day on June 5, the parties agreed that additional time was needed to complete the hearing. The parties selected June 16 to complete the hearing. The parties agreed to submit post-hearing briefs postmarked July 11, 2008. The arbitrator received the briefs postmarked as agreed. The record in this matter was closed on July 14, 2008. The parties had a full and fair opportunity topresent their respective cases including examination of witnesses and the introduction of documents.

HISTORY

In 1991, the parties submitted a deadlocked issue to Arbitrator J.C. Fogelberg. Arbitrator Fogelberg described the issue in that arbitration was as follows: “What is the appropriate level for monthly contributions by retirees for their health and welfare benefits under the Plan?” Arbitrator Fogelberg held, among other things that “As of March 1, 1993, all retirees will be expected to pay the full cost of the coverage.” (Emphasis added.) (In the Matter of Arbitration between the Printing Industry of Minnesota Benefits and the Graphic Communications International Union, Local 1B, St. Paul, Minnesota, December 19, 1991, p. 2, 17, Hereinafter “Fogelberg award” or “1991 award”) Fourteen (14) years after Arbitrator Fogelberg’s award, the Employer Trustees filed an action to enforce that award in federal district court. The Employer trustees filed suit in September 2005. Judge Doty remanded the case to state court and ordered the trustees to select

an impartial umpire to resolve the deadlock. In doing so, Judge Doty said:

“The Employer Trustees request this court to order the Union Trustees to comply with the terms of the 1991 arbitration award. However, neither party disputes the enforceability of the award. Furthermore, the parties do not dispute that the award requires that all post-March 1993 retirees pay the actual cost of their retirement benefits.

The principal dispute in this case, and the cause of the Board’s deadlock, is the manner in which the costs of coverage are to be calculated in light of the advent of SOP 92-6.” (Union Ex. 52 at p. 6-7) Judge Doty went on to say that the court had jurisdiction for the limited purpose of appointing an impartial umpire to resolve the deadlock if the trustees could not agree upon an impartial umpire to do so and gave the parties the opportunity to select an impartial umpire. The parties failed to do so and Judge Doty remanded the cases to state district court. On June 29, 2006, Judge John T. Finley, Second Judicial District, granted the Employer Trustees’ motion to

enforce Arbitrator Fogelberg’s 1991 award. Judge Finley said:

“In the Union and Management Trustee Agreement, it was agreed that the retirees would pay the actual premium costs of their health and welfare benefits program... The only issue is how one determines the actual costs of the coverage. The Plaintiffs (Employer Trustees) say that the actuarial of the retiree group should determine the full cost of the actual costs of the coverage and the union (Union Trustees) says COBRA costs or it should be arbitrated.”(Union Ex. 53) The Union and Employer Trustees could not agree on whether the impartial umpire had to be an actuary and asked Judge Finley for clarification. Judge Finley issued an order dated August 30, 2006 reaffirming his earlier order and adding that the umpire need not be an actuary.





“The court believes that resolution of this conflict between the parties can best be resolved by the parties’ designees bringing in a third-party neutral. As stated earlier, the third party neutral could be an actuary, but it is not necessary that the person be an actuary. The court wants a person who can impartially settle the dispute between the parties based upon his or her ability to evaluate each party’s position and understand how each has calculated the actual costs of the insurance premium.” (Judge Finley Order, C1p. 2, August 30, 2005) ISSUE

The Employer Trustees ask the arbitrator to:

“...enforce the continuing obligation created by a 1991 arbitration decision requiring the subject health and welfare fund to charge those participants retiring after March 1, 1993, the full cost of their coverage provided by the fund - thereby eliminating the retiree subsidy for those retirees. This arbitration also seeks to break a deadlock which occurred when the Employer Trustees moved to set the Fund’s 2008 rates; rates which charged the post-March 1, 1993, retirees the full cost of their coverage.” (Employer Trustees PreArbitration Statement, at p. 1 & 11)

The Union trustees frame the issue as follows:

“Whether retirees have been appropriately charged for their health coverage since the date of an Arbitration Award issued by Jay Fogelberg in 1991.” (Union Trustees Post-Hearing Brief at. p. 1) The Union also described the issue in its opening statement as whether the rates should be calculated using the COBRA formula as the parties have since Arbitrator Fogelberg’s award.

STATEMENT OF THE FACTS

In the early 1980's the Fund was performing well enough for the Trustees to unanimously agree to provide free health coverage to retirees 65 and older. During the mid-1980's the Trustees unanimously agreed to provide free health insurance for early retirees as well. By the late 1980's the Fund was in grave financial trouble. The Trustees were required to reduce benefits in order to save the Fund. In January of 1990, the Trustees passed a resolution that required all retirees to pay the actual cost of the health care benefit. 1 The Union and Employer Trustees could not The trustees reduced the agreement to writing and included the relevant portions in the minutes of their January 27, 1990 meeting to writing and signed it. The relevant portion of the agreement reads: “Effective January 1, 1991, all retirees will be required to pay the actual cost of the health care benefits. The Fund actuary will be instructed to provide the Trustees with the agree on the “actual cost” of the retiree health care benefit and deadlocked. Pursuant to the Declaration of Trust, all deadlocks are to be resolved by way of arbitration. The parties selected Arbitrator Jay Fogelberg to hear the matter in 1991. Arbitrator Fogelberg ruled that as of March 1, 1993, “all retirees must pay the full cost of coverage.” Arbitrator Fogelberg did not define “full cost” and did not identify a specific method for calculating the “full cost” of retiree health insurance premiums. 2 Subsequent to the Fogelberg award, the actuary for the Fund established rates by dividing the cost of covering all participants in the health and welfare plan, both active and retired, by the total number of participants. The Union Trustees, led by former Fund Administrator, Joyce Hurley, were adamant that the rate to be paid retirees should be calculated on the basis of the entire group rather than separating out active employees from retired participants. If the trustees actual cost of this coverage on or before November 1, 1990, so that the retirees can be given at least one month’s notification regarding the cost of the coverage. Thereafter, the cost of coverage for retirees will be adjusted on January 1 of each year, based upon the actuary’s determination of the actual cost of providing benefits.”(See Er. Tr. Ex. 7 at p.3 & Er. Tr. Ex. 45 p.2) Arbitrator Fogelberg acknowledged the importance of the 1990 resolution requiring retirees to begin paying the actual cost of the premiums saying: “To now hold that the clear intent of the parties can somehow be significantly altered by the Neutral to the point of completely ignoring the resolution that was unanimously passed, would undermine the efforts of the parties to save the Plan in the first place.” (1991 Award at p. 14) Although the parties did request clarification from Fogelberg on an issue regarding the pre-1993 retiree group, they did not request clarification as to what method should be used to set the rate or to determine the “full-cost” of coverage.

had calculated the rate for retirees considering the retirees as a group separate and distinct from active employee participants, the amount of the premium paid by retirees would have been higher.

By combining actives and retirees in calculating the rate, the cost to retirees was less than full cost. By definition, the method of calculating rates that the Union Trustees insisted upon included a subsidy for post March 1, 1993 retirees. The Trustees approved rates based on the calculation that combined active and retiree participants beginning in approximately 1994 and continuing through 2006.

In 2001, the Trustees received word of a new accounting standard that required the separation of retirees from actives in order to determine the real cost of providing health insurance to retirees. The new accounting standard was issued by the American Institute of Certified Public Accountants Statement of Position 92-6 (“SOP 92-6") 3 The Fund retained an In fact, discussion of this new accounting principal was evident in the early 1990's.

Because of various debates at both the national and local level as well as within the actuarial and accounting profession, the Department of Labor did not begin enforcing the standard until the end of the 1990's. See e.g. AICPA’s Comment to the Department of Labor’s Non-enforcement Decision regarding SOP 92-6 dated May 12, 1997.AICPA expressed concern that trustees of multiemployer health and welfare plans needed to be more transparent regarding obligations for future benefits expected to be paid to or on behalf of retired or active participants after retirement. AICPA went on the tell the DOL that without measuring the benefit obligations, plan administrators had no basis for assessing future cash flow needs and taking appropriate actions to control the growth of the plan’s health and welfare benefit costs. AICPA described the historical method of accounting for these obligations as the “pay as you go” method and said that it did not properly reflect the true ultimate obligation of the current promise and could have dire actuary to assist with meeting the requirements of SOP 92-6. That actuary, Duane Hanf, attended a board meeting in 2003 and informed the trustees that the Fund was increasingly subsidizing post- March1,1993 retirees.

The new information led to a new round of discussions regarding whether the calculation of premiums to be paid by post-March 1,1993 retirees needed to be changed. The Fund’s actuary, Abby Countryman, issued a memorandum in February 2005 informing the Trustees that she believed each active participant was subsidizing the retirees to the tune of $187.00 per month. (Er. Tr. Ex. 30) On May 26, 2005, the Employer Trustees presented a proposal which they believed represented the full-cost of coverage that post March 1, 1993 retirees were required to pay. The proposal was tabled to give the Union Trustees time to evaluate it. On June 24, 2005, the Trustees met again and the Employer Trustees submitted the same proposal for consideration and a vote. It was rejected by the Union Trustees leading to a deadlock. The Union Trustees calculated the subsidy to be only $87.93 per active participant. (Union PostHearing Br. p. 11) Following the deadlock, Union and Employer Trustees engaged in a series of informal meetings (steak and whiskey meetings) in an effort to reach agreement on the critical issue of the retiree subsidy. The parties agreed that progress was being made in those discussions.



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