Volvo AB has agreed to pay $525 million to settle a class-action lawsuit affecting more than 9,300 retirees. Mack Trucks Inc., a unit of Volvo, was accused of illegally reducing the retirees’ lifetime health benefits. A federal judge granted preliminary approval of the settlement on May 12th. Under the settlement, the $525 million would be paid in five annual installments into a trust to fund a new health care plan. A fairness hearing has been scheduled for September 7, 2011.
The dispute concerned whether Mack, which had been having financial difficulties, could alter or rescind lifetime benefits it had agreed to provide through collective bargaining with the UAW (the retirees’ union). Mack was bought by Swedish company Volvo in 2001. Even though the agreed-upon changes will reduce medical coverage, lawyers for the retirees, the UAW and Mack all said in a joint court filing that they provide “reliable” and “substantial” benefits by “reducing uncertainty about the availability of coverage.”
In his ruling, the judge said the settlement avoided potential litigation concerning the “difficult and unsettled issue” under federal labor law over whether the benefits had vested. He also said the settlement secured an up-front payment that was guaranteed by Volvo, and which was neither dependent on Mack’s future performance nor subject to claims by its creditors. In his order, the judge wrote: “The proposed settlement provides the retirees with significant lifetime medical benefits,” and “falls well within the range of reasonableness.” The case combined lawsuits filed in federal courts in Michigan and Pennsylvania.
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