Personal Finance Retirees may find their benefits targeted for cuts

By David Pitt AP Personal Finance Writer DES MOINES, Iowa (AP) -- It's a case of broken promises. A growing number of companies are reneging on health insurance and other retirement benefits, leaving retirees scrambling and sometimes uninsured. In some cases the companies have few options. They cut benefits programs because they're in bankruptcy and must reduce costs to survive. In other cases, however, retirees have to fend for themselves even as corporate profits soar. It's happening all across the country to the men and women who built cars in Michigan, assembled washing machines in Iowa, rolled out aluminum in West Virginia and fixed faulty telephone lines in North Carolina. Retirees from General Motors, Maytag, AT&T, Chrysler, and Delta Airlines to name a few have seen benefits reduced or eliminated in recent years. "It's very devastating to retirees," said Ed Beltram, spokesman for the National Retiree Legislative Network, a Washington-based retiree advocacy group. "Many of them have counted on the promises from their companies for a secure retirement and suddenly they find themselves in dire financial straits." The advocacy group is pushing for federal legislation that protects retiree benefits. For example, it would like for retirees to be given automatic status on bankruptcy committees -- which are set up to help guide the bankruptcy court through the reorganization process. A company's largest creditors usually sit on the committee and a seat at the table would give retirees a stronger voice. The most recent case in point is Eastman Kodak Co. The iconic company filed for bankruptcy protection last week. Now its employees and retirees can only stand by and watch as the company works its way through bankruptcy protection and hope that their benefits aren't severely cut. Kodak's payroll, now around 19,000, was 70,000 a decade ago and exceeded 145,000 at its peak in the late 1980s. "It's a much smaller company. It's pretty clear that retiree costs are going to be in the bull's-eye," said Bob Volpe, who retired in 1998 after 32 years. Over the past decade Kodak tried to retool itself to keep up with changing technology that saw digital photography nearly eliminate the need for film. In the Jan. 19 bankruptcy filing the company said its efforts have been undermined by a sluggish economy and high restructuring costs. Many Kodak retirees have already seen dental and life insurance benefits cut in the last few years. Currently, the company pays for a portion of retiree health care insurance premiums at a cost of about $146 million a year. In a letter to retirees that accompanied the bankruptcy filing, management made it clear that retirees should expect changes. The company's pension, at least for now, is not at risk. It covers about 63,000 retirees, dependents and beneficiaries. The Pension Benefits Guarantee Corp. was named this week to the Kodak creditors' committee and has said it will actively participate in the bankruptcy to protect the pension plan. Although pension plans are afforded a certain level of protection through the PBGC, health care benefits are another matter. And it's not just bankruptcy that leads to retiree benefit cuts. Since the early 1990s retiree health care benefits have been trimmed because new accounting standards began to require companies to report retiree medical benefit obligations on their balance sheets as debt. In part so that they didn't appear over burdened by debt, some companies began cutting or reducing the benefits. Often labor unions play a central role in fighting cutbacks. However, several federal court cases have upheld the right of companies to cut benefits. The cases frequently focus on whether the language in the union contract explicitly grants the benefits for the life of the worker. Often the language is vague and, when it is, retirees usually lose. In rural West Virginia more than 400 retirees are fighting to get their health insurance benefits back. Century Aluminum Co. closed an aluminum plant in Ravenswood -- about 50 miles north of Charleston -- in 2009 citing poor economic conditions and high operating costs. That December retirees received a letter: "We regret to inform you that your retiree health benefits program will cease on Dec. 31, 2010," it said. "Coverage for medical and prescription drugs will terminate for you and your spouse and covered dependents." For nearly 50 years the company provided retirees health care. It had been negotiated in union contracts. Retirees say they gave up vacation time, pay increases or other provisions to keep the retirement benefits. "These benefits weren't a gift," said Karen Gorrell, whose husband, Michael worked at the plant for more than 33 years. They're both in their 60's and don't have health insurance. To buy a policy, they'd have to pay nearly $3,000 a month, more than what they bring in from their pension income and Social Security. "My husband and I are sitting ducks to lose everything we've worked for all our lives," she said. "The first catastrophic diagnosis and we'll lose everything." With the help of the United Steelworkers union, the Century Aluminum retirees filed a lawsuit seeking to stop the benefit cuts. But so far they've been unsuccessful. Most recently the case was sent back to the U.S. District Court in West Virginia. The company is seeking dismissal. Michael Gorrell, who has seen fellow uninsured retirees battle illness and a few die, said if the government and the courts continue to allow companies to back out of retirement promises, there's little hope for workers. "If the system lets that happen every working man in the U.S. is screwed," he said. Their situation has spurred Karen Gorrell to become an activist, writing congressmen and legislators, and arranging "Occupy Century" events this month to publicly protest the company's move. She said she's angered that the cuts weren't made because the company was filing bankruptcy or unprofitable. The company posted a profit of nearly $60 million in 2010 and a profit of $42.4 million for the first nine months of 2011. Those figures include gains of more than $75 million from eliminating the retiree medical benefits, according to documents filed with the Securities and Exchange Commission. Former CEO Logan Kruger was rewarded for cutting costs at several of the company's plants. In addition to his $875,000 salary in 2010, he was paid more than $1.8 million in bonuses, including rewards for cost savings at Ravenswood. Century Aluminum did not respond to a request for comment. Currently retirees 65 or older are usually covered by Medicare and some continue to receive benefits from their former employers to buy group insurance to fill gaps in that coverage. Most hurt when a company cuts back are retirees younger than 65, who must pay for insurance at very high premiums and deductibles. But, the landscape for securing retiree health care benefits is changing. In 2014 the government's controversial Affordable Care Act, the much discussed health care reform law, will begin to guarantee coverage for the under 65 group. It sets up exchanges that would enable retirees at that age to buy insurance at much more affordable prices than they pay now. Published: Wed, Feb 1, 2012