Construction Employee Relations and Benefits
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Forget retirement: Plan to die on the job
By:Daniel D. Doyle

From the St. Louis Post-Dispatch, January 16, 2005

Anyone considering an offer of early retirement from a private-sector employer had better read the fine print. Whipsawed by the questionable economy and the rising cost of health care, more companies are reserving unilateral rights to terminate the health-benefit plans of retirees.

Health plans containing these reservations of rights seem to recognize that employees are productive company assets while working but turn into potentially unaffordable liabilities in retirement.

This corporate sleight of hand can transform the anticipated pleasure of early retirement into a financial mess for retirees, particularly those with little room in their budgets for unexpected costs.

Let's suppose a 55-year-old with a serious medical condition accepts an early retirement offer, which includes health benefits, from a company eager to reduce labor costs. Even after the cuts, the company's shareholders and lenders demand additional measures to provide higher quarterly dividends and ensure uninterrupted loan payments. The company invokes its reserved rights to significantly modify or terminate retirement health benefits, saving millions of dollars a year.

Now, the retiree must pay for most or all of his prescription drugs, doctor visits and hospitalization costs before reaching Medicare eligibility. The medical condition effectively prevents him from buying replacement insurance. So, the retiree is likely to wish he'd kept his job and resisted the retirement incentives.

This scenario could come true for retired salaried employees of Dresser Industries, which had promised lifetime health benefits. Dresser merged with Halliburton Co., which promised to continue the benefits seemingly in a bid to avoid an exodus of experienced managers. After filing a Chapter 11 bankruptcy case, Halliburton filed a class-action lawsuit against its retirees for a determination that the company could eliminate their health benefits.

Many retirees of the old Monsanto Co. were promised lifetime health benefits. The company spun off Solutia Inc. in 1997 as a free-standing corporation. The old Monsanto Co., a different entity than today's Monsanto Co., told retirees that there were no plans to change their post-employment benefits.

Most of the retiree obligations were assigned to Solutia, which filed a class-action suit in Florida against the retirees. Solutia asked the court to determine that it could unilaterally modify the rights of retirees, notwithstanding Monsanto's promise of lifetime benefits.

The suit was settled in 2001. But the retiree benefits, which were significantly modified by the settlement, are being challenged again by Solutia in its Chapter 11 case filed in December 2003.

Though the Pension Benefit Guaranty Corp. provides some protection for employer-funded plans, there's little government protection for retirees who are stripped of health, life or disability benefits by a financially troubled former employer invoking its reservation of rights to terminate plans.

Retiree benefits became a target for corporate cost-cutters in 1988 when LTV Steel Co. filed for bankruptcy and obtained a judgment under which it could stop paying retiree benefits to its former mine workers. Congress enacted stopgap legislation to preserve the LTV benefits, and the Retiree Benefits Protection Act of 1998 was enacted to give retirees additional rights in bankruptcy cases.

Nevertheless, several courts have refused to apply the protections if the retiree benefit plan contained a reservation of rights allowing the employer to terminate or modify the plan at will. The only sure solutions might be for workers to forgo retirement until they're eligible for Medicare, negotiate retirement packages without reservations of right to modify or simply plan to die on the job.

Editor's note: Spencer Fane Britt & Browne represents the Official Committee of Retirees in the Chapter 11 bankruptcy of Solutia Inc.