Countering Corporate America 's Attack
on Retiree Benefits and Pensions
By C. WILLIAM JONES

There have recently been numerous troubling media reports documenting the crisis in U.S. pensions and health-care insurance. Many large companies are claiming that the cost of providing benefits is hurting them with both domestic and foreign competitors. Others say that poor stock market conditions have depressed their pension-plan assets and have caused pension trusts to become under-funded. Their solution has often been to eliminate traditional pensions for current employees and to reduce or eliminate health-care benefits for employees and retirees.

The result is considerable financial strain and anxiety for large numbers of Americans. The Association of BellTel Retirees Inc. and other retiree groups are working to counter this attack on benefits and pensions. It seeks to protect retiree benefits and hold corporations to the promises made to their dedicated workers.

Pensions and Health Care: Deferred Compensation Under Attack

The steel, airline and automobile industries are all struggling, and some have dumped the problem onto the lap of the Pension Benefit Guarantee Corporation (PBGC). This government agency has its own problems and, unless some legislative steps are taken soon, the PBGC will be turning to taxpayers for help.

Meanwhile, corporations in a variety of industries report that spiraling health-care costs are placing a huge burden on them. This is particularly troubling to businesses because health-care insurance benefits, unlike pensions, are not pre-funded. Thus, in a bad year these costs weigh heavily on a corporation's income statement.

The bottom line is that retirees and employees are being told that in order to save their company they must make sacrifices. What is not made clear in the media reports is that these pensions and benefits were not gifts from a benevolent employer; they were earned over a lifetime of employment and were an important component of the earned “compensation package.” Another way to look at these benefits is that they are a form of deferred compensation. Had companies not provided these pensions and benefits, with the promise that they would continue in retirement, employers would have had to pay workers considerably more to attract and retain them.

Corporations that provided pensions and health-care insurance for their employees and retirees reaped financial benefits. Every dollar that was paid for these benefits instead of wages and salaries were exempt from taxes such as Social Security, worker's compensation and unemployment. Further, companies had some flexibility regarding when these benefits were funded.

For instance, in a bad year a company might not have made a contribution to the pension plan, allowing it to show better earnings and attract investors. If a company had a great year, it could make additional contributions, reducing both net income and the taxes that would have been paid in the absence of such contributions.

The long and short of this story is that corporations, employees and retirees all benefited from these plans, as long as the promises were kept. When corporations walk away from the commitments they made to employees and retirees, they are stealing the deferred compensation earned by those employees.

A Watershed for Telecommunications Retirees

If the retirees who dedicated their lives to employers in return for promises of pensions and benefits sit by idly, then those eyeing corporate pension funds and benefit plans will renege on the promises.

Bell System employees, for example, were promised cost of living adjustments (COLAs) in their retirement years. “Ma Bell” always kept her promises, or so we thought. About 16 years ago, however, NYNEX, one of Verizon Communications' predecessors, suddenly stopped giving COLAs without notice. As if on cue, almost every other telecommunications company made the same change.

This was a watershed moment for retirees and led to the creation in 1996 of the Association of BellTel Retirees Inc. (ABTR). Today its membership exceeds 111,500 and it represents more than 250,000 retirees of the companies merged to form Verizon. Founded by retired managers, the Association has always included former union-represented workers and management working together; the membership is currently made up of 44 percent former union and 56 percent former management employees. 1

The New Corporate Strategy

Many of America 's largest companies have been canceling benefits and pensions for workers and retirees in what seems like a synchronized strategy.

On January 24, 2006, Mercer Human Resources Consulting announced a new subsidiary, Mercer Frozen Plan Solutions, designed to help employers wind down defined-benefit plans and offload plan management. One portion of Mercer's three-pronged process includes, “managing the plan to a ‘target endgame' that best meets the sponsor's business objectives.” 2 By the end of February 2006, at least seven major American corporations took this route, affecting hundreds of thousands of loyal soon-to-be retirees.

Lets us not fool ourselves—this type of corporate strategy development has been going on behind closed doors for at least two decades. Only in the current government and regulatory climate have companies become so embolden to engage in such activities on the public stage.

Retirement Challenges

In the fall of 2004, the ABTR conducted a survey of more than 2,000 retiree members. It asked their feelings about the most important topics addressed in the 2004 presidential race. Ninety-three percent said they believed the election was more critical than past elections given the important retiree matters to be decided in the four-year period ahead. Fifty-three percent reported that when deciding among presidential candidates the most important considerations were domestic issues, including such matters as Social Security and Medicare reform, health benefits protections, and prescription drugs (including drug re-importation).

More than half of the surveyed retirees (53 percent) said the most important domestic issue is the creation of a federal law to protect health-care benefits promised by employers, such as the Emergency Retiree Health Benefits Protection Act (a bill introduced in 2005 by Representative John Tierney and 60 cosponsors). Another 20 percent said stiffer penalties should be imposed for corporations defaulting on pension obligations.

In 2006, health benefits are among the biggest challenge facing retirees. As health-care costs rise and the population ages, corporations seem intent on diminishing or eliminating such benefits. According to the Centers for Medicare and Medicaid Services (CMMS), health-care spending will consume 20 percent of the U.S. gross domestic product by the year 2015. The Centers projects that national health-care spending will grow by an average of 7.2 percent annually, or 2.1 percent faster that the overall U.S. economy. 3 It is true that corporations never anticipated the tremendous escalation of health-care costs when they, long ago, promised to provide these benefits. However, if these rising costs are a burden for large corporations, then how can they be borne by fixed-income retirees?

The CMMS outlook forecasts that U.S spending on prescription drugs will soar to $446 billion in 2015, up from an already staggering $188 billion in 2004 (before “so-called” reforms were put in place). In the year 2006 alone, Medicare spending is forecast to spike by 25 percent due to the new prescription drug benefit.

In the summer of 2005, the ABTR conducted extensive interviews with hundreds of members who reported in their own words just how their golden years were losing value. Nearly 93 percent stated a high level of concern over their financial situation and indicated a concern that their pensions or benefits will become causalities of the country's economic trends.

Nearly thirty percent of those interviewed indicated that retirement is not as financially comfortable as expected. About 28 percent said they are suffering financial hardship resulting from pension erosion. For example, Ann Guerin, who worked for NYNEX for 25 years before being forced to retire, stated, “I sold off [my] IRA to pay off the remaining mortgage on our house. My husband . . . worked in the airline industry over 45 years and almost every airline he worked for went bankrupt, leaving him with almost no pension.” For retirees like Guerin, returning to the workforce is virtually impossible and complicated by a heart attack she sustained after retiring in 1992. Nearly 20 percent of those interviewed told us they have been forced to reenter the workforce to make ends meet.

Charlene House of Bolingbrook , Illinois , who retired in 1999, has found that paying health insurance premiums has become an especially onerous financial burden. Nearly 17 percent of those interviewed agreed; retirees are struggling with medical costs. In six years since her retirement, Ms. House's monthly out-of-pocket co-payment to maintain health insurance for herself and her husband has increased by $240.00 per month—to nearly $3,000 a year.

Taking Action

So far, the ABTR has had a number of successes on behalf of Verizon retirees, as have other retiree groups. In recent years, for example, it has gained the attention of Wall Street as the first group to rally enough shareholder support to force important corporate governance changes at Verizon. This has empowered other retiree activist groups and labor unions, which have begun employing this method in the wake of the Association's efforts.

In order to be a greater force in the United States , retirees must neutralize the influence of major corporations on Capitol Hill. In this congressional election year (2006), the Association hopes retirees send a message to members of Congress who say over-and-over that they love old people and that they plan to be an old person some day, but then continually vote against retirees and in favor of major corporations.

A critical need is to nurture other corporate retiree advocacy groups across the nation as they join the fight for pension and benefit protections. Realizing that bringing together activist groups from all industries would provide greater power in Washington , the Association joined others to form the National Retiree Legislative Network (www.nrln.org). This group is dedicated to creating, advocating and lobbying for pro-retiree legislation and is made up of twenty corporate activist organizations.

In the end, the only way retirees can help themselves is to change the laws of the land. Congress already knows retired workers are the strongest voting block in the nation, but feels retirees could never unify and vote to hold Congress accountable. Working together, members of the Association of BellTel Retirees hope to change that perception.

NOTES
1. The Association of BellTel Retirees Inc. is dedicated to the protection and enhancement of pensions and benefits for retirees and beneficiaries of the companies and subsidiaries that make up Verizon Communications. The Association is committed to convincing the company to properly care for its thousands of dedicated retired employees. The organization conducts activities designed to edu cate elected federal, state and local representatives, and to promote passage of legislation that will protect and guarantee, rather than invade, retirees' hard-earned pensions and benefits funds.

2. Mercer Human Resource Consulting. January 24, 2006. “New Mercer Program Helps Employers Manage Frozen Pension Plans.” News release available at http://www.mercerhr.com/pressrelease/details.jhtml?idContent=1207810 .

3. Reuters News. February 22, 2006. “Healthcare Spending Eating Up GDP.” CNNMoney.com. Available at http://money.cnn.com/2006/02/22/news/economy/healthcare.reut/ .

C. William Jones is president and executive director of the Association of BellTel Retirees Inc. ( www.BellTelRetirees.org ), which he helped establish. Jones began his thirty-year stay with what was then New York Telephone in the summer before his senior year of college. He retired in 1990 as managing director of corporate planning for NYNEX Corporation, now part of Verizon Communications.

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