Retirees’ Suit Says KKR Illegally Cut Off Insurance
Three retired employees of a Northern California forest products concern, including two who are seriously ill, have filed a suit accusing the leveraged buyout firm Kohlberg Kravis Roberts & Co. of illegally cutting off the retirees’ health insurance benefits.
The retired employees had worked for American Forest Products, in which KKR held a controlling stake before selling it off to Georgia Pacific Corp. in April. The plaintiffs were part of a group of 171 retired American Forest Products management employees who were notified that their health benefits would be cut off when KKR sold the company.
Nearly all of the other retirees settled for a lump-sum payment of $25,000 each when the insurance was suspended, according to a KKR spokesman. But the three, including one who has cancer and another who recently underwent open heart surgery, refused to settle and filed suit Thursday in U.S. District Court in San Francisco. They accuse KKR of violating federal law protecting retirees’ health and pension benefits.
The suit also names as defendants American Forest Products, as well as Travelers Insurance, which supplied the insurance coverage.
‘Callous and Ruthless’
In their complaint, lawyers for the retirees call them “the last and tragic victims of a leveraged buyout” by KKR. They charged that cancellation of the health benefits “is the result of a callous and ruthless investment strategy designed to increase investors’ financial returns.”
Termination of the health benefits coincided with the sale of the company to Georgia Pacific. That company agreed to keep on American Forest Products’ current workers.
But an outside spokesman for KKR said the decision to cancel the retirees’ health coverage was made by Travelers, which he said had a right to do so under the terms of the policy. The spokesman said KKR hadn’t yet seen a copy of the suit.
Could Hinge on Pact
He said KKR and American Forest Products had tried unsuccessfully to find other insurance companies willing to insure the retired workers. The spokesman said that under the terms of sale to Georgia Pacific and the employees’ retirement plan, KKR wasn’t under any legal obligation to continue supplying them with medical coverage. He said KKR made the lump-sum payments to the other retirees “as a gesture of good faith and in recognition of past service.”
A spokesman for Travelers said the company hadn’t yet been served with a copy of the complaint. He said the firm wouldn’t comment until it had seen the suit.
The suit accuses KKR and Travelers of violating the federal Employee Retirement Income Security Act, which is designed to protect employees’ pension and retirement health benefits. One expert on labor law, however, said that legal issues in the case could depend on the wording of the retirement agreement the ex-employees signed after the company was acquired by KKR and other investors from Bendix Corp. in 1981.
KKR, the nation’s largest leveraged buyout firm, is involved in bidding to take RJR Nabisco private for more than $20 billion.
