Retirees Sue McDonnell on Health Benefits : Aerospace: Class action charges that a company plan to cancel coverage is unlawful.

A federal class-action suit filed Monday charges that McDonnell Douglas’ plan to cancel health care coverage for its retirees is unlawful. The suit seeks a court order blocking the aerospace company from terminating the current medical plan on Dec. 30.

McDonnell announced Oct. 8 that it was ending its decades-long plan of providing lifelong health care coverage for retirees. Instead, the company said it would give retirees a one-time, lump-sum payment from its pension plan and continue to provide them with health care insurance for four years.

The aerospace company said in October that the innovative idea to tap the pension plan and terminate health care benefits would avert a potential $1.8-billion charge against earnings. Company Chairman John McDonnell said such a charge would be a “major blow.”

If the lawsuit succeeds in temporarily blocking the company from proceeding with its plan, it remains unclear how big an impact that would have on McDonnell.

Howard Rubel, securities analyst witJ. Lawrence, Morgan Grenfell, said the suit “increases the risk that investors can estimate what the company’s earnings will be.”

“The McDonnell strategy is an effort to abrogate what seems to be an implied contract,” he said. “It doesn’t surprise me that this issue is going to court.”

The St. Louis-based company is the nation’s largest firm not in bankruptcy to terminate retiree health benefits. Until now, efforts to terminate retiree health care plans have met stiff resistance in federal court, according to Kevin Roddy, one of the lawyers who filed the suit against McDonnell.

“McDonnell Douglas is the stalking horse for the defense industry,” Roddy said. “If they can get away with it, others will follow suit.”

“We have not been formally served yet and we will not have any comment until we . . . have had a chance to review the suit,” McDonnell spokesman Pete Sloan said.

The suit was filed in U.S. District Court in Los Angeles by five retirees on behalf of about 8,000 former employees of McDonnell’s western region operations. Those include its two huge Southern California operations, Douglas Aircraft and the former McDonnell Douglas Astronautics.

The suit charges that McDonnell made repeated commitments of lifetime health care to its employees and that the medical plan was a key part of the employees’ compensation. But the company never told employees explicitly that it could terminate the plan, Roddy said.

In 1977, former McDonnell President Sanford McDonnell wrote that the benefits “are an important part of your total (company) compensation and provide a substantial addition to your weekly paycheck,” the suit said.

The suit charges that the company’s decision to terminate the plan violates the Employee Retirement Income Security Act and represents a breach of contract as well as of fiduciary duty.

Roddy said he intends to file for a preliminary injunction Wednesday and expects a hearing before year’s end.