U.S. Issues Alert to Retirees on Benefits

Many employers are slashing health benefits for retired workers, Labor Secretary Robert Reich warned Monday as he issued a special alert telling workers to look closely at corporate benefit documents.

The proportion of retirees with corporate health coverage fell to 27% in 1994, down sharply from 37% in 1988, according to a Labor Department report.

“If a promise is made, a promise should be kept,” Reich said at a news conference, criticizing companies for reneging on their apparent commitments to lifetime health insurance coverage.

The Labor Department is joining court suits by some former workers whose health benefits have been terminated, but national legislation is needed, Reich said.

Eligibility for Medicare, the federal government’s health insurance program, begins at age 65. The increasing numbers of workers who take early retirement, or are dismissed as companies trim their payrolls, has resulted in an increase in the number of older workers without coverage.

If President Clinton wins reelection, he will consider plans to help retirees retain their benefits, Reich said.

Legislation could range from a simple rule requiring better disclosure to a law that would define the promise of benefits as a contract that could be enforced in court, Reich noted.

Health benefits are a voluntary option provided by businesses, a benefit that can be offered or withdrawn by management decision. Corporations should continue to be free to offer health benefits, and there is no intention of interfering with that right, Reich emphasized.

A serious problem has developed, he said, because many workers have been disappointed in their expectations that insurance would continue after they retired.

“Americans who have worked their entire lives should be able to rely on promises from their employers,” Reich said. The Labor Department has had mixed results from filing legal briefs in five cases where health benefits were terminated. The biggest victory came in a case involving 84,000 retired workers from General Motors, in which an appeals court ruled that the company had promised lifetime benefits that could not be reduced.

Courts in other cases have ruled against retirees.

“We have been urging courts to give every benefit of the doubt to employees,” Reich said. “This area is in a mess right now,” he said. “Something needs to be done.”

Reich is also seeking to make the issue more visible to workers.

The four-page Labor Department bulletin said workers should ask the company for the Summary Plan Description, or SPD, of the benefit plan.

This will describe health benefits, including promises of coverage in retirement. A worker can request and receive a copy of the SPD from the company or the Labor Department within 30 days.

Workers should be alert for a “reserve clause” that gives management the right to cut out benefits, the bulletin said. Typical language might read, “The company reserves the right to modify, revoke, suspend, terminate or change the program, in whole or in part, at any time.”

As the number of court cases has increased, “companies have become much more rigorous about putting these clauses in,” said Olena Berg, assistant Labor secretary and head of the Pension and Welfare Benefits Administration.

Someone who takes early retirement should keep all documents or correspondence from the company, and records of any meetings dealing with promises about benefits, the bulletin advised.

A change in accounting standards in 1990 required companies to calculate the estimated costs of future health benefits for retirees. This is a liability item. It reduces corporate profit. Reduction or elimination of health coverage for retirees can improve a firm’s earnings report.