Back in 1971, when he went to work at a General Electric Co. plant in upstate New York, John Phelps probably wasn’t naive in believing that the company would take care of him to the grave.
That was reasonable in those days, when so many jobs in the U.S. still came with generous long-term benefits. And in fact, Phelps clocked out in 2013 at age 64 with a pension, a rare thing in the 21st century.
But he feels ripped off. GE has cut retiree healthcare benefits and on Dec. 7 slashed to a penny the dividend many former employees once relied on as income. He doesn’t care that GE is swimming in debt and other woes.
“GE used to promise us, ‘You’ll never have to worry about anything,’ and then they started taking things away,” said Phelps, a founder of Retirees Against GE Health Care Changes. “People are scared.”
When his group started 19 months ago, it was focused on curbing the erosion of medical benefits. Now it has another worry: GE’s defined-benefit pension plan is underfunded in the U.S. by almost $30 billion. That’s adding to retirees’ concerns even as GE takes steps to shore up the plan.
Phelps said the group’s 1,800 members know they’re trying to climb a big hill. Courts have rejected two lawsuits claiming GE breached its fiduciary duty when in 2015 it started ending health plans that supplemented Medicare for nearly 200,000 retirees and their dependents. Instead, it gives them each $1,000 a year to help cover the co-pays and prescription drugs that Medicare doesn’t.
That’s still more than many older Americans get. But the stipend isn’t enough to keep up with the cost of coverage, Phelps said. A survey by his group found two-thirds of respondents exhausted the stipend, with a third of those doing so in the first half of the year.
Mary Anna Feitler, 75, who worked at a GE plant in Indiana for almost 27 years, said out-of-pocket medical expenses for her and her husband have grown by about $5,000 a year, to $22,000.
“We’re doing OK,” Feitler said, but “I don’t know whether to anticipate that it’s going to get worse.”
That’s the concern, as the troubled company continues to look for ways to cut costs. Its market value has plunged by more than $200 billion since the end of 2016, driven down by a slumping power market, cash-flow shortfalls and the weight of more than $100 billion in debt.
The change to the retiree medical plan significantly reduced GE’s costs for that benefit, to $35 million last year from $1.26 billion in 2011.
The move was “consistent with trends among larger companies and allowed GE to offer greater choice in coverage while striking a balance among our obligations to employees, retirees and shareowners,” a spokeswoman said by email.
Fewer businesses give health benefits to retirees. In 1988, 66% of large companies did, according to the Kaiser Family Foundation, and by last year it was down to 25%.
That’s part of a long-running shift in the U.S. from “stakeholder capitalism to shareholder capitalism, where maximizing shareholder value has become the dominant ethos,” said Rick Wartzman, author of “The End of Loyalty: The Rise and Fall of Good Jobs in America.”
At GE, the pullback started in 2011, when then-Chief Executive Officer Jeff Immelt announced that the pension would be closed to new employees. Cuts to the supplemental health benefits followed. Meanwhile, Immelt began ramping up GE’s share buybacks, spending $23 billion in 2015 and $22 billion in 2016, and ignoring pension obligations.
GE “is a monumental example of bad governance and horrible leadership,” Ken Langone, a former director of the company, said Wednesday on CNBC. “Do you realize the number of people that have retired from GE that have seen most of their net worth wiped out?”
For 72-year-old Garland Steele, who worked 28 years at GE, the impact of the reduced benefit is one thing. He and his wife, facing at least $7,000 more in medical costs every year, can manage by cutting back on things like traveling and eating out.
As for what he described as GE’s betrayal? That’s more difficult. His generation, Steele said, was “very loyal” to the 126-year-old company.