The Association of U S West Retirees



See You in Court, Pops
To cut benefits costs, companies are waging war on their retirees
By Michael Crowley
March 2006 Reader's Digest

After his retirement from a Tucson-based copper company, Chuck Yarter thought he'd settled into a quiet life in the Arizona desert.  Then one day in July 2003, the 60-year-old was sitting on his porch when a man showed up to inform Yarter that he was being sued.  Since Yarter's dog, Lady, wouldn't let the man out of his car, he served Yarter court papers through the car window.  ("She's a smart dog," Yarter says.)  And that's how Yarter learned he was being taken to court by the company he'd spent 34 years of his life working for:  the coper-mining giant Asarco.

His crime?  Collecting his retirement benefits.  Yarter, like hundreds of others, was standing in the way of Asarco's cost-cutting plans.  So the company used a legal assault tactic -- a preemptive lawsuit -- that would save it millions.  Here's how it works:

First, a company will clash benefits unilaterally -- in many cases, with no warning and no effort to negotiate with representatives of the retirees.  Then, assuming legal challenges will ensue, company lawyers strike first by filing a "complaint for declaratory judgment" in a jurisdiction known to be sympathetic to their argument.  So they target a former employee who has the bad luck of living in a jurisdiction that is likely to favor the company.  "They want to pick where the case is litigated," says John Stember, an employment lawyer in Pittsburgh.

The Asarco case is still pending, but in the meantime Chuck Yarter's monthly premiums shot up from $7 to $280, and he's now stuck with "an expensive and complicated set of deductibles," he says.  Like so many retirees, Yarter is not yet eligible for Medicare or Social Security and lives on a fixed income.  Watching the new premiums gobble up his pension was shocking.  But what left Yarter feeling "betrayed and insulted" was the slimy way his former employer weht about making the switch.

Hand them a gold watch, and then slap them with a lawsuit -- it's a new tactic companies are using to get legal cover for changing health benefits for retirees.  And it's a fast-growing trend.  "We are increasingly defending retirees in cases brought by their former employers," says lawyer Stephen Pincus.  "Companies have a strong incentive to fire the first shot in the legal battle"

To be sure, some companies are facing a financial crisis over benefits negotiated years ago.  Asarco itself filed for bankruptcy protection last August.  Even retirees understand that companies in dire straits need to make changes.  So why not negotiate new terms, or at least give retirees a voice before their expenses change radically?  Why sue then?  Because it's a profitable strategy, so long as things like loyalty and respect don't mean much.

George Kneifel, retired from the beverage-can maker Rexam, knows all too well what that's like.  Three years ago, while Kneifel was sitting at home with his wife, a sheriff's deputy knocked on the door.  "He handed me a paper saying I had to appear in court because the company was suing me."  And not just any court.  "It was in Minnesota," Kneifel says -- 400 miles away from him home in Union Mills, Indiana.  "That's a long haul."

So what case do the companies make?  Many contend that a contract with "lifetime" benefits only means the lifetime of the contract -- not the lifetime of the employee.  While judges have ruled both for and against the companies, Stember thinks the original intent of the contract is clear:  "No union in their right mind would negotiate a benefit that could be changed as soon as someone retired."

Some companies also invoke clauses to contracts, to the bafflement of retirees.  George Kneifel's former employer added fine print to a health-benefits plan that said the plan could be changed at any time -- but the company never put that language into the brochures given to workers, according to Pincus.  "Companies will change the document that's in their file drawer, then send out materials to their retirees that don't include the new language," Pincus says.

So the retirees become pawns in a game that can be worth millions to a company's bottom line.  What's really ingenious about the strategy is that by slashing benefits before they sue, companies have nothing to lose, and a lot to gain.  If a company settle or loses in court, it often doesn't have to pay penalties or repay the benefits retirees lost during a legal process that can go on for years.  Companies also save big money as retirees age into Medicare, give up and seek cheaper health coverage elsewhere, or die off.  Winning a lawsuit doesn't help much if you're six feet under.

And while the retirees are spending long hours with lawyers and traveling hundreds of miles to court, they are also dealing with a drastic change in their budgets.  Earl Simpson of Middle River, Maryland, who spent 27 years working for Crown Cork and Seal, says he watched his deductible jump from $100 per year to $2,000 per year.  If it hadn't been for veterans' coverage, the 76-year-old wheelchair-bound diabetic says he "would've lost my home and been out on the street."

The way companies see it, something has to be done about escalating health care costs.  But suing their retired employees?  "Rexam is looking for confirmation for what it feels its rights are," say Rexam spokesman Greg Brooke.  I guess dragging retirees to court hundreds of miles away from home gives companies that confirmation.  As Chuck Yarter learned the hard way, if it's loyalty you're looking for, get a dog.

Michael Crowley is a senior editor at The New Republic.

From his website:  "Michael Crowley writes about Congress, national politics, and other topics for The New Republic.  Before joining TNR in 2000, he worked for The Boston Globe and The Boston Phoenix.  Crowley has also written for The New York Times Magazine, The New Yorker, Slate, The New York Observer, The Washington Monthly, New York magazine and other publications.  He is a 1994 graduate of Yale University."