In Era of Givebacks, Some Executives Get Free Coverage After
By Ellen E. Schultz and Theo Francis
The Wall Street Journal
Thursday, April 13, 2006
At a time when companies are scaling back health benefits
for other retirees, former top executives at many
corporations are receiving partial or full lifetime medical
coverage on top of pensions valued at millions of dollars, a
Wall Street Journal analysis of dozens of recent securities
The trend spans industries, and it is common at airlines,
which have been among the most aggressive in scaling back
retirement benefits for the rank and file. Continental
Airlines, for example, provides health care "at no cost" for
retired Chairman Gordon Bethune and his dependents, the
company's proxy statement notes. That's in addition to
other perks, including a lifetime of free flights and a
decade of free office space, plus a lump-sum pension payout
of $22 million. A Continental spokesman says other retired
executives have to pay 20% of the cost of coverage but then
declines further comment. Mr. Bethune, who retired on Dec.
31, 2004, didn't return calls to his office seeking comment.
Companies often provide their top executives with more
generous health-care plans than other full-time employees
get and then continue to provide the richer benefits through
retirement. AT&T Inc. pays up to $100,000 per family per
year for its top executives' out-of-pocket health-care costs
through a separate insurance policy, and executives who
joined the former SBC Corp. before 1999 get to keep that
coverage in retirement. An AT&T spokeswoman says AT&T gives
other retirees and employees "very good medical benefits"
compared with other companies.
Citigroup Inc. promised to pay the premiums and
out-of-pocket expenses for both health and dental care for
Chairman Sanford I. Weill and his wife now, and it will
continue to provide those benefits for the rest of the
Weills' lives, the company's proxy statement says.
Citigroup will also continue to pay for any taxes Mr. Weill
owes on the imputed income arising from these benefits. A
company spokeswoman says the benefit dates back to a 1980s
contract and isn't available to other executives.
Companies are most likely to promise lifetime health
benefits when hiring midcareer or older executives,
especially if their prior employers offered similar perks,
says Steven Hall, managing director of Steven Hall &
Partners, an executive-compensation firm in New York. But
Mr. Hall says it's often hard to tell what retiree health
benefits companies offer their top managers. "You read the
proxy and then scratch your head -- they didn't say they
have it, but that doesn't mean they don't have it," Mr. Hall
The practice angers retirees who face rising health-care
premiums and co-payments and, in many cases, are losing
their retirement health benefits entirely. "Executives are
receiving multimillion-dollar pensions and are in a position
to easily pay for their health care," says Jane Banfield, a
retired AT&T manager. "Instead, they want the icing on the
cake by also guaranteeing themselves free health care," she
Amid the growing backlash against opulent
executive-compensation packages, health-care benefits
haven't yet attracted much attention from compensation
watchdogs. One reason may be that current disclosure rules
don't require companies to provide any details about special
retiree health benefits for executives, even though they can
cost a company more than the home-security systems,
country-club memberships and other perks that are routinely
disclosed in the footnotes of corporate proxy statements.
Under current accounting rules, the current and future cost
of executives' health benefits in retirement are combined
with the costs of benefits for other retirees, so it can be
impossible to figure out how much a company is spending on
top officers. Occasionally, a company breaks out a figure
in a securities filing, providing a hint of what such
coverage costs. During 2005, for example, PVC Container
Corp. recorded charges of $140,000 "related to" the lifetime
medical benefits it had promised a retired chief executive
and his wife. A company executive confirms the details but
declines to comment.
If current trends continue, the disparity between what a
company's regular employees and its top executives receive
in retirement is likely to widen. Most companies have set a
ceiling on what they will pay for retirees' health coverage
and are passing on cost increases to them. When the
premiums get too high, retirees who can't afford the cost
will drop out or won't sign up.
Northrop Grumman Corp., for example, has a "medical
inflation cost-sharing feature" for its regular retirees
under which their share of the cost of coverage increases
each year as inflation rises. Meanwhile, the board chooses
a group of executives to participate in a special medical
plan. One of its features is Northrop Grumman's absorption
of any cost increases. A company spokesman declines to
In addition to often being more generous, executive
health-care coverage in retirement can also be easier to
qualify for. At Northwest Airlines, regular employees must
work 23 years to be eligible for the retiree coverage at age
55, which ends 10 years later when they become eligible for
Medicare. By contrast, after only three years, top
executives at Northwest are eligible for lifetime health
coverage for themselves and their dependents, with the
company picking up the tab "for all out-of-pocket medical
and dental expenses."
A Northwest spokesman declines to say whether executive
benefits will be affected by the company's current
reorganization under Chapter 11 of the federal bankruptcy
law. (The company has asked the bankruptcy court for
permission to raise other retirees' health-coverage costs.)
But the spokesman says in a written statement that the
airline's executive benefits are designed to "retain
Northwest's top officers" and that "the actual cost to
Northwest of these benefits is fairly low when compared with
the total compensation executives receive in other
Many other companies protect executive health perks when
they merge or reorganize under Chapter 11. If it looks
likely that Cooper Tire & Rubber Co. will be acquired, the
Findlay, Ohio-based tire maker is obligated to shift money
into a special trust to pay for executives' lifetime health
care. Meanwhile, in recent years, the company has increased
the amounts that most of its other retirees must pay for
their coverage, and it won't cover those hired after January
2003 at all.
A Cooper spokesman says that the cost increases for regular
retirees were accompanied by "more flexibility and options"
and that only two executives benefit from the lifetime
When rival casino operators Harrah's Entertainment Inc. and
Caesars Entertainment Inc. agreed to merge in 2004, they
guaranteed Caesars' chief executive, Wallace R. Barr, and
his family medical, dental and prescription-drug coverage
for life if he was laid off afterward or left under certain
conditions. The company declined to say whether Mr. Barr,
who no longer works there, is collecting the benefit.
By contrast, the several hundred Caesars employees who lost
their jobs in an earlier casino sale also lost their
health-care coverage. Delicia Spees, director of the Family
Resource Center in South Lake Tahoe, Calif., says that at
least 60 families of laid-off Caesars casino and hotel
workers have come to the center since August seeking
assistance finding health-care services. She adds that the
center has signed up many of them for Medi-Cal, the state
health program for the poor.
Mr. Barr didn't return a message left with his attorney. A
Harrah's spokesman confirms the terms of Mr. Barr's
health-care benefits and adds that layoffs from the merger
were "pretty minimal." The spokesman says Harrah's doesn't
typically offer retiree medical coverage to employees.
Regular employees who lose their jobs can apply for
continued health-care coverage under Cobra, the federally
mandated requirement that employers of a certain size allow
departed employees to remain in the company health plan for
some 18 months. However, the coverage, which can cost more
than $1,000 a month, can be too expensive for laid-off
Sears Holsings Corp. requires regular employees who are laid
off to pay all their Cobra costs themselves but pays part of
the Cobra costs for some executives. A spokesman says only
"a small number" of executives receive the benefit.
Meanwhile, other companies, including Kimberly-Clark Corp.
and Qwest Communications International Inc., pay 100% of
executives' Cobra costs, according to filings. A Qwest
spokesman confirms those details but declines to comment.
Kimberly-Clark didn't respond to requests for comment.
Lowe's Cos. has agreed to reimburse former Chairman and
Chief Executive Robert L. Tillman, who retired in January,
for 18 months of Cobra costs for him and his wife. Then it
will pay their health-coverage premiums until they begin
receiving Medicare, when it will buy them supplemental
coverage for life.
Health benefits for other retirees end when they turn 65 and
become eligible for Medicare. A Lowe's spokeswoman says the
company hasn't cut health benefits for retirees before they
turn 65 in the last four years.
Ellen E. Schultz at
firstname.lastname@example.org and Theo Francis at