Retiree Benefits Take Another Hit
GM's Plan to End Medical Coverage For Many 65 and Over Signals a
New Era; Pensions to Increase by $300 a Month
By Vanessa Fuhrmans and Theo Francis
The Wall Street Journal
Wednesday, July 16, 2008
General Motors Corp.'s move to eliminate retiree health benefits
for salaried workers is a sobering signal to the rest of the U.S. work force: Even those
who are in or near retirement shouldn't count on keeping the
company coverage they have built up.
Since the early 1990s, employers eager to get out from under the
increasing burden of covering their retirees' health care have
been whittling away at those benefits. At some companies,
new or younger workers have been excluded from retiree health
benefits. Older workers and existing retirees often got to
keep the benefits, but had to pay a larger share of the overall
But GM's announcement Tuesday that it would cease medical
coverage for its salaried retirees age 65 and above signals that
a new era of ever-shrinking benefits has arrived.
Beginning in January, even former employees who are already in
retirement will lose their benefits, which most of the company's
retirees use to supplement gaps in their traditional Medicare
coverage. The auto maker will boost monthly pension
payouts to help offset the cuts. The company's unionized
workers aren't affected by the cut to retiree health benefits.
GM isn't the first company to do this, but its heft and
influence could help usher in further cutbacks at other
"Usually they did not do anything as draconian as this," says
Karen Ferguson, director of the Pension Rights Center,
a retiree advocacy group in
Washington. "Usually they don't
cancel the health insurance -- they'll increase the premium,
they'll increase the deductibles."
At this point, employees and retirees "have to feel lucky if
they still have retiree [health-care] benefits, and have to
start planning for when they won't," says Rick McGill, head of
retiree medical consulting for employee-benefits firm Hewitt
Associates. He says such benefits are "a dying breed."
Retirement-benefit experts have for some time been recommending
that all workers -- even those close to retiring and who've
"earned" full retiree benefits -- should assume that those
benefits will likely be eliminated, either before or during
their retirement, and start planning and saving for it.
Many people planning to retire early should consider working at
least part-time to keep active employee health coverage until
they're eligible for Medicare at age 65, says Mr. McGill.
That's because between 20% and 40% of people between 55 and 64
are either denied individual health coverage or forced to pay
much higher premiums than the general population. Those 65
and older can save a lot by working a few years longer, he says.
Even with Medicare, a 65-year-old couple's out-of-pocket
health-care costs could reach $225,000 in their remaining years,
according to Fidelity Investments.
GM, battered by slumping
vehicle sales, Tuesday announced a series of moves aimed at
raising $15 billion in liquidity by 2009. The auto maker
also said it will suspend the dividend it pays to shareholders
and cut its production of pickup trucks, among other measures.
In total, GM spent $4.75 billion last year on all its U.S. retirees'
health benefits, including hourly workers and those under age
65. It says those retirees or surviving spouses who are
affected will get a $300 a month increase in their pensions to
help offset some of the costs of relying solely on Medicare,
which has less-generous coverage than many private-sector plans.
It also is hiring an outside firm to advise retirees on choosing
Medicare drug plans, supplemental insurance or private Medicare
Richard Schwaller, a 79-year-old retired GM regional service
manager in Northville, Mich., says he supports GM's move,
particularly if his pension rises by $300 a month to make up for
the lost health benefits. But he says for some of his
fellow retirees, in poor health, getting individual health
insurance could prove costly.
"It sounds pretty good, but none of us has ever tried to shop
for supplemental insurance," Mr. Schwaller says. "If
you've got some serious health problems, I think that's going to
make a big difference."
The affected salaried GM retirees join a growing number of
active or retired workers who lack such benefits. Overall,
about one worker in five had access to employer-sponsored
retiree health benefits in 2003, down from one in three in 1997,
according to the Urban Institute, a research institute in Washington.
Larger employers are much more likely to offer the benefit than
smaller ones: About half of Fortune 100 companies offer
it, and about a third of companies with more than 200 employees
do, a number that has held roughly steady for more than a
decade, according to separate tallies from Hewitt and the Kaiser
Unlike just about every other kind of compensation, such as
salary or pensions, retiree health benefits can be taken away
even after workers have built them up. Indeed, unless a
union contract prevents it, companies typically have a free hand
to reduce or eliminate retiree health benefits for both active
employees and retirees.
"Employers can pull the rug out from under their older workers
and their retirees at any point -- there's no guarantee these
benefits will continue," says Richard Johnson, a retirement
researcher at the Urban Institute.
In recent years, many companies have done just that. Some
have eliminated retiree health benefits entirely, while others
-- including International Business Machines Corp., Delta Air
Lines and Coca-Cola Enterprises -- have capped the amount the
company will pay in premiums, leaving retirees to shoulder the
impact of rising health-care costs.
Last year Ford Motor Co. also eliminated health benefits for
Medicare-eligible salaried retirees and replaced it with an
annual $1,800 stipend that may be used for Medicare and other
Critics, including the older people's lobbying group AARP, have
said it is age discrimination to cut benefits just for those
over 65, a position that received support from the federal Third
Circuit Court of Appeals.
But other federal courts have backed employers, and in December,
the Equal Employment Opportunity Commission did as well, after
business organizations said companies might instead eliminate
all retiree-health benefits, not just those for older workers.
Write to Vanessa Fuhrmans at
firstname.lastname@example.org and Theo Francis at