Retiree Benefits – 7/18/08

Intro: You've retired after a lifetime of work. Your pension and health care benefits should enable you to make ends meet. But after you've retired, can your former employer reduce or eliminate your health care coverage? That's the question many General Motors salaried retirees are asking after the company recently announced that it was slashing their health care benefits. Here to respond is attorney Mike Solomon.

Jeff: Can a company promise retirees health care coverage, and later change its mind and yank away those benefits?

Mike: Unfortunately the answer is yes. Health insurance benefits are not protected like pension benefits are. If you received a lump sum at retirement from your 401k or pension benefits, your employer can't later force you to return the money. Also if you have a pension plan that promises you a payment every month when you retire, that is guaranteed by a Pension Benefit Guaranty Corporation up to $4312 per year, even if the company later goes belly up. But there is no such protection under Federal Law for retiree health insurance.

Jeff: What should an employee who is considering retiring, or who is already retired, do to protect himself?

Mike: Many larger companies have a human resources department that can explain your benefits including your health insurance. A company cannot terminate your health care benefits if it made a clear promise that you'd have your health care benefits for life. Ask for a copy of your health insurance plan and the summary plan description. The summary plan description will describe whether they can terminate your health benefits. Unfortunately, most plans allow the company to terminate your retiree health benefits.

However, if you are a member of a union, subject to a collective bargain agreement, typically the employer cannot terminate your benefits while the collective bargain agreement is in force. Also, there was a case decided by the US District Court in Ohio that determined that retirees were entitled to lifetime retiree health benefits even after their union agreement expired unless the Employer made it crystal clear that such benefits could be terminated. So if you are covered by a collective bargaining agreement, you may be ok. Talk to the union representative.

Jeff: If the company made a promise of lifetime health benefits, are you safe?

Mike: No. Remember, if an employer files bankruptcy and goes out of business, you are out of luck because there is no government guarantee of retiree health benefits like there is for pension benefits. Even if the employer tries to reorganize in bankruptcy and tries to continue in business, you could still lose the benefits. The new bankruptcy law that passed in 2005 does require the bankrupt company to negotiate with the retired employees regarding continuing the health plan, but there is no guarantee that your benefits will survive when the company is reorganized out of bankruptcy.

Jeff: What happens to retirees who lose their health coverage?

Mike: If the retiree is eligible for Medicare, then that program will provide coverage. But typically Medicare does not provide as much benefits as the retirees' prior plan. And keep in mind, when retirees go on Medicare, the costs of the program go up, and ultimately we all pay.