Companies' Cuts to Retiree Benefits Provoke Backlash
Vanguard reverses its decision following outcry from retirees and employees
Recently, several big-name companies, including AT&T and Prudential Financial, announced they were cutting long-standing retiree health and welfare benefits, causing an outcry from retirees and current employees.
Investment firm Vanguard, after facing protests over its decision to eliminate retiree medical benefits, said it was delaying doing so as it sought alternatives to the current program. While the firm had "determined that changes to the existing [retiree medical] benefit are needed, we recognize that crew and retirees have varying needs and require more time to plan for the implications of this change."
SHRM Online has rounded up recent articles on employer moves to jettison retiree health and insurance benefits.
AT&T Slashed Promised Life Insurance for Former Workers
AT&T's decision to cut life insurance and death benefits as of Jan. 1, 2022, for many of the 220,000 retirees eligible for the benefits has roiled a generation of workers who say their former employer is reneging on a promise. The cuts don't apply to top executives, who have life insurance under a separate company-paid program, which the company can't reduce without their permission.
AT&T said that the cuts for other retirees will bring their benefits more in line with the benefits at other large employers, and that only a handful of Fortune 100 companies still offer most employees life insurance that continues after retirement.
John Tucciarone, who spent 42 years managing AT&T infrastructure until his 2009 retirement, said he recalls executives defending wages that were slightly below competitors' pay by citing the retirement benefits. "That stopped a lot of people looking at other places" for higher pay, he said.
11th Circuit Affirms Allstate Retirees Not Entitled to Lifetime Insurance
The 11th Circuit Court of Appeals on Dec. 28 ruled in Klass v. Allstate Insurance Co. that Allstate did not violate the Employee Retirement Income Security Act (ERISA) when it terminated retiree life insurance benefits.
In the early 1980s, Allstate distributed booklets to employees that described the retiree life insurance benefit as being provided at "no cost." Starting in 1990, Allstate distributed summary plan descriptions (SPDs) that, unlike the earlier booklets, reserved "the right to change, amend or terminate the plan or the provisions of the plan at any time."
Can Retiree Health Benefits Provided by Your Employer Be Cut?
For employees and retirees who worked at companies that provide post-employment health care benefits, an important question to ask is under what circumstances can the company reduce or terminate these benefits.
Employees and retirees should know that private-sector employers are not required to promise retiree health benefits. Furthermore, when employers do offer retiree health benefits, nothing in federal law prevents them from cutting or eliminating those benefits—unless they have made a specific promise to maintain the benefits. The key to understanding your retiree health benefits lies in the documents governing your plan.
Prudential Freeze on Retiree Benefits Left Some Feeling 'Betrayed'
This summer, Prudential Financial will stop contributing to retirement medical savings accounts for current retirees, according to a letter sent to employees in December. In addition, Prudential retirees must now use all the money accrued in the accounts over 20 years, rather than over their lifetime, and any remaining balance reverts back to Prudential.
Pamela Faccone, a 63-year-old Newark-based employee from 1987 to 2018, said she felt "shocked and betrayed." She had "figured this account into my short- and long-term plans" and counted on using account funds of $94,000 for health-care premiums and medical expenses over the rest of her life.
Vanguard Reverses Decision to Cut Retiree Benefits
In October, Vanguard walked back a decision to cut its retiree medical benefit program after an outcry from current and past employees. The firm, which had already stopped funding retiree medical accounts for new employees, had terminated the program but changed its mind after workers said it was too sudden.
"We sincerely apologize for the abrupt timing of the announcement and have decided to recalibrate our approach in light of important feedback from crew and retirees," the company said in a statement. The retiree medical benefit "will remain in place until our benefits team develops an alternate approach for crew and retirees."
The average couple retiring at age 65 can expect to spend $300,000 on health care in retirement, which does not include long-term care needs, according to research by Fidelity Investments.
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