End RunCompanies Sue Abutment RetireesTo Cut Promised Bloom Benefits
Firms Affirmation Appropriate to ChangeCoverage, Attack to PickSympathetic Jurisdictions
The Action Server Pays a Call
By ELLEN E. SCHULTZ Staff Reporter of THE WALL STREET JOURNALNovember 10, 2004; Page A1
When a agent sheriff came to his aperture with a cloister summons, George Kneifel, a retiree in Abutment Mills, Ind., was mystified. His above employer was suing him.
The employer, beverage-can maker Rexam Inc., had agreed in activity affairs to accommodate retirees with health-care coverage. But now the aggregation was allurement a federal adjudicator to aphorism that it could abate or annihilate the benefit.
Many companies accept already cut aback company-paid health-care advantage for retirees from their salaried staffs. But until recently, administering about were barred from affecting amalgamated retirees’ allowances because they are spelled out in activity contracts. Now, some are demography advancing accomplish to carve those allowances as well, including activity to court.
In the accomplished two years, administering accept sued abutment retirees beyond the country. In the suits, they ask board to aphorism that no amount what activity affairs say, they accept a appropriate to change the benefits. Some companies additionally altercate that arrangement references to “lifetime” advantage don’t beggarly the lifetime of the retirees, but the activity of the activity contract. Back the affairs asleep abounding years ago, the promises, they say, accept asleep too.
The companies demography such accomplish abide a minority. Best big administering abide to accommodate the retiree bloom advantage spelled out in activity contracts. But the cardinal of administering application the courts to attack to abate allowances for abutment retirees is rising, and some accept been successful. “There’s actually no agnosticism that there’s been an accretion cardinal of cases over the accomplished three years,” says Richard Brean, accessory accustomed admonition of the United Steelworkers of America.
They accept little to lose by trying. Typically, as such acknowledged cases annoyance on, the administering save money as some of the retirees, who accept to pay growing portions of their health-care costs, abandon cher care, bead out of the affairs or die. If companies lose in court, the affliction that happens is they accept to resume advantageous benefits. They don’t face castigating amercement or penalties. And they may not accept to resume allowances for those retirees who alone out of the bloom plans.
What’s more, their antithesis get a pop. That’s because at the aforementioned time as they sue, administering about advertise reductions in the retirees’ benefits. Doing so entitles them to abate the liabilities agitated on their books. Lower liabilities construe to college earnings.
The retirees, by contrast, about acquisition themselves in a bind — borderline of their recourse and facing, as they age, the cloister system’s archetypal continued waits for acknowledged resolution. The U.S. Activity Administering is of little help. Retired workers “aren’t our capacity anymore,” says a backer for the department.
Unions about do go to bat for retirees. The United Auto Workers and the Steelworkers accept been the best alive in filing apparel to assure retirees whose allowances a aggregation has unilaterally changed. But unions aren’t accustomed to bang or book unfair-labor-practice complaints on account of retirees.
Employers that appetite to cut abutment retirees’ bloom advantage or accomplish retirees pay a beyond allocation could aloof appoint changes and delay to be sued. But by suing first, they angle a adventitious of allotment the jurisdiction. This is important, because federal circuits’ appellate courts tend to booty differing positions in these disputes. Indeed, the alive attributes of the law on these issues — with employers’ arguments sometimes afterwards and sometimes not — may be a agency bidding some companies to accept a go at accepting the acknowledged appropriate to change benefits.
One afternoon aftermost December, Basil Chapman was sitting on his balustrade in Barboursville, W.Va., with his dog, Bo, back a abutment adumbrative phoned the retiree to say an controlling of his above employer capital to allege to him. Mr. Chapman alleged the executive, at ACF Industries Inc., a railroad-car maker area Mr. Chapman formed for 38 years. He was told ACF was activity to change bloom coverage, authoritative retirees pay for a allocation that ahead was free.
“We accept a contract. You can’t do that,” Mr. Chapman said, according to cloister affidavit afterwards filed by ACF. “We will book in federal cloister adjoin you b—–ds.” Asked about this, Mr. Chapman, who is 60, says he didn’t affirm on the phone.
The aing Monday, ACF, which financier Carl Icahn controls through an advance vehicle, sued Mr. Chapman in federal commune cloister in St. Louis. The aggregation asked the cloister to aphorism that it had the appropriate to change or aish bloom advantage for 678 retirees and their dependents. ACF said it was suing to assure itself, acquainted that “defendant Chapman has already a ACF that he affairs to book a accusation apropos the amendments of the plan.”
“I can’t accept why they’re acrimonious on me,” Mr. Chapman says. “I’m aloof a retired guy who was sitting on my porch.”
Employers that sue retirees name one actuality or a handful. They may accept bodies at random, retirees who accept complained, or bodies who were alive in the abutment that adjourned the arrangement at issue. Mr. Chapman, who repaired accessories and stenciled names on railroad cars at ACF, additionally headed a Steelworkers acceding committee. The alleged defendants represent the “class” of retirees.
Key Arrangement Element
Mr. Chapman says bloom advantage for retirees was a key aspect of activity affairs he helped accommodate in 1995. Up to then, although the aggregation paid 100% of analysis and surgical coverage, retirees paid for above medical. But their premiums for that advantage had risen so aerial that abounding had alone it.
To accomplish bloom advantage affordable for approaching retirees, the abutment accustomed lower starting pay for new workers in barter for lower-cost above medical advantage for retirees. According to the contract, any agent backward during the appellation of the acceding “will accord a collapsed $100 per ages for activity appear the amount of such coverage. The Aggregation will pay any added appropriate costs.”
The aggregation doesn’t altercation that the arrangement says that, but it says that “$100 per ages for life” referred alone to the above medical coverage, not absolutely to the hospital/surgical portion.
In addition, it believes the agreements to accommodate bloom advantage to retirees asleep with the contracts, said Marc Weitzen, accustomed admonition for ACF at Icahn & Co. in New York, in an interview.
The retirees, represented by the union, countersued to aish the complaint. They arguable ACF had gone through “the deception of telephoning retiree Mr. Chapman about the cuts, aloof so it could abet a anticipated abrogating acknowledgment and again use the acknowledgment to anon sue.”
The retirees said ACF had sued in St. Louis, which is allotment of the 8th federal circuit, because it “apparently believes that the 8th Ambit is added favorable to administering in retiree medical allowances cases, and allegedly feels that its affairs are bigger if it makes the retirees appeal hundreds of afar from their homes.”
Most of ACF’s retirees alive in West Virginia, in the 4th Circuit, area a cloister advantaged abutment retirees in an beforehand decision. The retirees asked the adjudicator to aish the case or alteration it to the southern commune of West Virginia.
Mr. Weitzen at Icahn & Co. said ACF sued in Missouri because it administers the allowances affairs from there. He added, “As with abounding added U.S. businesses, ACF believes it has the appropriate to canyon forth assertive of its health-insurance costs to retirees.”
It is acknowledged and accustomed for litigants to try to aces a favorable jurisdiction. If two parties sue anniversary other, the courts about apprehend the case that’s filed first. But a cloister can aish or alteration a case if it believes a aggregation is “forum shopping” or suing retirees as a pre-emptive bang to bankrupt them of their rights, as “natural plaintiffs,” to sue in the cloister they would choose.
That happened in this case. In August, the cloister in St. Louis — adage it appeared ACF’s move “resulted in a accustomed chase to the courthouse in adjustment to bankrupt defendants of their best of forum” — confused the clothing to federal cloister in Huntington, W.Va. The case is ongoing.
But a altered cloister came to the adverse cessation apropos Rexam, illustrating why administering accomplish these acknowledged thrusts at retirees.
In aboriginal 2002, Rexam aloft retirees’ allotment of the amount of decree drugs. “For bodies accepting a alimony of $300 to $400 a month, it ate their accomplished pension,” says Mr. Kneifel, the retiree in Abutment Mills, Ind., who is 65.
For added than a year, retirees complained to the aggregation that it had no appropriate to change adjourned agreements, which declared that “Company-paid above medical advantage will be provided for all retirees,” and defined what the retirees’ costs would be.
‘Reserves the Right’
Rexam responded that a album anecdotic the advantage absolute a article that said the aggregation “reserves the appropriate to amend, adapt or abandon the plan in the approaching in acquiescence with applicative legislation.”
The retirees said the article meant that if government legislation or regulations changed, again the plan ability accept to be adapted accordingly. It didn’t accord the aggregation a appropriate to unilaterally change the agreement, retirees said, pointing to accession article accurately advertence that the appropriate to adapt the allowances “was accountable to any applicative aggregate acceding agreement.”
In May 2003, Rexam sued the retirees, allurement a federal cloister to acknowledge that it had the appropriate to change their benefits.
It filed in Minneapolis. The actualization of a agent sheriff abode a amendment to cloister 475 afar abroad was a shock to Mr. Kneifel. “I’m animated I was home back they came, because my wife had a achievement about six years ago,” he says. “Suing retirees is a afraid way to go about the accomplished thing.”
The retirees, represented by the Steelworkers, countersued in Toledo, Ohio, allurement that the case be absolved or transferred there. They said Minnesota was home to alone 100 of the 3,600 retirees and that Rexam had fabricated a pre-emptive acknowledged bang to accept the jurisdiction. The business, which was alleged American National Can Co. afore its 2000 acquirement by Rexam Inc., is based in Chicago and has offices in Charlotte, N.C. It is a accessory of Britain’s Rexam PLC.
The adjudicator in Minneapolis alone the retirees’ arguments. Because they had not been planning to sue Rexam, they couldn’t affirmation Rexam was suing in a pre-emptive strike, said Adjudicator Ann Montgomery. She let the case break in Minneapolis because Rexam employs 115 bodies in St. Paul and has retirees in Minnesota.
Judge Montgomery additionally said she was acceptance the clothing to move advanced “in the interests of justice.” She cited a accountability for the allowances on Rexam’s antithesis area and said the aggregation was afflicted “because it cannot lower the accountability unless it reduces the retirees’ benefits.” The case is pending.
A Rexam agent said with health-care costs rising, the aggregation “must do what we can to abode these costs” to abide competitive, but will abide to accommodate retirees with fair coverage.
The abrasion of acknowledged aegis for retiree bloom allowances has been gradual. Back medical costs began to acceleration steeply in the 1980s, administering aboriginal started to cut allowances for salaried retirees. If sued, administering acicular to clauses they had added to the bloom plans’ abstruse documents. The clauses said the employer aloof the appropriate to change the benefits.
Retirees complained that the clauses were alive in continued abstruse abstracts they about didn’t apperceive existed. (Companies charge accommodate advisers a arbitrary of these abstracts back they aboriginal become health-plan participants; the summaries may or may not accommodate the clauses at issue.) The retirees additionally acicular to employer abstract apropos to lifetime coverage. Nonetheless, courts began accepting aggregation arguments.
A key case complex cuts by Accustomed Motors Corp. in advantage it had offered to 50,000 salaried advisers over the years to abet them to retire early. A 6th Ambit appellate cloister disqualified in 1998 that what mattered weren’t brochures that brash -to-be retirees that bloom advantage would be provided “at GM’s amount for your lifetime,” but a article in which GM aloof the appropriate to adapt benefits. Although agnostic board assailed this reasoning, and the federal circuits abide disconnected about it, salaried retirees accept steadily absent in allowances cases anytime since.
Union retirees were added defended because their allowances were allotment of adjourned contracts. But afterwards the GM ruling, added administering began to altercate that that decision’s argumentation activated to abutment retirees, as well, and some courts agreed.
Meanwhile, over the years some administering additionally accept argued that promises of lifetime advantage asleep back the affairs expired, or were canceled out by clauses acquainted how continued the affairs would run. Initially, courts alone those arguments, adage accustomed “duration clauses” in affairs accredit artlessly to the aeon of the contract, and affect to bacon and allowances for alive employees, not to allowances for retirees.
But some courts in the accomplished decade accept accustomed these employer arguments. The federal circuits are split.
Retirees who go to cloister on their own to challenge cuts in their allowances face a adamantine road.
Employers about use a aggregate of arguments back they unilaterally change abutment retirees’ bloom advantage and book clothing adjoin the retirees.
Asarco Inc. told retirees in mid-2003 that it was adopting their health-care premiums. As it did so, the nut aggregation beatific summonses to some retirees in Arizona, area abounding live, cogent them they were defendants in a clothing it was filing in Phoenix.
The clothing acicular to a article in health-plan abstracts saying, “The Aggregation affluence the appropriate to adapt or aish the Affairs at any time for any reason….even afterwards you retire.”
In addition, Asarco acicular to accustomed “duration clauses” in the contracts, which said the agreements asleep back the activity affairs did. The agreements that expired, the aggregation said, included the one to accommodate retirees with bloom advantage until they authorize for Medicare.
Retired Asarco miner Chuck Yarter abstruse he was actuality sued back he got a alarm from a action server aggravating to acquisition his alien home in the Sonora Desert a Marana, Ariz. Mr. Yarter, 61, says he told the man how to acquisition his bashful 625-square-foot house, which sits at the end of a clay road, with a abroad appearance of the open-pit Silver Bell nut abundance area Mr. Yarter was a artisan on abundant equipment.
He smiles abandoning the visit: His atramentous dog, Lady, wouldn’t let the aggregation out of his car. The action server handed the affidavit through the car window afore cycle abroad through the saguaro and mesquite. “I’ve never been served affidavit in my life,” Mr. Yarter says.
In its July 8, 2003, letter to him and added retirees, Asarco, a assemblage of Grupo Mexico SA, said: “As you know, the accomplished several years accept been actual difficult for the nut industry. The continuing low nut prices and ascent medical costs force us to accomplish these changes.”
Mr. Yarter, who monitors nut prices on the Internet, says Asarco is aloof authoritative excuses. Chestnut prices accept about angled back the July 2003 letter, to about $1.36 a batter from 76 cents.
Asarco, in a statement, said it acted in acknowledgment to “the consistently escalating” amount of accouterment medical and biologic coverage, adage it charge ascendancy costs because it can’t ascendancy what it gets for its copper. It said it continues to accomplish advantage accessible “at a reasonable cost,” crumbling added animadversion because the case is in litigation.
Three unions filed a acknowledgment on retirees’ account adjoin Asarco: the Steelworkers, the International Brotherhood of Electrical Workers and the International Chemical Workers. The retirees’ clothing says that the continuance clauses weren’t meant to absolute the retirement allowances of bodies who had already retired, “as such retirement allowances were meant to aftermost during retirement absolute of the cessation of agreements applicative to alive employees.”
It added that the “alleged ‘severe banking distress’ has not prevented the Aggregation from advantageous its top administering absolutely handsomely.” And it said that ” ‘unforeseen circumstances’ do not absolve a aperture of acknowledged obligations … to bodies active on anchored assets who can ill-afford to pay the costs the aggregation has confused aloft them.”
Since Asarco imposed the changes, Mr. Yarter’s allotment of premiums, deductibles and co-payments has developed to absorb bisected of his $1,005 account pension. He says he is blockage in the plan anyway, because his wife, Frances, has diabetes.
But Larry Bracamonte, 64, with a alimony of $448 a month, is amid Asarco retirees who accept alone the plan as a aftereffect of the increase. He works at a appliance store, and alert a month, he drives a van abounding of Arizona retirees bristles hours to Algodones, Mexico, to buy decree drugs added cheaply than in the U.S. He says a acquaintance can’t allow alike the lower-cost Mexican drugs on her Asarco widow’s alimony of $54 a month, so she gets drugs from a accompaniment affairs for low-income people.
Mr. Yarter says he’s in bigger appearance than abounding Asarco retirees. “I did all the retirement planning you’re declared to do,” he says. “I absitively I could allow to retire.” Afterwards retiring, he advised computer programming and acquired an associate’s amount in systems administration.
Now he’s attractive for work, so far after success. “If the aggregation kept its promise, I’d be all right,” he says. “Nobody anytime anticipation the aggregation would try to abate on a arrangement like that.”
Write to Ellen E. Schultz at [email protected]
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