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"Dictators ride to and fro upon tigers which they dare not dismount. And the tigers are getting hungry."
- Winston Churchill

We Won't Be Ignored
Fortune Magazine - By Lee Clifford - July 23, 2001

Retired, yes, but not complacent: A new breed of rabble-rousers is keeping a watchful eye on the corporations that handle their nest eggs. And they aim to stir up trouble.

Cliff Whitehill is a trim, athletic 70-year-old, an unflappable man who worked as a top lawyer for General Mills for 30 years. Now comfortably retired, with 60% of his net worth ("millions and millions," in his words) held in General Mills stock, he spends his time in Florida, Minnesota, and Colorado, living a life of leisure.

He is also a menace.

A menace, that is, to corporate America. Whitehill discovered his pain-in-the-neck proclivity last summer, when he got wind of General Mills' plan to gobble up Pillsbury, a company whose products he disdained, at a price--$10.5 billion--he felt was "staggering." Disturbed, he composed a sharply worded letter--a plea to his fellow shareholders to think hard before green-lighting the acquisition at the company's annual meeting. Then he paid close to $50,000 to print the letter in the Minneapolis Star Tribune and the Wall Street Journal.

On the day the ads ran, Whitehill's phone rang. It was Steve Sanger, the CEO of General Mills, whom Whitehill had known for 20-odd years. Sanger cut to the chase: Why didn't Whitehill just call first? Whitehill replied calmly that he had two questions. "Is anything I wrote untrue?" he asked. The answer, Sanger said, was no. "Then I said to him, 'If I had talked to you ahead of time, would you have changed your mind?' " No again. The Pillsbury acquisition was approved ("overwhelmingly," notes a spokesman) and is currently undergoing FTC review. But Whitehill would do it again. "I could have just sold all my shares and said the heck with it," he says resolutely. "But this is a democracy for shareholders, and I felt that they deserved to hear the other side of it."

Whitehill is not alone. Empowered by a decade of do-it-yourself investing, the gray-haired masses are speaking out. As the economic slowdown cracks their nest eggs, these often longtime shareholders are pumping their fists at corporate managers and railing against everything from outrageous executive pay to corporate missteps. In the name of protecting their pensions or investments, they are no longer just scarfing up the shrimp cocktail at shareholders meetings; they are needling CEOs and submitting proxy proposals.

As anyone who has ever attended annual meetings knows, the senior set has long commandeered the mike. But their protests have grown noticeably sharper in recent years, and groups organized around specific retiree issues, like pension rights, are hitting their stride on the annual-meeting circuit. "Over the past few years retirees have been more successful than I have ever witnessed in getting their message to shareholders," says Paul Edwards, who heads the Coalition for Retirement Security. His organization, which acts as an umbrella for retiree activist groups, has grown tenfold since it started in 1996. The Association of BellTel Retirees has grown in the same period from a few members to almost 50,000. Its founder, Bill Jones, this year brought together retired employees from companies as diverse as GE, GM, and Johns Manville to form the National Retiree Legislative Network, which aims to advance their interests in Congress. As Jones boldly proclaimed at the Verizon shareholders meeting in April, "The days of the retiree being a doddering old unrepresented individual have passed!"

Hyperbolic sloganeering? Perhaps. But not to the members of the National Association of Retired Sears Employees, whose rabble-rousing recently paid off. The group took up arms against Sears four years ago, after the company decided to slash retirees' life insurance benefits. The first battle of their war was fought at the 1998 Sears' shareholders meeting at the Art Institute of Chicago. Rallied by retiree Cliff Hooks, about 100 sign-wielding retirees stationed themselves near the museum entrance, where they erected a lectern with loudspeakers. Over coats and ties, they all sported identical bright-yellow T-shirts emblazoned with sears is unfair to retirees in black letters. When the time came for Hooks to deliver his speech to the troops, he stepped up to the lectern possessed by revolutionary fervor. "King Arthur," he roared, rhetorically addressing then-CEO Arthur Martinez over the ocean of yellow shirts, gray-topped heads, and clicking cameras, "we are not going away!"

And they didn't. For the next two years the retirees raised a stink at the company's annual meetings, and some of them sued the company. This year Sears' new chairman, Alan Lacy, has worked to reach a settlement with the retirees, and has agreed to a process that--while not restoring the benefit entirely--will allow eligible retirees to apply for relief from the life insurance cut. "We met with the new chairman not too long ago, and he basically told us we did a marvelous job of getting publicity and making Sears out to be the bad guy," says Hooks, now 68, from his Michigan home. "We became the elephant in the living room that they finally had to deal with."

Perhaps no one takes up as much space in the corporate living room as veteran gadfly Evelyn Y. Davis. Even the bravest of CEOs do their best not to antagonize Davis, who has been tormenting them for 40 years. Davis, who owns stock in 100 companies and usually travels to dozens of annual meetings, made relatively few forays during the 2001 annual meeting season: She was sidelined, she says, by a face-lift. But ever the professional soldier, Davis phoned in her regrets to CEOs like David Komansky of Merrill Lynch. Were they relieved to be rid of the mike-grabbing, spotlight-hogging Davis? Not to hear her tell it: "They said, 'We hope you make it next year,' " says Davis with a mischievous note in her voice. "Because when I'm not there, it's just so damn dull."

One guarantee that an annual meeting will be interesting--Davis' attendance notwithstanding--is rotten corporate performance. That was the case at PG&E's meeting in May. Police officers were assigned to the Masonic Auditorium in San Francisco to keep order in case the company's recent bankruptcy filing caused shareholders to revolt. (They didn't, but people were plenty mad.)

The anger was also palpable at AT&T's meeting in Cincinnati, where Augusta Askari, a 72-year-old retired associate professor from Toledo, got swept up in a wave of shareholder activism. Disgusted by Michael Armstrong's pay package and his plans for breaking up the company, Askari snapped up her purse and books and, with a swing of her gray ponytail, purposefully strode to the mike in the back of the room. "Whatever in the world does a man do with $27 million?" she practically snorted, glaring at Armstrong. Then she added, with a rhetorical flourish, "Are you really so much more valuable to the U.S. than the highest echelons of elected officials? Our President? Congress?" And her final zinger: "Our generals?" Amid the cheers of a sea of red-shirted union members, the triumphant grandmother of five padded back to her seat. "It's true that other CEOs get into that pay range," she said later, still smarting. "But other companies aren't falling to pieces."

Organized groups of company retirees are going beyond extemporaneous annual-meeting rants, getting measures on ballots, and occasionally winning over noticeable numbers of shareholders. Three of the four proposals on the Verizon ballot this year were submitted by the Association of BellTel Retirees, the group headed by Bill Jones. A good-natured, 62-year-old former managing director of corporate planning, Jones beams that his group engineered a "takeover" of the meeting. (Counters a Verizon spokeswoman: "They had their say-so, but other business was definitely conducted.")

Jones delivered a proposal at the April meeting that would ban Verizon's penchant for using pension fund surpluses to boost earnings--earnings to which management bonuses are tied. "Wow!" he chimed in mock surprise, noting that pensioners like himself hadn't received a cost-of-living increase since 1991. "I guess the retirees will be receiving a thank-you note from [the co-CEOs] for forgoing increases over the past ten years and helping them to earn a combined incentive bonus totaling over $5 million in the year 2000 alone." Eyeing the management team, he added acidly, "I suggest that this is more than a coincidence." Jones and his friends were persuasive: Their pension surplus proposal garnered one-fifth of the shareholder vote; another measure won nearly one-third of the vote--a huge show of support for a nonmanagement ballot issue. Boasts Jones: "You can promote change without winning the proposal."

For now these symbolic victories keep him going. Before the meeting, Jones and association co-founder Bob Rehm were mingling outside the ballroom when suddenly Rehm felt an arm around his shoulder. He wheeled around to find Charles Lee, Verizon's chairman and co-CEO, with a broad smile on his face. "Mr. Lee ..." Rehm blurted, but before he could continue, Lee cut him off. "Bob," said his adversary warmly, "it's not Mr. Lee, it's Chuck." Grins Rehm: "It just goes to show that they recognize power."

Return-on-Equity Up, But You May be ‘Under’
Duke Energy Employee Advocate - July 7, 2001

“'Long goodbye' to benefits?,” By Trish Nicholson, ran in the American Association of Retired Persons (AARP) Bulletin (July/August 2001). It offered the story of retirees in the insurance death spiral - literally! What the companies had promised the retirees, was not what they were receiving. The discrepancies could have very well been fatal to one retiree - no doubt, the lies have been fatal to others! The same thing could happen to you or a family member. Retirees play Russian roulette with their lives, so CEO’s can rake in extra millions. Management has no concern for the body count, as long as the extra profits are there.

  • Bob Rehm was offered $144 per month to switch to a HMO. He switched.
  • A year later, his bonus was cut in half – to $73 per month!
  • Two years later it was cut in half again – to $35 per month!
  • Next, the bonus disappeared!
  • Then he has to start paying out of his pocket to keep the insurance. The cost keeps rising.

Bob Rehm had this to say: “When [we] have to spend our retirement years fighting [our former employers] for things we were promised, well, there has to be something wrong, because this is not what I planned to do in retirement."

George Brandt retired from a different company; he and his wife has severe health problems. He had four large tumors in his brain, and his wife had been paralyzed and was recovering. He knew he need much more than a HMO. He believed the promises that the company had made to him – lifetime health care benefits. Well, the company lied.

The company started charging him $144 per month to maintain his coverage – one-fifth of his pension!

Employees who have lost major pension benefits and retirement health care are having to fight their companies before they retire. Employees want what has been promised to them for years. The companies have been unsuccessful in spinning away their many lies.

Here is George Brandt's personal comments about the article:

“Thanks to Trish Nicholson, our plight had added publicity in the July-Aug. AARP Bulletin issue, on page 8. There needs to be two minor additions: I live in Broomfield, CO and my tumors were not removed by surgery. I was supposed to die, but my tumors died so I could stay alive - using very expensive hi-dose Chemotherapy (both as IVs and directly into the brain, bimonthly) and a whole lot of prayer. If you don't have supplemental medical coverage, Chemotherapy is not paid for by Medicare, and most retirees don't have enough savings to pay for the costs, so you just die. But should you in this great country of ours?

“Even IBM doesn't always pay, I had to write a $200 check to get my lucavoren, a rescue drug to counteract the harmful destruction that the Chemo does to vital organs, etc. Why? Because Blue Cross gatekeepers only pay for 40 pills and my prescription was for 44. I mention this because gatekeepers hold your life in their hands, and HMOs have even stricter rules that are all kept as secrets until months pass. Yes, I was terminal, but I won't get into all the how's and whys now.

“What is most important in Trish's article is that HR1322 is not considered to have sufficient support for passage! This is a sad tribute to America's workers and our Freedoms that can be denied with no public uproar.

“I pray that Trish's efforts will motivate the sleeping giant in all of us to write our elected officials on at least a monthly basis, with follow-up weekly calls. As a minimum, letters to AARP in support of Trish's article are important. We all need AARP to support HR 1322 and a yet to be introduced bill supporting much needed COLAs (Cost Of Living Adjustments). I know of too many retirees that due to poor health and other circumstances don't have the energy to be active. I too have been there, done that. So those of us that can, need to do twice the work for the rest. It has been often said that 10% do the work for the other 90%. For retirees I believe that the numbers may be 5% for 95%.

“What has happened to date is just the beginning. I have been informed that my costs to maintain health benefits will be increasing yearly. How can they know beforehand what medical costs will be? Because my cost is not tied into actual employer costs in any way. IBM's costs (Form 5500 to IRS) went down 33% from 1998 to 1999 as retirees and their spouses aged and went onto Medicare, with IBM limiting their responsibility to just equal that of Medicare. In other words they pay nothing, not even the 20% co-pay.

“As one example, Broomfield is a small city, soon to become a county in Colorado. In one 16 hour race for the cure (Cancer) we raised over $75,000 with monies still coming in. I was there. I did the best I could, and our local reporters wrote about me in two places and the announcer called out to me and my 3 legged dog by name.

“This was important because many new people are on the road I have already traveled, and they need the hope by knowing that statistics are not sentences. We need to and can make a difference, but others need to know about the pitfalls along the way. Ann, my spouse is now the GBS liaison for Denver and all of northern Colorado. She too is making a difference in the disease that can cripple worse than polio in a weekend and take over a year to recover.

“A week from today, I will be at the Brain Tumor Symposium in Chicago. It will be expensive and time consuming. But, no matter, someone needs to be there to say that there is hope for my type of brain cancer, Primary CNS non-Hodgkin's lymphoma. Typically I am the only one there with this type of cancer at these events that kills most and is on the increase for no known reason, just like GBS. One person can make a difference!

“I hope the above does awaken all of the sleeping giants into even more action than you have already done. We need to prove that AARP's information is incorrect. HR 1322 will pass, but only with all our focused help. We need to awaken the Republicans that this is not a party issue, but we all need to vote for those candidates that share our views.

“I did get a positive response from Senator McCain on the issues of COLAs and the need for a version of HR1322 in the senate. There must be others in the senate and the house, but we need a loud public uproar to flush them out. Most expect to get reelected. Should they all be?

“May you all enjoy a happy July 4th - to celebrate others that made a difference too.

“George Brandt - and a Big Thanks to Bill Jones for his ability to organize tens of thousands from all the Bells.”

Duke Energy Corporation, and other companies, are breaking their promises of lifetime medical coverage to future retirees. Did they bother to tell you that Medicare does not cover everything?

The bottom line is clear: More retirees will die from curable causes - solely to fatten the senior executives’ paychecks.

While Executives See Their Pensions Grow, Regular Workers See Their Benefits Shrink

Pension Lawsuit Settled with Retirees
Find Law - May 2, 2001

TRW Agrees to Pay $48.5 Million to Settle Lawsuit With Retirees Over Pension Payments

CLEVELAND (AP) - Industrial parts maker TRW Inc. has agreed to pay $48.5 million to settle a lawsuit on behalf of about 5,500 retirees over lump-sum pension payments.

Attorneys for the retirees and the company, based in suburban Lyndhurst, planned to present the settlement to U.S. District Judge Ann Aldrich, said Robert Gary, a lawyer representing the retirees.

He said the retirees in the class-action case chose a single payment over monthly lifetime checks. Gary said the dispute involved the way TRW calculated the lump-sum payments.

About four years ago, Aldrich had ordered TRW to recalculate 10 years of lump-sum payments to the retirees. TRW appealed, but last December the ruling was affirmed.

TRW continues to believe that it calculated the pensions properly, said spokesman Michael Jablonski.

``We believe it is in the best interests of the company and of the TRW retirees to bring the litigation to a conclusion by entering into a settlement agreement,'' the company said in a written statement.

The case involved TRW workers who retired between Oct. 23, 1986, and July 1, 1996. Most of the retirees worked in TRW's West Coast operations.

Gary said lawyers on both sides had been trying to figure a settlement amount based on a formula suggested by the 6th U.S. Circuit Court of Appeals. He said TRW had figured a settlement of about $40 million, while the retirees were seeking about $50 million.

Age Discrimination Case Won by Retirees
EBIA Weekly - April 26, 2001

[Erie County Retirees Assoc. v. The County of Erie Pennsylvania, Civ. No. 98-272 Erie (W.D. Pa. 2001)]

The Age Discrimination in Employment Act (ADEA) prohibits discrimination with respect to employees who are age 40 and over. Generally, a welfare benefit plan must provide equal benefits to all workers, but lower benefits for older workers can be justified if the cost to provide the benefit to an older worker is the same as or greater than the cost to provide the benefit to a younger worker. This is referred to as the "equal cost or equal benefit" rule. In this case, the plan provided benefits for Medicare-eligible retirees (generally those over age 65) that were different and less costly than the coverage provided to retirees who were not eligible for Medicare (generally those under age 65). Additionally, the Medicare-eligible retirees were required to pay Medicare Part B premiums of $43.50 per month in order to be eligible for their health benefits. The Medicare-eligible retirees brought suit, claiming that they were discriminated against under the ADEA.

The Third Circuit previously held in this case that the ADEA encompassed health coverage and other benefits provided to a retiree. Erie County Retirees Assoc. v. The County of Erie Pennsylvania, 2000 U.S. App. LEXIS 18317 (3d Cir. 2000) (covered in the August 10, 2000 EBIA WEEKLY). Because the retirees in this case received disparate health benefits based on their age (i.e., attaining age 65 and becoming eligible for Medicare), the retirees satisfied the threshold for establishing an ADEA claim. The Third Circuit remanded the case back to the trial court for further proceedings and made it clear that the employer could still seek protection under the ADEA's "equal cost or equal benefit" standard. (The U.S. Supreme Court later denied certiorari.)

In this decision, the trial court addressed upon remand the question of whether the employer satisfied the equal cost or equal benefit standard. The court first examined whether the Medicare-eligible retirees received a "lesser benefit of any type" than the coverage provided to younger retirees. The court noted that older retirees were required to pay the Medicare Part B premium of $43.80 per month for their HMO coverage while the younger retirees paid either $12 per month (for indemnity coverage) or nothing (for an HMO/indemnity hybrid). The court applied 45 C.F.R. 1625.10(d)(4), which provides that an older worker may be required to pay a greater contribution to a voluntary plan than the contribution required of a younger worker, so long as the older worker is not required to pay a greater proportion of the premium cost. Applying this standard to the plans at issue, the court found that the required Medicare Part B payment resulted in the older retirees paying a disproportionate share of their premiums compared to the premiums required in either of the plans provided to the younger retirees. Additionally, the court found with respect to the HMO/indemnity hybrid that (1) the fact that younger retirees could select between either HMO coverage or traditional indemnity coverage while older retirees could only receive HMO coverage, and (2) the fact that younger retirees paid less for prescription drugs and were not restricted by a prescription drug formulary resulted in less benefits for older retirees. (In contrast, the court found that coverage differences between the indemnity-only plan for younger retirees and the HMO plan for older retirees did not result in lesser benefits to retirees--the benefits were not objectively less, just different. For example, the retirees were restricted to a drug formulary but their cost to fill prescriptions was less.) Finally, because it was undisputed by the employer that it cost less to provide older retirees with benefits under the HMO plan than to provide younger retirees with benefits under the indemnity plan or the HMO/indemnity hybrid, the employer could not meet the equal cost prong of the equal cost or benefit rule. Thus the court found that the employer was not protected by the equal cost or equal benefit rule, and the retirees prevailed.

EBIA Comment: An older employee who participates in a voluntary plan may be required to pay more for a benefit that the amount paid by a younger employee, but only if the older employee does not pay a percentage of his or her premium cost greater than that paid by a younger employee. Because participation in Medicare Part B is predicated upon payment of premiums, Medicare Part B is considered a voluntary plan. In this case, the court established that an employer must take into account the premiums that a retiree pays for Medicare Part B when doing an equal benefits analysis to ensure that retirees do not pay a greater percentage of health care coverage costs than do younger employees. See our discussion of the ADEA and the equal cost/equal benefits rule in EBIA's HIPAA manual at Section XXXV.B.2 ("ADEA Applied to Health Benefits").

Health insurance no sure thing for retirees

NCR Retirees Sue Over Pensions
Dayton Daily News - BY Laura A. Bischoff - April 4, 2001

NCR Corp. faces two lawsuits by retirees claiming the company improperly reduced pension benefits after they retired. Both cases were filed as class-action complaints in U.S. District Court in Dayton last week.

About 750 hourly workers agreed to enhanced benefits under an early retirement program NCR offered in early 1993, but in 1998 NCR reduced the promised health benefits, the lawsuit said. The case is asking for restored benefits, reimbursement for retirees who incurred increased costs and attorney fees.

The second case addresses salaried workers who were promised enhanced pension benefits if the company were sold. AT&T Corp. bought NCR in September 1991, triggering the enhanced benefits for salaried workers who were involuntarily terminated. Some workers were rehired by AT&T, but they later found they were not properly credited with the enhanced benefits, the lawsuit said.

NCR spokesman John Hourigan said, "While we cannot comment on matters that are before the court, we believe the retirees were treated fairly and consistently with the law." Last year, NCR lost a federal class action lawsuit in Minneapolis brought by retirees who claimed NCR improperly curbed their health benefits. In May, the court ordered NCR to restore health benefits to as many as 3,400 retirees.

The Minnesota Senior Foundation, which monitored the lawsuit, estimated that the ruling would cost NCR more than $20 million. NCR plans to appeal.

Health insurance no sure thing for retirees
Chicago Sun-Times - BY LISA SINGHANIA - April 1, 2001

Health insurance was the last thing on Fernando Otero's mind when he left his management job as part of a restructuring.

Medical benefits weren't part of his severance package, and when he started looking for coverage for himself and his wife, the Davie, Fla., man received an unpleasant surprise.

"We were going a little bit out of our minds trying to find something with a decent price," recalls the 53-year-old, who now has a home inspection business. "Right now we pay about $500 a month for a straight health plan with prescription drug coverage, but with no vision or dental coverage."

Individual health insurance policies have never been cheap, but for Americans in their 40s and 50s, they are increasingly expensive and hard to obtain. The problem likely will worsen as more baby boomers approach retirement.

Few businesses offer health coverage to retirees, and employees are less likely to spend their entire careers with the same company and qualify for retirement benefits.

All of this is squeezing workers who leave jobs before 65--the age when they qualify for Medicare, the government health insurance program.

"If you're lucky in the stock market and are relatively healthy, you can find health insurance," said Roberta Milman, director of member health products at AARP Services. "For a lot of people, these plans are not affordable, or, if you have a serious health condition, they may not be able to get insurance or afford coverage."

In 2000, about 31 percent of companies offered coverage to their retirees who were too young to qualify for Medicare, down from 46 percent in 1993, according to William M. Mercer, a human resources consulting firm.

For those who don't qualify for Medicare, the options are limited and pricey. Estimates vary, but monthly premiums can range from $400 to $600 per person in this group.

"Your rates are going to depend on where you live, how healthy you are and how long you are going to need the policies for," said Karen Pollitz, a senior health policy researcher at Georgetown University, whose 64-year-old mother was quoted $800 a month for health insurance.

Workers leaving their jobs should look into COBRA, a federal law that generally allows workers to buy into an employer's health plan for 18 to 36 months.

Under COBRA, employees pay the full cost of an insurance premium, which is calculated at the employer's group rate. Although COBRA can be expensive, it is frequently cheaper and more comprehensive than an individual policy. Individuals who use COBRA also may be protected under the Health Insurance Portability and Accountability Act.

"What HIPAA says is that if you meet these conditions, in any state, you have to be protected from health screening for some kind of health insurance. But the state gets to decide what kind of plan you get," Pollitz said. "Insurers can't turn you down for coverage for these plans and can't impose a pre-existing condition exclusion. But there's no limit on what you can be charged."

It's a good idea to shop around before COBRA benefits expire to get some idea of what coverage is available. Pre-existing conditions, ranging from diabetes to allergies, might make getting health insurance expensive or impossible.

Being part of a group such as a chamber of commerce or professional association can help because group insurance plans are regulated under different laws than individual policies.

Otero, the Florida house inspector, said one insurer refused to cover him under an individual policy because his wife had a pre-existing health condition. When he applied as a small business owner, he obtained a policy.

Geography also can be a factor. Carol Boyd, who left a public relations job to work independently, was shocked at the difference in options between Ohio, where she had worked, and Kentucky, where she lived.

"There were about 100 different plans in Ohio to pick from," the 47-year-old said. "In Kentucky, there were about three."

Ultimately, cost is the biggest frustration.

Amy Shih, a retired software analyst, found insurance before she left her job a year ago, but she didn't realize how quickly the premiums would rise. Today, she and her 62-year-old husband pay about $400 a month.

Shih recently increased her deductible to $5,000 from $1,500 to avoid a 30 percent rate increase.

"Luckily, my husband and I are healthy people. But the costs keep going up," said the 57-year-old Houston woman, who is considering going back to work to get benefits.

"If they keep jacking up rates at this pace every year, my health insurance will be higher than my house payment."

Associated Press

Cut Loose: Companies Trick Retirees out of Health Benefits

Retirees - Page One