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Duke Energy Employee Advocate
Retirees - Page 3

"There is an enormous amount riding on making sure the pension system pays off for older Americans."
- Karen Ferguson, director of the Pension Rights Center - USA Today

Federal Judge Rips McDonnell Douglas

The National Law Journal - by Maureen Milford - September 27, 2001

In a scathing opinion that speaks of "abject dishonesty" by the company, a federal judge has ruled that the former McDonnell Douglas Corp. shuttered its Tulsa, Okla., plant in 1994 to deprive aging workers of their retirement benefits.

The Sept. 5 ruling by U.S. District Judge Sven Erik Holmes of the Northern District of Oklahoma sets the stage for lawyers representing more than 1,200 former McDonnell Douglas workers to seek equitable relief for lost wages and pension and health benefits.

It has been estimated the workers could be awarded as much as $200 million. The Boeing Co. bought McDonnell Douglas of St. Louis in 1997. Holmes agreed with workers in the class action that McDonnell Douglas closed the Tulsa plant -- which manufactured and assembled fighter and attack aircraft, helicopters and missile systems -- to save $24.7 million in pension and medical benefits covered by the Employee Retirement Income Security Act.

"It was an incredible case of corporate arrogance," said plaintiffs' lawyer Joseph R. Farris, a member of Feldman Franden Woodard & Farris in Tulsa.

In a statement, Boeing said it "strongly disagrees with Judge Holmes' decision." The company said it is evaluating its legal options and has not made a decision on what course to pursue.

"McDonnell Douglas closed the Tulsa facility in 1994 -- and other facilities both before and after -- because the military equipment market shrank after the end of the cold war, and the company was left with excess capacity and assets. These decisions are always difficult because of the impact they have on the lives of many fine employees," the statement reads. "But facility closures became necessary because the market for military products changed, and there simply wasn't enough work."

The employees tell a different story.

Facing cutbacks because of declines in government defense contracts, the company told its Tulsa employees in 1992 that the plant would stay open until at least 1995 if both President George H.W. Bush and the Congress approved the sale of F-15 fighter jets to Saudi Arabia, the opinion says. The employees embarked on a huge lobbying effort.

But at the same time, unknown to the Tulsa plant manager, McDonnell Douglas was studying which plants to shut down based, in part, on pension and benefit savings, according to the opinion.

In December 1993, the company announced it would shut down the Tulsa plant, which had the oldest work force of seven McDonnell Douglas facilities.

When the announcement was made, the company was in the middle of lease negotiations with the city of Tulsa and the federal government for the plant -- a process the judge says was a "sham."

In his opinion, Holmes excoriated McDonnell Douglas for its "abject dishonesty" and "outright falsehoods" in the way it dealt not only with employees, but also with Tulsa city officials, the Oklahoma congressional delegation and -- after the suit was filed -- the court.

Throughout the eight-year litigation, which included a two-week trial and four separate hearings before Holmes, McDonnell Douglas "intentionally and in bad faith withheld or possibly destroyed documents," the judge said. Millsap v. McDonnell Douglas Corp., No. 94-C-633-H.

Retiree Wins Health Insurance Lawsuit

Retiree Wins Health Insurance Lawsuit

Employee Advocate - - September 16, 2001

In 1995, Harvard Industries (Michigan) starting playing games with retirement benefits, according to Employees who retired before July 15, 1995, with 30 years of service, would be entitled to paid health insurance overage, which also covered their dependents, for life. Those who retired after this date would not get the benefit.

Danny L. Sanford retired on July 14, 1995, after 30 years of service. After four months of retirement, the company said that it had made a mistake and that Mr. Sanford was not really eligible for early retirement. They only gave him credit for 29.3 years of service. His service was not credited for the time that he was a salaried employee!

The company said that he would have to come back to work and that he was going to lose the health benefit! Mr. Sanford had a better idea. He file a lawsuit against the company.

The U.S. District Court for the Eastern District of Michigan ruled that the company had violated the Employee Retirement Income Security Act and the retirement plan rules.

The company appealed the decision to the Sixth Circuit U. S. Court of Appeals. In Sanford v. Harvard Industries, Inc., et al. (No. 00-1193), the court ruled that the company improperly revoked the retiree’s health insurance benefits.

Judge Hands Boeing Defeat in Lawsuit

Judge Hands Boeing Defeat in Lawsuit

The Wall Street Journal - L. Lunsford, E. Schultz - September 6, 2001

A U.S. District Court Judge in Tulsa, Okla., handed Boeing Co. a surprising defeat Wednesday in a class-action lawsuit filed in 1994 by more than 1,000 older McDonnell Douglas Corp. workers.

The workers alleged that the company closed their plant in order to avoid paying pension, health and retiree medical benefits.

Judge Sven Erik Holmes issued a 90-page opinion that found among other things, the company "engaged in a course of obstruction, inconsistent representations and outright falsehoods" during the course of the lawsuit to keep the truth from coming out about the 1993 closure of a McDonnell Douglas plant in Tulsa.

Boeing acquired McDonnell Douglas in 1997. The plant in Tulsa manufactured tail sections for F-15 fighters.

Judge Holmes assessed no damage and instead gave the parties three weeks to propose how to proceed in determining the appropriate relief for the plaintiffs.

A Boeing spokesman said the company had not seen the opinion and had no immediate comment.

Employer Violated ERISA by Cutting Benefits

Employer Violated ERISA by Cutting Benefits

Duke Energy Employee Advocate - - August 31, 2001

The U. S. District Court for the District of Connecticut has ruled that an employer violated the Employee Retirement Income Security Act (ERISA) by cutting retiree benefits. The BNA Pension Reporter revealed these developments in the McMunn vs Pirelli Tires, LLC case.

The court ruled that it was "undisputed" that the company had promised retirees “over a period of thirty years…womb to tomb” medical benefits.

The court ruled that the language "this benefit is payable for the lifetime of the retiree and/or spouse" created vestment. Pirelli made this violation in 1993. This action was based on the elimination of a Medicare reimbursement program.

Health Benefits Not Like the Good Old Days

Will bear market spoil pension party?

Pittsburgh Post-Gazette - By Len Boselovic - August 20, 2001

Pension fund managers aren't exactly Wall Street's version of gunslingers.

Confined by a company's financial health and the demographics of its work force, these conservative investors ply their craft with a keener sense of risk and greater appreciation of diversification than most investors.

For that -- and the raging bull market -- employers, employees and retirees can be thankful. Pension fund surpluses have bulged in recent years, transforming funds that were big annual expenses into steady contributors to a company's bottom line.

The pension plans of 10 large, publicly held Pittsburgh employers are no exception. Since 1997, these companies earned an average of 12.6 percent annually on the more than $80 billion in their defined benefit pension plans. Over the last four years, 2000 was the only one in which any lost money on their pension investments. Still, six of the 10 funds managed gains last year, paced by an eye-popping 19.8 percent at US Airways. By comparison, the S&P 500 lost 9 percent last year.

In most years, the pension fund returns outpaced what the companies had to pay out to retirees. The pension funds failed to earn the cost of their company's annual pension benefits only nine times out of a possible 40 over the four-year period. Seven of those occurred last year. More than half the time, the funds earned at least two times more than the company paid out in pension benefits in a given year.

For employers, the performance has been a windfall because they haven't had to contribute as much to their pension plans. One of them, Allegheny Technologies, didn't contribute anything over the four-year period. Allegheny Technologies and U.S. Steel even used some of their ample pension surpluses to pay retiree medical benefits.

Moreover, pension surpluses boosted the earnings of several of the companies. Although the investment gains don't actually leave the fund, accounting rules allow the gains to be reported as net income. It isn't uncommon for U.S. Steel's $9.3 billion pension fund to contribute more to the company's earnings than the steelmaker's mills.

"For some of these companies, these things [pension funds] become as important, if not more important, as the things they're making," says Wayne Shaw, an accounting professor at Southern Methodist University's Cox School of Business.

One often overlooked side effect is that the incentive pay of top executives, which is based on how much a company earns, has been boosted in part by pension gains that companies are booking as profits. The phenomenon hasn't escaped the attention of retirees whose pension checks never increase.

Hoodwinking investors with the false profits is one thing, says C. William Jones, 62, who spent 30 years with New York Telephone and Nynex before retiring in 1990. The company is now part of Verizon, which ended 2000 with a pension surplus of $22 billion.

"But don't go rewarding yourself for hoarding the money and not sharing it with the people for whom it was put away," says Jones, president of the Association of BellTel Retirees. The group represents 55,000 Verizon retirees.

Jones co-sponsored a proposal at Verizon's shareholder meeting this year asking the company to exclude pension gains when calculating performance-based compensation. The initiative earned 19 percent of the vote.

"It just seems to me a wretched incentive for management," says Norman Stein, a University of Alabama law professor who follows pension issues.

Jones, meanwhile is collecting just about the same pension check he received when he retired as managing director of corporate planning. Nynex stopped adjusting pension benefits of management employees for inflation in 1991…

U.S. Steel management retirees feel the same. They haven't had a cost-of-living adjustment to their pensions since 1992, when they received a minimum monthly increase of $50. Last year, after the United Steelworkers union negotiated pension increases for hourly workers, management employees who retired prior to 1991 received a one-time payment of $100 for each year they'd been retired.

Dan Hestetune, 71, was a mine superintendent for U.S. Steel's iron operation in Minnesota until he took an early retirement in 1986. He realizes the company has no legal obligation to increase his monthly check.

"There should be a moral obligation if those funds are appreciating each year," he says.

There was a time when companies were inclined to think that way.

"Twenty years ago, it was very common for large companies to basically use surplus plan assets to help their employees keep up with inflation," Stein says. But today, their policy is "this is all we promised you ... so this is all you get"

From an employers' point of view, the last 18 months prove why they have to be cautious custodians of the funds. If the market continues to go down or provides puny returns, pension plans won't be the profit centers they once were.

Companies "may have to start expending money again," says Geoffrey Gerber, president of TWIN Capital Management, a McMurray money management firm.

One ironic correlation between the health of pension funds and the health of a company is that a company is in the best position to contribute to a pension plan when it is least likely to have to contribute, says David Hammerstein, senior consultant for Yanni Partners, a Downtown pension consultant.

When the stock market's in high gear, corporate earnings are strong and companies have a lot of cash. But when the market turns south, earnings decrease or disappear. Cash becomes scarce just when contributions to the pension fund may be required, he says.

While employers worry their pension funds won't be the earnings blockbusters they were in the past, Stein doesn't think the surpluses will vanish any time soon.

"I think a lot of these plans are in permanent surplus status," the law professor says.

Shaw will be watching assumptions companies make about what their plans will earn in coming years.

The projections, along with assumptions they make about how much their payroll costs will increase, will determine how much they have to contribute to the plan. Shaw says in the past, some companies have been optimistic in projecting investment returns in order to lower their pension expense.

"People have to look at those things and ask: 'Are those reasonable assumptions?' " he says.

Shaw believes a prolonged downturn could prompt some companies to switch to defined contribution plans, in which employers and employees contribute to a retirement account that's directed by employees. Traditional pension plans are defined benefit plans, requiring companies to manage the money and obligating them to pay retirement benefits even when the stock market performs poorly.

But with a defined contribution plan, a company's "off the hook once the money's put in," he says.

Health Benefits Not Like the Good Old Days

The Dallas Morning News - By J.C. CONKLIN - August 19, 2001

Back when employees spent their careers at one company and earned the proverbial gold watch, they could count on taking company health coverage with them into retirement. No longer.

Over the past decade, companies have been eliminating or reducing retiree health benefits, restricting access to programs and ending coverage for future employees. The trend played out again when retailer J.C. Penney told employees earlier this month that it's restructuring its retiree health benefits.

The effects of benefit reductions haven't been fully felt because many of the people affected haven't retired yet. But in five to 10 years, more retirees will have to pay for the full cost of their health care until they reach 65 years old and are eligible for Medicare, experts warn. Even then, they may have to shell out hundreds of dollars annually for prescription drugs and pay for supplemental health coverage to cover long hospital stays.

The disappearance of health benefits is already forcing some retirees to dig into their pensions to pay for health services or go without medical treatment, said Michael Gordon, an attorney associated with the Coalition for Retirement Security.

"When it hurts, it hurts as bad as anything you can imagine," he said. "This trend is extremely destructive."

Employment experts said that because people typically don't stay with one employer for 20 or 30 years, they covet benefits like 401(k)s that are portable. Retiree benefits, which aren't transferable, are from a bygone era of long-term employment.

Those depending on retiree coverage have little leverage to do anything about the loss of benefits.

"It's a very hard issue to organize retirees around because they don't have much clout in the market anymore," said Larry Levitt, vice president of the Henry J. Kaiser Family Foundation, a health-care think tank. "It's not like they can ... go to another job."

In 1991, 88 percent of employers with more than 1,000 workers offered retiree health benefits to those under 65 years old. In 2000, that figure declined to 73 percent, according to the Employee Benefit Research Institute, a nonpartisan research organization.

J.C. Penney sent letters to workers informing them that anyone hired after the new year won't get health insurance when they leave the company. The company also said it intends to raise premiums for retirees and won't pay for dental coverage any longer.

"I'm surprised the benefits haven't gone away before now," said William Spalding, 76, a J.C. Penney retiree.

Penney benefits director Sharon Leight said that all companies are looking for ways to cut their costs - and retiree medical benefits are a major focus.

"It's not something that people look for in a benefits package," Leight said. "A 401(k) plan is what people are really looking for."

Retirement information was unavailable from many large employers around Puget Sound. But for public employees, the trend is not the same as companies nationwide, said Dave Wasser, spokesman for the State Health Care Authority in Washington, which covers retired and working state employees and retired teachers.

"The retirees are paying more than employees but the level of benefits are staying the same," Wasser said. "There has been no move to reduce the level of coverage that the retirees have."

For public retirees not eligible for Medicare, Wasser said, health insurance can cost up to $240 a month, depending on the plan selected. The state pays about $70 a month, and retirees pay the rest.

State workers, on the other hand, pay up to $26 a month for health-care insurance, and some pay nothing. The state pays the rest.

Employers started to rid themselves of the retiree health-benefit programs in the early '90s. An accounting rule that large companies adopted in 1993 required employers to account for the future costs of health benefits. Before that, most companies were simply paying current expenses. Other factors have contributed to the decline of retiree benefits:

  • Health-insurance premiums are once again skyrocketing. Insurers expect to pass on 15 to 20 percent increases in rates to employers this year.

  • The economic slowdown has made employers less willing to carry the burden of generous benefit packages.

  • Prescription-drug costs are soaring.

  • Baby boomers are moving toward retirement age.

  • A court ruling has made employers leery. Erie County Retirees Association vs. County of Erie permits beneficiaries to claim age discrimination when employers offer a different level of coverage to retirees covered by Medicare compared with those who aren't eligible.

Many employers offered retiree health benefits this way. Some companies have cut their retiree health benefits completely. Montgomery Ward & Co. did so after it filed for bankruptcy this year. Pabst Brewing Co. dropped health coverage for retirees in 1996.

Other businesses have reduced benefits.

The United Steelworkers recently preserved health-care coverage for 70,000 retirees, mostly in Pennsylvania, by agreeing to reduce benefits and requiring retirees to contribute to health-care costs. Polaroid retirees have seen their monthly contribution for health insurance go from zero to as much as 30 percent of the costs in 10 years.

Dallas-based TXU Corp. is gradually cutting the amount of money it contributes to retiree health benefits. Anyone 40 years old or younger will have to pay for all their health expenses when they retire after a new program starts next year.

Paul Fronstin, senior research associate at the Employee Benefits Research Institute, said several employers are linking benefits to years of service.

For instance, a business may offer health insurance to a 55-year-old retiree who worked at the company for 10 years. A few years ago, the business probably didn't require the employee to put in a decade of work.

And then there are companies that are keeping existing retiree benefits intact but eliminating them for future workers.

Anyone hired at J.C. Penney after Jan. 1, 2002, won't be eligible for retirement health coverage. Bell Helicopter Textron made a similar change to its benefits in 1994. Sears, Roebuck and Co. did the same thing last year.

Some retirees are starting to feel the crunch of increased premiums.

Wallace Paprocki, a Penney retiree in Sun Lakes, Ariz., said that he's aware of the rise in employee premiums.

"It's inevitable," said Paprocki, national chairman of an organization of Penney retirees called HCSC Club, which stands for Honor, Confidence, Service and Cooperation.

Under current law, there's little the retirees can do because few company policies specify coverage until death, said Carolyn Stewart, spokeswoman for Rep. John Tierney, D-Mass.

A movement afoot

But there is a movement afoot to protect some retiree rights.

The Coalition for Retirement Security is backing federal legislation that would bar employers from altering workers' health coverage after they retire. The bill, sponsored by Rep. Tierney, would force businesses to reinstate benefits that they reduced or eliminated. The bill may be debated this fall.

In the meantime, Gordon, the attorney associated with the coalition, said that some retirees have gotten part-time jobs to pay for their health care.

"Those who can't are trying to survive the best they can," Gordon said.

Solutia's Retiree Benefits

Solutia's Retiree Benefits

St. Louis Post-Dispatch - By Virginia Baldwin Gilbert - August 16, 2001

Solutia Inc. is close to settling a legal dispute over retiree medical benefits. At issue: whether the company can change -- or drop -- coverage once promised for life.

Three years ago, Solutia sued retirees whose pension and benefit rights were assigned to the company when Monsanto Co. spun it off in 1997.

Attorneys for all parties say a settlement is near, but they declined to discuss details. If the issues cannot be resolved, the case is scheduled for trial next month in front of U.S. District Chief Judge Roger Vinson in Pensacola, Fla.

Solutia sued there in June 1998, asserting the right to change or to drop retiree medical coverage effective Jan. 1, 2000. The company named 21 defendants and asked the court to consider them representatives of a class of more than 16,000 retirees and their spouses. The court certified the class, which at the time included an estimated 2,900 people in Missouri and Illinois.

The dispute centers on medical-insurance benefits that union contracts, employee handbooks and early retirement incentive brochures said would continue unchanged from the day of retirement for retirees and their spouses.

The retirees say they want to keep the promised benefits or at least to limit the changes.

Solutia executives have said the company wants to cut costs and liabilities, which for health and life insurance are "about three times higher as a percentage of U.S. revenues than the chemical-industry average," according to a letter from President John C. Hunter to retirees when the suit was filed.

Solutia also wants to shed the premise that medical benefits can be vested the way pension rights can. The company on Jan. 1, 2000, changed retiree medical coverage to the plan it provides active workers. But it still is asking the judge to rule on its right to drop retiree coverage.

A U.S. District Court judge in St. Louis consolidated the retirees' two countersuits, one against Solutia and one against Monsanto, in 1999 and moved them to Florida. All the suits are scheduled to be considered in the trial beginning Sept. 17, if the parties don't settle by then.

"We're optimistic this thing can be settled without a court trial," said Jim Snyder, who was elected co-leader of the retirees named in the lawsuit. Snyder, 75, retired in 1982 as assistant manager of a Monsanto nylon-fiber plant in Pensacola, Fla., that's owned by Solutia.

He said the retirees sense urgency to get the case resolved. "There are numerous retirees older than I am," Snyder said. "We've been dying off at a pretty good rate the last three years."

Attorneys for both parties have "reached agreement in principle on terms of the settlement," said Glenn Ruskin, a Solutia spokesman. "I can say we will work diligently to finalize the details."

Solutia's aim is to find a health-care plan that "reflects good, robust coverage for retirees and rationalizes our cost," Ruskin said.

One of the most important elements to the retirees, Snyder said, would be "for us to have assurance that four or five years from now, we won't have to endure another lawsuit."

"Being vested in whatever plan is adopted is very important."

The defendants are divided into five classes, according to the years they retired and which plan was in effect at the time. Two classes are covered by union contracts; three represent salaried employees.

"They promised if you retire before this date, you can maintain this plan. If you retire after this, you go to the new plan," said Evan Thomsen, 67, of Florissant, who worked for Monsanto and Solutia as a chemical engineer.

"They said that very specifically, letter after letter, because they were trying to reduce staff."

Thomsen retired at 63 in March 1998. He is among the few former Monsanto employees to retire as a Solutia employee before the suit began.

His and his wife's medical plan is the same as that of Solutia's active employees, Thomsen said. He said he is most worried about Solutia ending medical coverage.

Despite the possibility of more delays if the case goes to trial, some retirees remain eager for their day in court, Snyder said.

When Monsanto split in two Sept. 1, 1997, Solutia got the original chemical business, one-third of the active workers, 70 percent of the retirees and debts of more than $2 billion - with a 1-to-2.89 debt-to-earnings ratio. Half the debt consisted of unfunded medical benefits for retirees.

Monsanto got the agriculture and pharmaceutical businesses, the related research facilities, the headquarters complex in Creve Coeur, a lighter debt load - a debt-to-earnings ratio of 1 to 4.17 - and a procession of merger and acquisition suitors.

Last year, Monsanto merged with Pharmacia Corp., based in Peapack, N.J., which later spun off the agriculture business as a new Monsanto Co. It might be the new Monsanto, but it's still saddled with the old litigation in Florida. Monsanto referred questions about the suit to Solutia.

Hunter, the Solutia president, said his company still is offering "substantial medical benefits to our retirees, by consolidating 14 plans into a single plan and by asking retirees to share a part of the cost of providing medical coverage, in much the same way as active employees already do today."

Lewis Gamble, 73, of Greenville, S.C. , said the medical plan cost him and his wife $1,596 last year. Their medical costs, including premiums and bills not covered by Medicare, were $1,913.

The former Monsanto plan would have paid $1,116 of the bills with no premium, Gamble said. By contrast, Solutia's plan covered $38.09 in bills and charged the couple an annual premium of $480.

"My wife has had just about every kind of surgery there is - a double bypass, back surgery twice - plus she's diabetic," Gamble said. "I found out I have prostate cancer. And all this time, we've been going through this legal battle while we have the pressure of our health problems."

Gamble was hired at the Pensacola plant in 1961 and retired in 1984 from the marketing department.

"We'd always been told we'd have medical benefits for us and our spouse for the rest of our lives," Gamble said. "They kept their word from 1961 until they spun us off."

(The suit between Solutia Inc. and retirees divides the former workers into five classes -- two representing union retirees and three representing former salaried employees -- based on when they retired. The retirees' law firm, White & Case LLP, has set up a toll-free line, 1-888-869-8390, offering updates and letting callers leave a message and a phone number.)

Return-on-Equity Up, But You May be ‘Under’

Retirees - Page Two