Let’s say someone made a commitment to you, a commitment that would be important to you in the future and indeed for the rest of your life. In exchange for that promise you gave up a great deal of money (pay) and equally important, you put trust in this promise as part of your future financial security. But then when you needed it most, the promise was broken. Think of it as purchasing a deferred annuity and when it came time to collect, the insurer simply changed its mind and decided not to pay … so it could save money.
Once you retire from a company you are helpless; no longer an asset, you are instead a liability. Not your union nor anyone else can protect you. Tough s__t as they say.
According to Forbes, GE has become the latest large employer to pull the plug on retiree health benefits by breaking a long-term commitment to provide health benefits and replacing it with a private exchange and funded with a defined contribution. In 1988 66% of large employers (200 + employees) offered retiree health benefits. By 2015 that number was 23%. That reduction collectively represents a massive cut in retiree discretionary income (without offsetting with higher direct compensation before retirement I might add).
Traditionally, employers contributed a percentage of the premium so if the retiree paid 25%, while the dollar amount may increase, the employer still paid 75% of the total costs. With a defined contribution approach the employer contributes a fixed dollar amount and as the premium increases the retiree pays a greater and greater share of the premium with the strong possibility that over time the premium truly becomes unaffordable. To keep this in perspective, remember the employee retired under one set of rules and suddenly the rules are changed.
Spin doctors like to express such a move as giving retirees more choice and flexibility. GE explains it will save $3 billion … you can decide who the winners and losers are.
How does all this happen, what motivates employers to … well, break commitments and screw their retired employees?
You know the answer; money of course. Most likely earnings targets are in jeopardy and an easy source of cost cutting are the helpless retirees, the very people who while working were called a great asset, who the employer wanted to be engaged, who were part he team. 😏
Some executive wants savings, a lower level executive; in this case the VP of Benefits has a brilliant idea. Let’s look at the tremendous retiree benefit liability. He or she calls in a consultant for his brilliant ideas, ideas sold to other employers over and over. But there is a new twist here. Now consulting firms are also selling private health insurance exchanges. They also promote the defined contribution approach.
The consultant gets paid for selling ideas. The consultant makes money with its health insurance exchange. The employer lowers its cost and it’s long-term liabilities and the retired employees, well they are left …
… with less money to spend and the full liability of growing health care costs … something they were led to believe they were protected from and while employed were told was part of their total compensation.
How do I know all this? Because I managed employer health benefits for nearly fifty years. I made changes that dramatically reduced the employer’s retiree costs. The difference was when I made those changes, they only applied to workers newly employed after a future date. We didn’t change the rules after the fact.