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The Tarnished Parachute
As American companies struggle to compete in a global market, they are increasingly considering the merits of eliminating or reducing costly retiree benefits. For many companies, the costs of these benefits have become staggering. For example, before recently announcing plans to freeze health benefits for tens of thousands of its white-collar retirees, Ford Motor Co. was facing health-care expenses of more than $3.5 billion. Its rival, General Motors, which according to recent reports owes a projected $89 billion in welfare and pension benefits to its current and future retirees, just announced that it will offer workers with 10 years' experience a payment of $140,000 and a pension, if in return these workers will leave their employment and forgo health care benefits.
These large retiree benefit obligations date back to times when, in an effort to attract employees who would remain with them for their entire careers, and sometimes in order to maintain labor peace, companies promised 'cradle-to-grave' benefits that would enable these employees to live comfortably in retirement. Today, however, these same companies face increased competitive pressures from both start-up companies, which typically do not offer retiree health benefits to their younger workforce, and companies located in foreign countries like Japan, which assumes responsibility for retiree benefits.
The results of these competitive pressures are understandable, if not inevitable. Because companies are unable to reduce vested pension benefits, they have targeted retiree health benefits for reduction or elimination. A recent survey of over 700 large private employees by the human resources consulting firm Hewitt Associates and the Kaiser Family Foundation revealed that 71% of them had recently required their retirees to pay higher premiums, and 20% said that they planned to eliminate health-care coverage for future retirees within the next 3 years. In the words of one expert, 'The money's just not there. Employers are having a difficult time just grappling with premiums for employees. The idea of taking care of people who aren't even with you anymore is just way beyond employers' financial ability.'
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