Shedding benefits

He retired from PPG Industries' now-closed glass plant in South Greensburg in 1985 after 28 years and got free health coverage, including dental -- until 2000.

"They took that away entirely. Right after that, I had to have a root canal, so I had to pay $700 out of my pocket," said Evanina, 78, of Dunbar, Fayette County.

PPG is just one of an increasing number of healthy, profitable companies -- not just bankrupt, desperate ones -- that are chipping away at employee and retiree benefits. To shave millions in costs, companies are shedding health care and pension benefits and shifting more of the costs onto employees and retirees.

Area corporations taking these tacks include PPG, Verizon Communications, Alcoa and others. That's on top of the many bankrupt steel companies and airlines that have scrubbed pensions and health coverage in recent years.

"Companies are shedding these plans left and right. Some do it by going bankrupt, and others do it by saying the contracts were never meant to last for life," said labor lawyer William Payne, of Glenshaw.

"Companies see (benefits) as low-hanging fruit they can go after," said Payne, who represents the United Steelworkers of America in the union's lawsuit against PPG, filed in 2001 and still pending.

PPG had decreased health coverage and shifted premium costs to Evanina and other retirees of 12 PPG plants, including four in this area. The unions claim the corporation could not change the benefits, but PPG refused to arbitrate the issue, according to court documents.

"We need to maintain a compensation and benefits structure that enables PPG to be competitive in the businesses in which we compete," said company spokesman Jeff Worden.

Since early 2004, 17 giant and healthy U.S. corporations have frozen pension plans, said the Center for Retirement Research, Chestnut Hill, Mass. That meant more than 400,000 employees stopped accruing benefits in traditional pensions known as defined-benefit plans, which are fully funded by their employers. In most cases, plans converted to 401(k) retirement savings plans. They are funded by the employees, with employers' limited matching contributions that are optional.

And retirees have been pinched for years, according to surveys by the Kaiser Family Foundation and human resources firm Hewitt Associates. They found 66 percent of the largest U.S. employers offered retiree health coverage in 1988, but only 33 percent of them did by 2005.

Verizon shaved benefits several times over the years. Most recently, it froze pension accruals on July 1 for about 50,000 middle managers, such as local marketing managers, who instead receive a larger company match on their 401(k). In addition, only employees with 15 years of service as of July 1 will receive fully paid health benefits upon retirement.

"We will save about $3 billion over the next 10 years," said Verizon spokesman Alberto Canal. "The changes give us an affordable benefits cost structure, and allow us to compete in a very dynamic marketplace."

The telecommunications giant had dropped fully paid, employee medical, dental and vision plans in 1984, and eliminated cost-of-living increases to the pension plan in 1991.

"When I signed up for that job, they said I'd get the best health care money could buy and a pension that assured me of financial security when I retired," said Bill Jones, of Long Island. He retired as managing director of corporate planning at Verizon predecessor NYNEX in 1990 after 30 years.

"I bought on and took less salary than I could have gotten elsewhere. And now this," said Jones, president of the Association of Bell Tel Retirees, which represents 111,500 retirees from Verizon predecessors Bell Atlantic , GTE and NYNEX.

"And Verizon is not in dire straits," said Jones, who met with Verizon CEO Ivan Seidenberg over the issue on June 14. "But Mr. Seidenberg told me he doesn't want the company to be in a position where it can't pay its bills."

Cutting benefits saves corporations tons in compensation costs. For instance, a defined- benefit plan costs the average corporation 7 percent to 8 percent of its payroll expense, estimates the Center for Retirement Research. Converting to a 401(k) slashes that outlay to 3 percent of payroll costs.

"The usual rationale for cutting compensation is to become more competitive in the global marketplace," said the group's study. Foreign competitors' workers have government-subsidized plans and newer, U.S. competitors don't offer defined-benefit plans to begin with, it said.

"Almost every company out there is taking a much closer look at their pension plans," said Jon Waite, chief actuary for SEI Investments Management, a corporate consultant in suburban Philadelphia.

In a defined-benefit plan, corporations kick in what's necessary to foot retirement liabilities. Those plans are healthy when the stock market does well, but require heavy company contributions when markets sour.

But defined-contribution plans mean corporations pay a set amount each period. One popular form is the 401(k) plan, which lets workers invest pre-tax deductions from their paychecks. Their employers may match a share of those contributions but don't have to.

When a company freezes a defined-benefit plan, employees in the plan stop accruing benefits and newly hired workers can't join it. Closing a plan is the same, except existing employees keep accruing benefits.

"I think we'll see more plans freezing and closing as we go forward," said SEI's Waite.

An SEI survey of 150 companies in February found 38 percent might reduce, if not eliminate, their traditional pension plans. That compares with 26 percent in 2005.

"Companies realize their defined-benefit (pension) plan costs have become very large relative to the organization," Waite said.

Ditto for health care. Employers' health plan costs have spiraled for years. Those benefits represented 2.4 percent of total compensation in 1970, 6.3 percent in 1990, and 8.4 percent in 2004, said the retirement research center.

Surveys of 3,000 U.S. employers by Mercer Health & Benefits showed the average total cost per active employee in 2005 was $7,089. That was 6.1 percent more than in 2004, while 2005 was expected to be up another 6.7 percent.

Prescription drug costs are a leading cause of the health cost increases, said Mercer. Drug-benefit costs ballooned by 18 percent in 2000, then by 14.3 percent in 2004 and 11.5 percent in 2005, the firm said.

Mike Stelmasczyk, 56, of Baldwin, took early retirement as executive operations manager at Verizon in 2001. At that time, his wife (also a Verizon retiree), relied on asthma medication that cost the couple $25 for a 90-day supply. The company bumped retirees' share for prescription drugs to $100 earlier this year.

"That's a hell of an increase," Stelmasczyk said. "They never even announced it. And they continue to eat away at the benefits."

Alcoa altered its pension and its health plans in the past couple years. The aluminum giant eliminated its defined-benefit pension plan for salaried new hires in the U.S. on March 1 and substituted a 401(k) plan. The company ended post-retirement health benefits to many hired after Jan. 1, 2003.

Alcoa spokesman Kevin Lowery said today's work force, unlike 20 or 30 years ago, "wants flexibility and control over their retirement savings, and a 401(k) does that."

"Most important is the portability a 401(k) brings," Lowery said. "People don't go to one company and stay there forever. And you can roll it over into another 401(k)."

• Most Read
• Most E-mailed
• Latest News