Sunday, December 5, 2004
Cutting Benefits
US Airways shrinking its commitment to retiree health-care
By Richard Craver
JOURNAL REPORTER
Georgie Kitchen is the widow of Richard Kitchen, who worked for Piedmont Airlines until 1983. She is facing the loss of her health-benefit supplement.
Cutting benefits
US Airways Group Inc. is pursuing the termination of retiree health and pension benefits through the U.S. Bankruptcy Court. The proposed changes are as follows:
Retired employees as of Jan. 1, 2005, would have their medical coverage eliminated except for prescription-drug coverage which will be available through Dec. 31, 2005.
Employees who retire after Jan. 1, 2005, and who are receiving medical coverage, would be continue to be covered but they would pay 100 percent of the cost.
All company-paid retiree dental coverage would end Dec. 31, 2004.
Additional changes to retiree medical benefits may be required as the company moves through the bankruptcy process.
Source: US Airways Group Inc.
Dennis Turbyfill said he gave his all to US Airways Group Inc. He went to work with the flu, a broken toe, even a broken arm. Turbyfill said he missed only 1 1/2 days in 30 years with the airline and its predecessor, Piedmont Airlines.
But just two years after Turbyfill, 62, retired early from the airline's reservation center in Winston-Salem, he said he has come to realize that US Airways never valued his loyalty and sacrifice.
"Anybody who tries for a perfect work attendance these days is a fool," Turbyfill said.
Turbyfill said that the final proof is US Airways' decision to pursue, through the U.S. Bankruptcy Court, the termination of retiree medical and dental benefits on Jan. 1 and its pension-plan obligations in early 2005. US Airways filed for Chapter 11 bankruptcy protection on Sept. 12, the second time that it has done so in two years.
Hearings on the airline's request have started, and a bankruptcy court judge said Thursday that he doesn't expect to make a ruling until early January.
"I thought the airline would provide for my benefits for the rest of my life, but now it appears their pledge may not be worth the paper it was written on," Turbyfill said. He has gone back to work with another employer to prepare himself for additional expenses.
Turbyfill is one of an estimated 3,000 US Airways or Piedmont retirees and their dependents in the Triad facing the loss of their company-subsidized health care and a possible reduction in their pensions.
At its peak, Piedmont had about 5,600 employees in the Triad. US Airways bought Piedmont in November 1987 and has about 1,600 employees in Winston-Salem.
In a memo sent to retirees in mid-November, the airline defended the cuts as a matter of survival. Termination of its pension plans alone would save it about $200 million a year.
"They reflect the critical need to immediately lower these substantial costs or risk an end to the company and a cessation of all benefit programs for all current and former employees," the airline said.
Jerrold Glass, a senior vice president of employee relations, said in another memo to retirees: "Potential investors have been clear that they are not interested in risking their money in an airline with noncompetitive pension costs and future pension obligations, which could overwhelm or seriously impair the company's financial outlook."
The US Airways and Piedmont retirees are part of a national trend in which bankrupt companies, as well as those struggling to pay rising health-care expenses, are shifting more of the cost of medical benefits to retirees or eliminating their contributions. Most-affected are the airline, coal, steel and technology sectors.
There are other recent examples of this in the Triad besides US Airways:
International Textile Group, the parent company of Burlington Industries Inc. and Cone Mills Corp., said last week that it plans to eliminate medical and dental benefits for about 1,400 retirees in September. It said it has to terminate the benefits to better compete in a global textile market.
Some local employees who retired from Lucent Technologies Inc. or its predecessors after March 1, 1990, could see their monthly health-care premiums rise considerably in early 2005 if a tentative agreement between Lucent and its unions is approved. Lucent also is reducing benefits to retirees not covered by union representation.
There are 127,000 Lucent management and union retirees, of which 8,200 are in North Carolina, said Mary Ward, a spokeswoman for Lucent. Thousands of those retirees are former employees in the Triad of Western Electric Co., Bell Telephone Laboratories and AT&T Corp.
In the new agreement, Lucent would not subsidize the health-care premium for dependents of management retirees who made more than $65,000 a year. Lucent will make group coverage available, Ward said.
Some employees who retired after March 1, 1990, have gone from paying nothing in health-care premiums to more than $500 a month for family coverage, said Ken Raschke, the president of the Lucent Retirees Organization and a Winston-Salem resident.
The US Airways pension plan would be administered by the federal Pension Benefit Guaranty Corp. if the court approved the termination of the plan. But analysts said that it is likely that some retirees won't receive the level of benefits once promised by the airline.
The pension agency already covers more than 34.6 million retirees in more than 29,600 plans. The agency reported on Nov. 15 a $12.1 billion operating loss in fiscal year 2004.
"The PBGC is committed to protecting pension benefits, and with $39 billion in assets we can continue to meet our obligations for a number of years," said Bradley Bell, the executive director of the agency. "But with more than $62 billion in liabilities, it is imperative that Congress act expeditiously so that the problem doesn't spiral out of control."
For retirees' health-care plans, however, there is no federal safety net. Medicare and a Medicare supplement costing $35 to $50 a month meet most of the health-care needs of retirees age 65 and older.
But for those retirees younger than 65, especially those with pre-existing conditions, life is a lot tougher. Analysts said that those retirees struggle to secure a private health-insurance policy even if they can afford premiums that are five or 15 times higher than what they were paying before their company dropped their benefits.
"Retired individuals under 65 are the population most adversely affected by the loss of retiree benefits," said Elaine Zimmerman, an official with the U.S. Labor Department's Employee Benefits Security Administration.
Fewer retirees covered
The Kaiser Family Foundation said that a recent survey of 408 large, private-sector employers found that 10 percent had eliminated paying for health benefits for future retirees. Another 20 percent said they were likely to terminate those benefits for future retirees in the next three years.
"Based on current trends, we can expect that fewer retirees will have health coverage in the future, and those who do will be paying more for their health care," said Drew Altman, the president and chief executive of the foundation.
Turbyfill said that if US Airways receives approval to eliminate its retiree health benefits - and he says he believes that it will - the payments for health-care insurance for himself and his wife could increase from $110 a month to between $608.51 and $701.04 a month for temporary Cobra insurance coverage. The federally mandated Cobra coverage normally lasts 18 months.
"It's devious what US Airways is doing to us," said Billy Reid, 57, who retired in March 2003 after 26 years in reservation services. "It's like having a thief breaking into your house to take away the promises you counted on for your retirement years."
Tony Steelman, 64, considers himself fortunate that he will have to wait only 10 months before he can depend on Medicare for most of his health care. He took early retirement in 1993 after 32 years as a flight attendant.
"It's still hard to fathom that my health-care payments have already gone from $7.80 a month to $158 a month in the past 11/2 years," Steelman said. "Now, I'm looking at having to pay $358 a month for Cobra coverage or $468 a month for Blue Cross Blue Shield.
"There's so many people who took early retirement because they were led to believe it was the right thing for them and the company. With the cutting of the health benefits, we've all been hit below the belt, and that's not right," he said.
The shrinking corporate commitment to retiree benefits is a byproduct of a more mobile work force and a fading of the loyalties once extended in the employer-employee relationship, said Mark Hall, an associate professor of management at Wake Forest University.
"More employers are no longer saying to their employees, 'Come work for us and we'll take care of providing you with a certain standard of living when you retire,'" Hall said. "Now, the relationship is mostly a paycheck and benefits while you're an active worker."
US Airways' benefits-cut proposal has some local employees reconsidering their plans to retire by the end of the year even though they are angry about recent pay cuts. The bankruptcy court already has approved a temporary pay cut of 21 percent, and that decrease came on top of a 15 percent pay cut in 2002.
"Those people have been grossly misled by the airline, who encouraged them to retire only to spring the health-benefit cut on them with just a few days notice," said Betty Parker, a retired reservation employee and an official with Communications Workers of America Local 3640. The airline said that it would give employees who had submitted paperwork to retire the opportunity to rescind their request.
For employees who retire after Jan. 1, the airline would allow them to have access to its insurance coverage, but they would have to pick up the entire cost. Accrued sick days could keep premiums down for a while.
"Additional changes to retiree medical benefits may be required as we move through the bankruptcy process," the airline said in its memo to retirees. "The company reserves the right to seek to change or terminate retiree medical benefits at any time."
Dan Shanks, 70, worked for the airline for 36 years, retiring in 1989. A Winston-Salem resident, he is taking an active role in a legal challenge by some retirees to the airline's proposed benefits cuts.
"We're especially worried that the airline is trying to limit the retirees' pension payouts with the Pension Benefit Guaranty Corp.," Shanks said. The federal agency pays a maximum of $3,699 a month, or $44,386 a year, to an employee who retires at 65. The amount is smaller for those who retire before 65.
"There's a lot of distraught, stressed-out retirees out there," Shanks said. "They don't understand why the company is treating them this way, especially when management is not sharing in the sacrifices.
"But then again, this is a company who from the start after buying Piedmont wanted to operate things its way. It's been clearly shown in the past 15 years that its way has been the wrong way."
'Lost its heart'
Georgie Kitchen, 80, the widow of a former longtime Piedmont employee, is as disillusioned as other retirees.
"It is very evident that US Airways has lost its heart and has absolutely no conscience," Kitchen said. "We are not young folks, with our ages ranging between 65 and 90. Many of us don't have the option of going back to work.
"It's frustrating to think that US Airways is cutting me loose in the health-care market without regards to the years of service my husband gave to the company."
Kitchen is not alone in her sentiments, said Michelle Kitchman, a senior policy analyst for the Kaiser foundation.
"Many retirees feel like the rug has been pulled out from under them as a result of the loss of their health benefits," Kitchman said.
"Once you've been relying on something to help subsidize your costs, and you're in a position where you might have one or more ailments that require multiple visits to multiple physicians, you're going to feel the pinch of the loss of these benefits."
Jo Ann Overby, 62, said she took early retirement after 231/2 years to help US Airways through its first bankruptcy filing in 2002. Overby is the widow of Gene Overby, the former play-by-play sports announcer for Wake Forest University.
Overby said that retirees never would have been in this plight under the watch of Thomas Davis, the founder, chairman and chief executive of Piedmont.
"The only reason I chose to retire when I did was to secure the health benefits the airline's management is about to throw away," Overby said.
Turbyfill, the retiree with a nearly perfect attendance record, said he shudders to think about what it's going to be like for future US Airways workers.
"The way things are going now, they'll have nothing to look forward to for retirement except being stabbed in the back," Turbyfill said. "That is, if there's an airline to retire from."
Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com