Workers fear broken retirement promises
By Adam Geller
Associated Press
Myla Nauman has the same job, the same boss and the same customers as when she worked for Abbott Laboratories. But since Abbott spun off her division as a separate firm last spring, the 22-year veteran of the company and other workers have agonized over long-anticipated retirement benefits that got left behind.
The scenario faced by Nauman and her co-workers — now filling the ranks of a free-standing hospital products company that Abbott dubbed Hospira Inc. — is becoming increasingly common as more companies curtail pension and retiree health benefits. Hospira told workers soon after the spinoff it was freezing their accrual of pension benefits and eliminating retiree health care for many of them, even as Abbott maintained the benefits for remaining employees.
But the situation at Abbott and Hospira, subjects of a lawsuit by Nauman and two co-workers, illustrates how much has changed in recent years in the way companies treat their pension obligations. And it raises troubling questions as U.S. businesses embark on a new round of mergers, acquisitions and restructuring: Could such changes offer employers an added opportunity, or perhaps even be a justification in themselves, to unload burdensome retirement benefits?
"Every year it was reinforced to me that I was working with a promise and at my retirement ... that I would have full retirement benefits and all the pension benefits I'd earned," said Nauman, a saleswoman who lives in Valley Center, Calif. "I was almost at the finish line when all the promises were broken."
Whether escaping retirement obligations motivated Abbott's spinoff goes to a key part of the company's identity.
The pharmaceutical and healthcare product maker has long promoted itself as a generous employer.
Its corporate Web site notes proudly that it was named No. 3 on Money magazine's lists of companies with the best employee benefits.
But that honor was awarded back in 2002, and much has changed at the company and the economic environment its executives must navigate.
Shedding obligations
Scores of companies have moved in recent years to rid themselves of employee benefits obligations.
They've been motivated partly by skyrocketing healthcare costs, and by interest rates and meager stock market returns that undermined their ability to keep pace with soaring future pension obligations.
"These special benefits are what have encouraged employees to stay with companies for their entire careers," said Karen Ferguson, director of the Pension Rights Center, an advocacy group.
"What is not par for the course is not making good on your promises. That is what's changed, and doing it because, in the short term, it looks good on the company's books."
As workers at numerous companies have learned to their dismay, the federal law on employee benefits gives employers the right to make changes in their retirement plans at any time, provided those changes affect all workers without discriminating.
But even in situations like the one at Abbott, where benefits are reduced or eliminated, workers retain the right to pension benefits they have already earned.
Employees fight back
Companies buy and sell businesses all the time, a fact also recognized by the law.
In such cases, workers shifted in such an arrangement are deemed terminated by their original employer, allowing the new company to set terms of their benefits.
In probably the most notorious case, managers at Continental Can Co. in the late 1970s and early 1980s used a sophisticated computer program they called BELL — reverse code for Let's Limit Employee Benefits — to target for closure plants employing workers just about to reach retirement age or whose pension benefits were ready to vest.
Workers sued, and the company finally settled in 1991 for $415 million.
In a closely watched case settled in 2003, McDonnell Douglas Corp. agreed to pay $36 million to settle charges that it closed a Tulsa, Okla., factory as a way to detach itself from an older work force on the verge of claiming expensive retirement benefits.
Law unclear
Recently, older workers at a joint venture of Halliburton Corp. and Ingersoll-Rand have have lodged complaints about the way their pension benefits were handled. When Halliburton sold its interest in the business, Dresser-Rand, to its partner in 2000, it was able to free itself from early-retirement benefits many of the workers were on the verge of acquiring.
Until recent years, many companies divesting businesses tended to hold on to pension assets and obligations, thinking that they could do very well by investing them, said Larry Moerke, who consults with companies on pension plan administration for Towers Perrin. But as those retirement obligations have turned into a significant burden, companies have rethought that strategy and are more often washing their hands of pension obligations when a business is sold by parceling a portion of plan assets to the purchasing firm, he said.
Federal pension law is clear in barring employers from taking such actions expressly to cut benefit costs. But it's unclear what the law, Section 510 of the Employee Retirement Income Security Act, will have to say about situations like the one at Abbott, said Dana Muir, associate professor of business law at Michigan's Ross School of Business.
"It may even be legal," Muir said. "But in some ways, I think it violates the spirit of 510 .... I think that 510 was intended to spread the pain. If employers can't afford their benefit costs, it can't target employees who are getting the most benefits."
