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Workers used to view company-paid retiree pension and healthcare benefits as a sure thing. No longer.
"Companies have plans in place," says Charles Cole, former chairman of the federal Pension Benefit Guaranty Corp.'s Advisory Committee. "They're required to meet multiple regulations and report to the government and employees. But companies also reserve the right at any time, for any reason, to terminate, suspend, withdraw, amend or modify the [pension] plan or any of its provisions. So even though they promise benefits, they can change anything relating to the future -- and they do."
It's particularly important for older workers and retirees, who have less time to recover from losses, to stay on top of changes to their benefits -- and possibly set aside extra cash for retirement living and healthcare expenses.
Defined-Benefit vs. Defined-Contribution Plans
One reason for the shifting retirement landscape over the last decade is the shrinking number of company-backed pension plans, known as defined-benefit plans, that guarantee workers retirement payouts based on a formula. Companies increasingly favor 401k or similar defined-contribution plans, which require workers to contribute money and assume the risk of investing it.
Healthcare Benefits Change Too
Retiree healthcare benefits face similar changes. Most companies offer modified or supplemental plans covering workers who retire before 65, after which Medicare kicks in, according to Cole. As healthcare costs have soared, employers generally retain those plans but transfer some costs to retirees through higher deductibles or copayments, he says.
As with pensions, companies are not required to provide healthcare benefits. Lynn Gresham, editor of Employee Benefit News magazine, says 11 percent of private companies plan to drop healthcare benefits for future retirees in 2005. But most are retaining benefits for existing retirees.
The situation is dire for workers at old-line companies in industries like steel and auto, with thousands more retirees receiving benefits than there are current employees contributing to healthcare plans. According to Cole, General Motors estimates that $1,400 of the cost of every car it makes goes to cover employee and retiree healthcare plans.
"A lot of this results from the law of unintended consequences," Cole says. "For years, plans were run by insurance companies that managed and assumed risk. Then, for a variety of reasons, including economic and regulatory changes, it became sensible and advantageous for companies to take responsibility for the plans themselves. No one's been dishonest. It's just that a lot of different events converged together."
But a lot depends on company culture. "If employers value the contributions employees make and want to send a message that they value those contributions after retirement, they'll stick to their plans," Gresham says.
Benefits Advice from the Experts
Not every company can -- or will -- do this. Fortunately, Gresham says, if you're a worker nearing retirement, your benefits probably won't be cut or slashed. Still, "be prepared to pay more for healthcare," she warns. "Older workers should monitor the situation. Set aside money to pay for any increases, and educate yourself to become a better healthcare consumer."
Cole advises older workers to retain healthcare coverage, even if they change jobs. "Even if your spouse has coverage, don't drop yours," he says. "Pay a little extra if you have to. At 65, when you're eligible for Medicare, add supplemental coverage. You never know when your company may drop you."
Older workers who change jobs shouldn't expect to find a defined-benefit plan. Cole suggests enrolling in a 401k plan and contributing as much as possible. "Don't get too risky," he says. "You'll need that money in a few years. Balance your portfolio. Keep a minimum amount in your company's stock. And don't forget about your IRA. You can still put up to $4,000 a year into that."
Union members' pension and healthcare benefits are usually protected by contract. However, everything is vulnerable when contracts are renegotiated. If you're a retired union member, it's important to make your voice heard, Cole says.
"Let the current members know the benefits you fought for and how those benefits will help them in years to come," he says. "Don't go off fishing or to Florida during negotiations."
