Reducing Corporate Retiree Health Care Costs

The cost of post-retirement health benefits must be set forth in a company’s filings with the Securities and Exchange Commission. Depending on the size of the company and the pool of covered workers and retirees, these costs can run well into the millions, and in some cases billions, of dollars.

Many companies have changed or are in the process of changing these benefits. Today only 45 per cent of employers provide medical benefits to current retirees, and only 22 per cent of employers include retiree medical as one of the benefits offered to new hires.

Moreover, according to a recent survey, approximately 43 per cent of companies that now offer retiree medical benefits are planning to reduce or eliminate them.

Some companies have already eliminated them, and some have litigated successfully when changes they attempted to make were challenged. Goodyear Tire & Rubber achieved a settlement which reduced its retiree medical obligations by approximately $200 million.

Whether a company can change its retiree medical benefits is largely a legal question. These benefits generally are not legally vested, meaning that often they can be reduced or terminated. If they are vested, a lifetime right to a certain level of retiree medical benefits is in effect, and they cannot be changed or eliminated without the retirees’ consent.

Whether or not benefits are vested is a legal question that depends on the interpretation of relevant contracts and documents.