U.S. companies are chipping away at retiree health benefits

04/02/2014 9:31 AM

04/02/2014 9:31 AM

Throughout a bitter winter, burly linemen gathered at daybreak round tiny fire pits on a street in front of where they’ve clocked in to work for years.

In good weather and bad, particularly bad, these were the men who climbed up utility poles to keep the power flowing to the people of Altoona. It was hard work, but it paid well, helped these men build a life in the middle class and allowed them to look forward to secure retirements.

Now, locked out of their jobs since Thanksgiving in a contract dispute with Penelec, part of powerful Ohio-based FirstEnergy Corp., their only work was on their vigil.

American politics this election year is rife with discussion about the gap between rich and poor, with talk of raising the minimum wage for those at the bottom and about those at the very top.

But in Altoona, as in much of America, it’s about the vast middle, those who work hard, play by the rules and make decent livings. Now the rules are changing. The promise of the middle class is being broken.

Big companies are shifting their focus entirely to their stockholders. Globalization, endorsed by both major political parties, puts added pressure on the bottom line. Wages are stalled and benefits are on the chopping block.

The 142 blue-collar Penelec workers in Altoona personify this slow, persistent change in America.

“We’re coming down to two groups in this country: elites and those who have to work for them,” complained J. Merritt, 48, an 18-year employee of Penelec, who goes by his first initial. “That is not what this country was founded on. The forefathers of this country are probably flipping in their graves.”

Once a mainstay of blue-collar and government jobs, retiree health benefits are steadily disappearing.

Companies long offered them as a way of retaining workers. Now companies are shedding these plans and the expectations they entailed.

By 2010, just 17.7 percent of American workers had employer-provided retiree health coverage, down sharply from about 29 percent in 1997, according to the Employee Benefit Research Institute, a nonpartisan study organization.

FirstEnergy started notifying employees in 2009 that the company would end its subsidy for retiree health care in 2014.

“That is not a secret. That has been told to employees and retirees for four years plus,” Penelec spokesman Scott Surgeoner said.

Even with forewarning, the change reflects an erosion of retirement security for workers who often accumulate job-related injuries over their careers.

What irks the locked-out Penelec workers most is that their company and its parent corporation are quite profitable. FirstEnergy reported $142 million in profit for the final three months of 2013.

FirstEnergy CEO Anthony J. Alexander is among the 275 best-paid CEOs in the nation, according to Forbes, with total compensation of $43.04 million over the past five years.

“What man in the world is worth that?” asked Merritt.

He added that FirstEnergy had spent $120 million to acquire the naming rights to the Cleveland Browns football stadium in January 2013. “We make a decent living, I won’t deny that. But we also do a good job for people.”

Surgeoner scoffed at the issue of naming rights.

“Whatever we paid for naming rights . . . does not come from operations and maintenance. It comes from shareholder funding,” he said. “It is separate from the operations and maintenance . . . and is not connected whatsoever.”

As for Alexander’s high pay, Surgeoner said FirstEnergy operated in five states and provided electricity for 6 million customers.

“The board believes it has to set pay that it considers fair or commensurate for the responsibilities of the CEO,” said Surgeoner.

At the same time Penelec workers think the company focuses too much on its CEO, some analysts say companies overall have shifted focus to their stockholders at the expense of their employees.

“Much of it has to do with the change in corporate goals . . . this big transformation from being focused on stakeholder values to shareholder value,” said Ed Wolff, an economics professor at New York University who’s a leading researcher on wages and income. “A lot of this has resulted in huge emphasis, almost singular emphasis, on corporate profitability, beginning around 1980.”

For much of the last century, corporations focused on a wider range of constituents. They were integrated into the community, and part of their mission was to ensure their employees prospered.

“The real crux of the matter is the corporate mandate, and it really has to be up to corporations to go back to their old ways, to actually think of benefiting a whole range of stakeholders,” Wolff said. “Unless you get this shifted . . . not much is going to happen.”

The locked-out Penelec workers don’t much feel like stakeholders. Merritt and other linemen hurled insults at the “scabs,” union vernacular for replacement workers.

The linemen are represented by Locals 180 and 102 of the Utility Workers Union of America, which itself counts more than 50,000 members.

The Altoona-area locals were offered an 8 percent raise over three years, something that probably sounds good to many Americans. In fact, the average pay for a lineman in Altoona, said Surgeoner, is $81,500. That’s hefty in an area where $36,000 is the midpoint annual salary.

But as part of the new contract offered by Penelec, employees hired beginning this year would bear more of the burden for their pensions.

Existing employees no longer would get retirement health benefits paid by the company until they turn 65 and are eligible for Medicare. For workers who labored for decades, it amounts to making up new rules mid-game.

“It’s not changing the rules of the game, it’s a fact of financial life in today’s world,” said Surgeoner, who said the company didn’t “have the resources” to cover retiree health benefits. “We are not the first company (to end the benefits) and we will certainly not be the last.”

The oldest of the Altoona workers had been expecting free retiree health coverage; for newer employees, the cost of retiree health benefits was to have been shared.

“If we would have signed it, all the retirees that we have here would have lost their health coverage,” said Ron Hanna, 51, who himself is looking at losing promised retirement benefits after 26 years on the job. “We’ve got guys that are within a couple of years of retiring, and for the last 30 years they have been setting their retirement up knowing they’re going to have health coverage in retirement, and it’s not there.”

Local 102 President Robert Whalen did not return calls requesting comment, but he said in a statement at the start of the lockout that “our members fully understand that cuts to pension and retiree medical benefits will have a lasting effect on their livelihoods and inside their communities.”

Penelec operates a voluntary employee beneficiary association. That’s an entity established for the sole purpose of paying for employee benefits, and contributions to it by the company are tax deductible.

There’s at least $78 million in Penelec’s VEBA, and the money has been used primarily to help retired workers defray costs that aren’t fully covered for expensive medical procedures, Surgeoner said, stressing that the VEBA was paid into by the company alone.

The VEBA will be limited going forward to paying bills for workers who already have received help under it, he said, and not for defraying the costs of current workers when they retire.

Over the small fire pits, locked-out workers groused that the VEBA itself is large enough to cover their retiree health care costs, and wondered why this isn’t a solution.

“I think the key point is the union had no financial interest in that VEBA. At the end of the day, the company decides what to do with it,” Surgeoner said, declining to provide details about the VEBA. “It is not information we’re going to share publicly.”