Retirement Heist: how companies plunder and profit from the nest eggs of American workers

Some were in nursing homes or had moved in with their families. Several others died while McClow was on the hunt. As of March 2011, McClow had located all the missing retirees. Their coverage was safe. Until the next audit.

CHAPTER 10

Twilight Zone: HOW EMPLOYERS USE PENSION LAW TO THWART RETIREES

UNTIL RECENTLY,

someone pausing at the Wal-Mart in Delmont, Pennsylvania, might have been greeted by Ed Peksa, who had retired years before from GenCorp, the former General Tire and Rubber Co., whose well-known jingle goes, “Sooner or later, you’ll own General.”

Peksa, a former marine, hadn’t planned on working at Wal-Mart in retirement, or traveling. But he ended up doing both. He needed the greeter job because he was no longer receiving the $320-a-month pension he’d earned after working a quarter-century in the tennis ball department at GenCorp. His former employer was keeping it all to pay for Peksa’s share of his retiree health coverage. The coverage had been company-paid when he retired, but the company had unilaterally begun charging very steep premiums. Peksa couldn’t drop the coverage, because he needed it to help cover his wife’s prescription drugs, so he began working thirty hours a week at Wal-Mart. He thought the job was pretty decent, since he got an hour for lunch and two fifteen-minute breaks a day.

He also ended up traveling to court, over and over, as the retirees tried to reverse the company’s decision. Though he didn’t know it, he was living out a process that the Varity human resources managers had so candidly discussed behind closed doors years ago: Companies had little to lose by unilaterally cutting benefits they had promised retirees in written contracts. The retirees might pass the hat and try to raise funds to file a suit, but even if they got that far, it would be easy for an employer to drag out a case until the employees died. And whatever the outcome, the company saves money in the meantime.

Such was the legal odyssey of the GenCorp retirees. In January 2000, the company, by then a manufacturer of aerospace products, began charging 2,063 hourly retirees health care premiums, despite a labor contract that promised them free coverage for life. John Van Dyke, a retired millwright, thought fighting back in court was the answer. “I was sure that once the judge saw the contract, it would be over,” he said. “How long could it take?”

Longer than many of them would be around. Frank Palumbo was one of the oldest. Born in 1914, he went to work for the General Tire and Rubber Co. when he was sixteen years old. In 1934, at age nineteen, he participated in the first sit-down strike to organize the rubber workers at the Akron, Ohio, plant. Always active in the union, he worked at the company for forty-four years until he retired in 1975, with a promise of lifetime medical coverage.

By the early 1990s, most of the retirees, like him, were on Medicare, so their company-paid benefits covered only prescription drugs and Medicare premiums and deductibles. Not a huge amount for the company, but critical for the retirees, most of whom had pensions in the low three digits.

In the mid-1990s, the company used a trick the Varity managers hadn’t thought of: It sent the retirees enrollment forms giving them a choice between remaining in their no-cost plan or switching to one with significant cost sharing.

Elderly but not demented, Palumbo and the other retirees of course chose to remain in their current plan. But perhaps with their failing eyesight, they didn’t notice, at the bottom of the form, a sentence in microscopic print. It said that the retiree acknowledged that the “benefits elected . . . replace benefits under the prior GenCorp/URN retiree medical plans.”

About five years after Palumbo returned the form, his January pension check arrived. It was smaller. A mistake? No. The company said it was beginning to deduct some of their pensions to help pay for their health coverage. The retirees pointed out that the contract said the company would provide lifetime coverage. GenCorp didn’t dispute that, but said “lifetime” didn’t mean “at no cost.”