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

“We have a contract. You can’t do that,” Chapman replied. “We will file in federal court against you bastards, I’ll guarantee you that.” That, in any case, was what ACF claimed, in court papers, Chapman had said, when it sued him the following Monday in federal district court in St. Louis. In its complaint, the company said Chapman had threatened them, and it was taking the step to protect itself from a lawsuit it anticipated from the retirees. “Defendant Chapman has already informed ACF that he plans to file a lawsuit concerning the amendments of the plan,” the complaint said.

The day after ACF sued the retirees, it sent them a letter, blaming a slump in the railcar-building-and-leasing industry, “particularly the covered hopper car producers. Because of this we are forced to make changes in our group insurance coverage.” And, by the way, it said, the plan documents gave the company the right to modify or revoke the benefits at any time.

Retirees were told to complete a form so that payments could be deducted from their pension checks; if they failed to return the form within two weeks, the company would terminate their benefits. Chapman worried that some of the less literate retirees “in the hollows” might not understand the letter or respond to it, and spent hours on the phone making sure they turned it in.

The Steelworkers union countersued in federal court in Huntington, West Virginia, to dismiss ACF’s complaint, contending that ACF had gone through “the charade of telephoning retiree Chapman about the cuts, just so it could provoke a predictable negative reaction and then use the reaction to immediately sue.”

The retirees’ suit also complained that ACF was suing not because it had been harassed but as a preemptive strike “to beat its own retirees to the courthouse,” and chose St. Louis because “ACF apparently believes that the Eighth Circuit is more favorable to employers in retiree medical benefits cases, and apparently feels that its chances are improved if it makes the retirees litigate hundreds of miles from their homes.”

In 2004, the court in St. Louis said that ACF’s move had “resulted in a proverbial race to the courthouse in order to deprive defendants of their choice of forum” and moved the case to federal court in Huntington, West Virginia. ACF may have lost its chosen venue, but it won the case anyway. The retirees appealed, and the case settled, with retirees paying more for their coverage than before.

CHAPTER 11

In Denial: INCENTIVES TO WITHHOLD BENEFITS

AFTER FORTY - TWO YEARS working in a coal mine, Elmer Daugherty could barely breathe. Doctors told him he had pneumoconiosis, commonly called black lung disease, a disabling, incurable ailment that has killed ten thousand miners over the past decade. His employer, Constellation Energy, provides disability and workers’ compensation for those injured or sickened on the job. It also provides black lung disease coverage, a benefit mandated by Congress.

Daugherty applied for black lung benefits in 2001, but the company denied his claim. Over the next three years, Daugherty was examined by nine different pulmonologists, underwent a battery of painful tests, and had more than thirty X-rays. Even though most of the doctors agreed he had black lung caused by his years in a coal mine, the company continued to deny his claim. He died in 2005.

Daugherty’s struggle to be awarded black lung benefits wasn’t unusual. Industry-wide, only fifteen claims in one hundred are paid. Providing benefits wouldn’t have put a dent in Constellation’s finances: Black lung is such a common outcome of working in coal mines that the federal government requires coal companies to pay into a central fund, run by the Labor Department, to finance the benefits.

But black lung coverage has something else is common with pensions: it’s a “postretirement obligation,” and under accounting rules is treated like other retiree liabilities, including retiree health care, long term disability, executive supplemental pensions, and deferred compensation. Coal producers must estimate the amounts they will likely pay over their afflicted miner’s lives, as short as they may be, and record that obligation on their financial statements.

These accounting rules, which reward employers for cutting retiree benefits, also provide them with an incentive to prevent workers and retirees from collecting benefits in the first place. Denying claims doesn’t just save coal companies money, it also helps the bottom line.

Consider the black lung obligations at Console Energy, one of the largest coal producers in the country. The $185 million “coal workers’ pneumoconiosis” obligation is calculated using assumptions including the incidence of disability, medical costs, mortality, death benefits, and interest rates.