morning i call witnesses in my colleagues for their patience as you know we've got a lot of things going on at one time they're all important so i quote i was present in the committee will come to order just to make a brief opening statement to give us a client an opportunity to do the same and then we'll hear from our witnesses and have some questions back and forth after that through the years millions of workers have retired believe that they will be provided with health care benefits when they are promised by their employer are benefits that they are and what many of those workers found was that their former employer eventually made a cost cutting decision to renege on that promise and cut to reduce those health care benefits as a result some retirees may have been forced to endure a drastic decline in the standard of living in order to pay for the out of pocket health care costs others may have been unable to obtain new coverage because of a preexisting condition and many may have opted to go without health care coverage because of its cost taking a gamble and hoping to get by until  became medicare eligible i would greatly to be chairing this meeting today i requested to hear and like many of my colleagues i think retirees deserve a better deal hard work should not be rewarded with tough times and fairness has to restored and like pension plans the employee retiree income security act of one nine hundred seventy four popularly known as a risk does not impose mandatory vesting requirements with respect to health benefits consequently many courts have upheld that there is no legal protection for employees i thought the legislation h r thirteen twenty two to remedy this and to ensure that the regional health care benefit expectations of retirees are responsive regulated group health plans up of filled up the legislation has also been filed and will be part of this hearing but specifically h at thirteen twenty two prohibits profitable plan sponsors from canceling of reducing promised retiree health benefits it establishes an enforceable obligation to be still a promise health benefits previously taken away from retirees and it creates an emergency retiree health loan guarantee program to assist with the obligation to the store retiree health benefits spurring the need to an act of legislation is the fact that more and more workers are approaching retirement age according to the census bureau the number of individuals sixty five years or older is projected to increase by seventy three percent by two thousand and twenty five the number of individuals between fifty five and sixty four years old is expected to grow by thirty six percent today's hearing serves as an important opportunity to discuss how we can better safeguard retiree benefits i look forward to hearing from all the witnesses now yields it to the ranking member of his opening statement was the klein thank you mr chairman good morning to everybody thank you for participating this morning's hearing on the critical issues affecting americans who are retired or planning for retirement and i find that as my hair gets wider and wider and dinner and dinner that becomes ever more in front of my thoughts as you know our health care and retirement systems today are largely based on the voluntary participation of employers and this system certainly has some flaws but for the most part it's worked well in providing coverage and maintaining freedom from costly mandates rather than requiring employers to provide health care benefits we have designed policies to encourage voluntary employer participation these policies have succeeded in enabling employers to provide health care benefits to more than one hundred and sixty million americans including millions of retirees over the age of fifty five these benefits are highly valued by employees retirees and their dependents and companies recognize the value of maintaining generous benefits in order to attract talented workers and remain competitive in the global economy yet despite its many successes as i said the system is not without flaws yearly health care costs continue to increase at rates that dramatically outpace overall inflation these cost increases are particularly problematic for retirees who may not be able to afford post retirement health care benefits increasing health care costs also pose unique problems for private employers demographic trends indicate a large number of retirees in the coming years when coupled with rising costs this fact is forcing many employers to make difficult choices regarding the nature and extent of employee and retiree benefits in some cases companies are forced to choose between continue retiree benefits or creating new jobs today we have the opportunity learn more about the state of retiree health benefits and various proposals for reform one proposal we've heard about would bar employers from reducing health benefits after retirement of a worker this is a deeply that threatens the very foundation of our bollen terry employer based system current law already prevents employers from reducing or terminating promised benefits unless they expressed we reserve the right to do so and fully disclose the intent under their risk benefit plan the proposal in question would go much further declaring that no changes could ever be made to benefits once a worker or retirement irrespective of unforeseen circumstances the outcome of such an unprecedented and flexible mandate is obvious employers will simply stop offering retiree health benefits and this is clearly not the outcome that anyone desires rather than penalize ing companies for trying to do the right thing we should be exploring ways and i hope that we will be today to control the cost of health care benefits and encourage employers to continue voluntarily providing retiree benefits as the current financial crisis makes clear now is not the time to impose government coverage mandates that would serve increase cost and reduce coverage i'm really looking forward today to hearing from our distinguished witnesses on the discussion that will follow and i yield back thank you mr klein without objection all members will have five days to submit additional materials for the hearing record now i will in witnesses i'm going to give a brief introduction right across the panel and then we'll start at the beginning with mr lily again but david lilley i first witness was hired by the hughes aircraft company in tucson arizona in one thousand nine hundred three which later became raytheon missile systems cattery is the president say that right was can i can write is a present of the national retiree legislative network which represents over two million retired workers from fortune five hundred companies as a cat or i retired from alcatel lucent in hundred five at the thirty five years of service c william jones is the founder and chairman of protect seniors dot org a nonprofit organization dedicated to saving corporate sponsored retiree health benefits in one thousand nine hundred six he founded the association of bell tel  an association dedicated to protecting retiree pensions and benefits deal yamamoto is the founder of the president of red quill consulting a does the otoh also work with the two major benefit consulting firms in seattle new york and chicago is also help  as the corporate actuary for a fortune fifty company and as an actuary for two major insurance companies scott macy is the senior vice president and director of govern affairs of a on consulting inc mr macy is a form of share of the arista industry committee and continues to serve as a member of the executive committee of that organization and norman stein is the douglas errants professor at the university of alabama school of law re teaches benefits and tax law we're going to ask each of the witnesses to make a presentation for approximately five good morning mr chairman members of the committee on education and labor i want to thank you very very much for giving me the opportunity to speak to you about the problems that retirees in tucson arizona are having of the international association of machinists machinists and aerospace workers in july of two thousand and four i received a notice in the mail that my company paid medical insurance which i head since my retirement would now cost me three hundred ten dollars a month over the next two years two and a half years my premiums increased to five hundred thirty six dollars a month this was a clear violation of the retiree health benefit language in the one nine hundred ninety six tell ective bargaining agreement that was in effect when i retired after meeting with a local nine thirty three's direct business agent i soon learned that many retirees were paying as much as fifty five percent of their fixed retirement income just to pay the premiums that they weren't supposed to have to pay we held a meeting with all or at raytheon retirees that we could get in touch with who were affected by this violation we retained legal counsel and found that raytheon had really unilaterally ignored the retiree health benefit language of the placable collective bargaining agreements a class action lawsuit was filed against  raytheon to regain our company paid health benefits the despicable action of raytheon affected approximately a thousand retirees and their dependents who suffered not only monetary losses because of the unplanned premium costs but also the mental anguish and stress due to this unnecessary and drastic change in their lives many had to change to a different medical insurance plan sacrificing coverage for cheaper medical payments other retirees were forced to sell a large part of their retirement dreams in order to afford the premiums that they now have to pay more than a few retirees have had to mortgage their omes and were paid off that were paid off in order to pay medical expenses that were not covered under a cheaper insurance plan this is happened to one of my friends who i worked with for many many years it's been terrible to witness what is doing to him mentally as well as physically many of depleted their life savings to offset the premium cost quite a few plan to travel visit their children grandchildren and great grandchildren are enjoying seeing friends and just travelling around the country now they just say home are they go to mexico to seek medical help retirees it could not afford even the cheaper plan have had to drop medical coverage altogether and simply pray to stay healthy healthy sadly one of my fellow entire retirees who could not afford the monthly premiums has incurred a significant out of pocket medical costs after his wife suffered two heart attacks requiring two pacemakers she also developed pneumonia and diabetes which resulted in additional hospital stays this sent their medical costs skyrocketing to over eighty seven thousand dollars all of this expense and no insurance even though he was covered under a jointly negotiated to let bargaining agreement which provided health insurance until he and his wife both reached age sixty five this summer our class action suit against raytheon missile systems resulted in a favorable decision for a fee and retirees in his findings judge district judge david berry said that the collect the big remans quote on ambiguously provided vested medical benefits for retirees until sixty five at no cost unquote judge berry has ordered raytheon to make the affected retirees whole and reinstate them in the company pay medical health insurance unfortunately raytheon has appealed this decision and the suffering for a fee on retirees and their divan and continues it is important to note that raytheon is a company that has grown fat on government contracts pianist two thousand and seven annual report eighty six percent of companies sales are to u s government and all of the missile systems work is defense related since two thousand and five net income has tripled to nearly two point six billion and earnings per share have doubled in angers me to think that a corporation like grave yon that shows contempt for the retirees that built  committee and you mr chairman for focusing on this vitally important topic and i appreciate the opportunity this morning to say a few words our retiree organizations serve a cross section of the top fortune five hundred companies such as boeing i johns manville qwest alcatel lucent prudential raytheon detroit edison pac bell g m ford chrysler a t and t and a dozen or so others are members live in all fifty states and in over three hundred congressional districts they're organized on a grassroots best basis by congressional district although the majority of our membership is retired management employees over fifteen percent are retired union workers most of them feel betrayed by their former employers at the heart of this betrayal is that so many employers employees even retired managers were unaware that their former companies could break their promises to retirees for example many retired managers said they were not aware that the lump sum pension payments offered is inducements to older workers to retire often came from workers own pension plan assets and that happens today nor did they realize that the health care benefit plans contain statements that reserved to the company the right to reduce or cancel health care benefits retiree exit interviews ended with a handshake and the passing going on below stuffed with benefit promises sandy a retired i b m manager who saw his own insurance bill triple in two thousand and four put it this way i feel i misled a lot of people that i've lied to people then he said it does not sit well with me at all this may be a little known to you but capping and cancelling health care liabilities in the ninety's was the beginning of a disturbing trend that continues to this day international paper used fast b one zero six to book health care liabilities and then introduced caps on their health care liability to retirees the effect was almost one thousand million earnings gains each year through year two thousand in two thousand two thousand and one in two thousand and two they capped benefits of nearly newly acquired companies through two thousand and four benefited by another sixty five million dollars in profit shares implemented caps during the ninety's and fed three hundred eighty three million dollars in earnings since ninety nine hundred ninety seven to their bottom line i b m implemented caps in one nine hundred ninety nine that affected one hundred ninety thousand retirees it took three years for retiree health care cost to reach the six hundred twenty five dollars per retiree cap but in two thousand and two retiree premiums increased sixty seven percent and another twenty nine percent in two thousand and three adding the greatest insult to this injury is the heinous c rule of two thousand and seven which permits companies to discriminate against over age sixty five retirees who can have their benefits eliminated completely with companies claiming the sesa to be in order to maintain benefits for younger workers there are over ten million retirees over age sixty five over age sixty five general motors retirees will be forced on to medicare without catastrophic dental vision or hearing insurance they now have effective january one two thousand and nine a g m retiree who must purchase supplemental insurance plus the four elements just cited they're going to lose will be in the hole over four hundred dollars a month starting in january two thousand and nine a retiree on fixed income pension at thirty six thousand dollars which would be seventy two thousand and dollars pay go to wesley ha they're going to lose between eighteen to twenty percent of his horror her fixed income if they replace all this coverage ford chrysler and g m are casting a big shadow over the retirement landscape singling out over age sixty five retirees that's an example that will lead to more companies targeting them it is ironic that retirees under age sixty five are no better protected now than before the e e o c rule became effective there are no promises they have no guarantees they will ever not have their health care cut i'm not blaming the big three the trend is universal the e e o c rule and the fact that arista does not vest retiree benefits are the real culprits here for this reason maintenance of health care benefits in effect on the day every tyrant is a top in arlon priority congress must address the problem of catastrophic insurance also for all retirees and medical eligible americans it's just not the an uninsured who are vulnerable robert a sixty six year old dallas retiree has brain cancer he gets free supplies of a tumor fighting drug through a program for low income families his premiums have jumped by three hundred sixty five dollars a month deductible and co pays and other out of pocket expenses are on top of that it eats up all the pension which is eight hundred fifty dollars a month his wife of the rue says they have cashed in his four zero in k and taken out a second mortgage home therefore to other in arlon priorities are the inclusion of catastrophic coverage in medicare and the creation of a medicare buy in option that cost for all under age sixty five retirees elizabeth warren a harvard school professor and one of the authors of consumer banking project examined a sampling of noncommercial bankruptcies from one thousand nine hundred one to two thousand and seven and people sixty five and up were more than two rice is likely to file for sentence or less speech think you think it first we recommend pretty broken promises to retirees and mitigate the harm for me o c rule by offering incentives to companies by requiring them to maintain their existing level of health care contribution for retirees this incentive could take the form of a tax credit that would offset part of the cost of maintaining these caps the airline calls this a maintenance of cost protection second we recommend you or you modify or reciprocal prohibit the use of defined pension plan assets to make lump sum severance payments and operating expenses to be paid by the corporations this would ensure the pension funds could be applied to health care through ira section four twenty as long as a cushion of one hundred twenty percent of chairman ranking member members of the committee my name is bill jones and i service chairman of the board for tech seniors dot org a not for profit organization of retired union and management employees formed to tackle the issue of retiree health care i'm here today because we have a serious escalation of retiree health benefits slashed by corporate america this is why with your help in leadership mr jammin legislation in the form of h r thirteen twenty two the emergency retiree health benefits protect i must be passed as you know the original orissa legislation prior to one nine hundred seventy four included health care insurance as a critical part of the congressional plan to provide retiree income security in fact h r thirteen twenty two is the health care language drafted by michael gordon and included in the original rest of the legislation the amendment that i'm here to support was also drafted by mr gordon in the year two thousand as requested by our association for those who do not know michael gordon was a very well known labor lawyer who is charged by senator jacob javits of new york and others to draft the original rissa legislation and he lobbied for years to see it passed the reason why i'm here today representing millions of retirees is because h r thirteen twenty two health insurance portion of the arista legislation was eliminated from the final bill in order to make it more likely that that legislation would pass the proponents had every intention to amend or risk at a later date to add back protections for health care insurance if michael gordon were alive today he would be here to tell you the same thing if we look back in time when most of the current retirees were in the work force we would see the larger american companies universally offered retiree health care to their employees and retirees as an incentive to retain strained employees the workers accepted the iou for retirement health care and other benefits in exchange for lower wages employers especially deducted the cost of providing the insurance from wages and reminded employees that retire retirement health care and other benefits were part of their overall compensation package therefore lawyers on the one hand acknowledged their implied contract yet in the early one nine hundred eighty s added a clause to their benefits practice that said that they had the right to amend the plan at any time the clause was called the reservation of rights clause this clause was never communicated to the employees during their careers later and employers added the possibility of germination of benefits to the clause and place the statement of possible germination of benefits in employees retirement packages mr chairman let me make this clear here employers told their employers and employees annually for twenty thirty or forty years that their reductions in pay and other perks were in change in exchange for their lifetime retirement health care and other benefits it's also very important understand the corporations benefit greatly by providing health care benefits to lieu of wages they did not have to pay sulfa security and other payroll taxes on the benefits they could also defer funding those obligations when the earnings were low unlike payroll that had to be paid on time further since the amount of employees pension is directly proportional to his or her rate of pay corporation saved on pension costs as well general motors was the first to run egg on this and led contract g m does designed an incentive plan for management employees to retire early they included free lifetime health care for the employee and spouse as one of the most attractive and beneficial features of the incentive plan g m cashed in on all the benefits of promising retiree health care instead of paying a higher wage only to read nag on the obligation and cash in once again by stealing the promise and earned benefits from those who at least afford it the retirees would were presented with a lose lose outcome while g m benefited with a deal when when the retirees chose to take g m to court and won a lower court decision g m that appealed the case at the appellate court found in favor of the company g m retirees appealed to the supreme court and they were stunned by the court's support of the appellate court decision the three judges who dissented got it right stayed being that g m did create a vested right to lifetime health care benefits and criticize g m s corporate shortsightedness pension plans are protected by law but now employers can cut health care for retirees at any time the vast majority of read every tyreese live and this is fixed incomes with nest eggs that have been taken big hits during the recent stock market decline many don't have a contingency plan because they had no idea they needed one mr chairman we're facing a health care crisis in this company country and h r thirteen twenty two should be a part of the overall solution the federal government cannot afford to replace these lost benefits nor can many of these retirees pay more to get the basic health care they need we're not here asking for an a handout what we want is for companies to live up to the promises they made employees earn the benefit and companies promise to deliver a promise made should be a promise kept with your continued help and support i'm confident that we can get h r thirteen twenty two passed into law protect singers is is ready and willing and able to work with all of you in a bipartisan solution that's good for retirees corporate america and the pocketbook of the federal government that with the crisis set off in the financial markets we can't afford to pass additional taxes and burdens onto the american people and retirees cannot afford to pay more for the health care they earned and require a pleased to to be here today to talk about the employer's role and providing retiree health care to their to their retirees and i provided a chart pack in your materials that i'll go through i certainly don't have enough time to go through every one of them but the the charts provide a kind of the key aspects of retiree how scary including prevalence of the of the benefits design changes employers have made in the past and think about in the future as well as ideas on prefunding and national average cost of the program and during my during my five minutes i have i plan to focus primarily on the prevalence and design issues of the of the benefit program but certainly prepared to discuss the other elements in aspects of the of my slides and the q and a discussion song flight number three a whenever you talk about retiree health care is generally focused on larger employers and offer retiree health care benefits and it's really focused on the larger employers slide number four shows the decline in prevalence and the benefits and you'll note that most of the decline happened in the one nine hundred ninety s and if you flip again to slide number five it is that it's a pretty simple slide that shows you i think some of the some of the drivers behind the decline in prevalence of the benefits in the first place some notable legislation that i've left out of course four and it we started to see some some decline but the biggest impact probably was what the financial accounting standards board did in one thousand nine hundred one they adopted fast one hundred six which required employers recently that moved a lot of the funded status directly onto the balance sheets and that's about the same time the government accounting standards board adopted that gatsby forty three and forty five that provide very similar accounting treatment think we'll see the same phenomenon happen in the in the public sector now moving to slide number six one of the things that is not evident when you look at the prevalence of retiree health care offered by employers is what does happen to the current retirees and you know it's on slide number six the percentage of medicare retirees with employer based coverage has remained relatively stable over the last fifteen years and i would say that's primarily because when employers do  eliminate coverage it's generally for future retirees and future retirees who retire maybe five ten years into the future and generally grandfather current retirees and those that are ready to retire in the short term near future so if i jump to slide number nine this shows gives you a picture of the design changes the employers have made between two thousand and five and two thousand and six this is the latest data that we have from a survey that the kaiser family foundation does in conjunction with you associates you'll see that most of the design changes that are up on up on the top of been geared toward  them ploys did terminate coverage for future retirees between those two years and in fact if you move your eyes a couple down you see that a percent actually improved or added some some coverage for retirees  and i have to say on that in the twenty five years of my experience consulting with employers and working with them on retiree health care benefits i've always found that virtually everyone has a  very difficult time making decisions on changes to the red retiree health care benefits and i'm sure when it gets to the senior management level they agonize over even these changes in the c provisions and certainly when they are about to terminate coverage for future retirees i'm sure they have many sleepless nights trying to make that decision of whether or not to do it so it's not it's not a position that's taken lightly senior director of government affairs for a on consulting and i'm appearing here today on behalf of the ricin destry committee commonly known as eric i'd like to preface my remarks by the following that these are compelling stories that we've heard this morning  and i think we can all empathize with them and my testimony certainly isn't intended to denigrate the impact of them or the reality that the number of the various people who've incurred them have to face we may differ identifying the source of the problem or the possible solutions but i think we can all agree this is an important issue that needs to be addressed by congress and society there are commands the committee for its focus on retiree health benefits our nation senior citizens need and deserve access to quality affordable post retirement health care the problem of the lack of such coverage is true especially for workers who retire before they become eligible for medicare employers also feel the pressure of our health care system acutely erik's members share the committee's concern over the loss of health care access and coverage for workers retirees and other americans indeed we and others have warned repeatedly that increasing health care costs changes to accounting rules and insufficient funding rules would result in increasing pressure on both active and retiree health care although we welcome the committee's attention to this important national issue even in the midst of a national financial crisis we are concerned about the approach being proposed the bill that is the focus of today's hearing we believe misinterprets the underlying reasons for the problem concluding that employers are the problem and propose a solution that is likely to have significant unintended adverse consequences i would like to raise four key points for the committee's consideration first if an employer promises lifetime health benefits to a tree taught to its retirees that commitment is protected under current law second if an employer has lawfully reserve the right to change retiree benefits and communicated that right and reservation to participants that legal rights should also be protected third if employers are prohibited from changing the benefits in place when a worker retires this mandate will have the unintended likely consequence depriving millions of future retirees of these important benefits for the the effort to save guard retiree health benefits will succeed only of addresses the pervasive problems in the american health care system these are societal problems that require a comprehensive solution existing law does protect promised benefits the act rests on a mistaken assumption that employers are breaking their promises to provide bennett retirees with lifetime post retirement health benefits this is simply not the case if an employer has made an unconditional commitment to provide post retirement benefits the court will uphold that commitment the bill will penalize employers that voluntarily provide post retirement benefits the bill does not seek to and just enforce existing promises instead the bill seeks to create new promises were none existed before the bill would prohibit an employer from reducing post retirement benefits for workers will be already retired even though the company reserve that right and told the employees about it if an employer has already exercised its right to reduce both retirement benefits for example by asking participants to share in the rising cost of medical care the bill would give each retiree the option to restore prior benefits and short the bill would rewrite private benefit plans directive retroactively in order to convert an employer's voluntary condition listen to offer post retirement health benefits into an unconditional lifetime guarantee the bill will force employers to eliminate the benefits they provide the day the key unintended consequence will be a dramatic decline in the number of employers that are able to provide post retirement benefits to their employees under the the legal straitjacket that the bill would impose an employer must be able to change its health benefit programs to reflect the changing conditions in which both the employer and its plans operate in fact the risk recognizes the clear distinctions between pension plans and welfare plans and provides for the vesting of the former but not the latter the bills retroactive imposition of new and possibly unavoidable liabilities will have a tremendous chilling effect on the provision of both retiree health benefits and other benefits it will force employers to deal with and bargain of either terminating health benefits for future retirees or signing up prominently to an unknown escalation of cross and of cost and price volatility and finally the problem calls for a comprehensive solution proposals that would lock in companies to the current benefits fail to address the factors that cause companies to reduce the benefits in the first place the erosion of retiree health benefits is a symptom of the problem in the american health care system not the cause these are societal problems that require societal and more comprehensive solutions the arista industry committee has proposed some comprehensive provisions but we would be willing to very happy to work with the committee and others on more targeted resolutions of this such as medicare access for early retirees access only group plans and things like that thank you so much for the opportunity to present our views today thank you m on scott mr chairman members of the committee thank you for the opportunity to address you today on this really very important subject my statement this morning focuses on the state of the law with respect to an employee's promise to pay retiree health benefits the law begins with a statute the relevant statute here rests does not provide for mandatory testing of health benefits the way it does for retirement benefits arista does however hold employers responsible for the contractual promises they make to their employees in retiree health plans then the relevant statutory question is whether the employer has made a binding promise to its employees to pot pay them health benefits after they retire federal judges are often called upon to determine whether an employer has in fact made such a promise the legal question is one of contract courts for the most part have not been sympathetic to employee claims indeed some of the opinion seem to channel the surrealism of a franz kafka novel i want to focus on a case that is a parody of mattick example of judges stretching neutral sounding concepts to favor an employer's right to break a promise over an employee's right to rely on a promise the case has spread versus general motors which mr jones briefly summarized earlier spragg involved former employees receiving benefits under general motors retiree health plan general motors had repeatedly told its employees that retiree health benefits were a lifetime benefits and that g m would pay their full cost but eventually g m changed its corporate mind and amended the plan to include expensive deductibles and co incentives to older employees to take early retirement the benefits to which such employees were entitled included quote unquote lifetime health benefits here's how g m typically described those benefits full basic health care coverage for life at no cost that's a quote most people would understand that statement to mean what it seemed to say that if you retire you can count on g m providing you with health benefits for your life moreover over the years g m had distributed to its employees official plans summaries other written documents and it's some cases wrote individualized letters to pick to particular employees that made representations identical to  similar to the one i just read the actual g m retiree health plan who have was a legal document with boilerplate language giving g m the right to modify or terminate the plan it is unlikely that very many if any employees actually ever saw that plan document and even if they had they might have reasonably concluded that the explicit representation as g m made about lifetime benefits trump to any reserved employer rights the trial court and a three judge appeals court ruled for the employees but the entire court of appeals referred the case and reversed here is the essence of what it held the only document that counts is the formal plan document none of the other g m communications could be consulted unless the formal plan document itself was ambiguous about whether the benefits had vested but according to the courts the plan document was non ambiguous since the document expressly reserved g m s right to modify or terminate the plan so the employees including the early retirees who signed away various rights to accept what they thought were actual benefits rather than temporary gifts were left with what most americans with the exception of a handful of federal judges might call a broken promise does this mean employees always lose no employees with collective bargaining agreements can sometimes when their case is based on the negotiated agreement especially if their cases are heard by judges whose worldview does not predispose them to favor employer parag out of overwork or financial security in other cases the plan document might be ambiguous and other plan communication other employer communications might be considered although here the sixth circuit seem to say that a plan that includes a reservation of rights clause is crystal clear evidence that the employer has made no bound bodging promise no matter what else the employer  so what should congress do several people have suggested that it do nothing but doing nothing means that retirees cannot rely on what appear to be clear promises and courts will occasionally rule for employees but more often well not as bill payin has litigated many retiree health care cases has observed the outcome is often a word gained by the audiological predisposition of the judges hearing a case rather than by the actual facts of the case not the facts are irrelevant congress can try to level the playing field for employees with clear reasonable and consistent rules to gyde to guide judges who must determine whether the employer has made a binding promise to its employees or congress might say that clear reading and world representations from the employer become part of the plan even if not in body than the actual written formal plan document where congress might consider legislation such as that introduced by congressm turner a that would make it difficult for an employer to terminate retiree health benefits once an employee has retired or congress might try to help all older americans have access to decent and affordable health care not just those who are fortunate enough to have an employer who promised such benefits and then fortunate enough to have their case assigned to a federal judge who believes that promises made should be promises kept even if those promises were made to an employer thank you professor  all of you for your testimony and we appreciated it gives us plenty of food for thought we're going to go into our questions here will give each member five minutes and questions and responses and try to give people an opportunity to go again if we have time  but after hearing mr lilly and listen professor stein and mr jones how can you continue to say that employers are not breaking their promise that we've targeted the wrong remedy here we all understand that the healthcare system writ large needs to attention this is a situation where clearly there at least seems some evidence that employers have indicated that coverage and then some point to get a different path how do you still maintain that this is a situation where employees are keeping their promises well i agree with professor science statement that this is primarily a matter of contract law so i want to understand what the contract does and arista also provides that you need to communicate things in a summary plan description and in other  documents and in fact some of the cases have more recent cases in not necessarily with retiree health but with benefits in general have evolved that the courts say if there's a conflict between what you tell people and the plan what you tell people will be enforced so if you have an s t d that says one thing in a plan that says another you can't just an employer can't just rely on the plan documented also you have to look at the you hired twenty six years ago and why don't you remember it you know in some ways i agree with scott that that's the law it's it's not necessarily a problem of the statute it's the prophets a problem with the way the statute is being interpreted by judges and  there's a lot of scholarly literature on this on a variety of topics but judges sometimes apply different contract principles when they're dealing with employer employee relationships than when they're dealing with other kinds of contractual relationships and i think what we're seeing in it's going to be in the picture was the jones what do you say to that argument i think give me i think that history tells you that this hasn't happened that people who did not know the reservation or rights clause especially the part of germination of benefits or reductions of benefits have not been protected time and time again as you gather i came from lucent and you know what happen document that says one thing and you've been told something else that's exactly what happened to all of us and we're all suffering the consequences so this is a problem with the legal system fazli was announced in ninety be effective ninety three between that period of time companies raised the devil put caps in so they could profit from that in those caps limited getting that period of time benefit as to the as to the  question of the interpretation agreement i think the classic case we have before us is the most evil the o c rule was was wedged in on the promise that retirees under age sixty five would lose their benefits if they were to dump everyone else under the bus over exactly five however if you examine the construct of the rule or any other verbal or written agreement you'll find there are absolutely no guarantees for anyone under age sixty five so the test will be and it's already begun to happened lucent technologies alcatel lucent already taken advantage of the cereal and reduced its health care benefits prescription drugs people under sixty the point i would make sure is that that there are no guarantees in the absence of any guarantees there will be the behavior will run toward profitability and not toward what our people are being told and that is that they are a legacy thank you mystical mr chairman can i possibly comment upon a few of these missing minute would like to have you do so certainly thank you mr chairman yes you may mr mason i thank thanks so much you know some of the companies that we talk about i mean there is verged on financial failure so it's not like they're wreaking huge profits and returning some great return to shareholders and one of the companies you mentioned has been in significant financial difficulties probably as you know  for many years and what happened was when some of these when decisions were made to offer these benefits many years ago they were very if the cost of the benefits and the treatments and technolog available were much different than they are now so i don't think any company made in unconditional promise i'm not aware of companies that made these unconditional promises that they would provide for life what ever healthcare evolved into i'd want to look and see with each company each one of the ones that have been mentioned either in the testimony or otherwise or that we all know about and i hope i do hope these decisions have been taken very seriously by by companies in the ones i've worked with a they certainly have been and have not been been taken lightly but it was a commitment made for instance to provide hea coverage based upon what the costs were in one thousand nine hundred five well if that's the case the cost might be a thousand dollars per person or two thousand dollars per person and not twelve thousand or ten thousand dollars per person so the these are very complicated issues and i actually anecdotally in my own family have my brother has incurred exactly what the other witnesses have testified about today but this bill wouldn't h at all he worked for a company actually headed up a very small landscaping and tree surgery company for many years forty years and he sold it off to one of his employees who was a great employee but turned out to be a bad business person and ran the company into the ground and my brother was supposed to get rid of health insurance until he was medicare eligible well he lost that insurance at age sixty two and age sixty three he had a massive heart attack in cardiac arrest and was in a coma for approximately a month now thank god he's in great shape now physically and we've managed to work ourselves through five hundred thousand dollars of uninsured health costs first of all we negotiated down to a hundred thousand dollars and with some family help and with his own personal set of retirement savings he was able to pull that off and not not lose it yes but this bill wouldn't help him at all that's why among other reasons we're saying this is a societal sorry i am rapidly running out of time here and it was demonstrated that i would not come down there and wrapping any of you with a hammer i'm not so comfortable sitting next to the chairman if i run over time let me just say  very briefly that i think that what professor stein is said and mr macy about what and how it benefits are communicated is extremely important and i would also say that it's extremely important when we write law when we make statute that we write it as clearly and unambiguously as we can and not rely on as one of my colleagues famously said attorney world to sort it out we need to make it clear and and in this case it seems to me that leaving out the the legal matters in front of us so we have a case where something was communicated went to court court ruled in favor of the employees and now it's under appeal and the attorneys are staying busy so mr professor stein you had a pretty interesting suggestion i thought that if the congress were going to do something we might want to clarify what prevails over what in terms of the communications that have been put forward and i would hope that would be one of the things that we would look at i still remain very concerned and this is the reason i'm sorry to cut you off the light is about turn red i really did want to hear about some of the concerns from mr yamamoto and mr macy about what would happen if you put a mandate in what would happen potentially voluntary to the voluntary retirement system but i see that my time is about gone and you still have it well then let me ask that of mr macy if we put this mandate in mr terrence thirteen twenty two what what do you suspect would happen with this voluntary system i think companies you know when they look at a unknown future cost and price volatility that they would be you know the would be imposed upon them i think a lot of them  overwhelming majority will terminate their plans for future retirees for the active employees now so we will be creating a worse situation that we're going to have to deal with in the future for all of those employees all right thanks very much not an attorney i'm just a plain old retired two and i may get you another one minute and i'm seeing a lot of people suffer raytheon is not in any state of duress believe me there are millions and millions of dollars worth of contracts and yet there were a negative on contractual language that they bought into when they bought he use and they're reneging on that and we've got an awful lot of people that are really suffering their whole lives they've worked towards their retirement to enjoy it and now it's going down the tubes that's a point well taken mr lowy and i do know that there are two hundred twenty two at least deals with profitable companies yes and provides for a waiver  situation is in distress and provides for the guarantee of the loans that they need to have some assistance in maintaining that promise but could i ask one more things here i'm witnessing something here i mean like i say i don't know anything about how things are done up here but i'm i understand democrats are over here republicans are over here is that correct so far so good so am i to believe that the republicans that haven't showed up don't care about us right and are not at all in and  members have a multiple subcommittees and committees and action on the floor they have a whole post of responsibilities they have staff members here monitoring the hearings as well we have a big financial crisis the most amazing referred to earlier that we're all involved with right now we have continu resolutions to try and carry out financing through the end of the year in the next election we have a stimulus issue going forward is a lot going on all these members have multiple responsibilities and whether they here or not some will come say as long as they can to leave it may come back it's not at all an indication is the value of keeping a promise last night the president nine states went on television and talked about the promise that we receive when we put our money in a bank that we've got to be sure that it's honored and he said that talk about the f the keeper of that promise the guarantor of that promise the f b i says he has been in existence for seventy five years and no one has ever lost a penny on an insured deposit and this will not change i agree with the president on that but tens of thousands of people at raytheon general motors and other companies relied on a promise that if they went to work and if they followed the rules when they went to work that they would have great health care for the rest of their lives and we're having a hearing about whether that promise means something under the law or whether it doesn't i think it needs to mean a lot on the law i want to mr macy welcome you back to the committee and ask you about this that on page four of your statement you say that courts have ruled repeatedly that an employer may not change the benefits of retired worker unless written plan documents reserve the employer's right to amend or terminate the post retirement benefits and  the employer communicates this rights to its workers clearly and unequivocally before they retire how do you reconcile that though with the sprague vs general motors case where in fact general motors not only didn't warn workers that they could be losing these benefits after they retire they said exactly the opposite in communication after communication they said these are lifetime retirement benefits so is your description of the law inaccurate no i don't think it is one that that case if i recall correctly dates from about ten years ago when it had kind of a torturous history up and down the court system and i apologize but i don't recall all the details the fact details of well it's an important detail the general motors one that the well i resisted and get their benefits i want to you know i want to go back and read the final decision is there i think there were several appellate court decisions and two or three district court decisions in the final on bond decision was that general motors one in the employees last will know i know i know the result i don't know i haven't read the case recently to know the reasoning behind it i know there are lots of cases out there and there are the federal courts are strewn with cases both for participants and for employers that generally are very actual specific cases depends on this specific facts but i think you're raising regardless of all these cases and whether or not judges are making decisions ideologically instead of based on the law on the facts which they should you're raising an important issue and that is communication what have participants been told and what can they reasonably what what are reasonable expectations based upon what they've been told and professor stein and i were talking before the hearing this this morning about maybe the department of labor which does have a project underway as to statements that are supposed to be made to participants and for a one k plans about the fees that their accounts are pain maybe they should have a project underway on this issue if you if a company says  though if i may though i don't think the problem here is when the ambiguity of the statements made by employers to retirees and workers i think it's been their disregard of the those statements i think that the common thread throughout these cases is that there is not a factual dispute as to whether or not the employer promised lifetime health benefits there's a legal dispute over whether that promise is overridden by a unilateral decision in the plan documents so is it mr tyrannize legislation headed in the right direction where resolves that dispute and essentially says the as a matter of public policy you can't do that you can't make a series of representations which are contrary to the legal position that you later take that sort of a basic and contract law well i agree with that final statement but i guess i respectfully disagree with your characterization of what the issue is i think it does come down to one  what you tell people and have an s p d says here's the benefit we currently provide but we reserve the right to change it or terminate the plan entirely to me that that is the they have a legal right that this bill my time and i want time is almost up but i would just like close to two things i would invite mr macy with the record being left open for you submit to the committee any cases where the statements by the employer were ambiguous with respect to this where the employer one second to echoing something the chairman said the chairman's bill specifically provides a waiver for a company that would meet financial distress because of honest honoring this promise to apply the department labor and be relieved of its obligation so this argument that somehow this would impair the solvency of corporations if they had honor these promises is dealt with in the underlying legislation thank you thank you standard mr wilson on company prefunding of retirees health benefits can you tell us are there any proposals that would responsibly change these rules to encourage the offering of retiree benefits y what that did is it there's a mismatch between the accounting requirements now that was adopted in one a little bit later in one thousand nine hundred what what can be funded into a trust fund so there's not a lot of incentive for an employer to match the accounting requirement that they have to expense on their financial statements to what they can actually set aside on a on a tax effective basis that's you know that's part of the key limitation  there i've worked with i have to admit i've worked with several lawyers that have tried to come up with that through different funding vehicles you know beyond just this one trust trust vehicle that that's out there but it's difficult to do well in the legislation before us is a right way to amend it in such a way that this could be helpful in your experience what specific types of changes have employers made post retirement to retire a benefit plans have these changes permitted employers to continue to offer retiree benefits  think you know other than very financially distressed or bankrupt companies the ones i familiar with and have dealt with have not terminated the plans outright i think developing networks so that  people go to get a better deal on co payments and things and deductibles if they use a network operation rather than just a total free standing free choice program had a deductible of one hundred dollars and it seems like that would be extremely unrealistic to have a hundred dollar deductible in today's environment so changes like that  increases in the premiums sometimes the caps that were mentioned so that the employer says will cover the premium cost the coverage cost up to some level and then above that the increases meaning what really happens is they usually set that level somewhat below the current cost of health care inflation continues it rises above that cost in the employees and retirees then  mean the burden of health care inflation and one of the points i was making in my testimony is that if you have health care inflation at ten or twelve or fifteen percent year after year no company can assume that type of burden and doesn't assume that with respect to anything else it does business with you and i appreciate that explanation additionally i'm really hopeful that employers can find out what  duties they have also employees what rights they have can you elaborate in your testimony how current law adequately protects retiree's well i think the cases basically say if a company has promised to employees a lifetime unchanged benefit and say both lifetime and unchanged and hasn't also clearly said that that's what you get now but we're not but we have the right to change that in the future the courts uphold that promise now i think the cases where companies have prom done made that type of unconditional promise you will see much more frequently in collectively bargain plans where they're dealing with the union and the union pushing back on them and so the the courts especially in the sixth circuit where a lot of these cases came out of ohio and michigan and  and places like that a lot of the old manufacturing companies the courts of up held those type of commitments and told the companies they had to continue to provide the benefit thank you all very much thank  chairman i think it's a terrific bill that you lost or i don't think i've heard any meaningful objection to it offered  and i also want to endorse the comments of representative managers i'm kind of curious about the whole faz thing you talked about between ninety ninety three as people rush to get these obligations on their their books rules showed the these obligations on their balance sheets that that would have been a concession of some sort of contractual obligation to actually follow through with those were do you do you think that's in effect what was operating to make them pull these things off the books  that's i think it's a completely it was complex and a lot of things were going on but i think the i think the changes as they really affected employers who were saying you know gosh i now have to show these benefits as if you know that their value as if they're real as if they're real meaning that all along maybe they never thought they were real right well i think i think what scott said is true i think they thought they were real i think they didn't appreciate what the promise might mean a change  the kind of medical environment where health costs of abbe's to inflation but you know generally we don't tell people that you can change your contract because the world didn't turn out the way the parties had thought when they negotiated the contract and i also think that scott's right i mean this is this is a very serious problem with respect to individual employees and in particular companies but you know the problem is a societal one i mean in some ways i don't provision in a risk which courts like g m like like this break court really latched onto which said that there has to be a written plan that was put in a receipt a protective ploys to make sure there was a written plan and what courts have done is sort of turn that around and said if it's not in the running plan document itself which people employees ever get their hands on it doesn't matter and that essentially gives employers i had to say license to live maybe it's license to embellish but it does it means anything you said in the employee outside the plan is irrelevant in terms of what what happens when a judge actually looks at the plan document itself and most employees get their information from their managers they believe that when somebody says in writing especially but also worldly these are really valuable benefits the last for your life that can't be taken away the employer is going to pay for them that's the way employees really get information but the courts pretend that the way employees are getting their from ation is from this legal ease laden plan document that they never even see or hardly ever see mr macey that's all this bill is trying to do is restore what the what a reasonable person would expect the bargain to have company and what it said in the plan and so forth the conditions in the environment as well as what what you know what the individual knew and i do agree with what professor stein mentioned some people do get their information on plans from managers rather than from benefit personnel or from the plan documents in the summary plan descriptions and things like that many companies put in their communications documents that if you have issues or questions or communications about the plan please come to the benefit department not your manager because the manager doesn't speak for the plan itself they're not involved in the administration  interpretation of the plan and you had documents that were being prepared by the human resources department that made the same statements that were being made by managers and those didn't really mean anything either because you know you had first of all under full disclosure i have to admit that i'm co sponsor of this bill so i'm not exactly impartial mr lilly your pension and your health care benefits  my mind belong to you like my dad when he went to work and you went to work he agreed to take so much money each week for his labors there and then defer some of his earnings for later in life for a pension or for health care and it was considered absolutely  that he took media wages and deferred wages so the health care benefits and the pension are not a gift from the corporation it's really your money money you work for you know for a wedding you send a thank you note for a gift or you don't you never send a thank you note to the company for their retirement benefits or for their  health care and i think that we have to really institutionalize and our society has long as we have the health care systems and there are systems we have now the f t s use in life the fact that these ok all i'm asking now in light of mr main macy's comment about how case law requires that employers honor their promises why is it that the employees of  a little bit more out of my league but in your testimony i remember you hear hearings you say that you know maybe we need to look at how we can modify by clear written oral representations and yet with my small knowledge of law i thought that there has been a clear precedent in most cases that there is a legal  president that's the word to include oral statements when looking at terms that are part of a binding contract because one of the things that bothers me and i see this incorporation unfortunately  over the country now is the way he worked for the company for a lot of years forty years and a promise was made to him and yes health care costs have gone up we understand that so it has become more and more difficult but when you're talking about our seniors that have put their years into a call into a company they knew how much money they had for a pension they probably figured out what they were going to be getting for social security and adding those things up what else might have saved them then to have his health care insurance go up to five hundred dollars a month to be very honest with you that is not right and that to me if anything is to me that should be a criminal charge to a certain extent to the company that promised him something but if you could answer my first part of my question i appreciate that was been around for a long time and it's never been the one thing you can say about it it's never been really clear right i mean everything about the laws almost always on the table and in the area of contracts there are doctrines that  you don't go outside the contract the terms of the contract unless it's unless the contract itself is ambiguous but you also have other cases other rules that say if you have a contract with somebody then suggest that you know we'll go beyond it and they say it in a way that you're going to rely on that they have to now you know go ahead and do what they said they're going to do because relied on it under risks of the law that developed in this area which is sometimes called a stoppel has been very unfavorable to the employer most of the law at least in my view and i know scott would probably disagree with us but in my view most of the law that has developed not all that most of it has reflected a view essential lay that somehow a contract between an employer and employee a is different than other kinds of contracts and that the employer needs to be given parag out of that would be given to other contracting parties in different  contexts and i think that's been a very serious problem and one of the areas i think that's true is this idea that you know if it's in this written plan requirement which was done to protect employees has become a shield for employers to use against employees trying to enforce clear promises that the employer benefited from or at the employer gets loyal employees who work harder because they think that their employers giving them benefits and you know i mean not i cut this out of my testimony even though i like the sentence but you know if you read this break a sweat all of employees should do when they take a job is to get all the documents hire a lawyer at five hundred dollars an hour and then have to wear write a written opinion about whether they can rely on the statement that the employer made that these are lifetime benefits and i'll tell you it would take a lawyer like scott or me a number of hours to give an opinion i would probably hedge a little bit and there was a book in hundred eight i think by this guy alfred cohn and who wrote about pensions and health care and he called these clauses back that i mean you can make the name back then these reservation of rights clauses refer to as weasel clauses and i think that's a pretty employees when when you decide to join a company you listen to the benefits that you would get your salary that you would get and all of the other things and the possible chances for promotion or whatever and you make a decision based upon what you're told and you would decide one company over another based upon this package whatever it is i've done that somewhere along your career you look out there and you see some things that maybe look very attractive to you and you start getting into them and you'd have to make another decision and we're going to stay here i'm going to move on to another company and say well wait a minute now that these lifetime health care benefits we can forget those if i jump ship now i'm going to lose all that so we stay now it comes to am i going to retire or not early as you know many many people are retiring earlier and earlier and you have that decision again and you look at it and say well can i afford to retire now i can figure out what my pension is i can figure out pretty close what my social security will be i know what i have in savings and i know i'm going to have lifetime health care i can afford to leave and you leave and then a year or two later you lose your health care component now this is unconscionable frankly in my opinion and and however we attack this problem we have to know when a person retires what they are entitled to they should know exactly what they're entitled to whatever it is and if the answer is i'm sorry mr jones but it's cool transparency we may just have to terminate your plan downstream here so you better not counted it at least i know when i walk out the door if i can count on it or not and i think that's extremely important point doing a lot to make things easier i was thinking as mccarthy was to hear i'm just taking back i'm just wondering if the c e o s of these corporations that are taking away the health care benefits these are some people who probably make as much in two weeks as their employees make in their in a year  the other problem that i have is these employees whose health care is being taken away from them they made the money for this company they made the company what the company is without you know these are the people who go to work every single day and i have to tell you when when you can go to court and do all these other things but if you promise somebody that they're going to have health care and that health care is going to cover them people like mr literally and the people who  he represents ordinary people to pull the rug out from underneath them if it's not illegal it's certainly a moral from my perspective they count on this and to have to go hat in hand i am you know i'm a so i think that's why i totally support that the chairman's bill on this and you know we can go to court we get tired this thing out but either he'd be a care about the people who put their lives in and their families for the corporation or you don't don't make it if you're not going to keep it i want to ask mr mr jones says how many retirees have been affected by cuts and terminations of company sponsored health care benefits you have any idea how many people we're talking about well there are about twenty million read retirees out there who would be subject to two cuts and i would say that probably most of them have suffered some reduction in their health care benefits say retired but probably about the estimates about four million of them have had very serious consequences either total terminations of the plan or very serious cuts four million four million and that's not including that affecting their families and so that four million is really absolutely you know and all the beneficiaries but you know there's also more retirees retiring every day and there are more companies reducing and terminating here every day so eventually if nothing is done about that i would say the whole twenty million will be on the block do you have an idea how many companies have reduced or terminated health care benefits for their employees of course leave earth about general motors and we've heard about embark recently we've heard about what's happened to lucent and others there are plenty of large companies that have have germinated those plans maybe just for the panel i have john deere corporate headquarters in my district and the management retirees they changed the health care plan they showed me a paragraph and in the paragraph  said you're going to get this voucher to get health care and you will have every single thing that you have now you'll be able to purchase so management retirees who think it's not a bad not a bad deal here they went out and found out that they could not purchase prescription drugs medicines and things of that nature because it was too it was cost prohibitive for me to do it now i'm not the sharpest knife in the box here but if it says we're go give you a voucher that will give you what you had exactly what you had before we terminated this and you can't go out and purchase the policy that you had somebody explain to me  where they went wrong here because i had these folks come into my office saying my wife has got diaby it is so we have these different problems we need these prescription drugs we used to get them under our health care plan i've worked thirty four years for deer and now i can't get  sounds like that's to me i guess i don't know the specific situation but there is a rule in a risk that's been endorsed by the supreme court that is under the communications are considered when you talk about the plan they're considered in general terms to be a fiduciary function and the supreme court says you can't lie to your employees so that companies have been held liable at the supreme court level for making intentional misstatements and misleading representations to employees and that's under current law the biggest thing about this bill is the all the employers that forget i mean i know you can't forget i know individuals can't forget and i and i empathetic with it i think something needs to be done about it i am certainly sympathetic to raytheon and general motors and dear retirees and employees and i agree with the statements that these are the people that built the company and one of the written statements mention that these are the people that made america great and i agree with all of that it's i think we all agree there's a real problem here it's trying to we can bash a bunch of companies and say you know and regardless of what they said there's a lot of good actors out there that we're trying to do the right thing that we're providing retiree health benefits all these years either really rein in the financial problems they had to start charging some brains or didn't go out and terminate their plans they had to start charging some pretty new or copayments or or or things like that you know if we're focused not necessarily i don't know enough about these specific companies to know whether they're bad actors or not but this bill here throws everybody into a single pot says you're all bad actors and regardless of whether or not you tried to live within the rules and you made some changes along the time along the way we're going to rector actively go back and change the deal that you might have made with your own voice that my time is up let me just  the respect that's not what this bill does what this bill does from my perspective is and i commend again the chairman what this bill does is it makes people accountable for the promises that they make if that company is profitable and let me tell  you i want to see deer do well they've they've had record profits but when they take it when they take a form of hand at their employees time you're going to get this and you don't get it then somebody ought to be held accountable for it and i commend the chairman so i couldn't disagree with you more on what this bill does get a fair bill and i think for companies that make the money they are to live up to the promises that they make well i'm sympathetic with what you're saying but the bill of health will that is maybe i'm just going to be just as you you can talk about my bill you want to but i would prefer that you get it right well chairman with all due respect the bill says regardless of what the plan in communications said they have to restore the benefits that to me seems to say it doesn't matter and also says they will be profitable  unconscionable act here is that this wealthy nation does not provide health care and health and coverage to it aren't higher population i mean we have forty seven million uninsured six million of those uninsured are children and from your testimony increasingly the uninsured are retired workers who have their entire li worked to ensure that they will have long term health care for i mean not long term coverage but health care for their entire lives we have to do something about that we need a universal health care system mr chairman we need to get started on this as soon as possible for the young and for the the the old and then bring everybody else in a soon as possible i'd do it all tomorrow if i had my way mr candor right i have a  question for you and your organization we're talking about what happens to a worker who is given the golden handcuffs i mean we're used to that for executives but this is our working the good working stiffs in this country who stay in their jobs because and they don't take an opportunity to go someplace else where there might be more money but but they've been promised long better health care benefits for life so they stay in their job has your organization done any studies can you report to us can anybody of the lost opportunity what this is cost the workers not only because they didn't get their promised benefits in the end but what they gave up waiting for those two to have those benefits yes and i think there are numerous cases i could cite and that's the case we are more when prescription drug programs for example are cancelled the cap is reduced companies now say oh you don't have as many benefits as you had before because we took some away so we're lowering that five hundred to seven hundred to five hundred to four hundred dollars and soldiers and rosen of the foundation this occurring in this country is happening purposely the second level is take backs it is the actual take back of that prescription drug program or loosens case they literally cancelled all dependent coverage because they just didn't heed coverage forcing every retiree out there over age sixty five and keep in mind when we talk about hiring not  you're not going to have to change ok mr lilly and mr johnson mr jones you really answered my question about lost opportunity but do you know any way we can i mean that has to be used in the argument against taking away benefits do they use this argument if we look at each individual gave up are waiting for secure benefits well i would i leave i do not have a study to back this up but i have to think that during a person's working lifetime of twenty thirty or forty years they've given up a certain percentage of their pay in order to fund the benefit plans that they have been promised when they've about the other thing as they may have been offered a job at another company where they'd earn more money but they wouldn't have had those benefits so they didn't call what they read the benefits anyway because what they were staying in their original company for disappeared well i don't know how that would be able to be quantified but i think that it would be a substantial amount we know that now when retirees now have to pay for their health care we're talking even part of it we're talking now twenty or thirty percent of their income now is going to to fund this in today's market so i can imagine over the lifetime of someone's  that he is given up a significant portion of his money and maybe opportunity to go someplace else where he could have made more money thank you i might add people with transferable skills are more likely to be affected by this for example  courtney thank you mr chairman for holding this hearing and i would note coming from the state of connecticut at the retirees got a pretty bitter pill when they were told that their dental coverage was being canceled and obviously these are people who worked in the health industry the ironies of it are almost too great to get your mind around but i just want to pop the congressman will he talk about the fact that you know this this issue is sort of in the context of a health care system that is in great need  reform are about forty days away from an election one of the candidates senator mccain has a proposal to actually make employee employer based health benefits taxable coupled with tax credits to supposedly incentivize people into individual market and one of things and benefits council by the way which is a private sector trade group that evaluated the two candidates positions actually came down in favor of senator obama's approach the mccain approach being so incredibly disruptive in their estimation to employment based system which i thought was an interesting development but i mean has anyone looked at the mccain approach in terms of at least priest sixty five retirees and direction by by taxing people self care people already struggling financially and just added tax on top of the problem that we already have seems to be the wrong approach i would think that you would wan companies to continue providing health care benefits rather than tax those meager benefits that are still in place you know we prefer the companies the incentives necessary with the tax credits while we attack the cost of health care cost problem it's true that these plans exist like this see the devil's in the details and i don't know the details of either of these plans and when you begin to look at the details and you can  disposable income every year there's a study that kaiser foundation just released the chosen one thousand in two thousand year two thousand the cost only health care plan was sixty four hundred dollars two thousand and seven twelve thousand one hundred dollars to capture in place two thousand that person with that person would be paying forty seven percent of the healthcare bill in seven years translates in at least thirty nine percent erosion in in disposable income and that is the problem we can't wait until congress decides to promulgating three years worth of discussions in end up with a bill that somehow approach tax all of society something has to be done to fix the problem for retirees it's a unique problem it's not societal problem except it's cost well clearly if the congress were to adopt a plan that made employment based benefits taxable i think that  certainly is an issue that people need to be aware of as i said and as forty days approaching i mean another approach was congressman stark's proposal which the staff here circulated as part of the memo today the medicare early access act which would allow fifty five to sixty five year olds to buy into the medicare system again just want to see any comment on that approach where that really are important to us as it is and that is mentioned in my talk we are very supportive of medicare access it costs the people under sixty five they are the people that hurt the most because they don't have medicare access yet if you retire at age fifty five the company pulls the rug out from under you you have nothing you must foot the whole bill twelve thousand dollars a year that's after tax money twelve thousand dollars a year and if you look at the average retiree out there who's been out there were any number of years that is over fifty percent of their income and it's disastrous congressman i think that we also feel that that is an appropriate vehicle to look at to provide care and you don't support taxing employment based benefits well i think the issue that they're trying to get at is tax equity and and i believe in tax equity i don't know what the right way to achieve it is in this if you go buy a policy and decoupling health care from employment i mean that's that's a philosophical ideological thrust to this plan i can tell you though i have personally thought a great deal about the issue of the individual market and the group market and i do not think it is possible to resolve these problems or improve the health care system through the individual market ok thank you can i just quickly briefly  and that's that group is bipartisan and there at camp a more than seven members from eight members from any political party and we looked at one of the projects we looked at my first year was employer provided health care and the group made a recommendation unanimous recommendation that serious consideration be given to universal catastrophic health care as something that simplifies everything right to be a lot easier for general motors to keep retiree health care if they knew that they weren't to be responsible for catastrophic expenses which tend to be a problem for older people and about seven or eight months ago former secretary o'neil for secretary of the treasury wrote an op ed i think was in the new york times which made the same proposal and i think that's something that's worth very serious consideration it doesn't solve any issue completely but it makes dealing with almost every issue in the health care series of rules regulations changed and they had a record on their books and all of a sudden they decided they were going to maintain it nothing really changed except the rule in the site they had to be more transparent about their financial situation is so i guess it's effected the stock price  so they decided to take that out instead of on dividends being reduced or on executive salaries would have this as a take it out of retirees you want to correct me on a i guess i'm not sure if it's necessarily taken out of retirees i had actually the design that was put together makes them think a little bit more about the promises the promises being made will you know wreck is what a lot of people thought about it and decide to make a change but they grandfathered in existing retirees i'm sorry your record indicated that a lot of people thought about this they made changes but they grandfathered in existing retirees right and so that brings you to the thought that the right thing can be done is just as some profitable companies thought about it back with them and went ahead and  what the majority of the majority of companies did grandfather and some decided that they were just going to be a bit more profitable for themselves their shareholders and other stakeholders at the expense of the retirees and i think that's what this bill gets at when i talk about troubled companies financially we're not talking about you know not being able to get a waiver if you have some situation comes up what we're talking about is a public policy that when people retire with a reasonable expectation that they've got certain coverage that not change on them now do as i think is good public policy on that so that we know that  people are covered on that basis or whatever so that's the other final point that i make on this is a matter of public policy i think this bill or something like it would be appropriate i hope my colleagues are willing to work with me on that i do not think it will have the effect  that portends that we all hell's going to break loose nobody's going to stop covering everybody i think it can be done that people can make a reasonable expectation of what their response was going to be make that transparently known to people and least do that i'd be very curious some point  mr macy to hear and i expect to hear but to hear what eric has to offer for these people what would they do for the g m repub who had had a direct representation that they were going to get this what would it do for the person at bell teller to do for the other people on here this is nobody's arguing with you that the plan might have said with the plans it was gave them the weasel language whatever is a professor of science said but what about the people who were told something else a reason we relied upon with these courts decide they're just not going to go there and we'd like to have that discussion with  sometimes i think we have time for here today but i've not heard eric come up with the solutions that we're going to for those people i've read about all we got to do something on health care reply yeah we all recognize the problem but i'd be we would accept on the record that we kept open for five days of everyone to submit some concrete suggestions what would you do for those very people that we heard the testimony about today we'd love to have that dialogue and appreciate i leave the record of why a sleaze don't take my criticism of the bill as any indication of how we feel about your ultimate objectives  making sure medical are covered by good care no i understand thank you mr klein thank you mr chairman i want to thank the witnesses for their knowledge and their passion and deep concern on the issue it is evident i think to all of us frankly on both sides of the aisle the third is a problem and health care in general in this country and we're going to probably see a paradigm shift in how we do this and very important that we work together as we go forward and clearly  retirees who are suffering in large part for a lot of reasons not the least of which is the cost of health care medical care has gone through the roof the costs have gone out of control so i appreciate everybody's intraday i regret that we got a little partisan in here today we tried very hard not to do that the chairman's comments about why some members are here and some are not i would just offer that i think most people in the room here most people in america understand that there is  a crisis certainly a perceived crisis in all of our financial markets which may be affecting all of us very deeply and so the fact that some of us may be here instead of working on that i hope that doesn't imply that we're somehow less interested in that  as the chairman said we are sometimes divided in many different directions and i know that there are groups of two and three and five in ten or one hundred around these buildings trying to grapple with that very difficult situation so thank you very much mr chairman thank you witnesses anchors client think  colleagues in a way this is as previously a lot of members have five days of it additional terrell's the hearing of the record any member who wishes to submit a follow up questions to the witnesses coordinate that with the majority staff within ten days ten business days and i appreciate the willingness of all of the members of the panel to respond to those within a reasonable time thank you again for sharing your expertise in insight into this hearing today and i just want to know how much we really do appreciate it and wish you all well thank you the meetings