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SAFEGUARDING RETIREE

HEALTH BENEFITS

HEARING

BEFORE THE

COMMITTEE ON 

EDUCATION AND LABOR

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, SEPTEMBER 25, 2008

Serial No. 110–112

Printed for the use of the Committee on Education and Labor

(

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/education/index.html 

(II)

COMMITTEE ON EDUCATION AND LABOR 

GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice Chairman 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Danny K. Davis, Illinois 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

Linda T. Sa ́nchez, California 

John P. Sarbanes, Maryland 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Mazie Hirono, Hawaii 

Jason Altmire, Pennsylvania 

John A. Yarmuth, Kentucky 

Phil Hare, Illinois 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

Carol Shea-Porter, New Hampshire 

Howard P. ‘‘Buck’’ McKeon, California, 

Senior Republican Member 

Thomas E. Petri, Wisconsin 

Peter Hoekstra, Michigan 

Michael N. Castle, Delaware 

Mark E. Souder, Indiana 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Ric Keller, Florida 

Joe Wilson, South Carolina 

John Kline, Minnesota 

Cathy McMorris Rodgers, Washington 

Kenny Marchant, Texas 

Tom Price, Georgia 

Luis G. Fortun ̃ o, Puerto Rico 

Charles W. Boustany, Jr., Louisiana 

Virginia Foxx, North Carolina 

John R. ‘‘Randy’’ Kuhl, Jr., New York 

Rob Bishop, Utah 

David Davis, Tennessee 

Timothy Walberg, Michigan 

[Vacancy]

Mark Zuckerman, Staff Director 

Sally Stroup, Republican Staff Director 

(III)

C O N T E N T S 

Page

Hearing held on September 25, 2008 ..................................................................... 1

Statement of Members: 

Altmire, Hon. Jason, a Representative in Congress from the State of 

Pennsylvania, prepared statement of .......................................................... 69

Kline, Hon. John, Ranking Republican Member, Subcommittee on Health, 

Employment, Labor, and Pensions .............................................................. 3

Prepared statement of ............................................................................... 4

Additional submissions: 

Statement of James A. Klein ............................................................ 66

Statement of the U.S. Chamber of Commerce ................................. 67

Shea-Porter, Hon. Carol, a Representative in Congress from the State 

of New Hampshire, prepared statement of ................................................. 69

Tierney, Hon. John F., a Representative in Congress from the State 

of Massachusetts ........................................................................................... 1

Prepared statement of ............................................................................... 2

Statement of William Gabbard, the Flex Retirees Organization 

(FRO) ...................................................................................................... 59

Statement of Witnesses: 

Jones, C. William, ProtectSeniors.Org ............................................................ 13

Prepared statement of ............................................................................... 14

Kadereit, Bill, president, National Retiree Legislative Network ................. 8

Prepared statement of ............................................................................... 10

Additional submissions: 

Letter, dated September 29, 2008 ..................................................... 12

White paper, ‘‘Safeguarding Retiree Health Care Benefits: Protecting Retirees From Fixed-Income Erosion’’ Internet address 13

Lillie, David E., Raytheon Missile Systems retiree ....................................... 5

Prepared statement of ............................................................................... 7

Macey, Scott J., senior vice president, government affairs, Aon Consulting, on behalf of the ERISA Industry Committee ................................ 31

Prepared statement of ............................................................................... 33

Responses to questions for the record ..................................................... 60

Stein, Norman P., professor, University of Alabama School of Law ............ 35

Prepared statement of ............................................................................... 37

Yamamoto, Dale H., president, Red Quill Consulting, Inc. .......................... 19

Prepared statement of ............................................................................... 20

(1)

SAFEGUARDING RETIREE HEALTH BENEFITS 

Thursday, September 25, 2008

U.S. House of Representatives 

Committee on Education and Labor 

Washington, DC

The committee met, pursuant to call, at 10:13 a.m., in room 

2175, Rayburn House Office Building, Hon. John Tierney presiding. 

Present: Representatives Tierney, Kildee, Andrews, Woolsey, 

Hinojosa, McCarthy, Kucinich, Wu, Holt, Davis of California, 

Bishop of New York, Sarbanes, Hirono, Altmire, Hare, Courtney, 

Shea-Porter, Kline, Platts, and Wilson. 

Staff Present: Aaron Albright, Press Secretary; Tylease Alli, 

Hearing Clerk; Jody Calemine, Labor Policy Deputy Director; Lynn 

Dondis, Senior Policy Advisor, Subcommittee on Workforce Protections; Carlos Fenwick, Policy Advisor, Subcommittee on Health, 

Employment, Labor and Pensions; Brian Kennedy, General Counsel; Therese Leung, Labor Policy Advisor; Sara Lonardo, Junior 

Legislative Associate, Labor; Ricardo Martinez, Policy Advisor, 

Subcommittee on Higher Education, Lifelong Learning and Competitiveness; Kevin McDermott, Legislative Director, Congressman 

Tierney; Alex Nock, Deputy Staff Director; Joe Novotny, Chief 

Clerk; Megan O’Reilly, Labor Policy Advisor; Meredith Regine, Junior Legislative Associate, Labor; Michele Varnhagen, Labor Policy 

Director; Mark Zuckerman, Staff Director; Robert Borden, Minority 

General Counsel; Cameron Coursen, Minority Assistant Communications Director; Ed Gilroy, Minority Director of Workforce Policy; Rob Gregg, Minority Senior Legislative Assistant; Alexa 

Marrero, Minority Communications Director; Jim Paretti, Minority 

Workforce Policy Counsel; Chris Perry, Minority Legislative Assistant; Molly McLaughlin Salmi, Minority Deputy Director of Workforce Policy; Ken Serafin, Minority Professional Staff Member; 

Linda Stevens, Minority Chief Clerk/Assistant to the General 

Counsel; and Loren Sweatt, Minority Professional Staff Member. 

Mr. TIERNEY. Good morning. I thank all witness and my colleagues for their patience. As you know, we have got a lot of things 

going on at one time here and they are all important. So the 

quorum is present and the committee will come to order. 

I am just going to make a brief opening statement and give Mr. 

Kline an opportunity to do the same, and then we will hear from 

our witness and have some questions back and forth after that. 

Through the years, millions of workers have retired believing 

that they would be provided with the health care benefits that they 

2

were promised by their employer. These are benefits that they 

earned. What many of those workers found was that their former 

employer eventually made a cost-cutting decision to renege on that 

promise and cut or 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 they became Medicare-eligible. 

I am grateful to be chairing this meeting today. I requested the 

hearing 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 be restored. 

Unlike pension plans, the Employee Retiree Income Security Act 

of 1974, popularly known as ERISA, 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 have authored legislation H.R. 1322 to remedy 

this and ensure that the reasonable health care benefit expectations of retirees from ERISA-sponsored regulated group health 

plans are fulfilled. Other legislation has also been filed and will be 

part of this hearing. 

But specifically H.R. 1322 prohibits profitable plan sponsors from 

canceling or reducing promised retiree health benefits. It establishes an enforceable obligation to restore promised health benefits 

previously taken away from retirees and creates an ‘‘Emergency 

Retiree Health Loan Guarantee Program’’ to assist with the obligation to restore retiree health benefits. Spurring the need to enact 

this legislation is the fact that more and more workers are approaching retirement age. According to the Census Bureau, the 

number of individuals 65 years or older is projected to increase by 

73 percent by 2025. The number of individuals between 55 and 64 

years old is expected to grow by 36 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 of the witnesses, and now I yield to the ranking member for his opening 

statement. Mr. Kline. 

[The statement of Mr. Tierney follows:]

Prepared Statement of Hon. John F. Tierney, a Representative in Congress 

From the State of Massachusetts 

Good morning. 

Through the years, millions of workers have retired believing that they would be 

provided with the health care benefits that they were promised by their employer, 

benefits that they earned. 

What many of those workers found was their former employer eventually made 

a cost-cutting decision to renege on that promise and cut or reduce those health care 

benefits. 

As a result, some retirees may have been forced to endure a drastic decline in 

their 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 they become Medicare-eligible. 

I requested and am grateful to chair today’s Education and Labor Committee 

hearing because—like many of my colleagues—I believe our retirees deserve better; 

hard work should not be rewarded with tough times; fairness must be restored. 

3

Unlike pension plans, the Employee Retiree Income Security Act of 1974—popularly known as ERISA—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 have authored legislation—H.R. 1322—to remedy this and ensure that the reasonable health benefit expectations of retirees from ERISA-sponsored regulated 

group health plans are fulfilled. 

Specifically, H.R. 1322: 

• Prohibits profitable plan sponsors from canceling or reducing promised retiree 

health benefits; • Establishes an enforceable obligation to restore promised health benefits previously taken away from retirees; • Creates an ‘‘Emergency Retiree Health Loan Guarantee Program’’ to assist with 

the obligation to restore retiree health benefits. 

Spurring the need to enact this legislation is the fact that more and more workers 

are approaching retirement age. According to the Census Bureau, the number of individuals 65 years or older is projected to increase by 73% by 2025. The number 

of individuals between 55 and 64 years old is expected to grow by 36%. 

Today’s hearing serves as an important opportunity to discuss how we can better 

safeguard retiree benefits, and I look forward to hearing from the witnesses. 

I now yield to the Ranking Member for his opening statement. 

Mr. KLINE. Thank you, Mr. Chairman. Good morning to everybody. Thank you for participating in 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 whiter and whiter and 

thinner, that becomes ever more in front of my thoughts. 

As you know, our health care and retirement systems today are 

largely based on the voluntarily participation of employers. And 

this system certainly has some flaws, but for the most part, it has 

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 160 

million Americans including millions of retirees over the age of 55. 

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 continuing retiree benefits or creating new jobs. 

Today, we have the opportunity to learn more about the state of 

retiree health benefits and various proposals for reform. One proposal we have heard about would bar employers from reducing 

health benefits after the retirement of a worker. This is a deeply 

troubling proposal that threatens the very foundation of our voluntary employer-based system. Current law already prohibits employers from reducing or terminating promised benefits unless they 

4

expressly reserve the right to do so and fully disclose the intent 

under the ERISA benefit plan. 

The proposal in question would go much further, declaring that 

no changes could ever be made to benefits once a worker reaches 

retirement irrespective of unforeseen circumstances. The outcome 

of such an unprecedented and inflexible mandate is obvious. Employers will simply stop offering retiree health benefits, and this is 

clearly not the outcome that anyone desires. Rather than penalizing 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 to increase costs and reduce coverage. I am really looking forward to 

today to hearing from our distinguished witnesses and the discussion that will follow and I yield back. 

[The statement of Mr. Kline follows:]

Prepared Statement of Hon. John Kline, Ranking Republican Member, 

Subcommittee on Health, Employment, Labor, and Pensions 

Good morning. Thank you all for participating in this morning’s hearing on the 

critical issues affecting Americans who are retired or planning for retirement. 

As you know, our health care and retirement systems are largely based on the 

voluntary participation of employers. While this system is not without flaws, it 

has—for the most part—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 160 million Americans, including millions of retirees over the age of 55. 

These benefits are highly valued by employees, retirees, and their dependants—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, 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 continuing retiree benefits or creating 

new jobs. 

Today we have the opportunity to learn more about the state of retiree health 

benefits and various proposals for reform. One proposal we may hear about would 

bar employers from reducing health benefits after the retirement of a worker. This 

is a deeply troubling proposal that threatens the very foundation of our voluntary 

employer-based system. 

Current law already prohibits employers from reducing or terminating promised 

benefits unless they expressly reserve the right to do so and fully disclose this intent 

under their ERISA benefit plan. The proposal in question would go much further, 

declaring that no changes could ever be made to benefits once a worker reaches retirement, irrespective of unforeseen circumstances. 

The outcome of such an unprecedented and inflexible mandate is obvious—employers will simply stop offering retiree health benefits. This is clearly not the outcome anyone desires. 

Rather than penalizing companies for trying to do the right thing, we should be 

exploring ways to control the cost of health care benefits and encouraging 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 to increase costs and reduce coverage. 

I welcome our distinguished witnesses today, and I look forward to everyone’s testimony. 

5

Mr. TIERNEY. Thank you, Mr. Kline. 

Without objection all members will have 5 days to submit additional materials for the hearing record. Now we will introduce our 

witnesses. I am going to give a brief introduction right across the 

panel and then we will start at the beginning with Mr. Lillie again. 

David E. Lillie, our first witness, was hired by the Hughes Aircraft Company in Tucson, Arizona, in 1973, which later became 

Raytheon Missile Systems. Mr. Lillie was a member of his union, 

Local 933 of the International Association of Machinists and Aerospace Workers. He retired from Raytheon in 1999 and was part of 

the class action lawsuit against Raytheon in 2004 after the company stopped paying retiree health premiums. Bill Kadereit—did I 

say that right, Mr. Kadereit. 

Mr. KADEREIT. Yes. 

Mr. TIERNEY. He is the president of the National Retiree Legislative Network, which represents over 2 million retired workers from 

Fortune 500 companies. Mr. Kadereit retired from Alcatel Lucent 

in 1995 after 35 years of service. 

C. William Jones is the founder and chairman of 

Protectseniors.org, a nonprofit organization dedicated to saving corporate sponsored retiree health benefits. In 1996 he founded the 

Association of Belltell Retirees, Inc., an association dedicated to 

protecting retiree pensions and benefits. 

Dale Yamamoto is the founder and president of Red Quill Consulting, Inc. Mr. Yamamoto also worked for two major benefit consulting firms in Seattle, New York, and Chicago. He has also held 

positions as the corporate actuary for a Fortune 50 company and 

is an actuary for two major insurance companies. 

Scott Macey is the senior vice president and director of government affairs of Aon Consulting, Inc. Mr. Macey is a former Chair 

of the ERISA Industry Committee and continues to serve as a 

member of the executive committee of that organization. 

And Norman Stein is the Douglas Arant professor of the University of Alabama School of Law where he teaches benefits and tax 

law. 

We are going to ask each of the witnesses to make a presentation 

for approximately 5 minutes. I think we will explain the lighting 

system to you, that little array of lights that come before you. The 

green is for the beginning of the 5 minutes. When it comes to 

amber, you have 1 minute remaining. Red, Mr. Kline comes down 

and hits you with a hammer and that’s the end on that. But when 

it gets to red we would like you to sum up and we will be as lenient 

as we can be, but members, I am sure, are anxious to ask questions 

on particular points of interest to them and we really want to hear 

what you have to say. So with that we appreciate your testimony 

and we will start with Mr. Lillie, please. 

STATEMENT OF DAVID LILLIE, RAYTHEON MISSILE SYSTEMS 

RETIREE 

Mr. LILLIE. 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 with Raytheon 

Missile Systems. As Mr. Tierney said, my name is Dave Lillie, and 

6

I worked with Hughes Aircraft since 1973. I was there when 

Raytheon came in and bought Hughes; so I retired from Raytheon 

Hughes in 1999. And I retired under the 1996 CBA, which is a contract for Hughes Raytheon, negotiated by my union, Local 933 of 

the International Association of Machinists and Aerospace Workers. 

In July of 2004, I received a notice in the mail that my companypaid medical insurance which I had since my retirement would now 

cost me $310 a month. Over the next 2 years, 21⁄2 years, my premiums increased to $536 a month. This was a clear violation of the 

retiree health benefit language in the 1996 collective bargaining 

agreement that was in effect when I retired. After meeting with 

Local 933’s directing business agent, I soon learned that many retirees were paying as much as 55 percent of their fixed retirement 

income just to pay these premiums they weren’t supposed to have 

to pay. 

We held a meeting with all the Raytheon retirees that we could 

get in touch with who were affected by this violation. We retained 

legal counsel and found that Raytheon had unilaterally ignored the 

retiree health benefit language of the applicable collective bargain 

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 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 homes that 

were paid off in order to pay medical expenses that were not covered under a cheaper insurance plan. This has happened to one of 

my friends who I worked with for many, many years. It has been 

terrible to witness what it is doing to him mentally as well as physically. Many have depleted their life savings to offset the premium 

costs. Quite a few planned to travel, visit their children, grandchildren, and great grandchildren or enjoy seeing friends and just 

traveling around the country. 

Now they just stay home or they go to Mexico to seek medical 

help. Retirees that could not afford even the cheaper plan have had 

to drop medical coverage altogether and simply pray to stay 

healthy. Sadly, one of my fellow 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 $87,000. All of this expense and no insurance, 

even though he was covered under a jointly negotiated collective 

bargaining agreement which provided health insurance until he 

and his wife both reached age 65. This summer our class action 

suit against Raytheon Missile Systems resulted in a favorable decision for Raytheon retirees. 

7

In his findings, District Judge David Bury said that the collective 

agreements ‘‘unambiguously provide vested medical benefits for retirees until 65 at no cost.’’ Judge Bury has ordered Raytheon to 

make the affected retirees whole and reinstate them in the company paid medical health insurance. Unfortunately, Raytheon has 

appealed this decision and the suffering for Raytheon retirees and 

their dependent continues. 

It is important to note that Raytheon is a company that has 

grown fat on government contracts. According to Raytheon’s 2007 

annual report, 86 percent of company sales are to U.S. Government 

and all of the missile systems work is defense related. Since 2005 

net income has tripled to nearly 2.6 billion and earnings per share 

have doubled. It angers me to think that a corporation like 

Raytheon that shows contempt for the retirees that built the company now benefit so generously from my tax dollars. 

Mr. TIERNEY. Mr. Lillie, if I might without being rude, I have 

read the rest of the statement and I appreciate the sentiments that 

are in it, but I think you have substantively hit on the high points 

that you want to and if it is okay with you, we will move on to Mr. 

Kadereit and come back to questions. Does that work? 

Mr. LILLIE. I guess. 

Mr. TIERNEY. Thank you very much. 

[The statement of Mr. Lillie follows:]

Prepared Statement of David E. Lillie, Raytheon Missile Systems Retiree 

Mr. Chairman and Members of the Committee on Education and Labor, I want 

to thank you very, very much for inviting me to speak to you about the problems 

the retirees are having with Raytheon Missile Systems in Tucson, Arizona. 

My name is Dave Lillie and in 1973 I went to work for Hughes Aircraft Company, 

which later became Raytheon Missile Systems. I worked as a tool and die maker 

until my retirement in 1999. As a retiree I was to receive fully paid medical insurance until age 65, a benefit that had been negotiated by my union, Local 933 of the 

International Association of Machinists and Aerospace Workers. 

Then, in July of 2004, I received a notice in the mail that my company paid medical insurance, which I had had since my retirement, would now cost me $309.77 

a month. Over the next two and a half years my premiums increased to $535.71 

per month, a clear violation of the retiree health benefit language in the 1996 collective bargaining agreement, which was the labor agreement that I retired under. 

After meeting with Local 933’s Directing Business Representative, I soon learned 

that many retirees were paying as much as 55 percent of their fixed retirement income on these insurance premiums. We held a meeting with all the Raytheon retirees we could get in touch with who were affected by this violation. We retained legal 

counsel and found that Raytheon had unilaterally ignored the retiree health benefit 

language of the applicable collective bargaining agreements. A class action lawsuit 

was filed against Raytheon to regain our company paid health benefits. 

The despicable actions of Raytheon affected approximately 1,000 retirees and 

their dependents, who suffered not only monetary losses because of 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 monthly premiums. 

Other retirees have been forced to sell a large part of their retirement dreams in 

order to afford the premiums they now have to pay. More than a few retirees have 

had to mortgage their homes that were paid off in order to pay medical expenses 

that were not covered under a cheaper insurance plan. This has happened to one 

of my friends who I worked with for many years. It has been terrible to witness 

what it is doing to him mentally, well as physically. Many have depleted their life 

savings to offset the premium cost. Quite a few planned to travel, visit their children, grandchildren, or great-grandchildren, or enjoy seeing friends and just traveling about this country. Now they just stay home, though some go to Mexico to seek 

medical treatment. 

8

Retirees that could not even afford a cheaper plan have had to drop medical coverage altogether and simply pray they stay healthy. Sadly, one of my fellow retirees 

who could not afford the monthly premiums has incurred significant out of pocket 

medical costs after his wife suffered two heart attacks and required two pacemakers. She also developed pneumonia and diabetes, which resulted in additional 

hospital stays. This has sent their medical costs skyrocketing to over $87,000. All 

this expense and no insurance, even though he was covered under a jointly negotiated collective bargaining agreement which provided health insurance until he and 

his wife both reached age 65. 

This summer our class action lawsuit against Raytheon Missile Systems resulted 

in a favorable decision for Raytheon retirees. In his findings, U.S. District Judge 

David Bury said that the contract ‘‘unambiguously provide vested medical benefits 

for retirees until age 65 at no cost.’’ Judge Bury has ordered Raytheon to make the 

affected retirees whole and reinstate them in the company paid medical health insurance. Unfortunately, Raytheon has appealed this decision and the suffering for 

Raytheon retirees and their dependents continues. It is important to note that 

Raytheon is a company that has grown fat on government contracts. According to 

Raytheon’s 2007 Annual Report, 86 percent of company sales are to the U.S. government, and all of the Missile Systems work is defense related. Since 2005 net income 

has tripled to nearly $2.6 billion and earnings per share have doubled. It angers 

me to think that a corporation like Raytheon, that shows contempt for the retirees 

that built the company, now benefits so generously from my tax dollars. 

This week there is much talk about bailing out the geniuses of Wall Street whose 

phony finance schemes threaten our economy, but when will Congress start protecting the people who spent a life time doing the real work that made America 

great? Although I am not an expert on the technicalities of providing health care, 

I would like to express my appreciation to Congressman Tierney for addressing this 

issue in H.R. 1322, the Emergency Retiree Health Benefits Protection Act of 2007. 

We have to let corporate America know that the theft of retiree health benefits is 

unacceptable and I believe that 

H.R. 1322 will help us do that. 

Unfortunately, I do not believe that the current Administration shares Congressman Tierney’s concern and I am afraid that we will have to wait for a new President 

and a new Congress before this legislation will move forward. In the meantime, 

Raytheon retirees need immediate help from a company that has put greed before 

justice. I call upon Congress take the necessary actions to make Raytheon fulfill its 

responsibilities to the people who made the company the success it is today. 

I thank you for this opportunity to testify on this important matter and look forward to your questions. 

Mr. TIERNEY. Mr. Kadereit, you have 5 minutes. Thank you. 

STATEMENT OF BILL KADEREIT, PRESIDENT, NATIONAL 

RETIREE LEGISLATIVE NETWORK 

Mr. KADEREIT. Good morning, Mr. Chairman and members of the 

committee. My name is Bill Kadereit. I am from Heath, Texas, and 

I appear before you this morning as president of the National Retiree Legislative Network, or NRLN, an organization that represents more than 2 million retirees across America. I commend 

the committee and you, Mr. Chairman, for focusing on this vital 

important topic and I appreciate the opportunity to this morning 

to say a few words. 

Our retiree organizations serve a cross section of the top Fortune 

500 companies such as Boeing, IBM, Johns Manville, Quest, 

Alcatel Lucent, Prudential, Raytheon, Detroit Edison, Pact Bell, 

GM, Ford, Chrysler, AT&T and a dozen or so others. Our members 

live in all 50 states and in over 300 congressional districts that are 

organized on a grassroots basis by congressional district. Although 

the majority of our membership is retired management employees, 

over 15 percent are retired union workers. Most of them feel betrayed by their former employers. 

9

At the heart of this betrayal is that so many employees, even retired managers, were unaware that their former companies could 

break their promises to retirees. For example, many retired managers say they were not aware that the lump sum pension payments offered as inducements to older workers to retire often contain came from workers’ own pension plan assets, and that happens today. Nor did they realize that the health care benefits plans 

contained 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 

of an envelope stuffed with benefit promises. Sandy, a retired IBM 

manager who saw his own insurance bill triple in 2004 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 maybe little 

known to you, but capping and canceling health care liabilities in 

the ’90’s was beginning of a disturbing trend that continues to this 

day. International Paper used FASB 106 to book health care liabilities and then introduced caps on their health care liability to retirees. The effect was almost 19 million in earnings gains each year 

through year 2000. 

In 2000, 2001, and 2002 they capped benefits of newly acquired 

companies and through 2004 benefited by another $65 million in 

profit. Sears implemented caps during the ’90’s and fed $383 million in earnings since 1997 to their bottom line. IBM implemented 

caps in 1999 that affected 190,000 retirees. It took 3 years for retiree health care costs to reach the $625 per retiree cap, but in 

2002, retiree premiums increased 67 percent and another 29 percent in 2003. 

Adding the greatest insult to this injury is the heinous EEOC 

rule of 2007 which permits companies to discriminate against overage-65 retirees who can have their benefits eliminated completely 

with companies claiming necessity in order to maintain benefits for 

younger workers. There are over 10 million retirees over 65. Overage-65 General Motors retirees will be forced onto Medicare without catastrophic, dental, vision, or hearing insurance they now 

have effective January 1, 2009. A GM retiree who must purchase 

supplemental insurance plus the four elements just cited that they 

are going to lose will be in the hole over $400 a month starting in 

January, 2009. A retiree on fixed income pension of $36,000, which 

would be $72,000 pay, roughly half pay, is going to lose between 

18 to 20 percent of his or her fixed income if they replace all this 

coverage. 

Ford, Chrysler, and GM are casting a big shadow over the retirement landscape. Singling out over age 65 retirees sets an example 

that will lead to more companies targeting them. It is ironic that 

retirees under age 65 are no better protected now than before the 

EEOC rule became effective. There are no promises. They have no 

guarantees they will ever not have their health care cut. I am not 

blaming the big three. The trend is universal. The EEOC rule and 

the fact that ERISA does not vest retiree benefits are the real culprits here. For this reason, maintenance of health care benefits in 

effect on the day of retirement is a top NRLN priority. Congress 

must address the problem of catastrophic insurance also for all reVerDate 0ct 09 2002 15:22 Jan 10, 2009 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\FC\110-112\44563.TXT HBUD PsN: DICK
10

tirees and medical eligible Americans. It’s just not the uninsured 

who are vulnerable. 

Robert, a 66-year-old Dallas retiree, has brain cancer. He gets 

free supplies of a tumor-fighting drugs through a programs for lowincome families. His premiums have jumped by $365 a month. His 

deductible and co-pays and other out-of-pocket expenses are on top 

of that. It eats up all the pension which is $850 a month, his wife, 

LaRue, says. They have cashed in his 401(K) and taken out a second mortgage on his home. Therefore, two other NRLN priorities 

are the inclusion of catastrophic coverage in Medicare and the creation of a Medicare buy-in option at costs for all under age 65 retirees. 

Elizabeth Warren, a Harvard Law School professor and one of 

the authors of Consuming Bankruptcy Project, examined a sampling of noncommercial bankruptcies from 1991 to 2007, and people 

65 and up were more than twice as likely to file for bankruptcy at 

the end of 2007 as opposed to 1991. Those over 75, the rate for 

those over 75 quadrupled. 

Mr. TIERNEY. Mr. Kadereit, might I just ask you to sort of summarize your three recommendations in one sentence or less for 

each. Thank you. 

Mr. KADEREIT. I will. Thank you. 

First, we recommend preventing broken promises to retirees and 

mitigate the harm from the EEOC ruling by offering incentives to 

companies but requiring them to maintain their existing level of 

health care contributions for retirees. This incentive could take the 

form of a tax credit that would offset part of the cost of maintaining these caps. The NRLN calls this Maintenance of Cost Protection. 

Second, we recommend you modify ERISA to 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 that pension funds could be applied to health care through 

IRS section 420 as long as a cushion of 120 percent of the pension 

assets is maintained. Third, in 1986, Congress passed the Medicare 

Catastrophic Act of 1988, provided catastrophic insurance. The bill 

was attacked because it was declared prohibitively expensive by 

seniors at the time. The law was repealed in 1989. Now is the right 

time to work out a new bill that solves this catastrophic dilemma. 

Mr. TIERNEY. Thank you, Mr. Kadereit. 

[The statement of Mr. Kadereit follows:]

Prepared Statement of Bill Kadereit, President, National Retiree 

Legislative Network 

Good morning, Chairman Miller and Members of the Committee. My name is Bill 

Kadereit and I am from Heath, Texas. I appear before you this morning as President of the National Retiree Legislative Network or NLRN, an organization that 

represents more than 2 million retirees across America. I commend you, Mr. Chairman, and the Committee for focusing on this vitally important topic and appreciate 

this opportunity to spend a few minutes with you this morning. 

Our retiree organizations serves a cross section of the top Fortune 500 companies 

such as Boeing, IBM, Johns Manville, Alcatel Lucent, Prudential, Raytheon, Detroit 

Edison, Pacific Bell, GM, Ford, Chrysler, AT&T, and a dozen more. 

Our members live in all 50 states and over 300 Congressional Districts. Although 

the majority of our membership is retired management employees, over 15% are retired union workers. Most of them feel betrayed by their former employers. 

11

At the heart of this betrayal is that so many employees, even retired managers, 

were unaware that their former companies could break their promises to their retirees. For example, many retired managers say they were not aware that the lump 

sum pension payments offered as inducements to older workers to retire often came 

from workers’ own pension plan assets. Nor did they realize that health care benefit 

plans contained 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 of an envelope stuffed with benefit promises. 

Sandy, a retired IBM Manager who saw his own insurance bill triple in 2004 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.’’

Capping and cancelling health care liabilities in the 90’s was the beginning of a 

disturbing trend that continues to this day. International Paper used FASB 106 to 

book health care liabilities and then introduced caps. The effect was $18.7 million 

in earnings gains each year through 2000. In 2000, 2001 and 2002 they capped benefits of newly acquired companies and through 2004 benefited by another $65 million. Sears implemented caps during the 90’s and fed $383 million to earnings since 

1997. 

IBM implemented caps in 1999 that affected 190,000 retirees. It took three years for retiree health care costs to reach the $625 cap but in 2002 retiree premiums increased nearly 67% and another 29% in 2003. 

Adding the greatest insult to this injury is the heinous Equal Employment Opportunity Commission, or EEOC rule of 2007 which permits companies to discriminate 

against over-age-65 retirees who can have their health care benefits eliminated completely with companies claiming necessity in order to maintain benefits for younger 

workers. There are over 10,000,000 retirees over age 65. 

Over-age-65 GM retirees will be forced onto Medicare without the catastrophic, 

dental, vision, or hearing insurance they now have, effective January 1, 2009. A GM 

retiree, who must purchase supplemental insurance, plus the four elements just 

cited, will be in the hole over $400 a month starting in January 2009. A retiree on 

a fixed income pension of $36,000 is going to lose between 18-20% of his or her after 

tax income if they replace all lost coverage. Ford, Chrysler and GM are casting a 

big shadow over the retirement landscape. Singling out over age 65 retirees sets an 

example that will lead to more companies targeting them. It is ironic that retirees 

under age 65 are no better protected now than before the EEOC rule became effective. 

I am not blaming the Big Three. The trend is universal. The EEOC rule and the 

fact that ERISA does not vest retiree benefits are the real culprits. For this reason, 

maintenance of health care benefits in effect on the day of retirement is a top NRLN 

priority. 

Congress must address the problem of catastrophic insurance for all retirees and 

Medicare eligible Americans. It is not just uninsured people who are vulnerable. 

Robert, a 66-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 $365 a month, his deductible and co-pays and other out of pocket expenses are on top of that; ‘‘it eats up all the pension’’ which is $850 a month his 

wife, LaRue, says. They have cashed in his 401(k) account and taken out a second 

mortgage on their home. Two other NRLN priorities are the inclusion of catastrophic coverage in Medicare and the creation of a Medicare buy-in option, at cost, 

for all under age 65 retirees. 

Elizabeth Warren, a Harvard Law School professor and one of the authors of Consumer Bankruptcy Project, examined a sampling of noncommercial bankruptcies 

from 1991 to 2007, and people 65 and up were more than twice as likely to file and 

the filing rate for those 75 and older more than quadrupled. This is very real and 

frightening! 

So given all of this, what can Congress do to provide greater safeguards for retiree 

health benefits? The NLRN has three main recommendations: 

First, prevent broken promises to retirees and mitigate the harm from the EEOC 

ruling by offering incentives to companies but requiring them to maintain their existing level of health care contributions for retirees. This incentive could take the 

form of tax credits that would offset part of the cost. The NRLN calls this Maintenance of Cost Protection (MCP). 

Second, amend ERISA to prohibit the use of defined benefit pension plan assets 

to make lump-sum severance payments—an operating expense that should be paid 

from a restructuring reserve or from operating revenues. This will ensure that any 

pension fund surplus can be applied to retiree health care costs through use of IRS 

Sec 420 transfers to 401(h) trusts, as long as a cushion of 120% of current assets 

is maintained in the pension fund. 

12

Third, in 1986, Congress passed the ‘‘Medicare Catastrophic Act of 1988’’ that provided catastrophic insurance that would protect fixed income seniors from devastating health care bills. But it was attacked by seniors who declared it prohibitively expensive at the time. The law was repealed in 1989. Now is the right time 

to work out a new bill that solves the catastrophic dilemma. 

Thank you, Mr. Chairman and members of the Committee. We stand ready to 

work with you and your staffs on these and other legislative proposals that you may 

consider. I’d be happy to answer any questions you or the Committee members may 

have. 

[Additional submissions of Mr. Kadereit follow:]

September 29, 2008. 

DEAR COMMITTEE MEMBERS: On behalf of the more than 2 million members of the 

National Retiree Legislative Network, I want to express the NRLN’s appreciation 

for the opportunity to testify at the September 25, 2008 hearing on ‘‘Safeguarding 

Retiree Health Benefits.’’ The Committee is to be commended for its interest in the 

serious economic and social consequences caused by the erosion or cancellation of 

employer-sponsored health care benefits and the shifting of health care costs to retirees, most of whom exist on a fixed income. The document accompanying this letter is intended to provide additional support and elaboration on my testimony to the 

Committee. 

The remarks made during the hearing by Representative John F. Tierney reflected his in-depth knowledge of the broken corporate promises to provide health 

care benefits that have victimized millions of retirees. The sponsorship of H.R. 1322 

by Representative Tierney and other members of the Committee demonstrates their 

belief that legislative action is necessary to protect the health care benefits that retirees have earned through decades of their labor. The NRLN applauds their leadership and effort in this area. 

The NRLN supports the concepts of H.R. 1322 and believes now is the time for 

Congress to integrate the NRLN’s ideas and/or those of others and advance legislation as soon as possible. While cost-sharing must be capped, it is imperative that 

the cancellation of specific coverage and full plans be stopped. 

The EEOC rule presumes that Medicare offers the equivalent to company health 

care plans, but it does not. The rule totally disregards the enormous loss of catastrophic coverage as well as dental, vision, hearing and other unique health care 

plan coverages that are being taken away from retirees. 

The NRLN’s proposals that were discussed at the hearing and elaborated upon 

in this accompanying document would protect over-age-65 retirees from further income erosion. In addition, our proposals stipulate protection for retirees under 65, 

whereas the EEOC rule leaves the under age 65 protection to the fate of future 

judgments made by employer plan sponsors. 

I sincerely hope my testimony communicated to each of you that this is a huge 

issue regarding the loss of retiree fixed income that must be addressed now. It 

would be a grave error to think this issue can wait for national health care reform. 

The NRLN firmly stands behind the efforts of this Committee. Marta Bascom, the 

NRLN’s Washington-based Executive Director, is prepared to work with Committee 

staff to help stem the suffering that millions of retirees and their spouses are experiencing due to the increased cost of health care insurance that is robbing them of 

their retirement security. She can be reached at 703-863-9611. 

Again, the NRLN deeply appreciates the invitation to participate in the hearing. 

The many emails and letters we have received from retirees across the nation who 

read my testimony emailed to them—and many viewed the webcast on the Committee’s website—considered the hearing to be a glimmer of hope that some members 

of Congress recognize their plight and will try to help them. 

Sincerely, 

BILL KADEREIT, President, 

National Retiree Legislative Network. 

[The white paper, ‘‘Safeguarding Retiree Health Care Benefits: 

Protecting Retirees From Fixed-Income Erosion,’’ submitted by Mr. 

Kadereit, may be accessed at the following Internet address:] 

13

http://nrln.org/BKLETTERS/NRLN%20Whitepaper%20V15%20092908%20PDF.pdf 

Mr. TIERNEY. Mr. Jones. 

STATEMENT OF C. WILLIAM JONES, CHAIRMAN, 

PROTECTSENIORS.ORG 

Mr. JONES. Good morning, Mr. Chairman, ranking member and 

members of the committee. My name is Bill Jones and I serve as 

the Protectseniors.org, a not for profit organization of retired union 

and management employees formed to tackle the issue of retiree 

health care. I am here today because we have a serious escalation 

of retiree health benefits slashed by corporate America. This is why 

with your help and leadership, Mr. Chairman, legislation in the 

form of H.R. 1322, the Emergency Retiree Health Benefits Protection Act must be passed. As you know, the original ERISA legislation prior to 1974 included health care insurance as a critical part 

of the congressional plan to provide retiree income security. In fact, 

H.R. 1322 is the health care language drafted by Michael Gordon 

and included in the original ERISA legislation. 

The amendment that I am here to support was also drafted by 

Mr. Gordon in the year 2000 as requested by our association. For 

those who do not know, Michael Gordon was a very well known 

labor lawyer who was charged by Senator Jacob Javits and others 

to draft the original ERISA legislation and he lobbied for years to 

see it passed. 

The reason why I am here today representing millions of retirees 

is because H.R. 1322, the health insurance portion of the ERISA 

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 ERISA 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 workforce, we would see that larger American companies 

universally offered retiree health care to their employees and retirees as an incentive to retain trained employees. The workers accepted the IOU for retirement health care and other benefits in exchange for lower wages. Employers essentially deducted the cost of 

providing the insurance from wages and reminded employees that 

retirement health care and other benefits were part of their overall 

compensation package. 

Therefore, employers on the one hand acknowledged their implied contract yet in the early 1980s added a clause to their benefits package 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, employers added the possibility of termination of benefits to the clause and placed the statement of possible 

termination of benefits in employees’ retirement packages. 

Mr. Chairman, let me make this clear here. Employers told their 

employees annually for 20, 30, or 40 years that their reductions in 

pay and other perks were in exchange for their lifetime retirement 

health care and other benefits. It’s also very important to understand that corporations benefited greatly by providing health care 

14

benefits in lieu of wages. They did not have to pay Social Security 

and other payroll taxes on 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 an employee’s 

pension is directly proportional to his or her rate of pay, corporations saved on pension costs as well. General Motors was the first 

to renege on this implied contract. 

GM 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. GM cashed in on all the benefits of promising 

retiree health care instead of paying higher wage only to renege on 

the obligation and cash in once again by stealing the promise and 

earned benefits form those who could least afford it. The retirees 

were presented with a lose-lose outcome while GM benefited with 

a win-win. The retirees chose to take GM to court and won in a 

lower court decision. GM then appealed the case and the appellate 

court found in favor of the company. GM 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 stating that GM did create a vested right to lifetime health 

care benefits and criticized GM’s corporate short-sightedness. 

Pension plans are protected by law, but now employers can cut 

health care for retirees at any time. The vast majority of retirees 

live on fixed incomes with nest eggs that have 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 

are facing a health care crisis in this country and H.R. 1322 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 are not here 

asking for a handout. What we want is for companies to live up to 

the promises they made. Employees earned the benefit and companies promised to deliver. A promise made should be a promise kept. 

With your continued help and support, I am confident that we 

can get H.R. 1322 passed into law. Protectseniors is ready, 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. With the crisis set off in the financial markets, we 

can’t afford to pass additional taxes and burdens on to the American people and retirees cannot afford to pay more for the health 

care they earned and require. 

A solution to the health care crisis will require everyone to pitch 

in and we believe H.R. 1322 does just that, and I thank you, the 

committee members for your attention to this solution to the health 

care crisis. 

Mr. TIERNEY. Thank you very much, Mr. Jones. 

[The statement of Mr. Jones follows:]

Prepared Statement of C. William Jones, ProtectSeniors.Org 

Mr. Chairman, Ranking Member and members of the Committee, my name is Bill 

Jones and I serve as Chairman of the Board of ProtectSeniors.Org, a not-for-profit 

organization formed to tackle the issue of retiree healthcare. Our sole mission is to 

advocate for passage of H.R. 1322, the Emergency Retiree Health Benefits ProtecVerDate 0ct 09 2002 15:22 Jan 10, 2009 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\FC\110-112\44563.TXT HBUD PsN: DICK
15

tion Act and save millions of Americans from certain poverty because of the loss of 

their earned healthcare benefits. 

I’m here today because we have seen an escalation of retiree healthcare benefits 

slashed by corporate America. This is why, with your help and leadership Mr. 

Chairman, legislation in the form of H.R. 1322, the Emergency Retiree Health Benefits Protection Act, was introduced. 

Mr. Chairman, as you know, the original ERISA legislation in 1974 included 

healthcare insurance as a critical part of the Congressional plan to provide retiree 

income security. In fact, H.R. 1322 is the original healthcare language drafted by 

Michael Gordon and included in the ERISA legislation. 

As we all know, and the reason I am here today representing millions of retirees, 

the H.R. 1322 healthcare insurance portion of the original ERISA legislation was 

eliminated from the final bill in order to lighten the load and make it more likely 

that the legislation would pass. Those close to the plan’s design gave up the 

healthcare portion temporarily to pass the much needed guaranteed defined benefit 

pension law. They had every intention to amend ERISA at a later date to add protections for healthcare insurance. If Michael Gordon were alive today he would be 

here telling you the same thing. 

If we look back in time when most of the current retirees were in the workforce, 

we would see that larger American companies universally offered retiree healthcare 

to their employees and retirees as an incentive to retain trained employees. 

The workers accepted the IOU for retirement healthcare and other benefits in exchange for lower wages, and fewer vacations and holidays. Employers deducted the 

costs of providing the insurance from wages and reminded employees that the retirement healthcare and other benefits were part of their overall compensation package. 

Therefore, employers on the one hand acknowledged their implied contract, yet in 

the mid to late-1980s added a clause to their benefits practice that said they had 

the right to amend the plan at any time. This clause was called—the Reservation 

of Rights Clause.’’

This change was never communicated to the employees during their careers. In 

the mid-1990s some employers placed the statement of possible health benefits termination in the Reservation of Rights Clause and in employee’s termination packages at retirement. Therefore thousands of employees who had signed their retirement agreement papers were then and only then given the fine print, which many 

never read, on the insurance plan’s possible demise as they walked out the door. 

Since most never read the fine print or never saw it, they were devastated when 

they were forced to pay more and more for health insurance they had never planned 

on having to buy. 

Mr. Chairman, let me be clear here, employers told their employees annually for 

20-30-40 years that their reductions in pay and other perks were in exchange for 

their retirement healthcare and other benefits. Yet after they were retired these 

same employers started to charge retirees for health issuance or stopped paying for 

it altogether. 

It is also very important to understand that corporations benefited greatly by providing healthcare benefits in lieu of wages. They did not have to pay Social Security 

and other payroll taxes on the benefit. They could also defer funding those obligations when earnings were low, unlike payroll that must be paid on time. Further, 

since the amount of an employee’s pension is directly proportional to his or her rate 

of pay, corporations saved pension costs as well. 

Many of the retirees even took an early retirement program because they were 

offered a 100% paid healthcare insurance by a human resource or higher-level Vice 

president. 

General Motors was the first to renege on this implied contract. GM designed an 

incentive plan for management employees to retire early. They included free 

healthcare for the employee and spouse for the rest of their lives as one of the most 

attractive and beneficial features of the incentive plan. (See Sprague v. GM) 

However, in the early 1990s GM started charging for retiree health insurance. 

Several thousand retirees looked at their early retirement guarantee of 100% paid 

healthcare for life and consulted an attorney. The retirees chose to take GM to court 

to try and recover what was, in their mind, a clear case of corporate theft. The case 

was first settled in a lower court and the finding was in favor of the retirees. 

GM then appealed the case and the appellate court found in favor of the company. 

The retirees were shocked to find that a benefits practice none of the retirees were 

aware of contained some legalese which the Sixth Circuit Court said favored GM 

and the retirees were not actually guaranteed healthcare for life as the Vice President’s retirement incentive letter stated. The benefits practice contained the previously mentioned—reservation of rights clause.’’

16

These courageous GM retirees could not believe it so they anted up hundreds of 

thousands more of their retirement earnings to carry the case to the US Supreme 

Court. Unfortunately for retirees all over the country, the Supreme Court agreed 

with the Sixth Circuit and refused to overturn the ruling. That ruling left all retirees who expected to have health insurance in retirement at the mercy of their 

former employers. 

Three judges dissented, stating that GM did create a vested right to lifetime 

healthcare benefits and criticizing GM’s corporate shortsightedness.’’ ‘‘When General 

Motors was flush with cash and health care costs were low,’’ the dissent stated, ‘‘it 

was easy to promise employees and retirees lifetime healthcare. * * * Rather than 

pay off those perhaps ill-considered promises, it is easier for the current regime to 

say those promises were never made. (There is the tricky little matter of the paper 

trail of written assurances of lifetime healthcare, but General Motors, with the en 

banc majority’s assistance, has managed to escape the ramifications of its now-regretted largesse.’’ According to the dissent, the majority’s opinion ‘‘is heads, General 

Motors wins; tails, the employees lose.’’) 

Let us make this situation very clear. General Motors promised to provide lifetime 

healthcare insurance for no charge to all employees who retired by a certain date. 

Thousands of dedicated employees agreed to that deal and retired by the deadline. 

GM later reneged on that commitment and the burden for the healthcare costs fell 

on the retirees who were living on a fixed income and who upheld their part of the 

bargain. This unbelievably dishonest act was determined by The Supreme Court to 

be perfectly legal. 

As we have seen in recent years the number of employers dropping health insurance has increased dramatically. With more and more employers claiming to not be 

able to compete globally, it is only a matter of time before most US corporations 

who still offer their retirees health insurance stop the practice and force these people who are on fixed incomes to buy expensive health insurance. 

The result is that most will become uninsured. They will become only one health 

problem away from bankruptcy and a ward of the State and Federal Medicaid System. Had they been paid, during their working years, a fair amount instead of a 

lower amount plus a promise of healthcare coverage in retirement, their pensions 

would have been significantly higher and they would have been able to afford to pay 

for their own healthcare insurance. 

Instead, GM cashed in on all the benefits of promising the healthcare insurance 

instead of paying a higher wage only to renege on the obligation and cash in once 

again by stealing the promised and earned benefits from those who could least afford it. The retirees were presented with a lose-lose outcome while GM benefited 

with a win-win. 

What makes cuts to medical coverage so hard for many retirees to accept is that 

these cuts are most often perfectly legal. As we have stated above, this is unlike 

pension plans, which are protected by Federal law. Former employers can cut health 

coverage at any time for retirees. A few retirees have successfully sued former employers for their benefits in recent years (See Qwest case). But employment lawyers 

say that can happen only in rare cases where employers didn’t specifically reserve 

the right to change their minds in writing. 

‘‘Most company benefits practices contain what we call ‘‘weasel’ or Reservation of 

Rights clauses that protect them from any liability,’’ says Norman Stein, a law professor who specializes in employee benefits at the University of Alabama. Stein says 

studies show few employees ever read the clauses anyway, which are often in fine 

print and in language that isn’t always easy to understand. 

Of course, many working Americans are coping with rising health costs. But seniors often find themselves in a particularly difficult spot when their benefits shrink. 

The vast majority of retirees live on fixed incomes with nest eggs that have taken 

big hits during the recent stock market decline. Many don’t have a contingency plan 

because they had no idea they needed one. They entered the workforce in a different 

time and place—employers were more paternalistic and unions were strong. 

Mr. Chairman, this is not a Republican or Democrat issue. Nor is it a union 

versus management issue. This is a retiree issue that needs to be fixed today. We 

are facing a healthcare crisis in this country and H.R. 1322 should be a part of the 

overall solution. The Federal government cannot afford to replace these benefits for 

millions of retirees. Nor can many of these retirees pay more out of their pockets 

to get the basic healthcare they need. You noticed I didn’t say quality healthcare 

because this in most cases is too costly for them to afford. 

We are not here asking for a handout. What we do want is for companies to live 

up to the promises they made. A promise made should be a promised kept. With 

your continued help and support I’m confident we can get H.R. 1322 passed into 

law. 

17

Mr. Chairman and Ranking Member, we are ready, willing and able to work with 

all of you on a bi-partisan solution that is good for retirees, corporate America and 

the pocketbook of the Federal government. With the crisis set-off in the financial 

markets, we cannot afford to pass additional taxes and burdens onto the American 

people. A solution to the healthcare crisis will require everyone to pitch in. We believe H.R. 1322 does just that. 

Thank you and I would be happy to answer any questions at this time. 

History of ERISA 

The Employee Benefits Security Administration is responsible for administering 

and enforcing the fiduciary, reporting and disclosure provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). At the time of its name 

change in February 2003, EBSA was known as the Pension and Welfare Benefits 

Administration (PWBA). Prior to January 1986, PWBA was known as the Pension 

and Welfare Benefits Program. At the time of this name change, the Agency was 

upgraded to a sub-cabinet position with the establishment of Assistant Secretary 

and Deputy Assistant Secretary Positions. 

The provisions of Title I of ERISA, which are administered by the U.S. Department of Labor, were enacted to address public concern that funds of private pension 

plans were being mismanaged and abused. ERISA was the culmination of a long 

line of legislation concerned with the labor and tax aspects of employee benefit 

plans. Since its enactment in 1974, ERISA has been amended to meet the changing 

retirement and health care needs of employees and their families. The role of EBSA 

has also evolved to meet these challenges. 

The administration of ERISA is divided among the U.S. Department of Labor, the 

Internal Revenue Service of the Department of the Treasury (IRS), and the Pension 

Benefit Guaranty Corporation (PBGC). Title I, which contains rules for reporting 

and disclosure, vesting, participation, funding, fiduciary conduct, and civil enforcement, is administered by the U.S. Department of Labor. Title II of ERISA, which 

amended the Internal Revenue Code to parallel many of the Title I rules, is administered by the IRS. Title III is concerned with jurisdictional matters and with coordination of enforcement and regulatory activities by the U.S. Department of Labor 

and the IRS. Title IV covers the insurance of defined benefit pension plans and is 

administered by the PBGC. 

Prior to a 1978 reorganization, there was overlapping responsibility for administration of the parallel provisions of Title I of ERISA and the tax code by the U.S. 

Department of Labor and the IRS, respectively. As a result of this reorganization, 

the U.S. Department of Labor has primary responsibility for reporting, disclosure 

and fiduciary requirements; and the IRS has primary responsibility for participation, vesting and funding issues. However, the U.S. Department of Labor may intervene in any matters that materially affect the rights of participants, regardless of 

primary responsibility. 

As a result of the enactment of the Federal Employees’ Retirement System Act 

of 1986 (FERSA), EBSA has fiduciary and auditing oversight of the Thrift Savings 

Plan that was established by this Act. 

Pre-ERISA Legislation 

Initially, the IRS was the primary regulator of private pension plans. The Revenue Acts of 1921 and 1926 allowed employers to deduct pension contributions from 

corporate income, and allowed for the income of the pension fund’s portfolio to accumulate tax free. The participant in the plan realized no income until monies were 

distributed to the participant, provided the plan was tax qualified. To qualify for 

such favorable tax treatment, the plans had to meet certain minimum employee coverage and employer contribution requirements. The Revenue Act of 1942 provided 

stricter participation requirements and, for the first time, disclosure requirements. 

The U.S. Department of Labor became involved in the regulation of employee benefits plans upon passage of the Welfare and Pension Plans Disclosure Act in 1959 

(WPPDA). Plan sponsors (e.g., employers and labor unions) were required to file 

plan descriptions and annual financial reports with the government; these materials 

were also available to plan participants and beneficiaries. This legislation was intended to provide employees with enough information regarding plans so that they 

could monitor their plans to prevent mismanagement and abuse of plan funds. The 

WPPDA was amended in 1962, at which time the Secretary of Labor was given enforcement, interpretative, and investigatory powers over employee benefit plans to 

prevent mismanagement and abuse of plan funds. Compared to ERISA, the WPPDA 

had a very limited scope. 

18

ERISA 

The goal of Title I of ERISA is to protect the interests of participants and their 

beneficiaries in employee benefit plans. Among other things, ERISA requires that 

sponsors of private employee benefit plans provide participants and beneficiaries 

with adequate information regarding their plans. Also, those individuals who manage plans (and other fiduciaries) must meet certain standards of conduct, derived 

from the common law of trusts and made applicable (with certain modifications) to 

all fiduciaries. The law also contains detailed provisions for reporting to the government and disclosure to participants. Furthermore, there are civil enforcement provisions aimed at assuring that plan funds are protected and that participants who 

qualify receive their benefits. 

ERISA covers pension plans and welfare benefit plans (e.g., employment based 

medical and hospitalization benefits, apprenticeship plans, and other plans described in section 3(1) of Title I). Plan sponsors must design and administer their 

plans in accordance with ERISA. Title II of ERISA contains standards that must 

be met by employee pension benefit plans in order to qualify for favorable tax treatment. Noncompliance with these tax qualification requirements of ERISA may result in disqualification of a plan and/or other penalties. 

Important legislation has amended ERISA and increased the responsibilities of 

EBSA. For example, the Retirement Equity Act of 1984 reduced the maximum age 

that an employer may require for participation in a pension plan; lengthened the 

period of time a participant could be absent from work without losing pension credits; and created spousal rights to pension benefits through qualified domestic relations orders (QDROs) in the event of divorce, and through preretirement survivor 

annuities. The Omnibus Budget Reconciliation Act of 1986 eliminated the ability of 

employers to limit participation in their retirement plans for new employees who 

are close to retirement and the ability to freeze benefits for participants over age 

65. The Omnibus Budget Reconciliation Act of 1989 requires the Secretary of Labor 

to assess a civil penalty equal to 20% of any amount recovered for violations of fiduciary responsibility. 

The department’s responsibilities under ERISA have also been expanded by 

health care reform. The Consolidated Omnibus Budget Reconciliation Act of 1985 

(COBRA) added a new part 6 to Title I of ERISA which provides for the continuation of health care coverage for employees and their beneficiaries (for a limited period of time) if certain events would otherwise result in a reduction in benefits. More 

recently, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) 

added a new Part 7 to Title I of ERISA aimed at making health care coverage more 

portable and secure for employees, and gave the department broad additional responsibilities with respect to private health plans. 

Impact of the ‘‘After the Fact’’ removal of Corporate Retiree Health Insurance Shrinking benefits 

The following is a sample of large companies who have reduced healthcare benefits of their retirees AFTER they retired. This list represents about 3 million retirees: 

Aetna Inc.: Stopped subsidizing health insurance for employees who retire after 

2007. In January, they will stop funding all retirees’ dental coverage. 

Bethlehem Steel Corp.: Filed for bankruptcy protection in 2001. They canceled all 

health benefits for its 95,000 retirees last year. 

Caterpillar Inc.: Starting in January, retirees will pay significantly more of their 

health insurance premiums, with costs ranging from $180 a month per individual 

to $370 per family. 

DuPont Co.: Now charges pre-Medicare retirees higher health insurance premiums than it charges current employees. 

Embarq: The wire line spinoff from Sprint stopped offering Medigap coverage to 

their Medicare eligible retirees in January 2008

Kodak: Removed healthcare supplemental insurance for Medicare eligible retirees 

effective 

Levi Strauss & Co.: Stopped subsidizing Medigap coverage (private insurance that 

covers services Medicare does not) for all retirees and raised deductibles on prescription drugs to as much as $50. Company will stop subsidizing benefits for future retirees. 

Lucent Technologies: In January, stopped covering dependents of employees who 

left after May 1990 if they made more than $87,000; level will fall to $65,000 next 

year. 

Sears, Roebuck & Co.: Starting next year, all subsidies for retiree health benefits 

will be eliminated for new hires and employees younger than 40. Sears is also capping employer contributions to retiree health benefits at 2004 levels. 

19

Tribune Co. (owner of The Times): Has stopped subsidizing retirement health benefits for those hired after March 2003. 

Verizon Communications: Stopped all future retiree health benefits for management employees and has dramatically increased the retiree portion of health Insurance from 0 to $800+ per month depending on size of family. 

Whirlpool Corp.: Beginning this year, retiring employees are paying 20% of their 

health insurance costs. 

Mr. TIERNEY. Mr. Yamamoto, please. 

STATEMENT OF DALE YAMAMOTO, PRESIDENT AND FOUNDER, 

RED QUILL CONSULTING 

Mr. YAMAMOTO. Thank you. Good morning, Mr. Chairman. My 

name is Dale Yamamoto. I am an independent consultant right 

now and I just recently retired from the international benefits consulting firm of Hewitt Associates where I served as a their chief 

health care actuary. I am pleased to be here today to talk about 

the employers’ role in providing retiree health care to their retirees. And I provided a chart pack in your materials I will go 

through. I certainly don’t have enough time to go through every 

one of them. But the charts provide kind of the key aspects of retiree health care including prevalence of the benefits design 

changes in 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 5 minutes I have, I plan to focus primarily on the prevalence and design issues of the benefit program 

but certainly am prepared to discuss the other elements and aspects of my slides in the Q&A discussion. 

So on slide number 3, whenever you talk about retiree health 

care, it is generally focussed on large employers and slide number 

3 shows and demonstrates why. It is because most employers—it 

is mostly a large employer benefit program as shown by this chart 

because only about 4 percent of the smaller employers offer retiree 

health care benefits and it is really focused on larger employers. 

Slide number 4 shows the decline and prevalence of the benefits. 

And you will notice that most of the decline happened in the 1990s. 

And if you flip again to slide number 5, it is a pretty simple slide 

that shows you, I think, some of the drivers behind the decline in 

prevalence of the benefits in the first place. 

Some notable legislation I have left out, of course, was Medicare 

adopted in 1965 and ERISA in 1974. Those were legislation that 

encouraged the offering of retiree health care benefits and started 

with DEFRA in 1984, and we start to see some decline, but the biggest impact probably was what the Financial Accounting Standards 

Board did in 1990 when they adopted FASB 106, which required 

employers to accrue for the cost in advance of providing the benefits, and they again provided some other limitations or additional 

accounting requirements upon employers back in 2006, most recently. That moved a lot of the funded status directly on to the balance sheets. 

And about the same time, the Governmental Accounting Standards Board adopted GASB 43 and 45 that provided very similar accounting treatments for municipalities and counties; so I think we 

will see the same phenomena happen in the public sector now. 

20

Moving to slide number 6, 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 current retirees and you will notice on slide number 6 the percentage of employer-based coverage 

has remained relatively stable over the last 15 years. And I would 

say that is primarily because when employers do eliminate coverage, it is generally for future retirees and future retirees who retire 5 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 9, this shows—gives you a picture 

of the design changes that employers have made between 2005 and 

2006. This is the latest data that we have from a survey that the 

Kaiser Family Foundation does in conjunction with Hewitt Associates. You will see that most of the design changes that are up on 

the top have been geared toward changes in the plan design, costsharing changes, increase in the deductibles, increase in co-pays to 

retirees, perhaps increase in retiree contributions. It isn’t until you 

get down toward the middle that you find 11 percent of the employers did terminate coverage for future retirees between those 2 

years. And in fact, if you move your eyes a couple down, you will 

see that 8 percent actually improved or added some coverage for retirees. And I have to say in the 25 years of my experience consulting with employers and working with them on retiree health 

care benefits, I have always found that virtually everyone has a 

very difficult time making decisions on changes to their retiree 

health care benefits and I am sure when it gets to the senior management level they agonize over even these changes in the costsharing provisions and certainly when they are about to terminate 

coverage for future retirees it’s—I am sure they have many sleepless nights trying to make that decision of whether or not to do it. 

So it is not a position that is taken lightly. And that is—I will 

end there. That is my final remarks and I will be certainly happy 

to answer any questions in the Q&A discussion. 

Mr. TIERNEY. Thank you very much. 

[The statement of Yamamoto follows:]

Prepared Statement of Dale H. Yamamoto, President, Red Quill Consulting, 

Inc. 

Good morning Mr. Chairman, my name is Dale Yamamoto. I am currently an 

independent consultant and recently retired from Hewitt Associates where I served 

as their chief healthcare actuary. I am pleased to be here today to talk about the 

employers’ role in providing health insurance to retirees. 

Focus 

The chartpack that I have provided to you includes several slides outlining the 

key aspects of retiree health care including the prevalence of the benefits, discussion 

of key design features including Medicare Advantage and prescription drugs as well 

as slides on prefunding, and national costs. I plan to focus on the prevalence and 

design slides and I am prepared to discuss the other slides as well. 

Prevalence 

Most of my presentation will focus on the programs offered by larger employers 

because as you can see on Slide 3, it is that group that primarily has offered the 

benefits. 

Slide 4 shows the declining prevalence of retiree benefits offered by employers. 

The top two lines are data from Hewitt’s SpecBook database of over 1,000 large employers while the bottom shows the results from the latest Kaiser Family FoundaVerDate 0ct 09 2002 15:22 Jan 10, 2009 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\FC\110-112\44563.TXT HBUD PsN: DICK
21

tion survey. Both show a declining percentage of employers offering the benefit with 

most of the decline happening during the 1990s. 

The key reasons for the decline are shown on Slide 5: In the early 1980s, tax legislation restricted the amount a company could prefund this benefit in a trust fund. 

Various industry groups, including ERIC, have asked for relief of these limitations 

since the enactment. And in 1990; the Financial Accounting Standards Board 

(FASB) adopted a new accounting rule (FAS 106) requiring advance accounting of 

the benefit—similar to pension plans. These rules were again tightened in 2006 and 

the Governmental Accounting Standards Board (GASB) adopted similar rules 

(GASB 43 and 45) for states and municipalities. 

A key point to understand is that while the statistics show a decline in the percentage of employers offering retiree health coverage, Slide 6 shows that retirees 

covered by employer-sponsored plans have remained relatively steady. The reason 

is that, in most cases, employers ‘‘grandfather’’ existing and soon-to-be retirees in 

the current plan and do not terminate their benefits. 

Design 

Skipping to Slide 9 shows you the types of changes that employers made between 

2005 and 2006. 11% dropped coverage for future retirees. And 8% actually improved 

coverage in some fashion. 

In my experience, retiree health care plans are one of the few benefit offerings 

that are difficult for employers to change. Senior management agonize over any decision to reduce these benefits and I know there have been sleepless nights for those 

trying to decide to terminate coverage—even for future retirees. In short decisions 

to change benefits in any way because of changing circumstances are not made 

lightly. 

Thank you again for the opportunity to testify and I will be happy to address any 

questions.

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Mr. TIERNEY. Mr. Macey. 

STATEMENT OF SCOTT MACEY, SENIOR VICE PRESIDENT AND 

DIRECTOR OF GOVERNMENT AFFAIRS, AON CONSULTING, 

INC., ON BEHALF OF THE ERISA INDUSTRY COMMITTEE 

Mr. MACEY. Good morning, Mr. Chairman, ranking member, and 

members of the committee. I very much appreciate the opportunity 

to appear here today to discuss these very important issues. As the 

chairman indicated, I am Scott Macey, and I am executive vice 

president and senior director of government affairs for Aon Consulting and I am appearing here today on behalf of the ERISA Industry Committee commonly known as ERIC. I would like to preface my remarks by the following: These are compelling stories that 

we have heard this morning, and I think we can all empathize with 

them. And my testimony certainly isn’t intended to denigrate the 

impact or the reality that various people that have incurred them 

have to face. We may differ on identifying the source of the problem or the possible solutions, but I think we can all agree this is 

an important that needs to be addressed by Congress and society. 

ERIC commends the committee for its focus on retiree health 

benefits. Our Nation’s 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. ERIC’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 


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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 proposes 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 its retirees, that commitment is protected under current law. Second, if an 

employer has lawfully reserved the right to change retiree benefits 

and communicated that right and reservation to participants, that 

legal right 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 of depriving 

millions of future retirees of these important benefits. 

Fourth, the effort to safeguard retiree health benefits will succeed only if it 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 

mistake and assumption that employers are breaking their promises to provide 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 

courts will uphold that commitment. The bill will penalize employers that voluntarily provide post-retirement benefits. The bill does 

not seek to just enforce existing promises. Instead, the bill seeks 

to create new promises where none existed before. The bill would 

prohibit an employer from reducing post-retirement benefits for 

workers who have already retired even though the company reserved that right and told employees about it. 

If an employer has already exercised its right to reduce post-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. In short, the bill would rewrite private benefit plans retroactively in order to convert an employer’s 

voluntary conditional decision to offer post-retirement health benefits into an unconditional lifetime guarantee. The bill will force employers to eliminate the benefits they provide today. 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 legal straight jacket that the bill would impose. An employer must be able to change its health benefit programs to reflect the changing conditions in which the both employer and its plans operate. 

In fact, ERISA recognizes the clear distinctions between pension 

plans and welfare plans and provides for the vesting of the former 

but not the latter. The bill’s retroactive imposition of new and possibly unaffordable 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 a Faustian bargain of either 

terminating health benefits for future retirees or signing up permanently to an unknown escalation of cost and price volatility. 

33

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 ERISA 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 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. 

Mr. TIERNEY. Thank you, Mr. Macey. 

[The statement of Mr. Macey follows:]

Prepared Statement of Scott J. Macey, Senior Vice President, Government 

Affairs, Aon Consulting, on Behalf of the ERISA Industry Committee 

Good morning, Mr. Chairman and members of the Committee. I very much appreciate the opportunity to speak with you and the Committee today about retiree 

health benefits. 

I am Senior Vice President and Director of Government Affairs of Aon Consulting, 

a leading human capital and management consulting firm. I am appearing today on 

behalf of The ERISA Industry Committee, also known as ‘‘ERIC.’’ I am also a member of ERIC’s Executive Committee and its former Chairman. ERIC is a nonprofit 

association committed to the advancement of the employee retirement, incentive, 

and welfare plans of America’s largest employers. ERIC’s members provide comprehensive benefits directly to some 25 million active and retired workers and their 

families. Together, ERIC member companies have provided benchmark life security 

plans directly to more than 10% of the U.S. population. 

ERIC commends the Committee for its focus on retiree health benefits. Our nation’s senior citizens need and deserve access to quality, affordable postretirement 

health care. Years of double-digit inflation in medical costs have eaten away at 

workers’ retirement income, making it increasingly difficult for retirees to afford 

even the most basic post-retirement health benefits. This is true especially for workers who retire before they become eligible for Medicare. 

Employers also feel these pressures acutely. As American companies struggle to 

compete in a global economy, they labor under the burden of a health care system 

that is among the most expensive in the world. National expenditures on health 

care now consume 16 percent of our gross domestic product. In the United States, 

this burden falls much more heavily on private companies than it does in other developed nations, where the government plays a larger role in providing health care 

and controlling medical costs. 

ERIC’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 retiree and active health care coverage. 

Although we welcome the Committee’s attention to this important national issue 

even in the midst of a national financial crisis, we are concerned, however, about 

the approach being proposed. The bill that is the focus of today’s hearing misinterprets the underlying reasons for the problem, i.e., that employers are the problem, 

and proposes a solution that is likely to have significant unintended adverse consequences. The Emergency Retiree Health Benefits Protection Act would single out 

large employers that have voluntarily provided post-retirement health coverage to 

their workers, and would require these employers—and only these employers—to 

preserve for the remainder of a retiree’s life the coverage that was in effect at his 

retirement. The bill would prohibit employers from changing these benefits regardless of future, and unknown, changes in economic conditions, costs of medical care 

or company financial status, and would ignore potential future changes in the nation’s healthcare system. 

I would like to raise four key points for the Committee’s consideration. 

First, if an employer promises lifetime health benefits to its retirees, that commitment is well-protected under current law. There is no need for legislation to safeguard benefit commitments. 

34

Second, if an employer has lawfully reserved the right to change retiree benefits—

and employees have been informed of that right, that legal right should also be protected. Employers that have voluntarily offered post-retirement health benefits in 

the past should not be penalized making a more generous set of compensation promises at one point in time by having those benefits retroactively locked in. 

Third, if employers are prohibited from changing the benefits in place when a 

worker retires, this mandate will have the unintended consequence of depriving millions of future retirees of employer-provided health benefits. Employers will cease 

to offer retiree health coverage if they do not have the flexibility to modify the coverage as necessary to reflect changing circumstances. Indeed, in spite of earlier 

warnings to policy makers by employer groups and others, employers have in fact 

curtailed new retiree health arrangements due to increasing costs and new accounting rules. 

Fourth—and most important as it addresses the real root of the problem—the effort to safeguard retiree health benefits will succeed only if it addresses the pervasive problems in the American health care system that force employers to reduce 

post-retirement health benefits, and that impede access to affordable health coverage by both working and non-working Americans. These are societal problems 

that require a comprehensive solution. A proposal that subjects a small group of 

companies to punitive measures will not, in the end, help to resolve the much greater issues and concerns that are at stake. 

Existing Law Protects Promised Benefits 

The Emergency Retiree Health Benefits Protection Act rests on a mistaken assumption: that employers are breaking their promises to provide 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, that commitment will be enforced under current law. 

Courts have ruled repeatedly that an employer may not change the benefits of a 

retired worker unless written plan documents reserve the employer’s right to amend 

or terminate post-retirement benefits, and the employer communicates this right to 

its workers clearly and unequivocally before they retire. Accordingly, under current 

law, an employer may reduce post-retirement benefits only if the employer can show 

that it did not commit to provide these benefits permanently. 

The Bill Will Penalize Employers That Voluntarily Provided Post-Retirement Benefits 

The bill does not seek just to enforce existing promises—those promises are enforceable already under current law, and are routinely protected by the federal 

courts. Instead, the bill seeks to create new promises where none existed before. 

The bill would prohibit an employer from reducing post-retirement benefits for 

workers who have already retired, even though the employer has included in its retiree health plan ‘‘a provision specifically authorizing the plan to make post-retirement reductions in retiree health benefits.’’ The bill would permit an employer to 

terminate health benefits for current retirees only if the employer can show that the 

company otherwise will be unable to continue in business. 

If an employer has already exercised its right to reduce post-retirement benefits—

for example, by asking retirees to share a portion of rising medical costs through 

increased contributions—the bill would give each retiree the option to restore the 

benefits to their former level. The bill would apparently even prohibit an employer 

from implementing health care networks and other arrangements that are responsive to the changing environment of our health care delivery system. 

In short, the bill would re-write private benefit plans retroactively in order to convert an employer’s voluntary, conditional decision to offer postretirement health 

benefits into an unconditional lifetime guarantee. Employers that have been less 

generous, and have provided no post-retirement benefits to their employees, would 

be rewarded with a decades-long competitive advantage. We also have concerns 

about constitutional challenges to the retroactive provisions of the bill as well as the 

fundamental fairness of that approach. 

The Bill Will Push Employers to Eliminate The Benefits They Provide Today 

If the bill is enacted, the unintended consequence will be a dramatic decline in 

the number of employers that are able to provide post-retirement benefits to their 

employees. Few companies will risk offering retiree health benefits if they are confined in the legal straitjacket that the bill would impose. 

An employer must be able to change its benefit programs to reflect the changing 

conditions in which its business operates: it cannot lock in retiree health coverage 

without regard to escalating costs, increasing pressures from global competition, innovations in health care delivery, development of new government programs, or any 

of the myriad other factors that cause employers to exercise their right to reduce 

35

post-retirement health benefits or signing up permanently to an unknown escalation 

of cost and price volatility. In fact, ERISA recognizes the clear distinctions between 

pension and health and welfare plans and has provided for the vesting of the 

former, but not the latter. The bill’s retroactive imposition of new and possibly 

unaffordable liabilities will also have a chilling effect on employers’ willingness to 

continue to sponsor other benefit plans that could be subject to similar mandates. 

Faced with the prospect of permanent, unalterable retiree benefits, employers 

that today provide millions of retirees with access to affordable postretirement 

health care will be presented with the Faustian bargain of either terminating health 

benefits for future retirees or signing up permanently to an unknown escalation of 

cost and price volatility. Employers must keep their costs under control in order to 

remain competitive in a challenging global economy. Accordingly, to the extent that 

the bill retroactively locks in coverage for current retirees, the inevitable result will 

be to divert employers’ compensation resources from other compensation and benefit 

programs at the expense of other workers. 

The Problem Calls For a Comprehensive Solution 

Proposals that would lock-in companies retiree health benefits fail to address the 

factors that cause companies to reduce or eliminate these benefits in the first place. 

These proposals do not address the underlying problem of inadequate individual access to affordable health care in our society. 

Many companies have gone to great lengths to preserve their postretirement 

health benefits as long as they can, in the face of mounting pressures that are rapidly making these programs unsustainable. Employers that provide comprehensive 

health benefits today are under severe stress. They must contend with excessive 

medical cost increases, complex and inflexible rules governing benefits, burdensome 

and often unnecessary litigation, shifting accounting standards, inadequate funding 

mechanisms, and federal and state mandates that constantly impose new obligations on a system that is already terribly overburdened. 

The erosion of retiree health benefits is a symptom of the problems in the American health care system, not the cause. These are societal problems that call for a 

comprehensive solution involving all of the stakeholders. It will take the best efforts 

of federal and state policymakers, industry leaders, trade associations, and private 

individuals to address these problems. 

I do not come before this Committee seeking to preserve the status quo or to ignore the serious issue that the bill attempts to address. Clearly America’s health 

care system must change in fundamental ways if it is to provide our citizens with 

the care they deserve. ERIC is committed to working constructively to achieve 

meaningful and lasting change. 

ERIC has proposed a ‘‘New Benefit Platform for Life Security’’ to create a framework for a 21st century life security plan that is more efficient, controls costs, is 

more transparent, leverages information technology to empower consumers, and ensures the delivery of high quality retirement and health coverage to all Americans. 

We would welcome an opportunity to work with the Committee to build solutions 

around this framework. 

That completes my prepared statement. I will be pleased to answer any questions 

the Chairman or any members of the Committee might have. Thank you for your 

attention. 

Mr. TIERNEY. Professor Stein. 

STATEMENT OF NORMAN STEIN, DOUGLAS ARANT 

PROFESSOR OF LAW, UNIVERSITY OF ALABAMA 

Mr. STEIN. The clock is still on Scott. 

Mr. TIERNEY. Go for it. 

Mr. STEIN. Mr. Chairman and 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 repay retiree 

health benefits. The law begins with a statute. The relevant statute 

here, ERISA, does not provide for mandatory vesting of health benefits the way it does for retirement benefits. ERISA does, however, 

hold employers responsible for the contractual promises they make 

to their employees. 

36

In retiree health plans, then the relevant statutory question is 

whether the employer has made a binding promise to its employees 

to 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 opinions seem to channel the surrealism of a 

Franz Kafka novel. I want to focus up on a case that is a paradigmatic example of judges stretching neutral-sounding concepts to 

favor an employer’s right to break a promise over an employee’s to 

rely on a promise. The case is Sprague versus General Motors, 

which Mr. Jones briefly summarized earlier. Sprague involved 

former employees receiving benefits under a General Motors retiree 

health plan. General Motors had repeatedly told its employees that 

retiree health benefits were lifetime benefits and that GM would 

pay their full cost, but eventually GM changed its corporate mind 

and amended the plan to include expensive deductibles and copays. GM’s former employees sued to compel GM to keep its promises. About 50,000 of the retirees had retired early and I will focus 

on their story. 

During the 1970s and 1980s, GM offered incentives to older employees to take early retirement. The benefits to which such employees were entitled included, quote, ‘‘lifetime health benefits.’’ 

Here is how GM 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 GM providing you with health 

benefits for your life. 

Moreover, over the years, GM had distributed to its employees official plan summaries, other written documents, and, in some 

cases, wrote individualized letters to particular employees that 

made representations identical to or similar to the one I just read. 

The actual GM retiree health plan, however, was a legal document 

with boilerplate language giving GM 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 representations GM 

made about lifetime benefits trumped any reserved employer 

rights. 

The trial court and a three-judge appeals court ruled for the employees but the entire court of appeals reheard 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 GM communications could be consulted unless the formal plan document itself 

was ambiguous about whether the benefits had vested, but according to the court, the plan document was not ambiguous since the 

document expressly reserved GM’s right to modify or terminate the 

plan. 

So the employees, including the early retirees who signed away 

very various rights to accept what they thought were actually 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. 

37

Does this mean employees always lose? No. Employees with collective bargaining agreements can sometimes win their cases based 

on a negotiated agreement, especially if their case is heard by 

judges whose world view does not predispose them to favor employer prerogative over worker financial security. In other cases, 

the plan document might be ambiguous and other employer communications might be considered, although here the Sixth Circuit 

seemed to say that a plan that includes a reservation of rights 

clause is crystal clear evidence that the employer has made no 

binding promise no matter what else the employer said. 

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 will not. As Bill Payne, a lawyer who 

has litigated many retiree health care cases has observed, the outcome is often foreordained by the ideological predisposition of the 

judges hearing a case rather than by the actual facts of the case, 

not that the facts are irrelevant. 

Congress could try to level the playing field for employees with 

clear, reasonable and consistent rules to guide judges who must determine whether the employer has made a binding promise to its 

employees. Or Congress might say that clear, written and oral representations from the employer become part of the plan even if not 

embodied in the actual written formal plan document. Or Congress 

might consider legislation such as that introduced by Congressman 

Tierney 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 were 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 employee. 

Mr. TIERNEY. Thank you, Professor. 

[The statement of Mr. Stein follows:]

Prepared Statement of Norman P. Stein, Professor, University of Alabama 

School of Law 

Mr. Chairman, Members of the Committee, I am Norman Stein, a professor at the 

University of Alabama School of Law, where I am privileged to hold the Douglas 

Arant Professorship. This semester, I am also working at the Pension Rights Center 

here in Washington, D.C. The Pension Rights Center is the nation’s only consumer 

organization dedicated solely to promoting and protecting the pension rights of 

workers, retirees and their families. Today, however, the views expressed in my testimony are mine alone and do not necessarily represent the views of either the Pension Rights Center or the University of Alabama. 

My statement this morning focuses on the state of the law with respect to an employer’s promise to pay retiree health benefits. I will show that the law is hostile 

to reasonable employee expectations about retiree health benefits—expectations created by the employer and from which the employer benefited in terms of increased 

employee loyalty and productivity. 

The law begins with the statute. ERISA does not provide for mandatory vesting 

of health benefits the way it does for retirement benefits, regardless of how long an 

employee worked. ERISA does, however, hold employers responsible for the contractual promises they make to their employees. In retiree health care plans, then, the 

relevant statutory question is whether the employer has made a binding promise 

to its employees to pay them health benefits after they retire. Federal judges are 

38

often called upon to determine whether an employer has made such a promise to 

its employees. The legal question is one of contract. 

As I have suggested, courts have not, for the most part, been sympathetic to employee claims. Indeed, some of the opinions seem to channel the surrealism of a 

Franz Kafka novel. I want to focus on a case that is generally regarded as the paradigmatic example of judges stretching neutral-sounding concepts to elevate an employer’s right to break a promise over an employees’ right to rely on a promise. The 

case is Sprague v. General Motors. 

Sprague involved over 80,000 former salaried employees who were receiving benefits under a General Motors retiree health plan. General Motors repeatedly told its 

employees that the retiree health benefits were lifetime benefits and that General 

Motors would pay their full cost. But eventually, General Motors changed its corporate mind and amended the plan to introduce expensive deductibles and co-pays 

and to eliminate outright valuable benefits. I think from the vantage point of the 

retiree, there was a frightening aspect to GM’s actions that went beyond the immediate changes to the plan. By amending the plan, GM signaled to the employees 

that it might make further changes to the plan and could, if it chose, eliminate the 

plan altogether. 

GM’s former employees sued to compel GM to keep its promises. About 50,000 of 

the retirees had retired early and I will focus on their story. 

During the 1970s and 1980s, GM offered incentives to many of its older employees 

to retiree early. The benefits to which the employees were entitled included ‘‘lifetime’’ health benefits. Here is how GM typically described the healthy benefits to 

people trying to decide whether to take early retirement: ‘‘full basic health care coverage for life at no cost to the retirees.’’ Most people would understand that statement to mean what it seemed to say: that if you retire, you can count of GM providing you with lifetime health benefits for your life. The employees who opted for 

early retirement, partly on the basis of these lifetime health benefits, waived legal 

rights that they might have had against GM. 

Moreover, over the years, GM had distributed to its employees official plan summaries, other written documents and, in some case, individualized letters to particular employees, that made similar representations to the one I just read, and GM 

managers often stressed to the employees the value of the lifetime medical benefits 

they would receive when they retired. 

The actual GM retiree health plan, however, was a legal document that included 

boilerplate language reserving to GM the rights to modify or terminate the plan. It 

is unlikely that very many, if any, employees actually read the actual formal plan 

document (and it is likely that few employees ever even received it). Moreover, an 

employee might well have thought the explicit representations about lifetime benefits—made many times in many forms over many years—would have trumped any 

reserved employer rights. 

Both the trial court and a three-judge panel of the Sixth Circuit Court of Appeals 

ruled for the employees under these circumstances. The gist of their rulings was 

that GM promised lifetime benefits to its early retirees and could not unilaterally 

break that promise. 

The entire Sixth Circuit Court of Appeals, however, heard the case and reversed. 

Here is the essence of what it held: the only document that counted was the formal 

plan document. None of the other GM communications—not the summary plan descriptions, not the letters, not the other communications—could be consulted unless 

the formal plan itself was ambiguous about GM’s right to modify the plan. But the 

plan document was not ambiguous, according to the Court, since that document expressly reserved GM’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 judges, might call a broken promise. 

Does this mean employees always lose? No. Employees with collective bargaining 

agreements can sometimes win their cases based on the negotiated agreement, especially if their cases are heard by judges whose world view does not predispose them 

to favor employer autonomy over worker financial security. In other cases, the plan 

document might be ambiguous and other employer communications might be considered, although here the Sixth Circuit seemed to say that a plan that includes a reservation of rights clause is crystal-clear evidence that the employer has not made 

a binding promise. And in some cases, some judges might treat the summary plan 

description as a plan document and find it significant that the description did not 

alert employees to the fact that the employer could change the plan, or drop the 

plan. And in other cases, some judges might hold that the employer violated fiduciary rules if it lied about benefits and employees reasonably relied upon the employer’s misrepresentations. 

39

We know that in a real work environment, rather than the imagined work environment conjured up by the judges in Sprague, employees tend to believe communications—oral and written—that they receive from their managers. They do not 

hire sophisticated lawyers to review plan documents and render opinions to them 

at $500 per hour on whether incomprehensible legalese buried deep within a plan 

trumps what otherwise appear to be clear promises. 

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 will not. As Bill 

Payne, a lawyer who has litigated many retiree health care cases, has suggested, 

the outcome will often be foreordained by the ideological predisposition of the judges 

hearing a case rather than by the actual facts of the case. 

Congress could try to level the playing field for employees with clear, reasonable, 

and consistent rules to guide judges who must determine whether the employer has 

made a promise to its employees. Or Congress might say that plans can be modified 

by clear written and oral representations even if not embodied in the actual written 

formal plan document. Or Congress might consider legislation such as that introduced by Congressman Tierney that would make it difficult or perhaps impossible 

for an employer to terminate retiree health benefits after 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 were fortunate enough to have an employer who 

promised such benefits and fortunate enough to be assigned a federal judge who believes that promises made should be promises kept. 

Mr. TIERNEY. I thank all of you for your testimony. We appreciate it. It gives us plenty of food for thought. We are going to go 

into our questions here and we will give each member 5 minutes 

for the questions and responses and try to give people an opportunity to go again if we have time. 

I understand, Mr. Lillie, if there were any questions concerning 

the contract or some legal matters that you would like to consult 

your attorney before answering those. Mr. Kline has said that if 

that’s the case, you can certainly turn and get some clarification 

from your counsel if you want. I am not sure anyone is going to 

ask you any particular legal questions. They might ask you some 

particulars about your personal experience on that. 

Mr. Macey, you raised the objections that we hear to this remedy 

from time to time, but after hearing Mr. Lillie and listening to Professor Stein and Mr. Jones, how can you continue to say that employers are not breaking their promise, that we have targeted the 

wrong remedy here? We all understand that the health care system 

at large needs some attention. This is a situation where clearly 

there at least seems some evidence where employers have indicated 

a coverage, and then at some point, taken a different path. How 

do you still maintain that this is a situation where employers are 

keeping their promises? 

Mr. MACEY. Well, I agree with Professor Stein’s statement that 

this is primarily a matter of contract law, so I would want to understand what the contract does. And ERISA 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 not necessarily with retiree health but with benefits in general have involved that the courts say if there is a conflict between 

what you tell people and the plan, what you tell people will be enforced. So if you have an SD that says one thing and a plan that 

says another you can’t—an employer can’t just rely on the plan 

document. Also you have to look at the SPD. I would also——

40

Mr. TIERNEY. Excuse me. But that hasn’t worked out too well, 

though, has it? Professor Stein, isn’t that exactly what happened 

to GM? They had one document and then a series of other documents that said exactly the opposite, and the court said it doesn’t 

matter what they told you most recently, we are going back to the 

original thing you saw when you were hired 26 years ago and why 

didn’t you remember it? 

Mr. STEIN. Yes. In some ways I agree with Scott that it is not 

necessarily a problem with the statute; it is a problem with the 

way the statute is being interpreted by judges. And there is a lot 

of scholarly literature on this on a variety of topic but judges sometimes provide very different contract principles when dealing with 

employer-employee relations then when they are dealing with other 

types of contractual relationships. And I think what we are seeing 

in this area is an example of that kind of an approach to looking 

at contracts. 

Mr. TIERNEY. As much as we are looking at contracts, I think we 

are also looking at equity, in that there are estoppel principles that 

flow in and otherwise. But let me ask some of the other witnesses 

their response to a point that Mr. Macey raises, that if you require 

employers who are profitable, who have made this promise to 

maintain it during the lifetime of somebody’s retirement, then all 

hell is going to break loose, everybody is going to loose their health 

insurance and it is going to be the end of the picture. 

Mr. Jones, what do you say that to that argument? 

Mr. JONES. I think history tells you that this hasn’t happened, 

that people who did not know about the reservation of rights 

clause, especially the part of termination of benefits or reductions 

of benefits have not been protected. Time and time again, Mr. 

Kadereit came from Lucent and you know what happened to the 

Lucent people. I came from Nynex and now Verizon. I know what 

has happened there. It goes on and on. I don’t understand. In fact, 

this is news to me that if you have a document that says one thing 

and you have been told something else, that is exactly what happened to all of us, and we are all suffering the consequences. So 

this is a problem with the legal system. 

Mr. TIERNEY. Mr. Kadereit. 

Mr. KADEREIT. First of all, I believe that all the damage occurred 

between 1990 and ’93 and not in the ’90s, as I believe someone said 

earlier, because FASB was announced in ’90 to be effective in ’93. 

Between that period of time companies raced like the devil to put 

caps in so they could profit from that and those caps limited at that 

period of time benefits. 

As to the question of the interpretation agreements, I think the 

classic case we have before us is the EEOC rule. The EEOC rule 

was wedged in on the promise that retirees under age 65 would 

lose their benefits if they weren’t able to dump everyone else under 

the bus over age 65. However, if you examine the construct of that 

rule or any other verbal or written agreement, you will find there 

are absolutely no guarantees for anyone under age 65. So the test 

will be—and it has already begun to happen. Lucent has already 

taken advantage of the EEOC rule and reduced its health care benefits for prescription drugs for people under 65. 

41

The point I would make, sir, is that there are no guarantees and 

in the absence of any guarantees there will—the behavior will run 

toward profitability and not toward what our people are being told, 

and that is that they are legacy. 

Mr. TIERNEY. Thank you. 

Mr. Kline. 

Mr. MACEY. Mr. Chairman, can I possibly comment upon a few 

of these? 

Mr. TIERNEY. If Mr. Kline would like you to do so, certainly. 

Mr. KLINE. Thank you, Mr. Chairman. 

Yes, you may, Mr. Macey. 

Mr. MACEY. Thank you so much. Some of the companies we talk 

about they are verged on financial failure. So it is not like they are 

wreaking huge profits and returning some great return to shareholders. 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—the 

cost of the benefits and the treatments and technologies available 

were much different than they are now. 

So I don’t think any company made an unconditional promise. I 

am not aware of companies that made these unconditional promises that they would provide for life, whatever health care evolved 

into. I would 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 do hope these decisions 

have been taken very seriously by companies and the ones I have 

worked with they certainly have been—have not been taken lightly. 

But was a commitment made, for instance, to provide health coverage based upon what the costs were in 1985? Well, if that is the 

case the costs might be $1,000 per person or $2,000 per person and 

not $12,000 or $10,000 per person. So these are very, very complicated issues, and I actually have anecdotally in my own family—

my brother has incurred exactly what the other witnesses have testified about today, but this bill wouldn’t have helped him at all. He 

worked for a company, actually headed up a very small landscaping 

and tree surgery company for many years, 40 years, and he sold 

it off to one of his employees. He 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 health insurance until he 

was Medicare eligible. Well, he lost that insurance at age 62, and 

at age 63 he had a massive heart attack and cardiac arrest and 

was in a coma for approximately a month. Now thank God he is 

in great shape now physically and we have managed to work ourselves through $500,000 of uninsured health costs. First of all, we 

negotiated down to $100,000 with some family help and with his 

own personal retirement savings he was able to pull that off and 

not lose his house. But this bill wouldn’t help him at all. That is 

why among other reasons we are saying this is a societal more 

comprehensive problem, not one just to impose a focus or a select 

tax on a few companies that are trying to do the right thing. 

Mr. KLINE. Thank you. 

Mr. KADEREIT. May I make a comment? 

42

Mr. KLINE. No. Sorry. I am rapidly running out of time here and 

while it was demonstrated that I would not come down there and 

rap you with a hammer, I am not so comfortable sitting next to the 

chairman if I run overtime. 

Let me just say very briefly that I think what Professor Stein 

has said and Mr. Macey about what and how benefits are communicated is extremely important, and I would also say that it is extremely important that 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 in this case, it seems 

to me that, leaving out the legal matters in front of us, that we 

have a case where something was communicated, went to court, the 

court ruled in favor of the employees and now it is under appeal 

and the attorneys are staying busy. 

So Professor Stein, you had a pretty interesting suggestion I 

thought that if 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 am sorry I cut you off. The light 

was about to turn red. I really did want to hear about some of the 

concerns from Mr. Yamamoto and Mr. Macey about what would 

happen if you put a mandate in, what would happen potentially to 

the voluntary retirement system, but I see that my time is about 

gone and you still have—then let me ask that of Mr. Macey. If we 

put this mandate in, Mr. Tierney’s 1322, what do you suspect 

would happen with this voluntary system? 

Mr. MACEY. I think companies when they look at an unknown future cost and price volatility that they would be—that would be imposed upon them, I think a lot of them, the overwhelming majority, 

will terminate their plans for future retirees, for the active employees now. So we will be creating a worse situation that we are going 

to have to deal with in the future for all of those employees. 

Mr. KLINE. Thank you very much, Mr. Chairman. 

Mr. LILLIE. Mr. Chairman, could I say something, please? 

Mr. TIERNEY. Actually you may, but with the chairman’s prerogative, you have 1 minute. Go ahead. 

Mr. LILLIE. I am not an attorney. I am just a plain old retired 

tool and die maker. 

Mr. TIERNEY. You are chewing up your 1 minute. 

Mr. LILLIE. And I have seen a lot of people suffer. Raytheon is 

not in any state of duress. Believe me. There are billions and billions of dollars of contracts, and yet they are reneging on their contractual language with that they bought into when they bought 

Hughes, and they are reneging on that, and we have got an awful 

of people that are really suffering. Their whole lives they have 

worked towards their retirement to enjoy it and now it is going 

down the tubes. 

Mr. TIERNEY. That is a point well taken, Mr. Lillie, and I do note 

that 1322 at least deals with profitable companies. 

Mr. LILLIE. Yes. 

43

Mr. TIERNEY. And provides for a waiver if a situation is in distress, and provides for a guarantee for loans if they need to have 

some assistance in maintaining their promise. 

Mr. LILLIE. Could I ask one more thing, sir? I am witnessing 

something here that I mean—like I say, I don’t know anything 

about how things are done up here, but I understand Democrats 

are over here, Republicans are over here. Is that correct? 

Mr. TIERNEY. So far so good. 

Mr. LILLIE. So am I to believe that the Republicans that haven’t 

showed up don’t care about us retirees? 

Mr. TIERNEY. Not at all. Not at all. 

Mr. KLINE. Mr. Chairman. 

Mr. TIERNEY. Mr. Kline, I will take care of this. Any members 

not being here is not indicative of lack of interest at all. Everybody 

has an opportunity to read all the testimony, and will read all of 

your written testimony and the results here today. We have a lot 

going on down here. Members have multiple subcommittees and 

committees and action on the floor. They have a whole host of responsibilities. They have staff members here monitoring the hearings as well. 

We have a big financial crisis that Mr. Macey referred to earlier 

that we are all involved with right now. We have continuing resolutions to try to carry our financing through the end of the year and 

the next election. We have a stimulus issue going forward. There 

is a lot going on, and all these members have multiple responsibilities, and whether they are here or not—and some will come, stay 

as long as they can and leave, and may come back. It is not at all 

an indication of lack of interest. That would be unfair to even indicate that. 

Mr. LILLIE. Thank you. 

Mr. TIERNEY. Okay, Mr. Andrews, you are recognized for 5 minutes. 

Mr. ANDREWS. Thank you, Mr. Chairman. Thank you, ladies and 

gentlemen. I find this hearing to be fraught with irony. The issue 

that is riveting this Capitol today is the value of keeping a promise. Last night, the President of the United States went on television and talked about the promise that we receive when we put 

our money in a bank, that we ought to be sure that it is honored. 

And he said, talking about the FDIC, the keeper of that promise, 

the guarantor of that promise, the FDIC has been in existence for 

75 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 and 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 are 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 under the law. I want to, Mr. Macey, 

welcome you back to the committee and ask you about this. On 

page 4 of your statement, you say that courts have ruled repeatedly 

that an employer may not change the benefits of a retired worker 

unless written plan documents reserve the employer’s right to 

amend or terminate the post-retirement benefits, and, the employer 

44

communicates these rights to its workers clearly and unequivocally 

before they retire. 

How do you reconcile that, though, with the Sprague v. General 

Motors case where, in fact, General Motors not only didn’t warn 

workers that they could be losing these benefits after they retired, 

they said exactly the opposite. In communication after communication, they said these are lifetime retirement benefits. So is your description of the law inaccurate? 

Mr. MACEY. No, I don’t think it is. One, that case, if I recall correctly, dates from about 10 years ago. And 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 factual details of——

Mr. ANDREWS. Well, isn’t the important detail that General Motors won, that the retirees didn’t get their benefits? 

Mr. MACEY. I want to go back and read the final decision. I think 

there were several appellate court decisions and two or three district court decisions. 

Mr. ANDREWS. But the final en banc decision was that General 

Motors won and the employees lost. 

Mr. MACEY. No, 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 the Federal courts are strewn with 

cases both for participants and for employers that generally are 

very factual specific cases. It depends on the specific facts. But I 

think you are raising, regardless of all these cases and whether or 

not judges are making decisions ideologically instead of based on 

the law and the facts, which they should, you are raising an important issue. And that is communications. What have participants 

been told and what can they reasonably, what are reasonable expectations based upon what they have been told? And Professor 

Stein and I were talking before the hearing 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 

in 401(k) plans about the fees that their accounts are paying, 

maybe they should have a project underway on this issue. If a company says——

Mr. ANDREWS. Yeah. 

Mr. MACEY [continuing]. We have a reserved right——

Mr. ANDREWS. If I may, though, I don’t think the problem here 

has been the ambiguity of the statements made by employers to retirees and workers. I think it has been their disregard of 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 is a legal dispute over whether that promise is overridden 

by a unilateral decision in the plan documents. So isn’t Mr. 

Tierney’s legislation headed in the right direction where it resolves 

that dispute and essentially says 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? Isn’t that sort of 

a basic in contract law? 

Mr. MACEY. 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, contract, and two, what you tell 

45

people. And if an SPD says here is the benefit we currently provide, but we reserve the right to change it or terminate the plan 

entirely, to me that is—they have a legal right that this bill 

would——

Mr. ANDREWS. My time is almost up, but I would just like to 

close with two things. I would invite Mr. Macey, with the record 

being left open, for you to submit to the committee any cases where 

the statements by the employer were ambiguous with respect to 

this where the employer won. And second, echoing something the 

chairman said, the chairman’s bill specifically provides a waiver for 

a company that would meet financial distress because of honoring 

this promise to apply to the Department of Labor and be relieved 

of its obligation. So this argument that somehow this would impair 

the solvency of corporations if they had to honor these promises is 

dealt with in the underlying legislation. Thank you. 

Mr. TIERNEY. Thank you, Mr. Andrews. Mr. Wilson. 

Mr. WILSON. Thank you, Mr. Chairman, and thank you all for 

being here today on the very important issue of safeguarding retiree health benefits. Mr. Yamamoto, in reviewing your testimony, 

I have a concern about the restrictions on company prefunding of 

retiree health benefits. Can you tell us are there any proposals that 

would responsibly change these rules to encourage the offering of 

retiree benefits? 

Mr. YAMAMOTO. Yeah, back in 1984, like I mentioned, the Deficit 

Reduction Act of 1984 limited the amount of money that an employer can put into what is called a Voluntary Employees Beneficiary Association, a 501(c)9 trust fund. What that did is there is 

the mismatch between the accounting requirements now that was 

adopted a little bit later, in 1990, versus what can be funded into 

a trust fund. So there is 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 tax effective basis. 

So that is probably the key limitation there. I have worked—I 

have to admit, I have worked with several employers that have 

tried to come up with that through different funding vehicles, you 

know, beyond just this one trust vehicle that is out there. But it 

is difficult to do. 

Mr. WILSON. Well, in the legislation before us is there a way to 

amend it in such a way that this could be helpful? 

Mr. YAMAMOTO. It would be eliminating a lot of limitations that 

are currently in the laws for VEBAs. 

Mr. WILSON. Well, as we all share an interest in this, I hope we 

can look at that potential. Mr. Macey, in your experience, what 

specific types of changes have employers made post-retirement to 

retiree benefit plans? Have these changes permitted employers to 

continue to offer retiree benefits? 

Mr. MACEY. I think, you know, other than very financially distressed or bankrupt companies, the ones that I am familiar with 

and have dealt with have not terminated the plans outright. I 

think developing networks so that people get a better deal on copayments and deductibles if they use a network operation rather 

than just a total free standing, free choice program. Additional 

copays and some rise in deductibles. I can remember back in the 

46

1970s, I think I had a very rich plan for a while, and I had a deductible of $100. And it seems like that would be extremely unrealistic to have $100 deductible in today’s environment. 

So changes like that increases in the premium. Sometimes the 

caps that were mentioned so that the employer says we 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, and then as 

health care inflation continues, it rises above that cost and the employees and retirees then are assuming 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 10 or 12 or 15 percent year 

after year, no company can assume that type of burden and doesn’t 

assume it with respect to anything else it does business with. 

Mr. WILSON. And I appreciate that explanation. Additionally, I 

am 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 retirees? 

Mr. MACEY. Well, I think the cases basically say if a company 

has promised to employees a lifetime unchanged benefit, and I say 

both lifetime and unchanged, and hasn’t also clearly said that that 

is what you get now, but we have the right to change that in the 

future, the courts uphold that promise. 

Now, I think the cases where companies have made that type of 

unconditional promise you will see much more frequently in collectively bargained plans, where they are dealing with a union and 

the union is pushing back on them. And so the courts, especially 

in the sixth circuit, where a lot of these cases came out of Ohio and 

Michigan and places like that, a lot of the old manufacturing companies, the courts have upheld those type of commitments and told 

the companies they had to continue to provide the benefit. 

Mr. WILSON. Thank you all very much. 

Mr. TIERNEY. Thank you, Mr. Wilson. Mr. Sarbanes? 

Mr. SARBANES. Thank you, Mr. Chairman. I think it is a terrific 

bill that you have authored. I don’t think I have heard any meaningful objection to it offered. And I also want to endorse the comments of Representative Andrews. I am kind of curious about the 

whole FASB thing. You talked about between 1990 and 1993, as 

people rushed to get these obligations off their books. Well, let me 

ask you, Mr. Stein, Professor Stein, do you think that attorneys for 

these companies would have been advising the companies that if 

they went ahead and in compliance with the new FASB rules 

showed the obligations on their balance sheets that that would 

have been a concession of some sort of contractual obligation to actually follow through with those, or do you think that is, in effect, 

what was operating to make them pull these things off the books? 

Mr. STEIN. I think it was complex, and a lot of things were going 

on. But I think the change in FASB really affected employers that 

were saying, you know, gosh, I now have to show these benefits as 

if—you know, at their value, as if they are real. 

Mr. SARBANES. As if they are real, meaning all along maybe they 

never thought they were real, right? 

Mr. STEIN. Well, I think what Scott said is true. I think they 

thought they were real. I think they didn’t appreciate what the 

47

promise might mean in a changed kind of medical environment, 

where health costs have outpaced 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 a very serious problem with respect to individual employees, and in particular companies, but the problem is 

a societal one. 

In some ways I don’t think whether you get decent care should 

sort of depend on whether your employer happened to be generous, 

and then whether you find a judge who is willing to enforce the 

promise that the employer made that—I mean this is a global problem. This is a subset of a very large problem. 

Mr. SARBANES. Well, the hearing obviously points up the overall 

defects in the——

Mr. STEIN. Yeah, one of the real problems, and this may be unfair because I am using your question to make a different point, 

but you know there is a provision in ERISA which courts like the 

Sprague court really latched on to, which said that there has to be 

a written plan. That was put in ERISA to protect employees to 

make sure there was a written plan. And what courts have done 

is sort of turned that around and said if it is not in the written 

plan document itself, which few employees ever get their hands on, 

it doesn’t matter. 

And that essentially gives employers—I mean I hate to say license to lie—maybe it is license to embellish. But it does. It means 

anything you say to the employee outside the plan is irrelevant in 

terms of what happens when a judge actually looks at the plan document itself. And most employees get their information from their 

managers. They believe it when somebody says, in writing especially, but also orally, these are really valuable benefits. They will 

last for your life. They can’t be taken away. The employer is going 

to pay for them. That is the way employees really get information. 

But the courts pretend that the way the employees are getting 

their information is from this legalese-laden plan document that 

they never even see, or hardly ever see. 

Mr. SARBANES. And Mr. Macey, that is all this bill is trying to 

do, right, is restore what a reasonable person would expect the bargain to have been in their interactions with the employer. Right? 

Mr. MACEY. Well, I guess it is based upon an assumption of what 

reasonable expectations are. But that is so individualized, both 

with respect to the milieu of the company and what it said and the 

plan and so forth, the conditions and the environment, as well as 

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 and 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 are not involved 

in the administration or interpretation of the plan. 

48

Mr. STEIN. Of course in GM, 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 this 

thing in the plan which nobody saw saying the employer can 

change the program if it wants. 

Mr. SARBANES. Right. A good place to end. Thank you. 

Mr. TIERNEY. Mr. Kildee. 

Mr. KILDEE. Thank you very much, Mr. Chairman. First of all, 

under full disclosure, I have to admit that I am cosponsor of this 

bill, so I am not exactly impartial. Mr. Lillie, your pension and 

your health care benefits, to 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 

that was considered absolutely an absolute, that he took immediate 

wages and deferred wages. So the health care benefits and the pension are not a gift from the corporation. It is really your money. 

It is money you worked for. You know, for a wedding you send 

a thank you note for a gift. You never send a thank you note to 

the company for their retirement benefits or for their health care. 

And I think we have to really institutionalize in our society, as long 

as we have the health care systems, and they are systems we have 

now, we have to institutionalize the fact that these things are really earnings that you agreed to defer rather than take home in your 

weekly paycheck. Would you agree to that concept? 

Mr. LILLIE. Absolutely. 

Mr. KILDEE. And that was pretty well your thought as you 

worked every day when you went in and did your work as a tool 

and die maker, right? 

Mr. LILLIE. Absolutely. 

Mr. KILDEE. Took so much home and so much later. 

Mr. LILLIE. It was negotiated as part of your wages. 

Mr. KILDEE. And I believe that. I believe that strongly. My dad 

worked for General Motors from 1916 to 1950. And he took money 

home regularly, but also had deferred wages. And that was true of 

most everyone in Flint, Michigan. I come from Flint, Michigan, 

where General Motors was established, where D.D. Buick and 

Louis Chevrolet and Walter Chrysler. He was chief engineer for 

Buick before he founded his own company. But the people there 

pretty well, they didn’t think this was a gift, they never sent a 

thank you note, you know, to Harlow Curtis or any of the presidents or the CEO for the nice gift you sent me. They figured this 

was my money. And you feel this was your earnings, did you not? 

Mr. LILLIE. I agree wholeheartedly. 

Mr. KILDEE. And I think, Mr. Chairman, that is why I am cosponsor of this bill. Somehow we have to institutionalize that concept. And I yield back the balance of my time. 

Mr. TIERNEY. Thank you, Mr. Kildee. 

Mr. LILLIE. Mr. Chairman, as part of my answer to Mr. Kildee——

Mr. TIERNEY. Sure. You are better than most at this. I have to 

hand it to you. 

49

Mr. LILLIE. I tell you what, my heart is so much into this. I have 

to say my piece. I am sorry. 

Mr. TIERNEY. I understand, but the way we usually do it here is 

people ask questions and the members on the panel answer, so I 

am going to give you 1 minute again, sir. 

Mr. LILLIE. Okay. All I am asking now, in light of Mr. Macey’s 

comment about how case law requires that employers honor their 

promises, why is it that the employees of Raytheon, we have had 

to file suit to get ours? 

Mr. TIERNEY. Thank you. Mrs. McCarthy. 

Mrs. MCCARTHY. Thank you, Mr. Chairman, and thank you for 

having this hearing. I want to go back to Professor Stein. My colleague, Mr. Andrews, started to hit upon with you on an explanation. And I am not a lawyer, so this is going to be a little bit 

more out of my league. But in your testimony, I remember hearing 

you say that, you know, maybe we need to look at how we can modify by clear written oral representation. And yet with my small 

knowledge of law, I thought that there has been a clear precedent 

in most court cases that there is a legal precedent, that is 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 in corporations unfortunately all over the country now, Mr. Lillie worked for the company for a lot of years. 40 

years? 

Mr. LILLIE. 36. 

Mrs. MCCARTHY. 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 are talking about our 

seniors that have put their years 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 he might have saved. And then to have 

his health care insurance go up to $500 a month, to be very honest 

with you, that is not right. And that to me, if anything, 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 would appreciate that. 

Mr. STEIN. Well, the law has been around for a long time. And 

it has never been—the one thing you can say about it is it has 

never been really clear. All right. Everything about the law is almost always on the table. And in the area of contracts, there are 

doctrines that say you don’t go outside the contract, the terms of 

the contract unless it is—unless the contract itself is ambiguous. 

But you also have other cases, other rules that say if you have 

a contract that somebody then suggests that, you know, we will go 

beyond it, and they say it in a way that you are going to rely on, 

that they have to now, you know, go ahead and do what they said 

they are going to do because you relied on it. Under ERISA, the 

law that developed in this area, which is sometimes called estoppel, 

has been very unfavorable to the employee. 

Most of the law, at least in my view, and I know Scott would 

probably disagree with this, but in my view most of the law that 

has developed, not all of it, but most of it has reflected a view, essentially, that somehow a contract between an employer and emVerDate 0ct 09 2002 15:22 Jan 10, 2009 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\FC\110-112\44563.TXT HBUD PsN: DICK
50

ployee is different than other kinds of contracts, and that the employer needs to be given prerogatives that wouldn’t be given to 

other contracting parties in different contexts. And I think this 

that has been a very serious problem. 

And one of the areas I think that is true is this idea that 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. All 

right? The employer gets loyal employees who work harder because 

they think that their employer is giving them benefits. And you 

know, I cut this out of my testimony even though I like the sentence, but, you know, if you read the Sprague case, what an employee should do when they take a job is get all the documents, 

hire a lawyer at $500 an hour, and then have the lawyer write a 

written opinion about whether they could rely on the statement 

that the employer made that these are lifetime benefits. 

And I will tell you it would take a lawyer like Scott or me a number of hours to give an opinion, and we would probably hedge a little bit. And there was a book in 1928, I think, by this guy Alfred 

Conant, who wrote about pensions and health care, and he called 

these clauses back then, I mean, he didn’t make up the name, back 

then these reservation of rights clauses were referred to as weasel 

clauses. And I think that is a pretty accurate description. 

Mr. JONES. Mr. Chairman, can I also respond to Mrs. McCarthy? 

Mrs. MCCARTHY. Sure. 

Mr. TIERNEY. It is Mrs. McCarthy’s time, sure. 

Mr. JONES. I think what we have to understand here is this isn’t 

just one commitment that was made to employees. When you decide to join a company, you listen to the benefits that you would 

get, your salary that you would get, and all the other things, and 

then possible chances for promotion or whatever. And you make a 

decision based upon what you are told. And you would decide one 

company over another based upon this package, whatever it is. I 

have 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 have to make another decision, am I going to stay here or am I going to move onto another 

company? 

You say well, wait a minute now, I have got these lifetime health 

care benefits. You can’t forget those. If I jump ship now, I am going 

to lose all of 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 am going to 

have lifetime health care, I can afford to leave. And you leave. And 

then a year or 2 later you lose your health care component. 

Now, this is unconscionable, frankly, in my opinion. 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 are 

entitled to, whatever it is. And frankly, if the answer is I am sorry, 

Mr. Jones, but——

Mrs. MCCARTHY. It is called transparency. 

51

Mr. JONES [continuing]. We may just have to terminate your 

plan downstream here, so you better not count on it, at least I 

know when I walk out the door if I can count on it or not. And I 

think that is an extremely important point that I wanted to make. 

Mr. TIERNEY. Thank you, Mr. Jones. Thank you, Ms. McCarthy. 

Mr. Hare. 

Mr. HARE. Thank you, Mr. Chairman. I just, in listening to this, 

I am amazed. You know, I was brought up that a promise is a 

promise, if you gave somebody your word, your word was your 

bond. I am just taken back. I am just wondering if the CEOs of 

these corporations that are taking away the health care benefits, 

these are some people who probably make as much in 2 weeks as 

their employees make 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 them, you know, these are the people who go to work every single day. 

And I have to tell you, when—you can go to court and do all 

these other things, but if you promise somebody that they are going 

to have health care, and that health care is going to cover them, 

people like Mr. Lillie and the people that he represents, ordinary 

people, to pull the rug out from underneath them, if it is not illegal, it is certainly immoral from my perspective. They count on 

this. And to have to go hat in hand, I am, you know, amazed. 

I think that is why—and I totally support the chairman’s bill on 

this. And you know, we can go to court and we can tie this thing 

up, but either you 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 

are not going to keep it. I want to ask Mr. Jones this: How many 

retirees have been affected by cuts and terminations of companysponsored health care benefits? Do you have any idea how many 

people we are talking about? 

Mr. JONES. Well, there are about 20 million retirees out there 

who would be subject to cuts. And I would say that probably most 

of them have suffered some reduction in their health care benefits 

since they retired. But probably about—estimate is about 4 million 

of them have had very serious consequences, either total termination of the plan or very serious cuts. 

Mr. HARE. Four million. 

Mr. JONES. Four million. 

Mr. HARE. And that is not including affecting their families, so 

that 4 million is really——

Mr. JONES. Absolutely. And all their beneficiaries. But you know, 

there is also more retirees retiring every day, and there are more 

companies reducing or terminating health care every day. So eventually, if nothing is done about that, I would say the whole 20 million will be on the block. 

Mr. HARE. Do you have any idea how many companies have reduced or terminated health care benefits for their employees? 

Mr. JONES. Well, of course, we have heard about General Motors 

and we have heard about Embarq recently. We have heard about 

what has happened to Lucent and others. There are plenty of large 

companies that have terminated those plans. 

52

Mr. HARE. Maybe just for the panel, I have John Deere’s corporate headquarters in my district. And the management retirees, 

they changed the health care plan. They showed me a paragraph. 

And in the paragraph it said you are going to get this voucher to 

get health care. And you will have every single thing that you have 

now, you will be able to purchase. So management retirees are 

thinking not a bad deal here. They went out and found out that 

they could not purchase prescription drug medicines and things of 

that nature because it was cost prohibitive for them to do it. 

Now, I am not the sharpest knife in the box here, but if it says 

we are going to 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, can somebody explain to 

me where they went wrong here? Because I have these folks coming into my office saying my wife has got diabetes, or we have 

these different problems, we need these prescription drugs, we used 

to get them under our health care plan, I worked 34 years for 

Deere, and now I can’t get them. 

Mr. JONES. It sounds like theft to me. 

Mr. MACEY. I guess I don’t know the specific situation, but there 

is a rule in ERISA that has been endorsed by the Supreme Court. 

That is, under the fiduciary provisions of ERISA, communications 

are considered, when you talk about the plan, they are considered 

in general terms to be a fiduciary function. And the Supreme Court 

says you can’t lie to your employees. So companies have been held 

liable at the Supreme Court level for making intentional 

misstatements and misleading representations to employees. And 

that is under current law. The biggest thing about this bill is all 

the employers that—forget—I mean, I know you can’t forget, I 

know individuals can’t forget, and I am empathetic with it, I think 

something needs to be done about it, I am certainly sympathetic to 

the Raytheon and General Motors and Deere retirees and employees, and I agree with the statements that these are the people that 

built the company. 

And one of the written statements mentioned that these are the 

people that made America great. And I agree with all of that. I 

think we all agree there is a real problem here. It is trying to—

we can bash a bunch of companies and say, you know—and regardless of what they said, there is a lot of good actors out there that 

were trying to do the right thing, that were providing retiree 

health benefits all these years and either ran into financial problems and they had to start charging some premiums. They didn’t 

go out and terminate their plans. 

They had to start charging some premiums or copayments or 

things like that. You know, if we are focused—not necessarily, I 

don’t know enough about these specific companies to know whether 

they are bad actors or not. But this bill here throws everybody into 

a single pot, says you are all bad actors, and regardless of whether 

or not you tried to live within the rules and you made some 

changes along the way, we are going to retroactively go back and 

change the deal that you might have made with your employees. 

Mr. HARE. My time is up, but let me just say, with all due respect, that is not what this bill does. What this bill does from my 

perspective, and I commend again the chairman, what this bill does 

53

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 Deere 

do well. They have had record profits. But when they take a form 

and hand it to their employees and tell them you are going to get 

this and you don’t get it, then somebody ought to be held accountable for it. 

And so I commend the chairman. So I couldn’t disagree with you 

more on what this bill does. I think it is a fair bill. And I think 

for companies that make the money, they ought to live up to the 

promises that they make. 

Mr. MACEY. Well, I am sympathetic with what you are saying, 

but the bill itself says——

Mr. TIERNEY. Mr. Macey, I am going to just answer you, you can 

talk about my bill all you want, but I would prefer that you get 

it right. 

Mr. MACEY. Well, Mr. Chairman, with all due respect, the bill 

says regardless of what the plan and communications said, they 

have to restore the benefits. That to me seems to say it doesn’t 

matter——

Mr. TIERNEY. It also indicates they have to be profitable, and 

there is a way for a waiver if they have any of the difficulties that 

you portend, let some of these people to do it. Ms. Woolsey. 

Ms. WOOLSEY. Thank you, Mr. Chairman. Actually, we do need 

to do something about it. And it is, I think, the unconscionable act 

here is this wealthy Nation does not provide health care coverage 

to our entire population. I mean, we have 47 million uninsured. Six 

million of those uninsured are children. And from your testimony, 

increasingly the uninsured are retired workers who have their entire life worked to ensure that they will have long-term health 

care—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 

old, and then bring everybody else in as soon as possible. I would 

do it all tomorrow if I had my way. Mr. Kadereit, I have a question 

for you and your organization. We were talking about what happens to a worker who is given the golden handcuff. I mean, we are 

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 they have been promised long 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 opportunities, what this has cost workers 

not only because they didn’t get their promised benefits in the end, 

but what they gave up waiting for those, to have those benefits? 

Mr. KADEREIT. Yes. I think there are numerous cases I could cite 

where that is the case. We are more concerned prospectively. We 

are more concerned that when you examine the history of this, 

there are three levels of what we would call take backs. One, there 

are the caps that were in place. You would think a cap would be 

a cap forever, but it is not. When prescription drugs, for example, 

are cancelled, the cap is reduced. Companies now say, oh, you don’t 

54

have as many benefits as you had before we took some away, so 

we are lowering that cap from 500 to 700 to $400. 

And so there is an erosion of the foundation that is occurring 

that is unconscionable. It is happening purposely. The second level 

is take backs. It is the actual take back of that prescription drug 

program, or in Lucent’s case, the Alcatel Lucent’s case, they literally cancelled all dependent coverage because they just didn’t pay 

dependent coverage, forcing every retiree out there over age 65—

and keep in mind when we talk about retirees, it is not the one 

that has left yesterday, it is the one that has been out there for 

20 years. And they left at $20,000 a year, which is worth about 

5,000 and you take——

Ms. WOOLSEY. Okay, I want to get to my question, so finish number three. 

Mr. KADEREIT. So number three is when they take all the benefits away, which is what GM is doing. 

Ms. WOOLSEY. Right. 

Mr. KADEREIT. When they invoke the EEOC rule, which is the 

end of the——

Ms. WOOLSEY. Okay. And it is very clear these VEBAs that are 

voluntary are useless if the promises are cancelled. 

Mr. KADEREIT. If there are no rules in place to limit the behavior, then you are not going to have any change. 

Ms. WOOLSEY. Okay. Mr. Lillie and Mr. Jones, Mr. Jones, you 

really answered my question about lost opportunity, but do you 

know of any way we can—I mean, that has to be used in the arguments against taking away benefits. Do they use this argument? I 

mean, look what each individual gave up for waiting for secure 

benefits. 

Mr. JONES. Well, I do not have a study to back this up, but I 

have to think that during a person’s working lifetime of 20, 30, or 

40 years, they have given up a certain percentage of their pay in 

order to fund the benefit plans that they have been promised. And 

whatever that——

Ms. WOOLSEY. That is one piece of it. The other thing is they 

may have been offered a job at another company where they would 

earn more money, but they wouldn’t have had those benefits, so 

they didn’t go. 

Mr. JONES. That is correct. 

Ms. WOOLSEY. Or they didn’t have the benefits anyway, because 

what they were staying in their original company for disappeared. 

Mr. JONES. Well, I don’t know how that would be able to be 

quantified, but I would think that it would be a substantial 

amount. We know that now when retirees now have to pay for 

their health care, we are talking even part of it, we are talking now 

20 or 30 percent of their income now is going to fund this in today’s 

market. So I can imagine over the lifetime of someone’s career like 

Mr. Lillie that he has given up a significant portion of his money 

and maybe opportunity to go someplace elsewhere he could have 

made more money. 

Mr. TIERNEY. Thank you, Ms. Woolsey. 

Mr. KADEREIT. I might add people with transferable skills are 

more likely to be affected by this. For example, a tool maker is in 

demand, is going to be able to go across the street. They are more 

55

likely to say I am not giving up the benefits package and start with 

a three-man company for higher wages. 

Ms. WOOLSEY. Right. So you miss the opportunity of a start-up. 

Mr. TIERNEY. Thank you, Ms. Woolsey. 

Ms. WOOLSEY. Thank you. 

Mr. TIERNEY. Mr. Courtney. 

Mr. COURTNEY. Thank you, Mr. Chairman, for holding this hearing. And would note coming from the State of Connecticut, Aetna 

retirees got a pretty bitter pill when they were told that their dental coverage was being cancelled. And obviously these are people 

who worked in the health industry. The ironies of it are almost too 

great to even get your mind around. But I just want to follow up, 

Congressman Woolsey, talked about the fact that this issue is sort 

of in the context of a health care system that is in great need of 

reform. 

We are about 40 days away from election. One of the candidates, 

Senator McCain, has a proposal to actually make employer-based 

health benefits taxable, coupled with tax credits to supposedly 

incentivize people into the individual market. And one of the things 

the American 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 our 

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 pre-65 retirees and the impact that it would 

have on people’s retirement benefits if, again, those benefits were 

made taxable? Mr. Jones, Mr. Kadereit, I don’t know if you had 

any comment in terms of that plan. 

Mr. JONES. Well, it certainly seems to me that we are heading 

in the wrong direction by taxing people’s health care. People are already struggling financially. And just add a tax on top of a problem 

that we already have seems to be the wrong approach. I would 

think that you would want to incent companies to continue providing the health care benefits rather than tax those meager benefits that are still in place. 

Mr. KADEREIT. You know, we prefer that companies be incented, 

if necessary, with a tax credit while we attack the cost, the health 

care cost problem. It is true that these plans exist, but like they 

say, the devil is in the details. And I don’t know the details of either of these plans. And when you begin to look at the details, then 

you can make a better assumption. But a major issue is something 

has to be done now, and that the retiree universe is not the society. 

Our retiree universe is unique in that this is going to happen to 

them. They are going to lose 10 to 12 percent in disposable income 

every year. And there is a study that Kaiser Foundation just released that shows in 2000—year 2000, the cost for a family health 

care plan was $6,400, in 2007, $12,100. 

If caps were in place in 2000, that person would be paying 47 

percent of the health care bill in 7 years. Translate that, it is 39 

percent erosion in disposable income. And that is the problem. We 

can’t wait until Congress decides to promulgate 3 years’ worth of 

discussions and end up with a bill that somehow attacks all of society. Something has to be done to fix the problem for retirees. It is 

56

a unique problem. It is not a societal problem, except as cost is involved. 

Mr. COURTNEY. Well, clearly, if the Congress were to adopt a 

plan that made employment-based benefits taxable, I think that, 

you know, certainly is an issue that people need to be aware of, as 

I said, as 40 days is approaching. 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 55- 

to 65-year-olds buy into the Medicare system. Again, I just wonder 

if you had any comment on that approach. 

Mr. KADEREIT. It is very important to us. As I mentioned in my 

talk, we are very supportive of Medicare access at cost even for 

people under 65. They are the people that hurt the most because 

they don’t have Medicare access yet. If you retire at age 55 and the 

company pulls the rug out from under you, you have nothing. You 

must foot the whole bill, $12,000 a year. That is, after tax money, 

$12,000 a year. And if you look at the average retiree out there 

who has been out there for any number of years, that is over 50 

percent of their income. It is disastrous. 

Mr. MACEY. Congressman, I think that we also feel that that is 

an appropriate vehicle to look at to provide care. 

Mr. COURTNEY. So you don’t support taxing employment-based 

benefits? 

Mr. MACEY. Well, I think the issue that they are trying to get 

at is tax equity. 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 on your 

own——

Mr. COURTNEY. It is that and decoupling health care from employment. That is the philosophical ideological thrust to this plan. 

Mr. MACEY. 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. 

Okay? 

Mr. STEIN. Can I just——

Mr. COURTNEY. Quickly, briefly. 

Mr. STEIN. I served on the ERISA Advisory Council at the Department of Labor for 3 years. I was in the last kind of class appointed by President Clinton’s Secretary of Labor. And that group 

is bipartisan. And there can’t be more than 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. All right. 

It would be a lot easier for General Motors to keep retiree health 

care if they knew they weren’t going to be responsible for catastrophic expenses, which tend to be a problem for older people. And 

about 7 or 8 months ago, former Secretary O’Neill, former Secretary of the Treasury wrote an op-ed, I think it was in The New 

York Times which made the same proposal. And I think that is 

something that is worth very serious consideration. It doesn’t solve 

any issue completely, but it makes dealing with almost every issue 

in the health care area a lot easier. 

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Mr. COURTNEY. Thank you. 

Mr. TIERNEY. Thank you, Mr. Courtney. Mr. Kline, you have 

been very patient. Would you care to ask any further questions? 

Mr. KLINE. No, Mr. Chairman, just a closing comment when it 

is time. 

Mr. TIERNEY. Thank you. Okay. Without objection, then I would 

like to ask just a couple questions and go on from that. On the 

FASB rule change, Mr. Yamamoto, it seems to me that before the 

FASB rule changes people were providing the health care to retirees, and when they retired they weren’t changing it necessarily 

afterwards. 

Then the series of rules and regulations changed, and they had 

to record it on their books, and all of a sudden they decided they 

weren’t going to maintain it. Nothing really changed except the 

rule and the fact they had to be more transparent about what their 

financial is, so I guess it affected stock price, essentially. So they 

decided to take that out. Instead of on dividends being reduced or 

on executive salaries, they decided to take it out on retirees. You 

want to correct me on that? 

Mr. YAMAMOTO. I guess I am not sure if it is necessarily taken 

out of retirees. I had actually consulted and worked on similar 

types of calculations probably 10 years before the FASB adopted 

the rules. And for a lot of them it is more awareness, if anything, 

of the commitments or kind of the design that was put together. 

And it makes them think a little bit more about the promises being 

made. 

Mr. TIERNEY. Well, your record is a lot of people thought about 

it and decided to make a change, but they grandfathered in existing retirees. 

Mr. YAMAMOTO. I am sorry? 

Mr. TIERNEY. Your records indicated that a lot of people thought 

about this, they made changes, but they grandfathered in existing 

retirees. 

Mr. YAMAMOTO. Right. 

Mr. TIERNEY. So that brings me to the thought that the right 

thing can be done. It is just that some profitable companies 

thought about it and said to heck with them and went ahead and 

did what the majority—the majority of companies did grandfather, 

and some decided that they were just going to be a bit more profitable for themselves and their shareholders and other stakeholders 

at the expense of the retirees. And I think that is what this bill 

gets at. We are not talking about troubled companies financially. 

We are not talking about not being able to get a waiver if you have 

some situation that comes up or whatever. 

We are talking about some public policy that when people retire 

with the reasonable expectation that they have got certain coverage, that not change on them afterwards. I think it is good public 

policy on that so that we know that people are covered on that 

basis or whatever. 

So that is the final point I will make on this. As a matter of public policy, I think this bill or something like it would be appropriate. I would hope my colleagues are willing to work with me on 

that. I do not think it will have the effect that Mr. Macey portends, 

that all hell is going to break loose and everybody is going to stop 

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covering everybody. I think it can be done and people can make a 

reasonable expectation of what their responsibility is going to be, 

make that transparently known to people, and at least do that. 

I would be very curious at some point, Mr. Macey, to hear—and 

I don’t expect it here—but to hear what ERIC has to offer for these 

people. What would they do for the GM representative who had a 

direct representation that they were going to get this? What would 

it do for the person that has BellTel? What would it do for the 

other people around here? Nobody is arguing with you that the 

plan might have said what the plan said, which gave them the 

weasel language, whatever Professor Stein said, but what do you 

think about the people who were told something else and reasonably relied upon it, but these courts decided they are just not going 

to go there. 

I would like to have the discussion with you some time. I don’t 

think we have time for it here today. But I have not heard ERIC 

come up with a solution and say what they are going to do for 

those people. I have heard about, oh, we have got to do something 

about health care writ large, and yeah, we all recognize there is a 

problem, but we would accept, and the record is going to be kept 

open for 5 days, if ERIC wants to submit some concrete suggestions 

of what would you do for those very people that we heard the testimony about today. 

Mr. MACEY. We would love to have that dialogue. 

Mr. TIERNEY. I will leave the record open for you. 

Mr. MACEY. Please don’t take my criticism of the bill as any indication of how we feel about your ultimate objectives of making sure 

people are covered by good care. 

Mr. TIERNEY. No, I understand that. Thank you. Mr. Kline. 

Mr. KLINE. 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, that there is a problem in health care in general in 

this country. And we are probably going to see a paradigm shift in 

how we do this. It is very important that we work together as we 

go forward. And clearly there are 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 interests today. I regret that we got 

a little partisan in here today. We try very hard not to do that. I 

appreciate 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 are 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 2 

and 3 and 5 and 10 and 100 around these buildings trying to grapple with that very difficult situation. So thank you very much, Mr. 

Chairman. Thank you, witnesses. 

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Mr. TIERNEY. Thank you, Mr. Kline. Thank our colleagues and 

witnesses. As previously ordered, members have 10 days to submit 

additional materials for the hearing record. Any member who wishes to submit follow-up questions to the witnesses should coordinate 

that with the majority staff within 10 days, 10 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 and insight into this hearing today. And I 

just want you to know how much we really do appreciate it, and 

wish you all well. Thank you, and the meeting is adjourned. 

[Additional submissions of Mr. Tierney follow:]

Silvis, IL, September 28, 2008. 

Hon. JOHN TIERNEY, Rayburn House Office Bldg., Washington, DC.

DEAR CONGRESSMAN TIERNEY: Due to short notice of the hearing, I was unable 

to attend in person. I understand that the period for submission for the record has 

also been shortened to five days after the hearing. Consequently, I am resorting to 

the FAX machine. 

The FRO organization supports HR 1322 sponsored by you. We worked extensively with Tim Casey in lining up Congressmen Boswell, Loebsack, and Braley to 

be co-sponsors. We also made many contacts with others in an attempt to rally additional support for your bill. 

Our short statement is self-explanatory and we ask you to encourage Chairman 

Miller to include it in the record of the above-mentioned hearing. A signed hard 

copy will follow. 

Sincerely yours, 

WILLIAM GABBARD, President, 

Flex Retirees Organization (FRO). 

Statement of William Gabbard, the Flex Retirees Organization (FRO) 

On January 1, 2008, Deere & Co. (John Deere) made major changes in health benefits for 5000 salaried non-union retirees, plus their spouses, who retired after 1993. 

(These numbers will increase as current employees work their way into retirement.) 

These changes were not mere ‘‘modifications’’ to employ the term Deere & Co. used 

in meetings with retirees. Certain benefits have been eliminated. Out of pocket 

maximums have been significantly increased. Other benefits have been cut and/or 

drastically restructured. This was done in spite of a promise made in the summary 

plan description (required by ERISA) that retirees would receive benefits ‘‘comparable to those they had when working.’’ This promise was also made to many prospective retirees in letters and other communications. In reliance thereon, the employees entered into retirement believing that Deere & Co. would honor that pledge. 

How mistaken they were! 

As a result of Deere & Co.’s betrayal, the Flex Retiree Organization (FRO) was 

formed and incorporated under the laws of Iowa. A Board of Directors was chosen 

and officers elected. Membership meetings were held in all communities where 

Deere & Co. has a concentration of retirees and other meetings are planned for the 

future. FRO has worked with Congressmen from the area. Iowa Congressmen 

Loebsack, Braley, Boswell, and Illinois Congressman Hare have signed on as cosponsors of HR 1322. In short order members of FRO contributed to a legal defense 

fund, a law firm was retained, and a lawsuit was recently filed. 

Perversely, Deere & Co. attacked the health benefits at a time when Deere & 

Co.’s profits and executive compensation were at all-time highs. For example, the 

Wall Street Journal reported that CEO Robert Lane’s total compensation for 2007 

was $52.4 million. Deere & Co. selected these retirees, not because the company 

could not afford to keep its promises, but simply because they were vulnerable without the protection of a union contract. Deere & Co. will not share any information 

about its plans for the future. Our biggest fear is that over time the entire cost of 

retiree health benefits will be shifted to these retirees on fixed incomes. These savings will then drop to the bottom line and become available for even higher profitability and higher executive compensation. 

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[Questions and their respective responses from Mr. Macey follow:]

U.S. CONGRESS, 

Washington, DC, September 26, 2008. 

SCOTT E. MACEY, Senior Vice President and Director of Government Affairs, 

Aon Consulting, Inc., Davidson Avenue, Somerset, NJ. 

DEAR MR. MACEY: Thank you for testifying at the Thursday, September 25, 2008, 

Committee on Education and Labor Hearing on Safeguarding Retiree Health Benefits. 

Committee Members had additional questions for which they would like written 

responses from you for the hearing record. 

Congressman Tierney asks the following question: 

1. What ideas does ERIC (ERISA Industry Committee) have to offer for people 

who lose their retiree health benefits when they are promised them? 

Congressman Andrews asks the following question: 

1. In what court cases were the employers’ statement on retiree benefits ambiguous and then the court decided in favor of the employer? 

Please send your written response to the Committee on Education and Labor staff 

by COB on Monday, October 13, 2008—the date on which the hearing record will 

close. If you have any questions, please contact us at 202-225-3725. Once again, we 

greatly appreciate your testimony at this hearing. 

Sincerely, 

GEORGE MILLER, 

Chairman. 

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[Additional submissions of Mr. Kline follow:] 

[Statement of James A. Klein follow:]

October 2, 2008. 

DEAR CHAIRMAN MILLER AND RANKING MEMBER MCKEON: I am writing on behalf 

of the member companies of the American Benefits Council (the ‘‘Council’’) to correct 

a statement made by a member of the Committee concerning the Council’s position 

on health care reform and to share our views with you on the Emergency Retiree 

Health Benefits Protection Act of 2007 (H.R. 1322). I respectfully request that this 

letter be included as part of the Committee’s record for the September 25, 2008 

hearing on H.R. 1322. 

The Council’s approximately 275 members are primarily major U.S. employers 

that provide employee benefits to active and retired workers, and do business in 

most, if not all, states. The Council’s membership also includes organizations that 

provide services to employers of all sizes regarding their employee benefit programs. 


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Collectively, the Council’s members either sponsor directly or provide services to retirement and health plans that cover more than 100 million Americans. 

Correction of the Council’s Position on Presidential Candidates’ Health Reform Proposals 

During the September 25 hearing on retiree health care coverage, Representative 

Joseph Courtney (D-CT) incorrectly implied that the American Benefits Council had 

evaluated the health reform proposals of the two Presidential candidates and favors 

Senator Obama’s approach because Senator McCain’s approach would be disruptive 

to the employer-based health care system. 

We wish to correct the record on this point because, in fact, the Council has not 

endorsed the overall reform proposals of either candidate. There are elements of 

each candidate’s proposals that we support and aspects of each proposal that we oppose. We assume that Rep. Courtney’s reference to the Council’s position was based 

on an incorrect media account of the results of a survey we recently conducted. 

The Council recently released a survey of our members’ and other corporate executives’ views on health care policy that we conducted in partnership with Miller 

and Chevalier, Chartered. By wide margins—and regardless of their personal political affiliation—the responses to the survey indicate that corporate benefits professionals have serious concerns with aspects of both Presidential candidates’ proposals. Respondents noted that Senator McCain’s proposal to repeal the tax exemption for employer-sponsored health coverage and Senator Obama’s proposal to compel employers to ‘‘pay or play’’ would both have a negative impact on American 

workers. 

The Council looks forward to working with the next President, as well as both 

Republicans and Democrats in Congress, to craft health reform proposals consistent 

with the Council’s views. These include, among many other features, retention of 

the federal framework for employer-sponsored health coverage as well as a much 

stronger emphasis on strategies to contain costs and promote better quality health 

care in conjunction with addressing gaps in health care coverage. 

Concerns Regarding H.R. 1322

The Council and its members feel strongly about the importance of health care 

coverage for this nation’s retirees. Older Americans need health care coverage to ensure that they can retire with dignity and security. 

H.R. 1322 would create a new guaranteed benefit that, in many instances, was 

never promised by the employer and that would have a retroactive effect. Additionally, the bill would punish employers who had continued to provide retiree health 

benefits when other employers had either terminated such programs or never offered such benefits. 

In short H.R. 1322 would have unintended negative consequences. A better solution lies in a broader approach that addresses the causes of the retiree health care 

problem. Further, we must reform the health care system so that employers can afford to provide retiree health coverage. This means: 

• Curbing the increase in health care costs and increasing the quality of care, 

• Providing efficient funding mechanisms to pay for retiree health care (such as 

permitting retirement plan assets to be used on a pre-tax basis for retiree health 

coverage) and 

• Allowing all retirees to have a deduction for the cost of health coverage when 

they have no access to an employer plan. 

In addition, the Department of Labor could create a model notice stating clearly 

that employers may retain the right to change or terminate retiree health care benefits. Such notice could provide clarity with respect to the rights of employers and 

retirees, and could thereby serve to improve the ability of all parties to plan for the 

future. 

Thank you for your consideration of our views. 

Sincerely, 

JAMES A. KLEIN. 

American Benefits Council. 

[Statement of the U.S. Chamber of Commerce follows:]

Prepared Statement of the U.S. Chamber of Commerce 

Chairman Miller, Ranking Member McKeon, and Members of the Committee, the 

U.S. Chamber of Commerce thanks you for holding this hearing on retiree health 

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care and for providing us the opportunity to comment on this important issue. We 

ask that this statement be included in the record of the hearing. 

The Chamber is the world’s largest business federation, representing more than 

three million businesses and organizations of every size, sector, and region. More 

than 96 percent of the Chamber’s members are small businesses with 100 or fewer 

employees, 70 percent of which have 10 or fewer employees. Yet, virtually all of the 

nation’s largest companies are also active members. We are particularly cognizant 

of the problems of smaller businesses, as well as issues facing the business community at large. Besides representing a cross-section of the American business community in terms of number of employees, the Chamber represents a wide management 

spectrum by type of business and location. Each major classification of American 

business—manufacturing, retailing, services, construction, wholesaling, and finance—is represented. Also, the Chamber has substantial membership in all 50 

states. Positions on national issues are developed by a cross-section of Chamber 

members serving on committees, subcommittees, and task forces. More than 1,000 

business people participate in this process. 

Introduction 

The Chamber shares this Committee’s interest in ensuring that seniors have access to quality medical coverage and continues to work on proposals and ideas with 

this goal in mind. However, we urge Congress to reject proposals that will lead to 

increased costs and fewer benefits. Mandating retiree health benefits or prohibiting 

employers from making changes to future benefits will only discourage new employers from offering benefits and could lead to financial catastrophe for employers that 

currently offer these benefits. As such, we offer the following the guidelines. 

Proposals on Retiree Health Care Benefits Should Maintain the ERISA Framework. The employer-provided pension system is a critical piece of retirement security for many Americans. The Chamber believes that the key element to the private 

retirement system is the voluntary nature of the system. For employers that choose 

to implement retirement programs, flexibility and choice are key considerations. 

Consequently, it is increasingly important to ensure that there are no statutory, 

practical, or political barriers to innovation that would discourage participation in 

the private retirement system. 

Employers voluntarily offer health benefits to both current employees and retirees 

in response to their workforce needs. Current law prohibits employers from reducing 

or terminating promised benefits unless: (a) an employer expressly reserves that 

right in a plan document and (b) the employer fully discloses—in accordance with 

the requirements of ERISA—its right to reduce or terminate retiree health coverage. 

Without this provision to account for exigencies, employers will have to weigh the 

benefit of providing retiree health benefits at all against the potential liability of 

offering a benefit plan that could result in the loss of thousands of American jobs. 

Employers Need Flexibility in the Provision of Benefits. It is extremely difficult 

to predict future costs for health care benefits. Given the advances in medical technology, medical cost trends and patient demand, it is almost impossible to forecast 

health care expenses over the long-term. Therefore, employers require the flexibility 

in place today to respond to increasing costs and changing demands within their 

workforce in order to continue offering retiree health benefits. 

Congress Should Focus on Encouraging Employers to Participate in the Health 

System. We believe that there are other ways to reach our common goals that will 

not impact the health care benefits that workers receive today. Instead, Congress 

should focus its attention on addressing the underlying cost drivers within our 

health system by promoting health information technology, wellness and prevention, 

coordination of care, and value-based purchasing. 

In addition, Congress should provide opportunities for employers to offer retiree 

health benefits without imposing an untenable burden. As such, the Chamber applauds the introduction of H.R. 6288, the Retiree Health Accounts Act by Representative McHugh. H.R. 6288 creates new tax-free savings accounts that can help workers afford retiree health care. The bill also creates a refundable tax credit for individuals who contribute to their RHAs, thereby, incentivizing responsible saving for 

health care expenses. Chamber members are excited about this concept and look forward to working with Representative McHugh to further develop this proposal. 

The Chamber Opposes H.R. 1322 and Similar Proposals. H.R. 1322, the Emergency Retiree Health Benefits Protection Act of 2007, would prohibit changes, reductions, or terminations of retiree health plans once employees have retired. This intrusion upon the right of employers and employees to freely associate and make contracts would also force employers to retroactively rollback past changes in retiree 

health plans. In addition, the retroactive provisions within H.R. 1322 will increase 

the strain on employer-sponsored health plans that are already combating skyVerDate 0ct 09 2002 15:22 Jan 10, 2009 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\FC\110-112\44563.TXT HBUD PsN: DICK
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rocketing increases in costs. If plans that had to limit retiree coverage due to economic pressure were subsequently compelled to reassume that liability, the cost of 

that new unanticipated liability would be borne by employees in the form of additional cost sharing and reduced benefits, and, potentially, unemployment. 

In either case, whether prospective or retroactive, H.R. 1322 would significantly 

increase both the cost and risk to the employer of voluntarily providing retiree 

health plans at all and would be a major incentive to discontinue benefits for new 

employees or for new businesses to not offer benefits at all. These costs and risks 

will have to be paid for by reduced benefits, wages, or jobs. 

Conclusion 

As we look at health care reform in the upcoming year, health care options for 

retirees will require careful consideration. We hope that Congress will take this opportunity to provide encouragement to employers currently providing health care 

benefits and provide rules that will incentivize these employers and not punish 

them. Thank you for your consideration and we look forward to further discussions 

with you. 

[The statement of Mr. Altmire follows:]

Prepared Statement of Hon. Jason Altmire, a Representative in Congress 

From the State of Pennsylvania 

Thank you, Chairman Tierney, for holding this important hearing on safeguarding 

retiree health benefits. 

More and more companies are looking to cut expenses by rolling back or eliminating retiree health benefits that they promised to their employees. The Kaiser 

Family Foundation estimated that between 1988 and 2005, the number of large 

firms offering retiree health coverage was cut in half, from 66 percent to 33 percent. 

For years, millions of workers believed that if they worked hard they would be 

taken care of during their retirement through the benefits that were promised to 

them by their employers. 

Now, many of these retirees are forced to find another way to obtain and pay for 

health coverage because their employer made a decision to renege on their promise 

as a cost saving measure. Today we will discuss how this happened and what can 

be done to prevent this from happening in the future. 

Thank you again, Mr. Chairman, for holding this hearing. I yield back the balance 

of my time. 

[The statement of Ms. Shea-Porter follows:]

Prepared Statement of Hon. Carol Shea-Porter, a Representative in 

Congress From the State of New Hampshire 

I thank Chairman Miller for this hearing today, and I thank Congressman 

Tierney for his leadership on this issue. 

We have all read the news reports of companies making cuts to their retiree benefits. Skyrocketing health care costs and shrinking profit margins leave these companies looking for places to trim costs. Sadly, these costs savings are all too often 

being found by cutting back, or eliminating altogether, retiree health benefits. I 

have heard from a number of my constituents who are not only concerned about this 

growing trend, but they are rightfully outraged. 

This not only highlights the need for real and significant reform to the way health 

care is provided in our country, but it shines a spotlight on the increasing financial 

burden being faced by working and middle-class families. The burden of increasing 

health care, food, and fuel costs is only intensified for those among us living on a 

fixed income—many of whom are retirees who are also counting on the benefit plans 

promised to them by their employers in exchange for their years of hard work. 

These retirees held up their end of the agreement, it is outrageous to expect any 

less of the companies that they devoted themselves to for so many years. 

I look forward to examining this issue further during this hearing today and it 

is my hope that we can work together to protect the benefits of retirees so that they 

can be confident that they will receive the benefits that were promised them in exchange for their hard work. 

[Whereupon, at 12:06 p.m., the committee was adjourned.]

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