Benefits January 2, 2008

Phone Co. Retirees Take Benefit Cutback Fight to Court

January 2, 2008 (PLANSPONSOR.com) - A group of former telephone company employees has taken its battle against retiree benefit cutbacks into federal court, alleging landline company Embarq Corp. and its former wireless company owner Sprint Nextel Corp. promised the benefits were permanent.
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The group of 10 plaintiffs, including eight from North Carolina and two from Florida, charged in its lawsuit that Embarq violated the Employee Retirement Income Security Act (ERISA) when it announced the cutbacks or elimination in mid-2007 that were effective Tuesday.

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The complaint, which seeks class-action certification, asks for an order restoring the reduced or eliminated benefits. The suit, filed by Philadelphia attorney Alan M. Sandals, claims the proposed class would include almost 13,000 members.

Embarq announced on July 26 it would drop medical coverage and Medicare premium subsidies for Medicare-eligible retirees and dependents, effective January 1, 2008 and would cap life insurance benefits through company-sponsored plans for qualified retirees to $10,000, also effective January 1. The company eliminated life insurance coverage for retirees receiving benefits through a subsidiary company plan, effective September 1, 2007, and dropped a $500 annual cash subsidy that helped pay for medications.


All in all, Embarq said in the announcement, it expected the changes would reduce post-retirement benefit expenses by $20 million for the rest of the year and save the company $30 million a year beginning in 2008.

Making Life Decisions

The lawsuit alleges that the company’s benefit cutbacks have put the plaintiffs in an impossible situation since the workers said they relied on representations they would have the benefits for the remainder of their lives.


“Plaintiffs and the members of the Class reasonably relied on Defendants’ representations and omissions of material information to the effect that they would have a right to receive throughout retirement and for their lifetimes company-paid and subsidized medical, prescription drug and life insurance benefits in making important personal decisions relating to their retirement, their own and their spouses’ post-retirement employment, their investments, their purchase of personal and real property, their purchase of life and health insurance, and in making other decisions pertinent to household budgeting and finances,” the lawsuit charged.


The workers complained they had factored in the benefits when agreeing to accept what they said was a lower compensation during their careers.“Throughout their careers, Plaintiffs and the members of the Class accepted lower levels of current compensation secure in their understanding that their work was earning them a valuable program of retiree benefits that would make their post-retirement years financially secure,” the suit asserted.

The plaintiffs also alleged that the companies used the cost of the benefits to help get rate approvals from public utility commissions in the states in which they operated.

According to the lawsuit, four of the named plaintiffs have also filed age discrimination allegations against Embarq with the Equal Employment Opportunity Commission (EEOC). If they get the green light to sue from the EEOC, they will add the age discrimination claims to the new lawsuit.

The plaintiffs retired from local telephone companies that were subsidiaries of then-Sprint Corp. Sprint spun off its local division to Embarq last year following its acquisition of Nextel Communications Inc.

The complaint is here .

Benefits January 1, 2008

DBSummit07: Public Plan Myths

A belief that public sector workers are firmly ensconced atop the three-legged stool of retirement financing and their benefits are being increasingly funded by private sector taxpayers largely not covered by defined benefit pension plans has created "pension envy."
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align=”center”> Audio Recordings of the 2007 DB Summit Are Available Here

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Thomas R. Lussier, President, LGVA, debunked some of the common myths held by the private sector about public sector retirement benefits. He pointed out that public sector workers have contributed generously to their own defined benefit plan systems, and have often accepted lower benefit payouts than many private sector employees covered by DB plans. Moreover, he noted that public sector plans are increasingly funded by investment earnings, not taxpayer dollars, that and many public employees do not get social security benefits when they retire.

Lussier noted that the private sector should consider more than the economic effects and realize their tax dollars help ensure good public service.

On the other hand, Lussier said it would be self-defeating for the public sector to be defensive about the “pension envy” by private sectors workers and it should encourage the same benefits for the private sector. One solution that would be beneficial to public plans as well, is a system where small businesses and the self-employed could “buy in” to public programs, he offered.

“Crushing” Regulations

Beth Almeida, Executive Director, National Institute, Retirement Securities, agreed that regulations on private sector defined benefit (DB) plans are crushing the pension system when there needs to be a move toward DB instead. She said that regulators should come up with new ideas to leverage public offerings to the private sector. Another idea she offered is to take a fresh look at the setup of multiemployer plans and determine how to make such a system work for separate employers within the same industry, such as airlines.

Solutions to make DB plans more portable for workers would also encourage more DB’s in the private sector, Almeida added.

“Envy” Oust?

Almeida said she believes, in spite of the “pension envy,” private sector workers are smart enough to know that taking away public sector DB plans is not the answer – it will not make things better for them and they know good public sector benefits lead to good public service. Paul Cleary, Executive Director, Oregon Public Employees Retirement System (OPERS), added that the reaction by taxpayers to the ups and downs of OPERS funding and benefits situations provided an example that the private sector just wants reasonable benefits from public plans that are enough to ensure good service. Public plans need to realize their inefficiencies and correct them, he said.

James J. Barrett, Sr. Managing Director, Global Head of Business Development, Bear Stearns, said the way to do that is to design public DBs so that workers cannot get more income in retirement than they received while working and so that benefits increase uniformly. Barrett added that public plans should practice full disclosure and incorporate a shared burden for funding.

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