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Retirees Scramble as Auto Parts Firm Aims to Cease Health Benefits

March 9, 2009
Related Topics: Retirement/Pensions, Benefit Design and Communication, Latest News
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Retirees of auto parts maker Delphi have frantically organized themselves in recent weeks to fight their former employer’s attempts to terminate their health care coverage by working to form a health care trust similar to one created for their unionized colleagues.

Last month, Delphi received qualified permission from a bankruptcy judge to terminate health care benefits for its 15,000 salaried retirees. The judge said cutting those costs was necessary to help the company emerge from bankruptcy. Delphi, which filed for Chapter 11 bankruptcy in October 2005, argued that ending retiree health care would save the company $70 million annually and removes $1.1 billion from its balance sheet.

But retirees are appealing that ruling, saying the company promised them in writing that they would receive health care in retirement. Delphi is also seeking to end its life insurance benefits. The judge is expected to rule Wednesday, March 11.

“It’s definitely harder to be protected unless you have a collective bargaining agreement and a union to protect you and language that protects your benefits,” said Stuart Wohl, retiree health practice leader for Segal & Co.

Paul Higgins, who worked as an international service manager for Delphi Thermal in Lockport, New York, for more than 44 years, said the company has not responded to the retirees’ request to fund a health care trust known as a voluntary employee beneficiary association.

Delphi would not comment pending the legal outcome, a spokesman said.

Unionized workers at Detroit’s Big Three automakers and Delphi have created a similar health care trust. While it remains to be seen whether the struggling automakers will be able to fully fund the VEBAs, the trusts already have enough money to provide benefits in the near term. At the end of 2008, the VEBA for General Motors workers had more than $10 billion in it, according to GM’s annual report.

Delphi retirees said they feel betrayed.

“The salaried workers don’t have a union, so Delphi doesn’t have to go through negotiations,” said Higgins, 67. “It’s easy picking, the lowest fruit on the tree.”

It is not unusual for salaried workers to establish VEBAs during bankruptcy if they have something they can use to bargain, like walking off the job, VEBA experts say. That is something workers are unlikely to do in this economic climate.

“Who’s going to walk off a job and not get paid in these economic times?” Higgins said.

Employers are moving to end or limit retiree health care. This year, 58 percent of employers offered retiree health care, compared with 59 percent a year earlier, according to Hewitt Associates.

Last summer, GM announced it would no longer provide health care benefits to white-collar retirees 65 or older, instead providing a slight increase in pension payments to help cover the cost of supplemental Medicare plans. Ford has made its white-collar retirees pay more for medical benefits. Chrysler eliminated medical benefits for its retired salaried workers in 2006.

Milton Beach, 55, would have preferred to keep working, but he said he took a forced retirement in January during a round of layoffs. After representing Delphi as a public relations manager for 34 years, he finds himself fighting for what he feels was promised to him.

“I think my feelings are typical,” he said. “You feel betrayed.”

—Jeremy Smerd

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