Here’s a bad day for an American company: AARP singles it out. This time, the attention comes in the form of an AARP-instigated lawsuit. There are depositions, oral arguments and, potentially, a multimillion-dollar price tag for tampering with the 50-plus workforce’s retirement benefits.
Once, AARP mostly flew below corporate radar. That’s when it was the American Association for Retired Persons, and so, by definition, it had nothing to do with anyone’s employees.
Now, however, AARP has banished "retired" from its name, going simply by its former acronym. It is perhaps best known as the political behemoth that stopped private Social Security accounts cold. And it has increasing clout on workplace issues. The senior lobby has been a driving force behind lawsuits brought by older employees who allege that they suffered financial losses when companies converted from traditional defined-benefit pension systems to cash-balance plans. It also is in court fighting to equalize pre-65 and post-65 retiree health benefits.
AARP chief executive William Novelli won’t cast his organization as business’ best buddy, or its worst enemy. Its loyalty is to its 36 million members, and its commitment is to ensuring that their current, former or would-be employers treat them right.
"We think of ourselves as a catalyst," he says. "The social contract between employer and employee is changing. With that come two messages. One is, be fair. The second message is for boomers: Save your money."
When fairness means that AARP will give companies a hand in employing older workers, the message is easy to swallow. Today’s staffing challenges mean that businesses of all kinds increasingly turn to experienced employees with strong work ethics. And so companies clamor to partner with AARP on efforts to encourage workers older than 50 to keep working.
When the "be fair" message is delivered via legal action, it’s a different story. Lawsuits pose the danger of making retirement programs profoundly more expensive. In 2005, IBM settled a cash-balance case by agreeing to pay $300 million to the class-action plaintiffs. Its liability may rise to $1.4 billion if it loses an appeal on another part of the suit.
If AARP prevails in its drive against cash-balance conversions, it will deny companies the flexibility to change benefit systems to cope with global competition and workforce demands, observers say.
"You’re not allowing companies to design programs that would best fit their needs and the needs of their workers," says Lawrence Sher, director of retirement policy at Buck Consultants in New York. "It would straitjacket employers and force them into a corner. What’s at jeopardy is jobs and company survival."
AARP’s ultimate goal, says Lynn Dudley, vice president of the American Benefits Council, which represents about 250 large companies, is to inculcate an entitlement mentality in which people demand all the benefits they are expecting from age 50 until retirement, even if they haven’t earned them yet.
"AARP’s interest is in vesting the expectations of the older worker," she says. "If you go down the road of vesting people’s expectations, it’s hard to know where to stop."
"The social contract between employer and employee is changing. With that come two messages. One is, be fair. The second message is for boomers: Save your money."
--William Novelli, chief executive, AARP
David Certner, director of federal affairs for AARP, says that the organization is standing up for older workers who have based career decisions on companies’ benefit promises. "We’re trying to meet people’s reasonable expectations," he says.
AARP has the power to meet those expectations by influencing both social policy and U.S. business performance through its huge constituency of baby boomers. Not only are they the people most likely to vote, but employers must persuade them to remain in the workforce as the U.S. population ages and the labor market tightens.
Although it is an ally of companies that are trying to fill jobs with older workers, AARP also hews to its traditional role of protecting every penny of senior benefits. That means it pushes back when President Bush advocates investing some Social Security funds in the stock market. In the private sector, AARP takes companies to court when it perceives that they’re not living up to promises made to employees decades ago.
In a Pennsylvania age discrimination case, AARP itself is the plaintiff, arguing that employers must provide the same level of health coverage for retirees over the age of 65 as they do for those who are younger than 65. Businesses offer more generous retirement packages to pre-65 retirees because the smaller post-65 benefit is wrapped around Medicare. AARP asserts that the practice amounts to age discrimination.
In September, U.S. District Judge Anita Brody reversed an earlier decision and found that the Equal Employment Opportunity Commission can authorize employers to give differing benefits to retirees without violating the Age Discrimination in Employment Act. The ruling, based on a recent Supreme Court case, is likely to be appealed by AARP.
Employer groups warn that companies will resist a mandate to take on increased health care costs and will drop retiree benefits altogether, hurting AARP’s constituency. The pro-business Employment Policy Foundation estimates that employers would have to pay $1,500 more per Medicare-eligible retiree if AARP wins.
"AARP’s position is simply incoherent," says Mark Ugoretz, president of the ERISA Industry Committee, which represents large companies. "AARP members should question why AARP is taking this position against their interests."
The feeling is consistent across the business community. "It’s not a realistic position in the real world of increasing health care costs," says Robert Costagliola, former labor and employment counsel at the National Chamber Litigation Center.
AARP maintains that the Pennsylvania court has misinterpreted the Supreme Court ruling and that the EEOC has overstepped its bounds. "We don’t believe you can have different benefits for retirees over and under 65," Novelli says.
When a fix for the retiree health care benefit was put into Medicare reform legislation in 2003, AARP objected, and it was removed. The lobby’s support for the bill was crucial. "I don’t think the prescription drug benefit would have gone through without AARP, " says Jane Marie Mulvey, director of economic studies at the American College of Pathologists.
AARP, whose $878 million annual revenue includes $350 million from royalties like those it will receive by offering its own Medicare drug plan, knows how to flex its muscles.
It has persuaded a number of members of Congress to question cash-balance conversions. "Some of these conversions harm people," Novelli says. About 1,500 companies sponsor cash-balance plans, covering 8.5 million workers.
As the IBM case has demonstrated, cash-balance lawsuits can be expensive. If firms are required to pay older workers the equivalent of what younger workers will make over the life of the plans, the bill could add up to billions.
"We had historically interfaced with business through litigation," says Deborah Russell, director of economic security and outreach for AARP.
When it comes to workforce participation issues, however, AARP seeks to be a partner.
--Deborah Russell, AARP
But Certner argues that companies "did know that there were questions and legal issues surrounding these plans." A recent study by the Government Accountability Office concluded that most workers, regardless of age, would receive greater benefits under a traditional defined-benefit plan than under a cash-balance plan. Workers at 50 who are hurt in a conversion lose about $238 per month, according to the GAO. An AARP survey indicates that companies offered protection to older workers in 23 of the 25 largest cash-balance conversions.
The cash-balance fight aside, AARP goes beyond confrontation in its relationship with corporate America. The scowls that executives see when the organization pursues benefits lawsuits are replaced by welcoming smiles when AARP reaches out to help companies recruit workers older than 50, a demographic they must tap as the population ages.
"We had historically interfaced with business through litigation," says Deborah Russell, director of economic security and outreach for AARP. When it comes to workforce participation issues, however, AARP seeks to be a partner.
Five years ago, Russell implemented a program that annually recognizes the best places to work for people over 50. In 2004, AARP instituted its Featured Employers Program. Both efforts are designed to connect older workers with companies.
"We’re not mandating work," Russell says. "Our goal is to provide opportunities for our members to work as long as they want to work."
AARP highlights links to featured employers on its Web site. In November, the organization recognized 2005 winners at a Washington event. New York Life Insurance Co., one of the honorees, depends on older employees to help develop products that appeal to their peers.
"Through the Web site in particular, we’re going to generate a lot of leads for employment candidates," says New York Life president Fred Sievert. "This relationship, and being a featured employer, is very important to us. It’s going to help strengthen our brand."
AARP seeks companies where the older-worker message courses through every vein of the organization. Home Depot is an example.
"It was a commitment from Bob Nardelli, CEO of the Home Depot, all the way down to that manager of the Hoboken Home Depot who was going to be accepting applications," Russell says.
In addition to being named a featured employer, Home Depot has entered into a partnership with AARP that gives the organization a branded presence in the stores and enables its members to receive a 4 percent discount on online purchases of gift cards.
AARP also boosted recruiting efforts for Adecco, an international placement firm in Melville, New York. The company received more than 10,000 hits on its Web site as a result of being named an AARP featured employer.
"There are a lot of myths about older workers that AARP has been successful in busting," says Victoria Mitchell, who formerly headed corporate relations at Adecco. Among those misperceptions is that they are loath to learn new technologies and are less productive.
The goal for AARP is to keep people like Bill Corporan on the job. A former senior writer at Exxon Mobil, he is now a cashier at Borders. "The single most important thing is the interaction with the public," he says.
Developing relationships with customers is also what inspires Dale Vernon, 65, a manager for CVS/pharmacy in a Cleveland neighborhood called Slavic Village. Vernon hears Polish, Chinese, Russian and Spanish in his store.
Vernon, who joined CVS in 1997, praises the company for promotion opportunities and feedback. "They reward you and let you know you’re doing a good job," he says.
CVS has increased its number of 50-plus employees from less than 1 percent in the early 1990s to nearly 18 percent today. As an AARP featured employer, the drugstore chain will be able to mine that part of the workforce even more deeply.
Corporan, 58, the Borders cashier, found his job through a link on the AARP Web site. "It was incredibly simple," he says.
With testimonials like that, it’s easy to see why companies continue to seek partnerships with the organization. They’re hoping they’ll have more good AARP days--and maybe none of those bad ones.
Workforce Management, January 16, 2006, p. 1, 36-41 -- Subscribe Now!