Rolling with the punches -- new benefits cuts from MegaCorp

[Linney]

I thought I had escaped the worst. Last year there was a freeze placed on the pension benefits of about 2/3 of our Mega Corp's employees. I was above the cut line due a combination of age and years of service, so I continued earning pension benefits.

Ah, but think again! The company just announced that pension benefits are being frozen for everyone as of December 2007. In exchange we'll get an additional 2% matching on our 401ks. Running the figures, I found that I will be getting between $7,000 - $8,000 less each year due to this change.

Then the biggie. . . . Anyone under age 50 will no longer be eligible for subsidized retiree health benefits. We can join the company group medical plan but if we choose to do so we will be responsible for the full cost of the premiums and all increases (and you have to be age 55 or older and have 15 or more years of service).

I really suspected that I would miss out on the subsidized retiree benefits because of the changes both in our company as well as the other Mega Corps around us. Really, I had accepted that. So I'm surprised that I feel a pang of loss anyway. Perhaps a secretly harbored hope was still in there?

I guess I should be glad that I use very conservative estimates when running my FIRE projections so none of the above really affects my plans in any significant way. But dang! It still hurts to lose the 7-8K pension dollars and the approx. $100,000 worth of subsidized health benefits. Dang it !!

Thanks for letting me vent a bit. I'm sure I don't have to remind other not-so-Young Dreamers that what Mega Corp gives, Mega Corp can often easily take away . . . .

 

[Texas Proud]

Then the biggie. . . . Anyone under age 50 will no longer be eligible for subsidized retiree health benefits. We can join the company group medical plan but if we choose to do so we will be responsible for the full cost of the premiums and all increases (and you have to be age 55 or older and have 15 or more years of service).

We did not have it subsidized, but could join the group plan when we were over 55 with the necessary time.... but they got rid of that last year, and like you for anyone under 50.. so me being 49 got screwed...

Mega is cutting as much as they can.. and it does not matter to go somewhere else as they have either cut it already OR will cut it soon...

 

[jeff2006]

Be sure to read the fine print.

One megacorp I know all too well says it gives retirees "group rate." Guess what --it is a special group consisting only of retirees. So, the "group rate" for retirees is about 50% higher than the group rate for active employees.

Please note that I am not talking about company contribution here -- that is a separate issue. Rather, I am comparing COBRA costs for (formerly) active employees with retiree insurance costs after COBRA. The employer covers most all of the cost for active employees, whereas the employer covers none of the cost for retirees.

In my state (NC), Blue Cross is a much better deal than retiree insurance from the megacorp, provided that Blue Cross underwrites you reasonably favorably.

 

[Linney]

Be sure to read the fine print. One megacorp I know all too well says it gives retirees "group rate." Guess what --it is a special group consisting only of retirees. So, the "group rate" for retirees is about 50% higher than the group rate for active employees.

Yup, I've been wondering if this redefined health benefit would have any real value. I'm not eligible for the plan yet (still under age 50) but I've been notified that I'll be receiving a packet from Mega Corp which outlines my cost for healthcare under this new plan. I'll be curious to see how it stacks up to an individual policy purchased externally. Packet is supposed to arrive in about a week.

 

[MasterBlaster]

It sure isn't fair. But this is the hand many of us are being dealt.

Using the 15X estimate for a non-inflation indexed annuity I calculate that you will lose around $112k in pension benefits. If your pension was adjusted for inflation then using the 25X factor I calculate that you will lose around $187k.

In total with pension and medical they just took between $221k and $287k from you.

It sure isn't fair !

 

[USK Coastie]

But I'll bet the stock went up and the CEO will get his bonus

 

[Brat]

Be sure to read the fine print.

One megacorp I know all too well says it gives retirees "group rate." Guess what --it is a special group consisting only of retirees. So, the "group rate" for retirees is about 50% higher than the group rate for active employees.

Please note that I am not talking about company contribution here -- that is a separate issue. Rather, I am comparing COBRA costs for (formerly) active employees with retiree insurance costs after COBRA. The employer covers most all of the cost for active employees, whereas the employer covers none of the cost for retirees.

In my state (NC), Blue Cross is a much better deal than retiree insurance from the megacorp, provided that Blue Cross underwrites you reasonably favorably.

Further concentration of the risk pool.

 

[Linney]

Using the 15X estimate for a non-inflation indexed annuity I calculate that you will lose around $112k in pension benefits. If your pension was adjusted for inflation then using the 25X factor I calculate that you will lose around $187k.

In total with pension and medical they just took between $221k and $287k from you.

It sure isn't fair !

No COLA on the pension. So your estimation of a $112k loss of pension benefits jibes with my back-of-envelope calculation.

When running my financial figures, I have been conservative and only used the current cash value of the pension -- never the future projected value. (note: cash value is affected by interest rates so it isn't a guarantee, but good enough I think to run my FIRE scenarios)

I had lunch with a coworker today. He's a saver too so he immediately understood the impact of the loss of ~$200k of pension/health benefits. We both expressed concerned for our colleagues who don't understand just how much more money they will need to save to compensate for this.

 

[Linney]

But I'll bet the stock went up and the CEO will get his bonus

Stock went DOWN ! Other factors were involved in this however.

CEO had already received a very generous bonus before this announcement was made. CEO says he insisted that the current subsidized health benefit be continued for everyone 50 and older and only cut off for those below 50. I'm in my 40's I'm not sure how to feel about the CEO's efforts in this. Was it really a challenge for him to convince the company to extend coverage for those 50 and above rather than cutting it for those 55 and above?

 

[bssc]

Our Megacorp is doing something similar. The numbers are tricky but it looks like I will lose out about 1% of company matching. Those that start after July 1st, will get even less since they will not get any "conversion" funds. On the other hand, I wil be able to put the money which is currently sitting in treasuries into something with a little more earnings potential.

They rejiggered the health care plan a few years ago and I made it in under the wire. However, I need to be a year older to get better benefits under the new plan.

 

[youbet]

The Megacorp I retired from transitioned from a DBP pension and highly subsidized retiree medical coverage to a "portable" or cash balance pension and capped subsidy retiree health coverage to no pension (401K with modest match only) and no retiree health coverage over about a decade.

I fell into the DBP non-cola pension and capped subsidy retiree medical coverage category and feel lucky to have gotten out with that. People with more seniority/age did better than me. People with less seniority/age did worse.

I guess the upside to all this is that employees' dependence on a single MegaCorp or government employer for retirement is transitioning away. Many posters on this board express their extreme pain and anguish at being forced to finish their working lives at the same Megacorp or government job, that they truly hate and is literally killing them, because they need the pension and retiree medical coverage. It's like they're locked into hell.

To the extent that these "take-aways" cause folks to be more independent and able to move from job to job to self employment to consulting, etc., without it negatively impacting their RE plans, then I'm all for them. But, no doubt, these transition years are very painful, especially for those nearing RE when the changes occur.

 

[bow-tie]

...I guess the upside to all this is that employees' dependence on a single MegaCorp or government employer for retirement is transitioning away... To the extent that these "take-aways" cause folks to be more independent and able to move from job to job to self employment to consulting, etc., without it negatively impacting their RE plans, then I'm all for them. But, no doubt, these transition years are very painful, especially for those nearing RE when the changes occur.

That's true. It would be nice if the dollar they tooks away in bennies (pension, retiree health) was given back in some other form (higher pay or 401k matching)... but why do I get the feeling that isn't the case.......

 

[cute fuzzy bunny]

My old megacorp has cut their pension contributions from 12% of gross to 6% in the five years since I left.

Plenty of cash and plenty of profits, although the latter have been off this year.

 

[SteveR]

That's true. It would be nice if the dollar they tooks away in bennies (pension, retiree health) was given back in some other form (higher pay or 401k matching)... but why do I get the feeling that isn't the case.......

That cash is going somewhere. Just not to the lower level employees...check the annual report and see how much went to the board and the other blue bloods in the organization.

 

[ziggy29]

CEO says he insisted that the current subsidized health benefit be continued for everyone 50 and older and only cut off for those below 50. I'm in my 40's I'm not sure how to feel about the CEO's efforts in this. Was it really a challenge for him to convince the company to extend coverage for those 50 and above rather than cutting it for those 55 and above?

What really sucks about all this is that it's generating so much intergenerational warfare. It just seems like each succeeding generation gets screwed more than their parents did. Pensions, Social Security, you name it -- the older folks are getting their bennies "grandfathered" while the younger ones have it taken out from under them.

 

[Linney]

I guess the upside to all this is that employees' dependence on a single MegaCorp or government employer for retirement is transitioning away. Many posters on this board express their extreme pain and anguish at being forced to finish their working lives at the same Megacorp or government job, that they truly hate and is literally killing them, because they need the pension and retiree medical coverage. It's like they're locked into hell.

To the extent that these "take-aways" cause folks to be more independent and able to move from job to job to self employment to consulting, etc., without it negatively impacting their RE plans, then I'm all for them. But, no doubt, these transition years are very painful, especially for those nearing RE when the changes occur.

youbet, nice post.

 

[lazygood4nothinbum]

before chipping at other benefits, my mcfortune5 first took our company cars away. the car (including insurance & maintenance) had come with the job and i got a new cars every two to three years on that plan for the 12 years that this benefit lasted. as that was one of the hooks they used to get me to take the job originally, i pretty much considered that part of my salary.

when they took the car away they said the car was simply a side benefit, that it was never part of my salary or my job. so from then on out i pretty much decided that friday's wouldn't be a part of my job either. what did they think: they were getting the car for free?

 

[Arc]

This is why I love the 401K. Sometimes I'm jealous reading about the large pensions some folks have but I sleep much better knowing that the money in my 401K is mine and company cannot touch. And since I get 100% match on 6% of contributions and 3% ESOP on total wages, I assume I'm getting my pension in advance. Times have changed, these days it pays not to rely on anyone but yourself for FI.

 

[Texas Proud]

This is why I love the 401K. Sometimes I'm jealous reading about the large pensions some folks have but I sleep much better knowing that the money in my 401K is mine and company cannot touch. And since I get 100% match on 6% of contributions and 3% ESOP on total wages, I assume I'm getting my pension in advance. Times have changed, these days it pays not to rely on anyone but yourself for FI.

I will agree with you... and disagree a bit with the post about intergeneration issues....

For retirement, most of the younger people do not stay in a job for a full career.. they jump from job to job (maybe only every 5 or 10 years, but do move)... this KILLS a defined benefits plan... but does not affect a 401(k) (if you are actually saving) NOR a cash balance account that you can move...

Now, it does hurt if your company has a staggered contribution to your cash saving account like mine does... it take about a decade or more to get to 7% high match (which BTW was cut from a 14% high awhile back)...

But my point... the 'retirement' accounts are more in tune with the newer workers even though it is costing them big time when they retire... it could have been costing them even more if they just jumped from job to job the old way..

 

[Zoocat]

before chipping at other benefits, my mcfortune5 first took our company cars away. the car (including insurance & maintenance) had come with the job and i got a new cars every two to three years on that plan for the 12 years that this benefit lasted. as that was one of the hooks they used to get me to take the job originally, i pretty much considered that part of my salary.

when they took the car away they said the car was simply a side benefit, that it was never part of my salary or my job. so from then on out i pretty much decided that friday's wouldn't be a part of my job either. what did they think: they were getting the car for free?

This seems like an equitable trade.

I don't understand why MegaCorps are so short sighted. Don't they realize how these cuts destroy incentive? Everyone can see that CEO's and other top executives are hardly sharing the pain. Who do they think they're kidding? Or do they care at all? The answer is, No.

 

[lazygood4nothinbum]

Or do they care at all? The answer is, No.

population is dense enough and there's enough automation that they no longer have to care. also much goes back to the circa 1990s ivy league business theory of "crap plus one". before that, when i enjoyed my job, we put out the best product we possibly could. but companies realized they didn't need to "over-utilize" overpaid "resources" to beat competition. they didn't have to be 10x's better to win. if the competition was crappy, then all the best has to do to win is crap plus one.

so to maximize profits you don't try to get as good as you can. instead you try to be as crappy as you can while still being slightly less crappy than your competition. the only real downside, of course, is that it tends to put morale in the, um, crapper.

 

[jazz4cash]

We're going through this also. I work in a very successful division of struggling MegaCorp........so they decided to sell us off as we are not a "core" business. It seems to us that maybe they are amputating the healthy leg..........and maby decisions such as this are why MegaCorp is struggling all these years. Anyway, our pensions would still be tied to mother MegaCorp, so if they go down the tubes we're still screwed.

Last year they cut pensions by 20% which took the DBP from "generous" to decent. Now with this sale, I'll be one yr short of qualifying for retiree medical. Each cut seems not to bad as I always consider "it coulda been much worse"..........well it's the NEXT cut that ya gotta worry about. Reminds me of the joke about "how to boil a frog?"

 

[Ed_The_Gypsy]

I really suspected that I would miss out on the subsidized retiree benefits because of the changes both in our company as well as the other Mega Corps around us. Really, I had accepted that. So I'm surprised that I feel a pang of loss anyway. Perhaps a secretly harbored hope was still in there?

It is better to have this happen while you are still young. Imagine those who had their benefits terminated after they were retired.

 

[Linney]

It is better to have this happen while you are still young. Imagine those who had their benefits terminated after they were retired.

Those already retired from our MegaCorp didn't have their benefits cut . . . at least not yet. I've heard of plenty of other MegaCorps that have cut retiree health benefits even for those already retired. Scary. Another good reason for us 40 year olds to treat this benefit like Social Security -- nice to have, but don't count on it.

 

[Ed_The_Gypsy]

Get your HSA while you can!