Vanguard drops medical benefits for retirees

[Brat]

Another 'way back' about health insurance. Employer health insurance started when price and wage controls went into effect during WWII. Fringe benefits were exempt from wage controls so employers provided health insurance to attract employees.

Now the great unraveling...

 

[Scuba]

I wonder how many companies are left that actually continue to pay for retiree medical benefits? I would bet that it is is a very small percentage and getting smaller all the time.

It’s my belief that only the government, universities, some non-profit organizations, and certain industries such as aerospace and utilities still offer retiree healthcare and defined benefit pension plans. Most companies in industries I’m more familiar with replaced defined benefit pension plans with 401K’s a long time ago, and also phased out retiree medical coverage.

 

[Markola]

Another 'way back' about health insurance. Employer health insurance started when price and wage controls went into effect during WWII. Fringe benefits were exempt from wage controls so employers provided health insurance to attract employees.

Now the great unraveling...

Interesting. In slight contrast, WWII was a motivator for European countries’ generous social programs. Governments hoped the social unrest that demagogs fomented into two devastating world wars could be tamped down if citizens’ basic needs were ensured.

 

[frayne]

Isn't this just the normal evolution of business, same as pensions going away with the advent of 401Ks ? If medical insurance cost are becoming prohibitively expensive the company has a number of options, A.) try to negotiate with insurers for lower rates, B.) reduce the employee benefit, C.) pass the cost onto the customer or D.) eat the cost to the detriment of the bottom line. Looks like they are choosing option B. If they pay good wages and have other attractive benefits hopefully it won't hurt employee morale too much and this may be a direction other employers will emulate in the future. Decoupling health care from employment may seem radical to us baby boomers but I don't believe it is the norm for the rest of the first world economies.

 

[Alan]

Two years after I retired in 2010 my Megacorp stopped its retiree subsidy of health insurance which was something no retiree was expecting. They did allow us to buy the same insurance at their unsubsidized group rates. My insurance went up from $85/month to $750/month the following year. I know some retirees from the company who then went with ACA plans. I did look at ACA plans but given our extensive travel lifestyle stuck with the retiree insurance as ACA plans were nowhere near as good.

It is what it is, in our company every dollar spent meant at least $10 of additional sales needed, and their peer companies were also slashing retiree health insurance benefits gaining a competitive advantage over them.

 

[harllee]

I have always wondered why in the U.S. health insurance is tied to your job. Really makes no sense. I was always self employed so I had to get health insurance any way I could. The ACA really helped me.

 

[Markola]

Isn't this just the normal evolution of business, same as pensions going away with the advent of 401Ks ? If medical insurance cost are becoming prohibitively expensive the company has a number of options, A.) try to negotiate with insurers for lower rates, B.) reduce the employee benefit, C.) pass the cost onto the customer or D.) eat the cost to the detriment of the bottom line. Looks like they are choosing option B. If they pay good wages and have other attractive benefits hopefully it won't hurt employee morale too much and this may be a direction other employers will emulate in the future. Decoupling health care from employment may seem radical to us baby boomers but I don't believe it is the norm for the rest of the first world economies.

If Vanguard wanted to, it could drive down absurd American health care costs at the source, since they are among the largest shareholders of most public corporations.

 

[athena53]

That kind of risk is why you don't FIRE without having a source and a reasonable backup for health insurance before Medicare I guess.

A coworker at a previous job was "retired" from another employer that provided retiree medical coverage. She'd changed jobs when she was old enough to retire from the earlier employer and kept paying premiums into the former employer's plan rather than sign up for coverage with our company. Her husband was already retired and she wanted them to be protected no matter what till Medicare kicked in. I lost touch with her and wonder if the previous employer kept that program going.

 

[ivinsfan]

If Vanguard wanted to, it could drive down absurd American health care costs at the source, since they are among the largest shareholders of most public corporations.

Dream on....

 

[MRG]

Isn't this just the normal evolution of business, same as pensions going away with the advent of 401Ks ? If medical insurance cost are becoming prohibitively expensive the company has a number of options, A.) try to negotiate with insurers for lower rates, B.) reduce the employee benefit, C.) pass the cost onto the customer or D.) eat the cost to the detriment of the bottom line. Looks like they are choosing option B. If they pay good wages and have other attractive benefits hopefully it won't hurt employee morale too much and this may be a direction other employers will emulate in the future. Decoupling health care from employment may seem radical to us baby boomers but I don't believe it is the norm for the rest of the first world economies.

+1

 

[ivinsfan]

Two years after I retired in 2010 my Megacorp stopped its retiree subsidy of health insurance which was something no retiree was expecting. They did allow us to buy the same insurance at their unsubsidized group rates. My insurance went up from $85/month to $750/month the following year. I know some retirees from the company who then went with ACA plans. I did look at ACA plans but given our extensive travel lifestyle stuck with the retiree insurance as ACA plans were nowhere near as good.

It is what it is, in our company every dollar spent meant at least $10 of additional sales needed, and their peer companies were also slashing retiree health insurance benefits gaining a competitive advantage over them.

You mean this has happened before and there was no screaming on social media or roasting online. Judging from all the noise yesterday I though it was the first time in recorded history.

 

[ivinsfan]

Isn't this just the normal evolution of business, same as pensions going away with the advent of 401Ks ? If medical insurance cost are becoming prohibitively expensive the company has a number of options, A.) try to negotiate with insurers for lower rates, B.) reduce the employee benefit, C.) pass the cost onto the customer or D.) eat the cost to the detriment of the bottom line. Looks like they are choosing option B. If they pay good wages and have other attractive benefits hopefully it won't hurt employee morale too much and this may be a direction other employers will emulate in the future. Decoupling health care from employment may seem radical to us baby boomers but I don't believe it is the norm for the rest of the first world economies.

Don't talk common sense our one minutes new cycle don't like hearing it. Do you think Vanguard just woke up one day and said lets yank our retired medical subsidy program, I don't. They probably have been doing some combination of the 4 items you listed for years and were left with no choices.



The program ended for new hires sometime ago.



It's kind of like the chicken and the egg retirees at VG would pay full freight for HI from Vanguard split 75/25 from the money pot. But with ACA if employees had to pay 100% for VG insurance they wouldn't buy it, it would be too expensive. It was basically like a coupon for HI.



Most lower earning employees with VG could very well pay less out of pocket for HI, that's how messed up things are.

 

[MichaelB]

So many past thread discussions (mostly related to ACA) where members suggest that employers should not be involved in health care insurance, yet when an employer does make that change, it’s pilloried. A reminder that change is very difficult.

We know from court rulings a company can change or eliminate the non-pension components of retiree benefits without notice. In this case, I think Vanguard failed in 3 ways

There was no advance notice, which retirees need to assess the notice and figure out what their options are for health care insurance.

Cash balances in medical spending accounts were clawed back. This was a bone headed move.

There was no reported effort by Vanguard to help retirees understand their portions or make the transition.

 

[ivinsfan]

Good points Micheal B...I will say they did convert the so called coupon money to 40K in cash to each participant.





They gave them 30 days notice, did it during open enrollment season and say they had people to help everyone transition. As the very least they could extended it until the end of the calendar year. Employees almost certainly will end up paying the rack rate for VG insurance until 22.

 

[VanWinkle]

Well 8K in cash for a couple for each year working at Vanguard is a lot of money IMO.


It clearly says the program could be terminated at any time. So just because the employees think it's mean doesn't mean management is scum..


No matter what something will get changed but I agree a little more notice would have been nice ...


I notice no one mentioned the 40K per employees in the program would be paid before Jan 1.

+1 This is a reasonable way to think of the article.

 

[Another Reader]

So many past thread discussions (mostly related to ACA) where members suggest that employers should not be involved in health care insurance, yet when an employer does make that change, it’s pilloried. A reminder that change is very difficult.

We know from court rulings a company can change or eliminate the non-pension components of retiree benefits without notice. In this case, I think Vanguard failed in 3 ways

There was no advance notice, which retirees need to assess the notice and figure out what their options are for health care insurance.

Cash balances in medical spending accounts were clawed back. This was a bone headed move.

There was no reported effort by Vanguard to help retirees understand their portions or make the transition.

Bone headed or a cash flow or other financial problem? We know the customer service has been deteriorating for a couple of years. Supposedly Vanguard is owned by the underlying funds, unless Wikipedia's account is outdated. That's the origin of the "customer owned" idea. There is no way to see inside the company. I wonder if we might get a disgruntled high level manager spilling the beans soon.

I was already considering closing out the Vanguard accounts in favor of Fidelity. They really angered me with their quiet conversion of the treasuries-only money market fund into a standard treasury fund that takes on some yield juicing risk. That cash has already been moved. The obvious grab of employee insurance reimbursement accounts is concerning. I dunno if I will wait for another shoe of the octopus to drop.

 

[ERD50]

So many past thread discussions (mostly related to ACA) where members suggest that employers should not be involved in health care insurance, yet when an employer does make that change, it’s pilloried. A reminder that change is very difficult. ...

But this is not a contradiction by those members (I think that's what you imply?).

It's reasonable to be against something in principle, but if that thing becomes established despite that, well, you play the cards you are dealt (just like I take the mortgage deduction when I can, even though I think it should be abolished).

The issue at hand here is the "future promise" aspect. It's just a mess to have a 'promise' that isn't legally binding. And this one becomes so significant to an individual.

So yes, I fully support the separation of health care from employment, just like my car and home insurance is. My car and home insurance is far less complex, and this employee tie is a big part of it. But if a company has already made a promise-non-promise, it's treading on thin ice to change that, and it should do so carefully and only if it is clear it is needed.

As youbet mentioned earlier, all employee benefits should be in real time, fully vested as you earn them. Anything else is a problem waiting to happen.

edit/add: A different scenario is if the company said "All new hires will not receive XYZ benefit". That is transparent, and doesn't affect past promises, which is OK in my book. The potential employee can weigh that in their decision.

-ERD50

 

[friar1610]

…

In this case, I think Vanguard failed in 3 ways

There was no advance notice, which retirees need to assess the notice and figure out what their options are for health care insurance.

Cash balances in medical spending accounts were clawed back. This was a bone headed move.

There was no reported effort by Vanguard to help retirees understand their portions or make the transition.

I think this ^ pretty well captures my feelings on the subject. Regardless of the legalities/business realities it’s a shoddy way to treat employees.

 

[MichaelB]

Bone headed or a cash flow or other financial problem?

Good point, it could be both.

 

[badatmath]

But this is not a contradiction by those members (I think that's what you imply?).

It's reasonable to be against something in principle, but if that thing becomes established despite that, well, you play the cards you are dealt (just like I take the mortgage deduction when I can, even though I think it should be abolished).

The issue at hand here is the "future promise" aspect. It's just a mess to have a 'promise' that isn't legally binding. And this one becomes so significant to an individual.

So yes, I fully support the separation of health care from employment, just like my car and home insurance is. My car and home insurance is far less complex, and this employee tie is a big part of it. But if a company has already made a promise-non-promise, it's treading on thin ice to change that, and it should do so carefully and only if it is clear it is needed.

As youbet mentioned earlier, all employee benefits should be in real time, fully vested as you earn them. Anything else is a problem waiting to happen.

edit/add: A different scenario is if the company said "All new hires will not receive XYZ benefit". That is transparent, and doesn't affect past promises, which is OK in my book. The potential employee can weigh that in their decision.

-ERD50

Mostly agree, except for separating insurance from employment in the short term. My state ACA is an HMO with a poor reputation and it would not be an adequate substitute. Given time, if they improved the choices, I would agree. So far my MC is mostly trying to do away with things for new hires, which seems fair.

 

[ivinsfan]

Mostly agree, except for separating insurance from employment in the short term. My state ACA is an HMO with a poor reputation and it would not be an adequate substitute. Given time, if they improved the choices, I would agree. So far my MC is mostly trying to do away with things for new hires, which seems fair.

Do you see the irony here? It's fair to you only because you aren't a new hire.

 

[Texas Proud]

Vanguard cancels Retiree medical benefits on current and retired employees:



https://www.inquirer.com/business/v...l-account-benefits-employees-hr-20211005.html

If your FIRE plans depend on Megacorp medical benefits, be very aware that they can and will cancel if they want to.

Does anyone know how VG as a corporation is doing? I imagine not too well if they have to resort to this.

Been there done that.... my mega had retire medical benefits from age 55 with 20 years or so working... when I was 48 1/2 they cancelled it for all employees that were younger than 50...


That was a long time ago... I think they have reduced the benefit even more where retiree has to pay 100% of the cost... still a good plan though...

 

[athena53]

Do you see the irony here? It's fair to you only because you aren't a new hire.

It's fairer because a new hire can be told, "This is the benefits package and it does not include pension, retiree healthcare, etc." and decide accordingly whether the total compensation package is worth it. It's another thing to have a benefits package that provides certain things at retirement and then takes them away from near- and current retirees and people who have maybe stayed on the job rather than going elsewhere in reliance on those benefits. The employer got some benefit in the form of being able to pay lower salaries and retain people who though they'd get those benefits despite the weasel words in the HR handbook saying things could change.

Still, I see this as just another consequence of the demand for cheaper and cheaper goods and services. If you buy flip-flops made in China at Wally World and pass up Birkenstocks made in Germany because they cost too much, you're part of the problem. Treating employees well costs money.

 

[badatmath]

Do you see the irony here? It's fair to you only because you aren't a new hire.

If it is disclosed up front you don't have to take a job that doesn't have the benefits you want. A retiree can't feasibly go back to work to get insurance. (Well okay some can but not all).

I was mostly wanting to make the point that those of you blessed with an ACA plan that doesn't suck are luckier than you may realize.

I certainly have no perfect answers, but if it was this ACA that was my only option I would probably move to another state. I really do believe it is THAT BAD.

I also ONLY still work for retiree health. 1.5 more years to qualify.

 

[ivinsfan]

It's fairer because a new hire can be told, "This is the benefits package and it does not include pension, retiree healthcare, etc." and decide accordingly whether the total compensation package is worth it. It's another thing to have a benefits package that provides certain things at retirement and then takes them away from near- and current retirees and people who have maybe stayed on the job rather than going elsewhere in reliance on those benefits. The employer got some benefit in the form of being able to pay lower salaries and retain people who though they'd get those benefits despite the weasel words in the HR handbook saying things could change.

I was actually referring to the poster saying that the ACA offerings were not as good as company offerings. As in it's alright for new hires.



You bring up a good point and the system is messed up. But there will some employees at Vanguard that weren't going to use the program anyway. IE a spouse had better insurance cheaper. Or they could use VA care or heaven forbid they died before retiring. One could argue those employees worked for less money to subsidize other employees. These employees will be better off because they will actually get some cash in hand from VG.


As with anything in HC someone is going unhappy and someone is going to be happy about the same thing. One has to wonder if some of the actual purpose of ACA was to shift HC expenses away from big companies onto the shoulders of the taxpayers and the little guys....That's me being cynical again. I'd also like know how much Vanguard will save by this move...I'll wait... oh that's right crickets.





These accounts are use it or lose it AFAIK. I do like the media reports saying "according to the legal language they accounts can be ended at anytime".. There it is.