Retiree Medical Benefits

tbehan

During negotiations with one of our labor unions, a proposal waas received to lock in medical insurance- both cost and benefit level- for future retirees. This proposal would only cover employees retiring under the term of the upcoming agreement, not all past retirees. Being conscious of the alarming increases in insurance cost, it would appear that this would be a ludicrous demand to agree to. Also, if accepted in this contract, the levels and costs could be negotiated differently for subsequent contract years, creating an administrative nightmare. We are a local government employer. Has anyone had any similiar demands or advise?
Thanks

Margaret Morford

Don't do it. This will open a Pandora's box you will regret. Do not only look at the cost, but also talk to your accountant about how this will have to be carried on the books and reserved for. FASB has a ruling that requires the estimated lifetime claims/value of this benefit be reserved for and carried as a liability of the company. Make sure you're aware of this before you add retiree medical. The big three auto makers have been trying to get out from under their past promises of retiree medical because of the FASB ruling.

Margaret Morford
theHRedge
615-371-8200
[email]mmorford@mleesmith.com[/email]
[url]http://www.thehredge.net[/url]

tbehan

Thanks for the info Margaret-
Tom

Theresa Gegen TX

I have seen a lawsuit where a company did that. Later the company faced a severe economic downturn, with the result that plants closed, many lost their jobs, and the company tried to get out of paying benefits. Needless to say the retirees sued and won -- their lifetime benefits based on the CBA at the time they retired. In sum, the retirees got better benefits than the active employees.

There are several problems with this type of agreement, one of the biggest being that the law is in flux in regards to benefits for employees over age 65 who also get medicare. The EEOC issued guidance last year about it, then rescinded their guidance. Who knows where the law will go??

The Union is probably using this as a negotiating chip, and doesn't really expect the employer to agree to it. I don't think the employer should for the reasons I mentioned and the reasons above.

Good Luck!!

tbehan

Thanks, Theresa- I didn't really even think about it in the same manner as you-
You're right- this benefit, if agreed to, would result in a better benefit for the retirees than for active employees at some point.