Phone Co. Retirees Take Benefit Cutback Fight to Court

January 2, 2008 ( - A group of former telephone company employees has taken its battle against retiree benefit cutbacks into federal court, alleging landline company Embarq Corp. and its former wireless company owner Sprint Nextel Corp. promised the benefits were permanent.

The group of 10 plaintiffs, including eight from North Carolina and two from Florida, charged in its lawsuit that Embarq violated the Employee Retirement Income Security Act (ERISA) when it announced the cutbacks or elimination in mid-2007 that were effective Tuesday.

The complaint, which seeks class-action certification, asks for an order restoring the reduced or eliminated benefits. The suit, filed by Philadelphia attorney Alan M. Sandals, claims the proposed class would include almost 13,000 members.

Embarq announced on July 26 it would drop medical coverage and Medicare premium subsidies for Medicare-eligible retirees and dependents, effective January 1, 2008 and would cap life insurance benefits through company-sponsored plans for qualified retirees to $10,000, also effective January 1. The company eliminated life insurance coverage for retirees receiving benefits through a subsidiary company plan, effective September 1, 2007, and dropped a $500 annual cash subsidy that helped pay for medications.

All in all, Embarq said in the announcement, it expected the changes would reduce post-retirement benefit expenses by $20 million for the rest of the year and save the company $30 million a year beginning in 2008.

Making Life Decisions

The lawsuit alleges that the company’s benefit cutbacks have put the plaintiffs in an impossible situation since the workers said they relied on representations they would have the benefits for the remainder of their lives.

“Plaintiffs and the members of the Class reasonably relied on Defendants’ representations and omissions of material information to the effect that they would have a right to receive throughout retirement and for their lifetimes company-paid and subsidized medical, prescription drug and life insurance benefits in making important personal decisions relating to their retirement, their own and their spouses’ post-retirement employment, their investments, their purchase of personal and real property, their purchase of life and health insurance, and in making other decisions pertinent to household budgeting and finances,” the lawsuit charged.

The workers complained they had factored in the benefits when agreeing to accept what they said was a lower compensation during their careers.“Throughout their careers, Plaintiffs and the members of the Class accepted lower levels of current compensation secure in their understanding that their work was earning them a valuable program of retiree benefits that would make their post-retirement years financially secure,” the suit asserted.

The plaintiffs also alleged that the companies used the cost of the benefits to help get rate approvals from public utility commissions in the states in which they operated.

According to the lawsuit, four of the named plaintiffs have also filed age discrimination allegations against Embarq with the Equal Employment Opportunity Commission (EEOC). If they get the green light to sue from the EEOC, they will add the age discrimination claims to the new lawsuit.

The plaintiffs retired from local telephone companies that were subsidiaries of then-Sprint Corp. Sprint spun off its local division to Embarq last year following its acquisition of Nextel Communications Inc.

The complaint is here .