Reading Between the Lines at IBM

November, 2001 - Retirees fear health benefits cutbacks at Big Blue next year

IBM’s already rocky relationship with its retirees may be headed for more trouble.

More than 108,000 Big Blue retirees received a notice in October suggesting that they could see cutbacks in their IBM health coverage in 2001. The letter, which was obtained by Plan Sponsor , explains that IBM plans to expand the range of available options in IBM’s retiree health-care plans.

But it also contains a notice – applicable to employees who retired before January 1, 1992 – stating that “all retirees will begin sharing in the cost of health care premiums for certain plans, beginning in 2001.” Employees who retired since that date already have caps on the amount of money IBM will spend on retiree health coverage each year.

“The letter (suggests) they are not going to absorb future increases in medical costs,” for pre-1992 retirees, argues a retired IBM manager in Westchester County, New York. “The bottom line is that they will maintain their contribution at a set dollar level and retirees will have to cover the cost of increases above that level,” the retiree states. While this retiree is not among the thousands who were persuaded to take early retirement prior to 1992, he says that IBM promised in a “bulletin board announcement” that employees who accepted IBM’s offers to retire from the company-and did so by year-end 1991 – would never see their health coverage curtailed.

Glen Brandow, a spokesman for IBM, insists the letter is not a warning of future cutbacks in retiree health-care coverage. “The letter points out directly that our goal is to provide an expanded range of plans in response to rising health-care costs,” says Brandow. “We are responding to rising costs by offering a variety of options.” The new options will become available next February, and retirees will be enrolled in the plan of their choice effective April 1, 2001, according to the letter. The new options might include more choices in deductibles and premiums, he notes.

Our competitors don’t…

The letter, dated October 2000 and signed by IBM’s senior vice president for human resources, J Randall MacDonald, not only states that some retirees will begin sharing health-care premium costs next year, but also states that “many (other) large employers no longer share in the cost of retiree health care, and most of our technology competitors don’t provide retiree health coverage at all. IBM provides health-care coverage to its retirees and helps share in the cost of the coverage.”

There are three types of retiree health plans at IBM, but only two are used by its current retirees. There is a traditional or “self-managed” plan that allows retirees to choose their own doctors, hospitals, or health-care providers. The other choice is an HMO option requiring covered beneficiaries to use the doctors and hospitals in the HMO plan or receive reduced coverage for going outside the plan.

A third type of plan is the Future Health Account Plan, which already sets a cap on IBM’s contribution. This plan was introduced in 1999 for retirees who were at least five years away from retirement and should go into effect in 2004. Funds are placed in the account for future retiree health care, and retirees will be able to draw from those funds to pay health-care insurance premiums when they retire. Many employees have complained that the balances in these accounts will pay for health care for only a few years after retirement.

Employees who have retired since 1992 increasingly have paid a larger share of the cost of their retiree health-care benefits as a result of the caps put into place. This has occurred by reducing the portion covered by the employer in the self-managed plans from 100% to 80%. Beneficiaries pay 20% of coverage. They also pay a monthly premium.

The October letter is clearly warning of benefit cuts to come, says Rochester, Minnesota-based Janet Krueger, head of the IBM Employee Benefits Action Coalition. But, “without any detail about what will be included in the new choices, it is impossible to predict how drastic the cuts really are,” she says.

Krueger notes that, while IBM may be eliminating promised benefits, retiree health care is not protected by ERISA and companies are free to reduce or eliminate such benefits. She says the reductions in retiree health-care coverage “would be somewhat more palatable to retirees if IBM were adding cost-of-living increases to their pensions.”

Such cost-of-living increases were periodically added to pension benefits at IBM prior to 1992. “Effectively, each year, when health-care costs go up, retirees’ fixed incomes go down an equal amount,” says Krueger.

IEBAC is suggesting that retirees call their senators and representatives in Congress and ask them why retiree health benefits are not protected by federal law. The coalition also is encouraging retirees to join the Alliance@IBM, an organization that is seeking to unionize IBM and to protect worker and retiree benefits.

IEBAC led the revolutionary protest that eventually prompted IBM to allow 35,000 additional employees – those older than 40 with at least 10 years of service in June 1999 – to remain in its traditional defined benefit plan instead of its much-criticized cash balance scheme. Krueger resigned from IBM last year over the cutbacks in her pension plan.

– Robert Stowe England

“Dear IBM Benefits Recipient:” – read the full text of the letter (a PDF file)

Editor’s Note – 11/01:

Glen Brandow, a spokesman for IBM, stressed to PLAN SPONSOR on October 31 that the letter is not a warning of future cutbacks in retiree health-care coverage but a reminder of an impending cost-sharing arrangement that the company had communicated to participants as early as 1992.