Wall Street Says Corporations Are Burdened by Legacy Healthcare Costs 


The last few years have not been kind to America’s retirees. Recent years have seen the demise of several plans in the steel and airline industries. In 2004 United Airlines cast tens of thousands of its retirees into the welfare of the federal government run Pension Benefit Guarantee Corporation, forcing pension reduction of up to 70% for some retirees. 


In October, 2005 Delta’s chairman threatened much of the same in order to achieve $325 million in cost concessions in negotiations with the pilot’s union, if the parties could not quickly reach a contract deal. 


Analysts on Wall Street are now identifying the auto and telco industries as the next frontier to expect a management shakedown of retirees in order to extract greater profits for the company. 


According to a report in Forbes magazine, “it is pension promises that have helped send much of the U.S. airline industry into bankruptcy court. U.S. automakers' stocks have been walloped by soaring retiree costs." 


And while it has received much less notice, a third industry is fitting the same pattern: telecom. 


The report places blame with the telcos, “long history of union contracts that promised generous retirement benefits,” as these companies compete against newer firms without so called legacy costs of retiree pensions and benefits. 


According to a report by the brokerage firm Morgan Stanley, General Motors and Ford Motor had the highest costs in 2004 for non-pension benefits, including healthcare. 


In early October, Delphi Corporation the largest U.S. auto supplier filed for bankruptcy in a move that could adversely affect 50,000 U.S. workers and 185,000 worldwide. According to CNN, Delphi reported $4.3 billion in unfunded pension liabilities at the end of 2004. But General Motors who spun off the auto part maker in 1999 said in a statement that it might have to assume $10 billion to $11 billion in retirement benefits for union-covered workers and retirees who transferred to Delphi as part of the 1999 spin-off. Delphi blames the GM spin-off agreement as saddling it with high labor costs. Some are wondering if this could also trip up GM. 


According to Morgan Stanley, not far behind the automakers are the major telephone carriers including Verizon and merger partners SBC Communications and AT&T, with a combined bill of $3.4 billion, which add up to almost as much as a $3.8 billion tab GM is facing. The brokerage firm says adding in BellSouth and Qwest retiree costs swells the annual “industry tab” to exceed $4.3 billion. 


SBC for instance is reported to provide health coverage to 700,000 people, only 150,000 of which are current employees, with the remaining total made up of spouses and dependants of employees and retirees. 


Forbes says the strength of the telephone companies’ pension plans and the surpluses they carry is an extreme benefit. The report finds that Verizon, had $39.1 billion in pension assets to cover its $37.4 billion in obligations as of the beginning of the year 2005. On the other hand the company had set aside just $4.5 billion to fund an estimated $27 billion in future benefit costs, a gap of $22.5 billion dollars. 


Forbes quotes BellSouth Chief Executive Duane Ackerman as saying “We have one of the best health care coverages for retired and active employees around,” and that, the magazine says is the problem for shareholders. 


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