Retirement Heist: how companies plunder and profit from the nest eggs of American workers

But no punitive damages are allowed under federal benefits law, so the judge threw out the award but ordered Varity to reinstate the retirees into Varity’s health care plan. (The only thing a plaintiff can win in a federal benefits case is the benefit he should have been paid. If he’s dead, there’s nothing to award, even out-of-pocket costs the retirees had incurred.) Varity appealed, and the former employees fought their case all the way to the U.S. Supreme Court. In 1996—a full decade after Pittman and Wellman had begun sketching out Varity’s plan—the Court, in Varity Corp. v. Howe, found that Varity had deceived the employees and thus violated its fiduciary duty. It ordered that the benefits be reinstated. But this victory was Pyrrhic; the employees were still out of a job, and some had died in the meantime.

Victor Rice, meanwhile, turned from breaking up retiree benefits to breaking up the company. In 1996, he sold Massey Ferguson’s farm machinery business assets to AGCO and merged its auto-parts businesses with a British auto-parts maker, renaming it LucasVarity. The combination languished, and Rice started shopping the company almost as soon as he assumed the corner office. TRW bought the firm in 1999, and Rice collected $50 million in severance. TRW, an aerospace and automotive company, enrolled the portfolios of Varity retirees in its existing retiree medical plans. Things were fine—until 2006.

CREEPING REDUX

John Galloway, the retired foundry worker, had so far survived all these benefit shenanigans with his coverage largely intact. That was thanks in large part to the dogged efforts of Roger McClow, a lawyer in Detroit who had represented groups of retirees from different units of the company since 1993. At the same time the Varity employees were taking their case to the Supreme Court, McClow was juggling a handful of cases, representing both salaried and union retirees from the other units, including Massey Ferguson and Kelsey-Hayes.

It was during the tedious discovery phase for two of those suits that McClow unearthed the trove of Varity memos quoted above. When he requested records pertinent to the case, attorneys for the company responded with a “documents dump,” the passive-aggressive move in which an opposing party responds to an adversary’s information request by trying to bury it in paperwork. McClow and an assistant spent days shoveling through decades-old payroll records, benefits booklets, and the other detritus of the human resources departments from various units, some defunct.

Against great odds, the colorful documents had survived the company shredders. When the company had shuttered an operation in Buffalo, a former Massey Combines officer who was transferred to Kelsey-Hayes brought his Massey Ferguson documents with him to Romulus, Michigan, where they gathered dust in the orphaned files of a long-gone human resources manager until they were rounded up to add bulk to the documents dump.

McClow obtained another batch of strategy memos when he subpoenaed Towers Perrin. On the final day of shoveling through a roomful of printouts of actuarial projections, he found the suggestions for ways to cut the retiree benefits and “Litigation Risk” analyses. These kinds of unflattering strategy memos come to light so rarely that when Massey Ferguson found out that McClow had obtained them, a lawyer for the company accused him of stealing the documents, then filed a motion for a protective order to get them back. The judge denied the request.

Ironically, the documents never played a role in any court case, even the famous Varity Corp. v. Howe case that went before the Supreme Court, nor did McClow need them for the case he was handling, in which he succeeded in getting the company to restore 80 percent to 100 percent of the retirees’ benefits. He thought the matter was settled.

For several years, nothing happened. Then, in 2006, TRW resurrected the game book of its predecessor and began a series of creeping take-aways. It conducted its first “death audit,” sending letters to retirees, telling them they had to prove they were alive or lose their coverage. Death audits seem to serve a legitimate purpose; after all, companies audit health plans to ensure that ineligible family members aren’t included. With retiree health plans, a cynical person might think death audits exist primarily to generate fees for benefits consulting firms. After all, if a retiree dies, he isn’t running up prescription drug costs, and few eighty-year-olds have dependent children.

Panicked retirees called McClow, who contacted TRW and got the company to back off. After all, the settlement provided for lifetime benefits. It didn’t have any provision about requiring the retirees to prove they were still alive.