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

The retirees were in a slightly better position than the GenCorp retirees: Some could pile into a van and drive to Mexico for their prescription drugs; others, however, dropped out of the plan as prices spiraled and went on public programs. Yarter appreciated the irony: Not only did his health care costs rise but, as a taxpayer, he would ultimately be picking up the tab for others.

Gonzalo Frias, a retiree-defendant who was a shovel operator at the Ray Mine in Kearny, Arizona, had been president of the local United Steelworkers union when the contracts were negotiated, and said it was ludicrous to think the workers would have agreed to lower wages in exchange for health coverage until sixty-five if the agreement meant the company could pull the plug at any time. The Steelworkers supported the retirees in the lawsuit. “ ‘Unforeseen circumstances’ do not justify a breach of contractual obligations . . . to persons living on fixed income who can ill afford to pay the costs the company has shifted upon them,” they told the court. It added that the “alleged ‘severe financial distress’ has not prevented the company from paying its top management quite handsomely.”

Like the GenCorp retirees, the Asarco retirees ultimately settled, in 2007, agreeing to pay some of the benefits, with the amounts remaining unchanged for six years. It was a reprieve of sorts. They felt lucky to get that: The company, facing a number of environmental lawsuits, filed for bankruptcy in 2005 and emerged in 2010.

CIRCUIT BREAKER

In early 2002, Rexam, a maker of cans for beverages, including Diet Coke, made a tiny increase in retirees’ share of the cost of prescription drugs. For more than a year, retirees complained to the company that it had no right to change the negotiated agreements, which stated that “Company-paid major medical coverage will be provided for all retirees.” Successive contracts noted that the parties had agreed that “the Company will continue to pay the entire cost.” But the changes weren’t a big enough deal for the retirees to take legal action.

The company was also planning to make more major cuts in benefits. But rather than wait for the retirees to sue, it sued the retirees. Under legal rules, the first party to file generally gets to have its case heard in the location where it files the suit. So, suing the retirees first enhances a company’s chances to get the case heard in a circuit with pro-business judges.

In “declaratory judgment” suits, such as Rexam’s, the company asks a judge to rule that the company has the right to change the retiree health plans. Rexam pointed to a line in a booklet it gave retirees. It stated that the company “reserves the right to amend, modify or discontinue the plan in the future in conformity with applicable legislation.”

The retirees said the clause meant that if government legislation or regulations changed, then the plan might have to be modified accordingly. It didn’t give the company a right to unilaterally change the agreement. They pointed to another sentence stating that the right to modify the benefits “was subject to any applicable collective bargaining agreement.” In any case, the union wouldn’t go to the trouble of negotiating benefits for retirees if they assumed the employer could subsequently cancel the benefits at will. This was an inference in favor of union retirees.

Rexam filed in Minneapolis, within a conservative circuit. There was little logic to this from a geographic standpoint. Minnesota was home to only 100 of the 3,600 retirees, and the company—known as American National Can before Rexam bought it in 2000—is based in Chicago and has offices in Charlotte, North Carolina. It’s a subsidiary of Britain’s Rexam PLC.

The retirees, supported by the United Steelworkers of America, countersued in Toledo, Ohio, asking that the case be dismissed or transferred there. They said that Rexam had made a preemptive legal strike in order to choose the jurisdiction.

The judge in Minneapolis rejected all the retirees’ arguments. She ruled that the case would remain there, because the company had 110 employees there. She said the retirees threatened to sue and hadn’t sued quickly enough, so couldn’t claim that Rexam was suing as a preemptive strike—there was nothing to preempt. She also made a nonlegal observation: She cited a $79 million liability for the benefits on Rexam’s balance sheet and said the company was harmed “because it cannot lower the liability unless it reduces the retirees’ benefits.”