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

Martin is a tenacious fighter in her own right. And having raised three teenagers, she has little patience for companies that flout the rules. Martin ascertained that the pertinent pension plan rules were contained in a 1978 pension document and asked Motorola to produce it. No response. She requested it again. No response. Martin filed a motion to compel the company to produce the document. Motorola finally complied—a year after she’d requested it. An actuary who then reviewed the pension rules determined that Motorola had failed to pay Loewy the correct amount for eight years. It owed him a total of $181,500.

Motorola didn’t agree with that conclusion. So Loewy, having “exhausted all his administrative remedies,” as they say in ERISA, was finally free to sue. The complaint, filed in federal court in Phoenix, was a class action because, as it turned out, Motorola had miscalculated the benefits of roughly five hundred other retirees who, like Loewy, had worked past age sixty-five.

In court, Motorola maintained that it had calculated Loewy’s pension correctly. Its reasoning: Just because the method it used wasn’t in the rule book, the plan didn’t actually have language forbidding the method, and thus it was allowed.

It also said it had cooperated exhaustively with Loewy, and that its benefits administrator, Hewitt, had spent 196 hours responding to Loewy’s lawyer’s document requests. In a sworn affidavit, Lopez said she had “repeatedly explained the benefits calculation and gave him plan documents.”

As his claim wended through the court, Loewy spent his time organizing and translating his records from the war years, including a eulogy that a Protestant clergyman gave in 1944 at his brother’s funeral: “Max found death in this uneven battle,” the cleric said. He fell against an adversary that had outclassed him “in number and strength of weapons.”

Sifting through old photographs of his days with the partisans, he came to a picture of Max in his school uniform before the war, and he shook his head. “I’m eighty. My days are numbered. I only hope to live long enough to see this suit completed.”

He got his wish. The judge didn’t buy Motorola’s arguments, and the company agreed to settle. If Motorola had recalculated Loewy’s pension in the first place, when he had asked for it, it would have been out a total of about $9,300. Having picked a fight with the wrong guy, Motorola now had to pay more than $11 million to more than one thousand retirees. The payments went out in 2006. Loewy died a few months later.

CHAPTER 12

Epitaph: THE GAMES CONTINUE

JUST DAYS AFTER the massive health care overhaul became law on March 23, 2010, large companies announced that health care reform was already costing them billions of dollars. Caterpillar was the first, announcing a $240 million hit, followed by Deere & Co., ($220 million), Verizon ($970 million), and AT&T, with the largest charge of all, $1 billion.

These statements were red meat to Fox News, where pundits concluded that this was evidence that “Obamacare” was already on its way to bankrupting the country. Former Arkansas governor Mike Huckabee, speaking on Fox Business Happy Hour, was troubled by the impact on Americans as a whole. “Whether it’s your phone bill or the cost of a tractor, the only way the companies can survive is they’re going to have to up their cost, cut their benefits, lay off employees.”

Administration officials went on the defensive, frantically trying to explain that the “charges” were merely accounting effects having to do with the retiree health coverage, not employee health coverage, and had something to do with Medicare subsidies. But they might as well have been speaking Sanskrit to the nimble-fingered reporters rushing to get the Really Big Numbers online and into print. In the initial press frenzy, no one reported that none of the companies taking these massive charges was on the hook for a cent. The $1 billion charge that AT&T was taking? It represented the loss of a deduction for something that was costing the company nothing in the first place.

This mini-drama was just the latest example of employers crying wolf about the cost of retirement benefits, or, in this case, employer-subsidized prescription drug coverage. But it illustrates how employers continue to use the public’s ignorance of accounting and the way retiree benefits work to bamboozle analysts, employees, retirees, unions, Congress, and the courts.

This Medicare charade was just the latest inning of a game that started in late 2003, when Congress was poised to add prescription drugs to the things Medicare covered. Large employers recognized an opportunity: Many were providing prescription drug coverage to retirees as part of their retiree health benefits. Their basic message to lawmakers was “Why should we continue to provide prescription drug coverage if Medicare is going to start covering it?”