By Chairman George Miller on 11-20-2008, 04:38 PM
Today, the Democratic Caucus officially re-elected Rep. George Miller to chair the House Education and Labor Committee for the 111th Congress.
It is an honor and a privilege to continue to chair the Education and Labor Committee in the next Congress, and I thank my colleagues for their support.
If anything, this historic election reminded us that Americans from all regions, backgrounds and political stripes are united in our shared hopes and aspirations: A quality, affordable education for our children; a good-paying job with decent benefits; and a secure retirement after a lifetime of hard work. In a nation as great as ours, these dreams can – and must – be achieved.
I look forward to working with all members of this committee, the next Congress, and the new administration on a Main Street recovery plan that will revitalize our economy, and toward our larger goal of rebuilding and strengthening America’s middle class. Like President-Elect Obama, I’m confident we can reach this goal by working in a bipartisan way that transcends the politics of the past, and by making sure that our government is open, accountable and engages the public. Moving forward, our committee will also build on our efforts to use innovative strategies to make sure that the voices of Americans around the country are heard here in Washington.
I also know that no one is more excited about the opportunities before us than Senator Ted Kennedy. No one has fought harder for our children, workers and families than Ted, and no one could ask for a better partner in these challenging times. I am thrilled that he has returned to the Senate, and look forward to continuing to work closely with him on the important tasks that lie ahead.
More information on Chairman Miller's priorities for the committee in the 111th Congress »
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By Chairman George Miller on 11-14-2008, 04:42 PM
Today, a Wall Street Journal editorial further perpetuated an active campaign that is blatantly misrepresenting Democratic efforts to preserve and strengthen Americans’ retirement security. In light of these ongoing distortions, Chairman George Miller reiterated the committee’s legislative priorities in preparation for the next Congress’ efforts to help Americans enjoy a secure retirement.
The Wall Street Journal is needlessly creating fear among Americans rightly worried about their retirement security by misrepresenting my efforts to strengthen workers’ retirement savings – attacks that have no basis in fact. I do not support ‘abolishing’ 401(k)s, moving these plans, or changing their tax status, plain and simple. The truth is that Democrats in Congress are working to preserve and strengthen 401(k)s.
Last year, our Committee worked with the employer and investment community to pass legislation to increase transparency and protect workers’ hard-earned retirement savings from excessive and hidden fees that could cut deeply into their accounts. In addition to providing workers with better information about the fees they’re paying, we know other steps must be taken to make sure our retirement system is as strong as it can be for our nation’s workers and retirees. These principles will help guide the next Congress as we work to ensure that every American can enjoy a safe and secure retirement.
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Recent hearings held by the committee have shown the devastating toll the economic downturn has leveled on Americans’ retirement savings, including the loss of over $4 trillion in pension benefits.
To help preserve and strengthen 401(k)-style and other retirement plans, Chairman Miller today released the following principles:
• Expose excess fees that Wall Street middle men take from workers accounts. Currently, millions of Americans are paying excessive 401(k) fees at the hands of Wall Street middle men who refuse to fully disclose and detail extra fees and charges paid by employees. This is wrong, especially in light of the dramatic losses faced by millions of Americans in their 401(k) plans this year. According to the GAO, even a difference of just 1 percentage point in hidden fees can drastically eat into a worker’s 401(k) account balance – by as much as 20 percent or more over a career. This 1 percentage point difference could cost a worker with a $20,000 account balance more than $12,000 in reduced savings over this time period.
• Bring young and low-wage workers into the system at a higher rate through automatic enrollment for employers already offering 401(k)s. Unless employers more quickly automatically enroll new workers, nearly 40 percent of workers born in 1990 will have no 401(k)-style savings at all when they retire, according to the GAO. Current law allows employers to automatically enroll their workers in their companies’ 401(k)s but employers have been slow to enroll employees. Studies show that automatic enrollment can increase participation by as much as 35 percentage points. And even after 3-4 years, the vast majority of those automatically enrolled are still participating.
• Ensure that retirement accounts have diversified investment options with low fees. Many 401(k) plans have inadequate, and all too often, expensive investment options. Workers should have access to simple investment options, including low-cost index funds.
• Ensure workers have access to reliable independent investment advice. Too often, workers are given self-interested advice from financial advisors or money managers – advice that may not always lead to the best retirement investment. All plan participants should have access to objective advice and investment information to help them better manage their savings.
• Reduce vesting periods and improve portability of 401(k) accounts. Workers are leaving millions of dollars on the table because of employers’ rules that take away their savings when they change jobs. In many cases workers are required to work at a firm for three years or more before they can fully access their retirement savings. In addition, the GAO says that by automatically rolling over accounts into a new retirement plan when workers leave a job, Americans’ retirement savings would increase by a projected 11 percent on average, with the biggest percentage increases for low-income workers.
In April, the committee passed the 401(k) Fair Disclosure for Retirement Security Act (H.R. 3185), which would help workers shop around for the best retirement investment options by providing complete information on how much in fees is taken from their retirement accounts. The legislation was supported by the AFL-CIO, the AARP, the American Society of Pension Professionals and Actuaries, the Council of Independent 401(k) Recordkeepers, and the Pension Rights Center.
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By Chairman George Miller on 11-05-2008, 12:14 PM
Yesterday's historic election of Senators Barack Obama and Joe Biden as our next President and Vice President was a true victory for every child, student, worker and family in America. I congratulate Senators Obama and Biden, and I look forward to working closely with them to change the direction of our country and get our economy moving forward again.
During the past two years, the Education and Labor Committee has focused on strengthening our nation's middle class – a priority that Senators Obama and Biden clearly share, as demonstrated by their careers and the focus of their historic campaign.
With our country facing the worst economic crisis since the Great Depression and our global leadership at risk, this mission is more important than ever.
In the next Congress, this committee will be dedicated to working with the new Obama-Biden administration and members of both parties of Congress to rescue our economy by rebuilding and strengthening America's middle class. We must get started right away by passing a Main Street recovery plan that will get Americans back to work and provide immediate relief to families and workers struggling with long-term unemployment and depleted state budgets.
We will dedicate ourselves to improving our nation's schools and continue our efforts to make college more affordable and accessible, so that every student has the opportunity to succeed. We are committed to rebuilding our country's roads, bridges and schools, and to green retrofitting and other modern energy programs that will create millions of good-paying jobs and reestablish America's technological leadership.
We will fight to restore workers' rights, so that every American can benefit from economic opportunity. And we will make the preservation and strengthening of retirement savings a priority, so that all Americans can enjoy a secure retirement after a lifetime of hard work.
Today marks a new beginning. Together, we can rescue our economy, restore the promise of the American Dream, and ensure that, in a nation as great as ours, the interests of students, workers, families and retirees are at the heart of our nation's priorities.
More information on recent hearings on the economy and the committee's work over the past two years.
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By Betsy Miller Kittredge on 10-24-2008, 01:48 PM
The U.S. Pension Benefit Guaranty Corporation’s investment losses now total almost $5 billion in fiscal year 2008, according to information released at a Committee hearing today.
Earlier this week, the PBGC reported a $3.1 billion loss in equity investment in the first 11 months of fiscal year 2008. The September loss of $1.7 billion in stocks increased PBGC’s total losses for the fiscal year to $4.8 billion.
The dramatic loss comes at a time when the PBGC is beginning to implement a new controversial investment policy approved in February. The new policy would significantly shift PBGC assets from fixed-income securities, such as U.S. Treasuries, into more risky securities like real estate, emerging market debt, junk bonds and venture equities.
“With the current market turmoil, we have to ask the question whether it is wise to invest our nation’s pension backstop in volatile equities,” Chairman George Miller said.
The head of the PBGC, Charles Millard, appeared before the Committee today regarding the agency's financial problems that may threaten the retirement security of millions of Americans. The PBGC is a government agency that insures traditional private-sector pension plans, manages failed pension plans and pays benefits to workers of those plans.
PBGC investment documents »
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By Chairman George Miller on 10-22-2008, 03:11 PM
Today, I chaired a U.S. House Committee on Education and Labor hearing in San Francisco where we examined how the current financial crisis is affecting retirement savings. Witnesses told us that after a lifetime of planning and saving, a growing number of retirees are facing shrinking 401(k)s and increasing insecurity as a result of the ongoing financial crisis. While this crisis may have started on Wall Street, it's Main Street that stands to suffer the most. More than ever before, there is an urgent need to help Americans strengthen their retirement savings.
We also learned today that U.S. Pension Benefit Guaranty Corporation lost at least $3 billion in stock investments during the last fiscal year through August, and invested a significant portion of its funds in mortgage-backed securities. The head of the PBGC, Charles Millard, will testify before the committee on Friday in Washington regarding the agency's financial problems.
Taxpayers subsidize 401(k) plans by $80 billion dollars annually. For a taxpayer investment of this size, we must ensure that the structure of 401(k)s adequately protects the nest eggs of participating workers.
At a minimum, we know that much greater transparency and disclosures in 401(k) investment policies are needed, to protect workers from “hidden” fees that could be eating deeply into their retirement accounts.
And with seniors poised to suffer the most from the current economic turmoil, we must suspend an unfair tax penalty for seniors who don’t take a minimum withdrawal from their depleted retirement accounts, like 401(k)s. We’ll push to enact legislation based on a bill Rep. Rob Andrews recently introduced, so that seniors who have seen their retirement savings evaporate don’t get penalized for trying to build those savings back up.
At the hearing today, we heard from Roberta Quan, a retired school teacher from San Pablo, CA, who is also caring for her husband who has Alzheimer’s: "The recent unstable financial crisis is having a devastating effect on my life. A lifetime of savings in catastrophic decline is demoralizing. The bottom line is that I am retired and unable to re-earn lost funds."
Steve Carroll, a retired writer from Petaluma, CA, told us: "Our monthly budget has been severely depleted for life. We still have our IRAs. But, as they are in mutual stock funds they are so far down in value that selling any of them right now, as the law requires of [my partner] Chuck, the loss would be an enormous percentage of the investment."
Current regulations require account holders of 401(k)-type account to withdraw a minimum amount of money every year after they reach 70 ½ years old. If seniors do not take out a minimum amount based on an Internal Revenue Service formula, they are subject to a 50 percent penalty. For instance, if an individual fails to withdraw $4,000, they would be assessed a $2,000 tax the next year.
Registered investment advisor Mark Davis told us that a temporary repeal of minimum required distribution rules could help some retirees. On October 10, Rep. Andrews and I called on U.S. Treasury Secretary Henry Paulson to suspend the tax penalty for retirees who are forced to make withdrawals but want to have additional time to rebuild their retirement savings.
Other witnesses spoke about problems with the current retirement security system where individually directed 401(k)-type plans have become a worker's main retirement savings vehicle. Where investment decisions were once made by professionals managing a traditional pension portfolio on behalf of workers, the responsibility of picking the right investments and implementing retirement savings strategies are left up to an individual account holder.
The Education and Labor Committee passed legislation earlier in the year that would help workers shop around for the best retirement investment options by providing complete information on the fees taken from their retirement accounts. According to the Government Accountability Office, a 1 percentage point difference in fees can reduce retirement benefits by nearly 20 percent.
We started this investigation last week, as part of a series of hearings the House is conducting to investigate the causes of the financial crisis, and what additional steps are needed to protect homeowners, workers, and families.
Last week, Peter Orszag, the director of the Congressional Budget Office, told us that American workers have lost more than $2 trillion in retirement savings over the last fifteen months – an astonishing loss that could lead workers to delay their retirement.
Several experts also told us that workers closest to retirement could suffer the most from this financial tsunami. But while the housing and financial crises are intensifying retirement insecurity, we also know that workers’ retirement savings have been declining for quite some time. Rising unemployment, stagnating wages and benefits, and a shift away from more traditional defined-benefit pension plans have been making it much harder for workers to save for retirement while juggling other expenses.
Now, the number of investors taking loans on their 401(k) accounts is increasing. And hardship withdrawals are also increasing. T. Rowe Price estimates a 14 percent increase in hardship withdrawals just in the first eight months of 2008. And, all the signs point to an increased frequency of 401(k) loans and hardship withdrawals in the coming year.
As other committees’ hearings have revealed, many of the Wall Street titans responsible for this crisis have still escaped with their plush perks, lavish spa trips and golden parachutes intact. This is an outrage. For too long, the Bush administration anything goes economic policy allowed Wall Street to go unchecked.
As we look at how we can rebuild workers’ retirement savings and our nation’s economy, the Democratic Congress will continue to conduct this much-needed oversight on behalf of the American people.
Being able to save for retirement after a lifetime of hard work has always been a core tenet of the American Dream. We can’t allow the promise of a secure retirement for workers to become a casualty of the financial crisis.
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By Betsy Miller Kittredge on 10-22-2008, 03:01 PM
Chairman George Miller announced at a hearing today in San Francisco that the U.S. Pension Benefit Guaranty Corporation lost at least $3 billion in stock investments during the last fiscal year through August, and invested a significant portion of its funds in mortgage-backed securities. The losses were only partially offset by modest gains in other investment classes. It is likely that losses will be substantially worse after September results are reported.
The PBGC is a government agency that insures private-sector pension plans, manages failed pension plans and pays benefits to workers of those plans.
The head of the PBGC, Charles Millard, will testify before the House Education and Labor Committee on Friday regarding the agency's financial problems that may threaten the retirement security of millions of Americans.
"At a time when Americans' anxiety about their economic future is escalating, Millard's testimony is vital to better understand the financial situation of the nation's pension guarantor," said Chairman Miller. "Now is the time to gather all the information we need in order to rescue the economy and help workers and retirees."
According to a document obtained by the Education and Labor Committee and based on preliminary unaudited figures, the PBGC lost more than $3.1 billion in its trust fund related to the agency's stock investments for the first 11 months of its 2008 fiscal year. The PBGC trust fund invests pension assets in order to pay out benefits to workers whose pension plans were turned over to the agency.
The recent dramatic loss also comes in light of a new controversial investment policy the agency recently approved. The new policy would significantly shift PBGC assets from fixed-income securities, such as U.S. Treasuries, into more risky securities like real estate.
Millard recently testified before Congress recently that the new investment policy would not add any additional risk to the long-term stability of the trust fund.
The invitation to answer questions from Congress comes after the Millard rebuffed a committee subpoena in July that demanded the agency turn over documents regarding a report into the agency's mismanagement and lax governance practices.
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By Betsy Miller Kittredge on 10-16-2008, 02:23 PM
In December 2006, Rep. George Miller, the new Chairman of the House Education and Labor Committee, announced that the Committee would be dedicated to the mission of strengthening America’s middle class. And over the past two years, the Committee has delivered on its promise. America's students, workers, and families need help more than ever during the current financial crisis, and the Committee will continue its work to strengthen the middle class. Below is an overview of the Committee’s legislative milestones in the 110th Congress.
Affordable colleges »
The Committee has enacted three laws that together will make college more affordable and accessible for middle class students, create a more efficient, consumer-friendly, and fair American higher education system, and protect federal student loans from turmoil in the economy.
High quality education »
The Committee enacted legislation to strengthen the nation’s premiere early childhood program, giving more young children the skills they need to succeed in school and in life. The Committee also helped enact emergency aid to help Gulf Coast schools and colleges still working to recover from Katrina and Rita. In addition, the Committee took a key step toward improving learning conditions for schoolchildren by passing legislation to help schools modernize their facilities and become more energy-efficient.
A competitive workforce »
The Committee has enacted legislation that builds on the principles Democrats first laid out in their “Innovation Agenda – A Commitment to Competitiveness to Keep America Number One.” These new laws will help prepare more Americans for jobs in emerging, high-tech industries that will keep our nation more competitive and create more good-paying jobs here at home.
Fairness in the workplace »
During the first 100 hours of the 110th Congress, the House passed the first increase in the minimum wage in ten years. Since then, Committee has passed a series of key measures to strengthen workers’ rights, improve workplace safety, end discriminatory practices that have unfairly eroded workers’ pay and other benefits, and help workers balance demands of work and family.
Retirement security »
While roughly 50 million American workers now have 401(k) style retirement plans, studies show that the vast majority of these workers don’t know how much they are paying in fees to the companies that service their 401(k) plans – fees that could be eating away at their retirement savings. The Committee passed legislation to help workers better understand these hidden fees and strengthen their retirement security.
Safe children and youth »
The Committee enacted laws to protect America's children and youth, including runaway, homeless and missing children, and to increase penalties when employers violate child labor laws. The House also passed legislation to protect teens in public and private residential programs.
Accountability and responsibility »
The Committee conducted oversight over government agencies in its jurisdiction, shining a light on the Bush administration’s failures to safeguard taxpayer dollars used to fund education programs and its efforts to weaken protections for workers. In some cases, the Committee’s investigations paved the way for legislation and spurred the U.S. Department of Justice to pursue a criminal investigation.
By the numbers...»
The Committee has held 113 hearings and heard from 683 witnesses in its efforts to grow and strengthen the nation’s middle class. In the next Congress, the Committee will continue to build on this record by working to improve the lives of children, students, workers and families.
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By Betsy Miller Kittredge on 10-07-2008, 03:57 PM
American workers have lost as much as $2 trillion in retirement savings over the last year – highlighting the devastating toll that the nation’s financial crisis is taking on their retirement plans, witnesses told the Committee today. Today’s hearing was one of several that House Democrats scheduled to investigate the causes of the financial crisis and what additional steps should be taken to protect taxpayers, homeowners, workers, and families.
“Unlike Wall Street executives, American families don’t have a golden parachute to fall back on,” said Chairman George Miller. “It’s clear that Americans’ retirement security may be one of the greatest casualties of this financial crisis.”
According to the Congressional Budget Office, this multi-trillion dollar loss in workers’ retirement wealth could further slow the ailing economy.
“To the extent households view balances in defined-contribution plans as part of their overall portfolio of wealth, a decline in those balances could lead people to reduce or delay purchases of goods and services,” said Peter Orszag, director of the CBO. “It could also lead some workers to delay their retirement.”
According to a survey released today by the AARP, in the last year 20 percent of baby boomers stopped contributing to their retirement plans because they have had trouble making ends meet. As several witnesses explained, workers closest to retirement may suffer the biggest hit from the financial meltdown.
“The current financial crisis has certainly highlighted the fact that 401(k) participants—whose 401(k) account represent their sole retirement savings—bear all the investment risk,” said Jerry Bramlett, president and CEO of BenefitStreet, Inc., an independent retirement plan administration firm. “The pain is particularly acute for those participants closer to retirement whose retirement income expectations have been significantly impaired possibly resulting in the need to postpone retirement.”
The AARP also found that a third of workers surveyed are considering delaying retirement as a result of the financial and housing crises.
“In the last few weeks, we’ve been confronted with older worker and retirees’ lives being turned upside down; their panic tops-off an already existing state of chronic anxiety about retirement futures,” said Teresa Ghilarducci, professor of economic policy analysis at The New School for Social Research.
Witnesses also said that while the current financial crisis is reducing workers' savings today, retirement insecurity had been steadily growing over the past decade.
“While the events that have taken place over the past several weeks have shone a spotlight on how affected Americans’ retirement plans can be by such volatility in the financial markets, it is important to keep in mind that Americans’ retirement security has been in distress for much longer than the past few weeks,” said Christian Weller, senior fellow at the Center for American Progress “In fact, retirement security has been a growing concern for Americans for many years due to limited retirement plan coverage, little retirement wealth, and increasing risk exposure of the individual.”
Chairman Miller said that greater transparency in retirement plans and the fees workers pay is needed, especially when workers are losing money and looking for the best deal.
“401(k) holders lack critical information about how their money is managed and what fees they pay. I’m here to say right now, those days are over,” said Chairman Miller. “We must have more transparency in 401(k) investment practices. The Wall Street veil of secrecy must end.”
Earlier this year, the Committee passed a bill introduced by Chairman Miller that would require workers to receive clear and complete information about fees that – in some cases – are cutting deeply into their 401(k)-style retirement savings.
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By Chairman George Miller on 10-07-2008, 01:13 PM
This statement was made today by Chairman George Miller at the House Education and Labor Committee's hearing on the "Impact of the Financial Crisis on Workers' Retirement Security."
Good afternoon.
Last week, Congress approved an emergency rescue plan in response to the worst financial crisis our country has seen since the Great Depression. We know that this plan alone will not magically turn the economy around. But we are confident that without it we will not have the chance to move forward.
We insisted that the plan include strong protections for taxpayers and tough accountability – neither of which was included in the President’s original request to Congress.
Immediately after the plan was approved, Speaker Pelosi announced that the House would conduct a series of hearings to investigate the causes of the current financial crisis and what steps we should take next to protect homeowners, workers and families struggling today.
As part of that commitment, the Committee on Education and Labor today is holding a hearing to explore how this financial crisis is impacting the retirement security of American families.
Yesterday, the House Oversight and Government Reform Committee launched the first of many oversight hearings examining the toxic mix of corporate greed, recklessness, and deregulation that created this financial crisis.
During his testimony, Lehman’s CEO, Mr. Fuld, showed no remorse for his catastrophic mismanagement of the company. In fact, he repeatedly denied responsibility for running the storied Lehman Brothers investment house into financial oblivion.
He refused to admit that his own reckless management – and his industry’s success of keeping regulators at bay – directly contributed to this historic financial crisis that is costing taxpayers, shareholders, and the nation’s current and future retirees billions of dollars from their nest eggs.
All the while, he insisted on taking obscene multi-million dollar bonuses for his executive teammates.
Unlike Wall Street executives, American families don’t have a golden parachute to fall back on.
It’s clear that their retirement security may be one of the greatest casualties of this financial crisis.
The current financial and housing crises are stripping wealth from American families at a record rate.
A new poll just found that 63 percent of Americans are worried that they will not have enough savings for their retirement. Tragically, they may very well be right. Due to the collapse of the housing market and the financial crisis, trillions of dollars that Americans were counting on has been lost.
Americans were counting on much of this wealth for their retirement. Now it is gone – as is their ability to adequately fund their retirement.
Even before the current meltdown, middle-income families were losing ground due to the decline in middle-class wages over the last decade – making it harder for them to save for their retirement and family emergencies.
Retirement and financial experts now predict that retirees and older workers who rely on financial investments for retirement income may suffer more than any portion of the American population in the coming years.
According a survey released today by the AARP, one in five middle-aged workers stopped contributing to their retirement plans in the last year because they had trouble making ends meet. One in three workers has considered delaying retirement.
Now, the number of investors taking loans on their 401(k) accounts is increasing. And hardship withdrawals are also increasing.
T. Rowe Price estimates a 14 percent increase in hardship withdrawals just in the first eight months of 2008.
And, all the signs point to an increased frequency of 401(k) loans and hardship withdrawals in the coming year.
It makes sense that more Americans will be raiding their retirement accounts as they deal with rising unemployment and increasing costs of basic necessities.
Unfortunately, these drastic measures taken by workers today will have a long-lasting impact by significantly reducing account balances once these workers reach retirement age.
Over the past 12 months, more than a half trillion dollars have evaporated from 401(k) plans as a direct result of the crisis in the markets.
Some experts say that it will take as long as 3 years to recover market losses in 401(k)-style accounts – but only if the market turns around soon.
Just like consumer directed retirement plans, traditional pension plans are not immune from the financial crisis.
Although pension plans hire professional money managers and are required to be diversified, these plans will likely lose value as a result of the weak performance of the investment markets.
Sophisticated pension funds lost 20 to 30 percent of their value during the 2001 recession and took several years to overcome those losses.
We must keep our eye on these plans and I await further data on the health of our nation’s pensions.
While this crisis began on Wall Street, much of the financial burden will ultimately be borne by Main Street. And this did not happen overnight.
With the Republicans’ help and armed with their powerful lobbyists, Wall Street cunningly held off fair regulations by Congress, arguing that Americans would be better off if left to their own devices.
As Congress continues our investigations into this crisis, we cannot allow those responsible to emerge unscathed. The American people are paying the price of this go-go, Wild West approach to governing.
One cost will be the concern that our nation’s workers will not have sufficient savings to ensure a secure retirement after a lifetime of hard work. In the coming months, this committee will examine what measures may be needed to ensure a safe and secure retirement for workers, retirees and their families.
For starters, we know that 401(k) holders lack critical information about how their money is managed and what fees they pay.
I’m here to say right now, those days are over.
We must have more transparency in 401(k) investment practices. The Wall Street veil of secrecy must end.
I would like to thank all of our witnesses for joining us today. I look forward to their testimony.
And I expect that we will be back here repeatedly until we can ensure greater security for the retirement of hard-working Americans.
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By Betsy Miller Kittredge on 09-25-2008, 04:40 PM
Stronger protections in federal law are needed to ensure that companies deliver on their promise to provide health care to retired workers, witnesses told the full committee today. With insurance premiums skyrocketing and companies looking to cut expenses, an increasing number of companies have been rolling back or eliminating promised retiree health benefits. The Kaiser Family Foundation estimates that the share of large firms offering retiree health coverage fell by half between 1988 and 2005, from 66 percent to 33 percent.
“Through the years, millions of workers have retired believing that they would be provided with the health care benefits that they were promised by their employer, benefits that they earned. What many of those workers found was their former employer eventually made a cost-cutting decision to renege on that promise and cut or reduce those health care benefits,” said Rep. John Tierney.
One of those companies was Raytheon Missile Systems, a defense contractor. Despite guaranteeing lifetime heath coverage to its retirees in the 1990s, in 2004 the company notified retirees that they would be have to pay several hundred dollars a month to continue coverage. “Retirees have been forced to sell a large part of their retirement dreams in order to afford the premiums they now have to pay,” said David Lillie, a Raytheon retiree. “More than a few retirees have had to mortgage their homes that were paid off in order to pay medical expenses that were not covered under a cheaper insurance plan.”
Employees have few protections when trying to prevent employers from shrinking or eliminating health benefits. Employer-sponsored health insurance for both retirees and current employees is voluntary. If an employer chooses to provide these benefits, employers are generally allowed to modify or terminate benefits, as long as they disclose it in the fine print. “The law is hostile to reasonable employee expectations about retiree health benefits – expectations created by the employer and from which the employer benefited in terms of increased employee loyalty and productivity,” said Norman Stein, a University of Alabama law professor and pension expert at the Pension Rights Center. “We know that in a real work environment, rather than the imagined work environment conjured up by the judge, employees tend to believe communications – oral and written – that they receive from their managers.”
The trend of scaling back or canceling promised health benefits accelerated in the 1990s when, as a result of an accounting rule change, companies were forced to disclose future health care obligations as a part of their balance sheet. By rolling back promised benefits, companies could result in a healthier bottom line to shareholders.
Historically, employer-sponsored retirement health benefits have been an essential source of health care coverage for retired workers and were a common benefit among larger institutions. As a part of their compensation package, loyal and dedicated employees were promised health benefits when they retired. “When most of the current retirees were in the workforce, larger American companies universally offered retiree health care to their employees and retirees as an incentive to retain trained employees,” said C. William Jones, chairman of ProtectSeniors.org, an advocacy group founded to protect retiree health care. “The workers accepted the IOU for retirement health care and other benefits in exchange for lower wages, and fewer vacations and holidays.”
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