J EBRI 13 15 I0 426 16 318 11 7 Introduction 12 14 17 19 20 24 21 223 2 while asset reversions at that jobto . the Ourplan estimates sponsor ofare1984 subject surveyto daatalO0-percent indicate penalty that a challenging retirement costs. Available Retiree In status, employers' tuhealth rdata n, higher unless oninsplan right urance cotherwise osts provisions toplans may modify defined lead typically aplan mong emplin obenefits yers current the define labor toworkers for terminate benefits agreement. current suggest their in retirees As tthat erms retiree early for in of billion health Projected tax-qualified Although insurance (U.S. Retiree no Dept. retiree benefits nationally Health of Labor, health Benefit thatrepresentative 1986) continue insurance Recipiency to several after plans, data early times employers describe orthat normal magnitude. employer-plan have retirement. not generally However, rules Probably requirementsalso and important pension in vemployers' esting rules, decisions the not reduction to prefund of pension is the current, vesting define retirees to retireplan wowith uld benefits receive continued asbenefits service health only benefits coverage if they (see rather qualified Table than 2).for cash,The immediate coordination projectedbenefrate its of Tr qualification easury has paralleling shown interest currentin pension allowing vesting cash-denominated rules, retireeretiree health health plans References 6 TABLE I TABLE 2 tax. Furthermore, contributions to a VEBA for retiree health insurance significant H as future he ealth alth 1960,plinsurance retirees, ans Cantor minority or significantly v.as the ofBerkshire aproportion retirees retirement modify Life overwith benefits benefit Insurance age an65 employer is for with Company afuture health major contribution retirees. established insurance source ofto benefits that pri hevaate lth an periods perceived acovered n ongoingto services; retiree 5plan years(Eardman the heaa slth varequired lue insur v.of Bethlehem athe nce by health the as 1986 a Steel insurance vested TaxCorp. Reform benefit. benefit, and Act Musto therefore, could Commonly, v. entail American rises plana relatively for even retiree the most unfavorable health conservative insurance tax treatment estimates benefit suggest eligibility, of employer that most contributions funding retiree accrued health forliability retiree plans benefits among benefits upon termination theamong (Ross, youngest retirees' 1985), ofcohort employment multiple an (workers optionwith plans that agethe from 25 may plan 34 different beinsponsor. increasingly 1979)pastisThe employers approximately number attractive would of new the be to are likely to confront substantial new costs. Such rules might, at minimum, TABLE 3 Retirees at Age 67 with IIealth Insurance Benefits Continued benefits are included in the section 415 limits on pension and profit-sharing insurance BNA Pension coverage Reporter, for"Unchanged retirees. Retiree For early Health retirees, Benefits Mnot andated yet Under eligible for from health benefits a insurance past may be employer about benefits. the (16 same percent) as today's report retirees. no pensionFor 85 income. percent Thus, of workers our employer sponsors as the may cost believe notof withdr that covered awthe orhealth services terminate insurance rises. a retirement benefits Since employerk-sponsored progr provided am after to retirees the employee retiree can General revision for that The retiree accompany estimates Corp.12-also of their health pension presented serinsur vbrought iceplans ance in requirement probably this under would section ERISA) greatly define for are the suggest entitlement based increase retiree that on aemployers' health microsimulation employers to planplan.benefits may current Our be of Most retirees with continued health insurance benefits receive an employer same. aemployers n immediate However, as they issue. the seek projected to Thislimit problem out-ye number arnotwithstanding, of liability new retirees for retiree benefit (and health deferral their benefits. spoucses) ould double retirees ultim projected ate benefit to receive recipiency health among insurance future benefits retirees, would subst riseantially by 243 Retiree Health Insurance Benefits from an Employer Plan: Projections by 1979 Age Cohort PreliminaRetirees ry Injunction" at Age 67Vol. with 12Health (September Insurance 16, 1985), Benefitspp.Continued 1265-66. 4 Among Current Elderly by Family Income, 1984 Medicare, the offer of continued health benefits from their employer plan may plan projections has health in larger contributions complied insurance establishments maywithunderstate benefits for allhighly conditions participating aretotal compensated fullyentitling recipiency indexed inemployees. health to himby increases or insurance ignoring her toinplans retirement recipiency the cost that ofcontinue rights. among health un be within spending able withdrawn to thefor modify pension from or the an the modified benefit. Employer plan scope vesting freely. and Plan Forprovisions under ex standard. ample, However, Altern of assuming ative That cover a series age Vesting is,employers provided of mostRules: court retiree ato mortized cases retirees, health have an projections, pension contribution and retiree however, to theirhealth assume coverage. insurance that employers In 1984, recipiency 80 retain percent among the pre offuturetirees 198 re 7 retirees. ERISAagepension 65 For or raising receiving percent significantly over employers' retiree the raise40-year health theliability ultimate period. benefits accrual rate In rises the of more benefit for near-term than retiree recipiency 46 (among percent health workers among over benefits. retirees. age the 55-64 40yearThe in 1979 Ase Cohort Buck Consultants, cited in: Employee Benefit Research Institute, Projections by 1979 Age Cohort 13 All Elderly Elderly With Retiree Health Benefits a The Prevalence of Retiree Health Benefits retirees be Furthermore, a critical withoutan factor employer's pensionin the income contractual decision or with toobligation retire. pension Among toincome retirees Medicare-eligible only cannot from be a coverage "Employer-Paid after retirement, Retiree retiree Health cover Insuraage nce:is financed History at andleast Prospects in part for by vesting challenged once estim insurance care,athey ted the standard are total value plans theinlegality accrued receipt of to probbenefit qualify ably of of liability modifying the restrict relative retirees benefit. ofto for eligibility or $98the terminating hebillion alth valueinsurance of for over health pension benefits 20 benefits. years, insur benefits ato nce their full-time For benefits probably total most more with coverage from a past employer had an employer contribution covering the purpose of projecting retiree health recipiency among future retirees, the magnitude 1979), simulationeither ofperi these aod--r benefit-deferral aprojected ising rechanges cipien rule cy suggest orand a five em the ployear yers' pressure vesting reathat l rule li employers ability might have may for 55-64 45-54 Percent 35-44 Cumulative 25-34 Growth," EBRI Issue Brief No. 47 (Washington, D.C.: Employee Benefit 1979 A_e Cohort EMPLOYER-SPONSORED RETIREE HEALTH INSURANCE PLANS: Within Percent for Feretirees. deral tax-code restrictions on employer contributions to 401(h) accounts defined-contribution retirees, Researchthese Institute, plans plans. proOctober vide However, an 1985). important thesesupplement plans freestanding to Medicare coverage (without. an athe lteredplan bysponsor. collective However, bargaining at least that ii percent fails ofto plan represent participants retireein permanent rises overemployees time. This and bis ase true benefit with entitlement respect to on bothyears private of service. employer While plans employers, cost at least for part retiree the of assumed health the plan service benefits cost;requirement 39 inpercent 1985 would for had retiree have the full been health cost 235 percent pl ofancoverage eligibility of their paid Pension T_ax retiree Code Assuming health and Restrictions Retirement abenefits health onbIncome pl yRetiree annearly vesting Simulation Health one percent standard PlanModel Fundin_ per equ (PRISM) year. al to 15 was, the actual under contract defined confront Concluding about the to same Remarks terminate effect onorbenefit reorganize recipiency. their plans, or to reduce benefits for BENEFIT ENTITLEMENT, FUNDING Number Cumulative Number b Income of All (Persons in millions) 55-64 45-54 35--44 25.--34 7 AND THE POTENTIAL EFFECTS OF REGULATION 16 (millions) Percent (millions) Group Recipients may accompanying interests. Chollet, medium-size similarly Deborah pension orHowever, discourage large J., plan) "Financing establishments absent employers or associated aRetirement stated from anticipate with or Today using implied a and prim access them. aTomorrow: ry contr to defined Under act, continued Thecurrent contribution the Prospects lifetime cover law, age (which In rarely 1984, atautomatic least a3.1 lly million index pension early retirees benefits)(retirees and public age employer 45 to 64,plans and is the by to estimated I0 the the service yeEmployee aplan rs.actual sponsor. requirement Benefit plan Acost Research significant mayforexceed retirees' Instit minority- uthe te, coverage vesting updated -20 percent- period to $10.8 reflect billion of for elderly current the compared employer's retirees law and to benefit future, if pension not current, vesting retirees. standards used by employers in 1985 (before tax Retirees with coverage 5.2 5.6 5.6 7.6 for America's Workers," in Frank McArdle, (number America ininmillions) Transition: Employee 3 by employer The importance contributionsof rto etiree 401(h)heatrusts lth benefits that exto ceedretirees accrued and liability the prevcannot alence plnature Benefit their after (which an Benefits (normal spouses), aof typically nd, Fundin retiree for Ktherefore, retirement and the index health 6.0 Future pension with million insurance potentially (Employee nobenefits contribution elderly benefits Benefit offered atretirees the may Research from Consumer predominantly not (age thebeInstitute: 65 plan Price presumed or sponsor older, Index, byor Washington, and (Employee sm inferred analler index their estimated Early actual court spending cases challenging of $4.6 billion employer (U.S.plaDept. n terminations of Labor, 1986). brought under enhanced pension with health plto an,include insurance it is the prob from asimulation bly a not pastshorter ofemployer workerthanpaid qualification the the pension full for vesting costretiree of period. theheaplan lth Employers' principal options for funding accruing liability for retiree reform), The the difficult rate ofproblems health benefit reportedrecipien by cyretirees among workers whose health even now insurance retiring The vesting standards discussed above parallel the vesting rules ERISA Total 26.1 -- 5.4 20.7 -- Benefits from own plan 3.8 4.0 4.0 5.5 D.C., 1987). Current Practice a 5.2 5.6 5.6 7.6 8 Deborah Chollet, Ph.D. Benefits only as a dependent 1.5 1.6 1.7 2.2 benefits. Benefit Research Institute, 1986). employers)--may be with recaptured which they bybethe are most employer promised likely and to to cannot workers terminate behave used in raised response to cover important unfunded to relatively public liabilities policy minor from spouses) vestinghad forcover other age retiree from abenefits private such oras public-employer pensions. retiree health health contract themselves Alternative By thatshortening Using aggregately insurance law with the Vesting generally the assumptions no vesting benefits has contribution Rulesrisen interpreted for period described include Retiree more from forretirees' slowly the contributions taxqualified IIe above, alth planthan Insurance sponsor. rights theits pension projected toconserv health Benefits Internal plans atively, care rateto Revenue component). of 5requiring years heaCode lthor (age imposes 55-64on inpriv 1979) ate might pensionriseplans modestly, and were had benefit selected deferral for thebeenpurpose in placof e benefits have been terminated Senior (commonly Research in aAssociate corporate merger or bankruptcy $0-$9,999 9.2 35.4 0.7 7.6 13.0 VEmployee ested benefit Benefitdeferral Researcha Institute, "Fe 5.4atures of 6.3 Employer 8.1 Health Plans: 12.1 Cost I Retirees without coverage 16.9 15.7 16.8 23.6 changes in issues. Therefore, the Containment, employer's in public Retiree the value policy Plan pension health Funding oftoward pl employer--sponsored aplan n. and retiree terminations Coverage healthContinuation," retiree plain ns. the health course EBRIinsurance Issue of Brief corporate benefits No. employers less Most Employers' for employers plan to provide accrual yearsthatbeginning lifetime ofprovide liability benefits in health 1987 for insurance retiree to or retirees later,health benefits the beyond insurance 1986 forplan Tatheir x btermination Reform enefits retirees Act is insurance plan. Employer-sponsored recipiency among future retireeretiree healthcohorts plans isprovided nearly constant coverage at for the section 501(c)(9) trusts (called voluntary employee benefit associations, or sin reorganization) illustration. ce January 1985- The have proje from dramatically cted 23.7 effe percent cillustrated t oftoeither 24.5theper vesting importance cent (see standard of Table these on3).benefits ultimate Among $i0,000-$19,999 8.8 68.9 2.3 26.1 55.6 Five-year 60 (Washington, vesting rule D.Cb.: Employee Benefit 5.4 Research 6.6 Institute, 8.8 November 13.1 1986). acquisitions or bankruptcy reorganizations have gained increasing public only finance prob as aably Recif share entthe that widened cof ases benefits obligation total the involreal on vdisparity ingwas a income current-cost retirees' clearly between is likely assumed ong pension basis. oingtoinberights vesting the Fewgreater contract. employers toperiods for health 5older fuand These nd ins retirees retiree service urance cases approximate likely percent Among to ofaccelerate early level olderretirees among nonworkers overrecent with the next coverage retirees (agefew45decades. from observed to a 64)past The in in employer, survey a1984; ging of data: among contributions the workforce the 24 percent. elderly as to VEBAs) The andaccur section acy of 401(h) microsimulation trusts. Although projections both are depends tax-favored, on various predictabletax younger cohorts with greater opportunity to change jobs before retirement, to benefit retirees, This recipiency sectionboth describes as and,a therefore, source the impact of insurance plan of c potenti ost coverage is al substantial, alternative and as aespeci vesting realally income rulesas _20,000-_29,999 4.3 85.2 1.4 32.6 81.5 (Percents) Kennell, David L. and John F. Sheils, Summary Assumptions for PRISM Testimony before the Select Committee on Aging, Other reasons that our estimates of retiree health benefit recipiency may Due to DEFRA's taxation of VEBA earnings and limits on qualified attention, benefits requirements The Simulation. Distribution have asforbeen many retiree of FinRetiree aretirees brought l Report health Health under have insur Submitted Insurance found ERISA ance themselves benefits. rather toamon5 thethan Retirees Employee suddenly contract Benefit without law (Hansen employer Researchv. benefits during employees' working careers, (percent although of retireesthe infederal cohort) tax code This placed the coverage population, than baby estimate fortheby younger boom burden the 21 provides moves plan retirees, per of cent proof sponsor tow someardon had simply validation are retirement retirees, cov slightly because erageforrelying may more benefits the frommodel's substantially common: ona are both retiree near automatically the 84 term percent wording raise health projections, corporate ofof indexed eplan. plan arly code behaviorprovisions in response seriously to anticipated limit their events. usefulness The unstable for adequately legislativefunding and benefit on supplement. retireedeferr health aAmong l could early insurance subst retirees, antiall recipiency y not rayet ise among Medicare-eligible, ultim fuature te benefit retirees,re a cretiree ipiency. based on health The the the baby boom moves toward retirement. The magnitude of the effect suggests U.S. House of Representatives _30,000--$39,999 1.9 93.5 0.5 26.3 90.7 Retirees with coverage 23.7% 26.4% 25.1% 24.5% Institute (August 1986). contributions to health carefor costs. rank-and-file workers, employers who use VEBAs may not becoverage conservative and, because includeof the poor assumption health, uninsurable that pension as individuals. coverage rates show no Current Practice a 23.7% 26.4% 25.1% 24.5% recognizes regulatory documents retirees with and limited environment verbal coverage employer statements for fromtrust corporate a past mfund ade employer preretirement contributions pension received and for to retiree employees this somepurpose. health contribution to determine insuranceto and White retiree li Employer-sponsored ability reflects Farm health for Equipment the retiree benefits. retiree model's heCo. alth As health 9assumption ainsurance andresult, plans Eardman provide that employers in the v.industry-level more aBethlehem bsence maythan find ofonecontributions plan Steel definedbenefit quarter changes Corpof .lO).the to to microsimulation plan projected may beratetheofmodel only retiree available described health source earlier. insurance of coverage. recipiency Our projections Theamong prevalence workers suggest with age thatwhich 25 the to that substantial pressure employers may face to terminate or modify plan $40,000-_49,999 0.8 95.7 Hearing 0.2 on 25.0 96.3 Benefits from own plan 17.1 19.0 17.7 17.5 Ross, Dennis E., Deputy Tax Legislative Counsel, U.S. Department of the Financing Retiree Health Benefits: Health Security for Retirees Benefits only as a dependent 6.7 7.5 7.4 7.0 accumulate sufficient reserves to finance health benefits throughout workers' growth However, Vested elderly's Theduring benefit relative inMedigap Hansen the deferral income coverage. simulation v. White a of retirees Fperiod. arm, a24.5 who subsequent Since benefit only 29.6appe from workers alsretiree 36.2 decision thathealth retire returned 38.8insurance having the whether reduce Treasury. coverage a contract Statement andexisted /or plan before between cost. the theTheemployer Subcommittee continued and growth retirees. on Savings, of realPensions health ca and re pension benefits coverage Some coverage is from empl potentially oyers therates plan additi do asponsor. onally major not chsource ange For restrict 42 during of percent, error eligibility the in40 the any yearplan projection fosimulation r sponsor retireeofpaid period. benefit health the these trusts unattractive relative to other tax-favored uses of corporate adoption 34 in 1979ofwould vesting rise standards by 58 percent- in federal from a rlaw ate to of 24 parallel percent current without pension benefit benefits early retirees for future cite poor retirees. health asEmployers a reason who for may retirement have used suggests theirthat pension many July 24, 198F $50,000 + I.i I00.0 0.3 27.3 i00.0 Investment Policy of the U.S. Senate Committee on Finance, September 9, Retirees 1985. without coverage 76.3 73.6 74.9 75.5 vested retirement. funds. This in paper a defined-benefit By evaluates one estimthe ate, pension prevalence currently plan onoftheir allowable retiree last health job VEBAquacontributions insurance lify for retiree benefit to Five determination year vestingof rule employer b obligations 24.5 to 30.8 contract law. 39.0 II Recent 42.1 cases recipiency. plans illustrates its importance as a source of real income among the The costs, number Estimates expected of workers of tounfunded exceed projected 15 accrued percent to retire liability of GNP withby range health the from turn benefits, just of theless however, century, than rises will $I00 insurance full cost of benefits coverage. to older Only 16employees- percent offorearly example, retirees employees with coverage accruing fromthea vesting standard to establish service requirements for retiree health benefits vesting deferral may be individually stand to a39 rds perccould ent uninsurable. if substanti all pl ally ans For allowed these increase people, benefit futureparticipation deferral. benefit recipiency The in pro a retiree jected and, finance Benefit Source: the Entitlement EBRI retiree tabulahealth tions benefits of the Survey of a hypothetical of Income and 50-year-old Program worker Participawould tion hereceipt alth benefits, among retirees, the assumed and the growthprevalence of defined withbenefit which pension today's coverage workers are is U.S. elderly. Department In 1984, of Labor, morePension than half and Welfare of allBenefits elderlyAdministration, retirees withOffice health pfurther ast In Workers employer caaccelerate ses employed ofpaid stated liability theinorfull laimplied rger accrual. costestablishments contract of coverage Although with with funding commonly retirees, no contribution retiree anticip however, ate benefits the continued from courts onthea substanti required consequently, ally, yearsemployer reflecting of service liability the afterfor likely age retiree 40. acceleration health By comp benefits. arison, of accruing ERISA's employer pension before number 1987 of new certainly retirees confront with hestrong alth insur incentives ance from to establish a past employer separate, would more health plan may have been critical to their decision to retire and may be (SIPP), Waves 2 through 5 (U.S. Department of Commerce, Bureau of the Census). of Policy and Research, "Employer Sponsored Retiree Health Insurance" (May SOURCE: Preliminary results from the Pension and Retirement Income Simulation offered 1986),health mimeo.plans that they expect will continue benefits in retirement. critical to the simulated growth of health benefit recipiency among future produce SOURCE: 6 Cantor peak Prelimin v. VEBA Berkshire ary assets results Life equalInsurance fromto the aboutPension Co. half , 171 that andOhio Retirement which St.would 405, Income have 171 accumulated N.E. Simulation 2d 518 plan current health insurance sponsor. insurance basis coverage mayasbefrom a feasible retirement a past(even employer benefit. in an(56 At inflationary percent) least 72 percent reported environment) offamily employees whenincome the in typically liability participation However,for defined retiree several rules vesting (as health assumptions amended for benefits retiree by built the as health the 1984into babyRetirement insurance boom our moves simulation broadly. Equity toward Act) retirement. of Generally, require worker The federal Deficit Reduction Act of 1984 (DEFRA) sharply restricted the essential incre stringent ase by to rules nearl their for y continued health 224 percent benefit abilityover eligibility. to 40 finance years,retirement. equal to an average annual (1960). a Includes Modelpersons (PRISM) age(The65 Employee or olderBenefit with no Research earningsInstitute, who at any 1986).time during 12 HansenModel v. White (Employee Farm Benefit EquipmentResearch Co., Nos. Institute, 84-3870;1986). 84-3896, slip op. April the year reported health insurance coverage from a current or past employer, retirees. 21, The less1986. issue than Our of $20,000 entitlement model (see assumes Table to thretiree ati).the Ifrate health theofvalue insurance definedof benefit retiree benefits pension health among cover insurance current age pre-DEFRA. 7 Century Brass If this Products, worker Inc. retired v. UAW, at age (No.65, 85-5092, startingJuneplan30,distributions 1986). that Washington the workforce medium-size courts is Business have oryoung found largeGroup andthat establishments growing, onthe Health, right it Institute may to withongoing become employer-sponsored onhe financi Aging, alth abenefits lly Work burdensome and health is Health, implicit insurance as the in use that of Retiree tax-qualified VEBAs health for thepension insurance purposeplans ofbenefits funding include have lia fullLtime bility evolvedforregular in retiree a largely workers healthunregulated age insurance 21 or qu increase alification Vestingof more withforthbenefit anretiree 2 percdeferral. ent. health benefits One important probably way make that the retiree projections health NOTE: Detail may not add to totals because of rounding. either as the primary insured or a dependent The n_ber reported here is 13 In Eardman v. Bethlehem Steel, Bethlehem Steel was constrained from a8 Assumes See: "Post-Retirement UAWdefinedbenefit v. Houdaiville Medical pension Benefits: Industries, vesting Survey Inc., standard Report" Case used (June No 5-70742 in1985), 1985, (E.D. mimeo. beforeMich.) tax reform. probably a somewhat conservative estimate of the true elderly population with within year, VEBA industry assetsgroups would remains be exhausted at theby level age 73. observed floweret, in under 1983 throughout pre DEFRA law, the undated retirees among these slip and retirees op.; the UAW current averaged v. Cadillac funding $500 Malleable (a status conservative of Iron,retiree 728 estimate), F. health 2d 807theplans (6th benefits Cir. are modifying gener workforce have environment. ally coverage aconservative its ges retiree Although and that the willnumber and health the continue mayEmployee of insurance also retirees after reduce Retirement plan eper arly theactive toretirement; potenti parallel Income worker al error Security the at rises. least active associated Act 66workers' percent (ERISA) with older;Among for workers the purpose now retiring of vesting,(ageservice 55--64 must in 1979), be accrued 24 percent from ageare18.projected In most cases, retiree health insurance benefits apparently supplement benefits, plans commonly prohibiting differ deductions from pension exceptplaas ns they is are in pjustified articipants'by current ability plan to Modification The public attention of the retiree drawn tohealth plan terminations plans providedandbytheemplo subsequent yers might dilemm take a retiree health benefits in that (i) people who gave inconsistent responses collectively 1984); and UAW bargav. inedYard-Man, plan. Per Inc.,a 716 later F.appeal 2d 1476 settlement, (6th Cir.Bethlehem 1983), Steel cert. during the calendar year were assumed to have no retiree health insurance simulation substantial denied, summarized. 104 period. excess S.The Ct.question I00 assets Cha2nges (1984). may of ERISA-type in havebothpersisted pension regulabeyond tion and of heage alth retiree 80 benefit (Buck health Consultants, recipiency insurance received by these retirees represented a real income supplement of 5 percent bestablished pension that haveOf Assumes governs coverage thebenefits. 131 no apensions that plans substitute reduction will Inresponding recognizes 1984, continue "permanent in 84pension percent to welf after athe re health or retirement Washington benefits ofretiree elderly insurafor nce athealth Business nonworkers workers ageplan" 65plan (Employee and Group notwith coverage retirees, subject ona Benefit IIealth health to in it un costs terminate anticipwithout ated,employment adjustment exogenouspreretirement for events. future First, but inflation. still workersretain Earnings may aqualify on right fundsfor to held event retiree in ual a Five year vestinK without benefit deferral. A five year vesting standard several faced by forms, many retirees includinghes (i) drawnreduction the attention in theof share the Congress. of plan Seeking cost that to The views expressed in this paper are solely those of coverage; and (2) workers with employer-related health insurance were assumed 9response In Re to White shorter Farm mandatory Equipment vesting Co., 42periods. B.R. 1005, 1015-19 (D.C. 1984), rev'd (1985) survey of post-retirement medical benefit plans, 81 percent indicated later modification or termination. Musto v. American General Corp. (615 F. the author. They should not be attributed to the 788 to have F.2d obtained 1186 (6th that Cir. coverage 1986). from their current employer rather than a past among 1985). futu Limits re retirees on tax-qualified neverthelesscontributions occur as to a result 401(h) pl ofanschanges (in prain ctice, the plans, or more,similar for a to married the feder couple. al regulation For a married of private couple pension with family plans, income is also less th Research at they Institute, felt they had 1986). the right Workersto amend in these or terminate establishments the retiree with plan early for or VEBA 16 Supp. doesIn In The for 1483, not part, the1986 the M.D. regulate absence the purpose Tax Tenn. reluctance of Reform them. 1985) offeder financing ofasimilarly lAct The employers regulation requires federal retiree involved to prefund tax faster defining health a court code benefits benefits vesting vesting injunction also mayare recognizes standards standards berestraining taxable attributed for for the as he benefits. par insurance alth alleling insurance plan Incurrent general, from benefits pension a past workers only employer vesting who if (i) termin stand alsothey aate rds reported retire employment (but pension without from preretirement a income, benefit job which presumably deferral) ret offers ain fund accruing liabilities that might better safeguard benefits for current and employers pay; (2) reduction of the service coverage provided by the plan; or officers, trustees, members, associates, contributors employer. current retirees. i0 Eardman v. Bethlehem Steel Corp., No. 84-274E, slip op. (W.D. NY Sept. American General from modifying the current retirees' plan to parallel that of private sector single-employer plans: (I) lO0-percent vesting after five or subscribers of the Employee Benefit Research distribution not 17, 1984). more than of emplo 25 ypercent ment among of industries, annual totalthe contributions longer tenure to of workers all retiree in a active 5addressed deductability than Such$I0,000 workers. cases using (13 include: of The results percent employer U.S.Odie of of District trust all av.microsimulation elderly Ross fund Court Gear contributions for retiree &theTool model Middle health Co., tothat District plan finance 305projects beneficiaries F. of 2d current Tennessee 143 retiree (6th and in from normal a retiree defined-benefit health insurance pension benefits plan orrepresented in the form approximately of an annuitized 14 percent years to their of service; concern th orat (2) prefunding 2Opercent could vesting fuel after the presumption three years ofof vesting service _mong with retiree health benefits and (2) they vest in a defined benefit pension plan unrelated no might future vested raise retirees, right business recipiency tosomeretiree income, employers rates health and amonghave disqu benefits, future aurged lified retirees Congressional even VEBA ifeven distributions theymore. reconsider are vested Among a(including tionyin ounger the of (3) conversion of service benefits to a cash benefit with access to a group Institute, its staff or its Education and Research Fund. h Figure excludes nonelderly spouses who are covered as dependents and ii The district court decision involving Hansen v. White Farm proposed a Cir.) has asserted cert. denied, that federal 371 U.S. common 941 (1962); law gives UAW v. the Robertshaw retirees Controls an enforce Co., able405 an additional 20 percent for each subsequent year, and lO0-percent vesting 14 2 includes elderly covered dependent spouses of nonelderly retirees. post-ERISA benefits, including workforce, pensions) and realmaywage alsogrowth be too(assumed low to adequately to occur atfundtheaccruing Social health 1984), insurance their retiree recipiency healthamong benefits future may retirees. have represented These resultsa suggest real income that pension F. contract after "r defined-contribution projected ofule2d theuseven of al 29 U.S. plan. common (2nd retiree ye interest workforce ars.Cir. law" welfare The plan 1968); in under inactual benefit. 1985. their benefits, BurKess ERISA, effect welfare Including prohibiting v.but ofKawneer this benefits. establishes workers legisl employers Co., ain tion The Memorandum smaller no court on vesting fromdefined-benefit establishments, invoking rejected Opinion rules N any for o as. employees A surveyand of retirees. post-retirement Employersmedical may also benefit be reluctant plans conducted to prefundbyinthe an workers the tax (code age 25-34 amendments in 1979), includedthe inproje thected1984 rate Deficit of retiree Reduction health Act. benefit These insurance plan. In the last case, the cash benefit may (or may not) be gauged K77-487 CA8 (W.D. Mich. 1977); Turner v. Teamsters Local 302, 604F. 2d 1219 termination "antithetical clause to ERISA" in plan American documents General's (regardless argument of that how cle retirees' arly worded medicalor Washington Business Group on Health (1985) indicated that 51 percent of the pension recipiency and, therefore, retiree health benefit recipiency among health liabilities, given the other benefits (death and disability) that may Security alternative III level: 1 percent). federal supplement regulof ation i0 percent of retiree or health more. insur By comparison, ance plans might Socialsubstantially Security benefits raise benefits explained) as many could assince one-quarter be thterminated at right of is the or not modified total otherwise U.S. at will workforce recognized as a welfare mayin haERISA's veplanemployer-based under provisions which future responding 15 era (9th tax-qualified The of Cir. retirees Pension hostile 1979); plans trusts. is and corporate Met continued difficult alRetirement AsPolishers a health takeovers, result, to anticipate. Income Local insurance workers since Ii Simul v. who ation aThe the fter Kurz-Kasch, terminate greater fund Model age 65 may employment pension Inc (PRISM) to., be all 538 unprotected: plan waemployees sF. prior costs first Supp. to recipiency would rise nearly 72 percent- from 24 percent (under assumed amendments severely limited tax qualified employer contributions to 501(c)(9) to the insurance plan premium. No data indicate that any employer now offers 368, governing Ii0 LRRM pension 3319 plans. (S.D. Ohio However, 1982); an UAWappeals v. New Castle court subsequently Foundry, 4EBC2455 overturned (S.D. meeting imposed no benefits onrequirements employers accrued or (and for vested ultimately retiree to employees the status.greater (BNA Other wage Pension eligibility deferral Reporter, required criteria 1985). of developed 14 Policy for v. Powell the 197Pressed 9 President's Steel Co. Commission ZTO F.2don609 Pension (6th Cir. PolicyAug. by I20, CF, 1985) Inc. be funded through the same plan. Musto projected retirement may not recipiency commonly be goodret oflaw, ain retiree however, no right health since to benefits retiree the district health and, therefore, insur in which ance projected itbenefits was decided plan from the averaged district33 percent court decision of all (holding elderly's thaincome t Congress in 1984, explicitly and private exemptedandwelfare public workers) bec Ind separately This a.use A 1983); retiree figure nomayreported minimum UAW reduce health excludes v. Roblin funding (but plan pension elderly potentially vesting Industries, rules coverage with rule apply included retiree Inc., that while to retiree would 561 coverage raising in F. other allow health Supp the only respondents' benefit 288 percent insurance as (W.aD. deferral dependent Mich of definition benefits, covered 1983); couldof Under addressed contract the inverse to EBRIquestion. and others, In this PRISMcase, has the been Circuit periodically Court rejected updated for the current service requirements) to 42 percent (with a uniform 5-year service a accounts cash denominated to fund health retireebenefit healthdistinct benefits. from their However, pension ifplans, Congression nor is al it is benefits located from in the ERISA's Sixth vesting, Circuit; the participation Court of Appe andals funding for thestandards) Sixth Circuit and workers of Policy lower another retiree court's v. who retiree's Powell status) are vested. reasoning Press plan. include: Steel This Itthat, may pattern (i) Co., also by years Case could, not exclude ofNofunding .service inC82-24024, pension turn,retiree (16leave recipients percent); slip unchanged health op.who (2) (Ninsurance .D. the received pension rate Ohio legislative changes affecting pension eligibility and vesting. Kennell and pensions For employers averaged 14who percent maintain (Chollet, parallel 1987). retiree health benefit service ret I uAll rned data the onquestion 1984 retiree of retirees' health ongoing plan coventitlement erage are EBRI to benefits tabulations to contr of act the reversed 1984); Bomhold a similarv. district Pabst Brewing court decision Co. (No. reg 83-1327, arding the JulyWhite 6, 1984). Farm case. Also see of benefits, Shells the only eligibility tharetiree t fund employer, a (1986) lump-sum may employers health (13 provides beeven attractive percent); benefit distribution meant if athey full recipiency them are age asdescription not vested afrom and cash toamong be their ser in asset permanent. vice of the workers pension this unrelated employer's requirements version retiring. plan(s) to pension ofliability PRISM. (9andpercent); plan. reported accrual. and no present requirement) reconsideradifficult tion (seeofadministrative Table the DEFRA 3). Inrestrictions problems both cases, for generates most the plans. projecnew tions Since rulesassume mostforplans that tax clear that present tax law would recognize such a benefit. Nevertheless, the law. cases identified in subsequent notes. pension income beyond the year of distribution. participation Survey of Income in theandmedic Program al planParticipation prior to retirement (SIPP), (6 Waves percent). 2 through 5 (U.S. Department of Commerce, Bureau of the Census). EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 K Street, NW ?Suite 860/W'ashington, DC 20037-2121/Telephone (202) 659-0670