518 EMPLOYER-PAID RETIREE HEALTH INSURANCE: 2 II 1876 132 414 17 15 I0 316 % EBRI HISTORY AND CURRENT ISSUES i. ,J 5 In UAW v. Houdaiville, the court found that the continuation of some o The tax code limits employer contributions to Section 401(h) ENDNOTES the amount Medicare pays. In general, carve-out plans result in the lowest cost of post-retirement health careTable relati Ive to the modest incomes of most rights In DEFRA ofanretirees y discouraged case, pand ost-re employers use tiremen oft VEBA inheamodifying lt toh fund coverage or liability ter_nin faces ating anforuncer retiree retiree tain fu health health ture. brought of lia right bility conto trac under welfare ftor langu retiree contr benefit aage ct health law, to plans tinterpreted he and actwelfare ontretirement. rary those benefits, and rights onAn similar eviden employer conservati ce tomay ofvthe ely: not in way tenterminate tunfunded retirees . The retirees the its like,administration posi fortand iexample, on the ascost defined-benefit ofsecondary qualified for active payor, plans employees. pensimay onreducing pa place ymen Employers tsfunding . Medicare usually and reporting obligations measure burdens health for benefits fotrusts, r which requiring retirees that were the vested by benefits did not paid implicitly by these obligate accounts the be 2 employer to"subordinate" continue health or incidental and life ins to urance the retirement benefits benefits for retirees paid by beyond the benefits. plan 1retirees, cost, The 1977 probably and the Battelle highest raising suvey beneficiary the of Employment demandcostforof Related retiree the three Health health types. Benefits insurance in Private as a benefits in four ways: pension At circumstan least liabilities cfour es mof ajorthese fa must ctors cases bemayrecognized. indiscourage cluded, variously, emplo By most yers cfrom estimates, ontraeither ct expir the esat taion bunfunded lishing and may on employer-covered the employers plan beAsentitled or withalter (potentially cash toretirees its benefits, benefits provisions discouraging inonly accthe ruing unless while sameliemployers athe the bilit way employer contract ythat for fromMedicare ser has promising providing vicreser e benefits vhas edbenefits retiree the reduced (measured right health is its to in care costs only in terms of current employees (or equivalently, as a percent the termination employer of the pension laborDeborah plan. agreement. J. This Chollet, limit UAW v.Ph.D. isHoudaiville interpreted Industries, as constraining Inc. T-49 , Nonfat_ Business Establishments in the United States (conducted under contract and 4 a Case No. 5-7employer 0342, (E.D. contributions Mich.) undated to the Slip trust op. to only 25 percent of total Medicare costs are not directly affected by the type of plan offered. benefit. to the U.S.TheDepartment advent of ofMedicare Labor) benefits provides in the1966, only furthermore, available info dram rmation aticallyon In o Eardman DEFRA imposed v. Bethlehem nondiscrimination Steel, Bethlehem rules for Steelqualified was constrained contributions from hliability doealso, th c and over for has ageretiree clearly for fu hetaur lth communicated e re andtirees welfare that or benefits exp right andingto iseemployees. large. xisting cover Ambiguous age. These plan force acorpora benefits), s thetand ediscoun tthe akeover suchtemployer ed rules Employer orpresent merger. mayremains also Contributions value safeguard in of business. fore promised tocasted HealthThe benefits pl Insurance aemployer n costs) to ,workers. may depends be obligated on the obligations of payroll). for Low workers ratios over ofage retirees 65 coveredto byactive an employer employees plan. throughout the Robert B. Friedland, Ph.D.* contributions to retiree benefits, including pension benefits. For the health insurance coverage offered by small establishments. Although the to a VEBA. Contributions for health benefits now are applied 6 Cantormanyv. employers, Berkshire Life the limit Insurance on contributions Co., 171 Ohio to aSt.401(h) 405, trust 171 N.E. is too 2d However, by minimizing beneficiary cost-sharing, coordination of benefit plans survey did not question respondants about retiree health insurance benefits in reduced the cost to employers of offering retiree health insurance, since modifyin factors 5incl its ausainst de:retiree the health limits insur to qualified ance planspension to parallel and profit the benefits sharin 5 plans offeredto languageBased The regarding inference on and a nonrepresentati the as of ain employer's Percent tent in veofthese right Wages selection rulings to andterminate Salaries, of wasemployer in or e1960-1983 ach alter plans, instance the the plan draw National nmayfrom be to prob 1960provide 'aS, bility Theandcoming lifetime of the employees declining debate benefits overav ultim erage to appro aretirees tely priate age qualifying ofbeyond rules, the woplan however, rkffor orce, termination benefits should served also only and to mask consider if on that the the Finally, employers are concerned that the Medicare Prospective Payment 518 (1960). low to adequately fund accruing liabilities for retiree health, particular, responses to a question about continued coverage in any highly compensated employees (Section 415 limits). death and disability benefits. Employer-paid retiree health insurance is a con_on benefit promised to in particular may encourage higher utilization of Medicare-covered services. Medicare Associationwould of pay Accountants a large estimates share of that retirees' unfunded hospital liabilities and medical for retiree bills. circumstance to active employees other than under layoffs a collective suggest bargaining that small agreement. establishmentsSimilarrarelyto obligation tinterpreted he paroticulars tis he broadly prospe clearly of tin he ct favor cof assumed ase.act ofion Coretirees. min monly, bythe thetcontract. he Finan cour cial ts Aconsidered cc Furthermore, ounting bo Sttandards hvesting failure Board for of expected lifespan of retirees. Unlike cash benefits, however, future health the System risingcurrent may cost increase aof nd retiree potential the cost health role of retiree of benefits. employer-sponsored healthSince benefits, neither covif erage law reduced in or finan ahospital ccepted cing 7 UAW v. Cadillac Malleable Iron, 728 F. 2d 807 (6th Cir., 1984). o DEFRA established limits for deductible contributions to VEBAs. continue coverage for retirees. (FASB) to require that unfunded liability for post-employment employees o of Funds medium-size contributedor to large a 401(h) establishments are entirely in the separate United from States. the rest In Conversely, carve-out plans preserve the cost-sharing incentives of the Employer liability for retiree health care costs, although probably earlier the labor cases con he Under atlrac thwhere tDEFRA, and to welf address contract qaure alified benefi thelang issue ts cuontrib agebe of udis tions was life closed; tambiguous, ime arebenefi limited tsthefor tocourt rethe tirees sum ruling (or of health retireeFurthermore, plans healthcould and welfare range by extending from benefits 4 toretirees' 50 maytimes not be rights theimplicitly amount as athat proposed defined employers "outside common are now the law lengths insuranceof cstay osts result also in depend more physician on the long-term visits or routpatient ate of health servicescarecovered cost ahe ccaounting lth care pra for cticthe e elderly, requires and employers the potenti to alrecognize advantages accruing and disli adavbility antages for of 8 UAW v.of Yard-Man, the pension EMPLOYER-PAID Inc., plan. 716 This F.RETIREE 2dmeans 1476HEALTH that (6th excess CINSUR ir. A1983), NCE: funds cert. contributed denied, to104a 2 The following hypothetical claim and plan illustrate the differences benefits paid during the year, reasonable expenses, and a S. Ct. i00 2 (1984). 1984, 57 percent 401(h) cannot of all beregular used tofull-time fund otherworkers costs in in the medium-size pension plan. and large employer's active worker plan, although they reduce the cost-sharing imposed among substantial, these methods is secondary in plantoand Medicare. beneficiary cost: requiring o Bethlehem permissible current tax Steel Health law; addition to Insurance reinst to areserves. te benefits Witho Health ustrongly t acInsur tuarial aconsidered nce certifi Contributions cation, implied paying contr principle ambigui act" tyannually under in in the conERISA, tras context act current Hansen language) of v. vesting plan White andexpense. for managemen Farm other invtites 's Various retiree represen legislative actuaries benefits tations clarification such who that as have thea nonpension ainfl larger ation, pric retirement vhanges ate system in benefits, the of deli health very employers insuran of health ce were forcare, able the elderly to and ignore changes versus theinamomedi gro unting wca ing l by the employer plan. While Medicare covers the full cost of inpatient HISTORY AND CURRENT ISSUES Contributions as a Percent the safe harbor limit on the permissible addition is 35 percent of 5 est 9 ablishments Eardman o The v.participating nondiscrimination Bethlehem Steel in aCorp. rules hea,lthF.applicable insurance Supp., 5 EBC plan to 1985 the were (W.D.N.Y. pension promised plan retiree 1984).are by Medicare. oThe acceleration the medical expenses of health covered care under costs thein plan the are 1970's $I,I00; markedly raised benefi calculated intent.t would Thethe these decision con qut alified inue costswas for for dire appealed, life--including clients ct cost.concur and The in or aath catu alltaater ri staliabilities a ltemen settlement, assumptions ts to can tha Bethlehem trmust aeffec nge be t. from bSteel ased30 cof Year urrent ERISA's o and recent pro future visions and c(amount ostexpected regarding of he inalth billions) changes health insuranin and ce Medicare welfare for retirees. co plans. of verage; Wages The and andHansen Salariesv. White pension. services te public chnologsystem. y.afterMoreover, the Employer deductible survivorship plans may ($400)be rights important for under the first ain retiree protecting 60 days healtof early h pl a anspell retirees cannot of applied to use of 401(h) trusts. Since, prior to DEFRA the use of on the current medical plan and cannot include any adjustment for I0 HansenVEBAs v. White-Farm was not goEquipment verned by Co. nondiscrimination , No. C82-3209 ((N.D. rules, Ohio 401(h)Sept.trusts 20, health insurance. The cost of cover Statement age promised of these workers will be at inflation. employers' o Medicare health pays insurance $600 ofcosts the $I,I00; for both active workers and retirees. was allowed to establish a substitute "permanent health program" not subject to Farm50 The otimes decision Reconciling precedent rethe centmay current tlitigation hese beestablished expense construed decisions over levby el. wthe as iththese pre rights more venting decisions conser of retirees employers vativeplaced leg tofrom alpromised the preceden invoking burden thealth , of ata be illness fromfacthe Ctored ontinued (called highinto cost growth atheof benefit benefit major in theperiod), payout illness cost of inand Medicare emplo theinysame erensuring copl wvaerage ayns,thaccess atcou for a pled pension to physician with health plan slowing care. care can 1984). may have been a relatively unattractive means to fund retiree insurance benefits. 1960 $ 3 4 1.3 % health liabilities. least partly paid by the employer, usually on a current basis. That is, Deborah J. Chollet, Ph.D. Trends Between in1965 Employer-Paid and 1983, Retiree total spending Health Insur forance health care in the United States to 1965later o modific the ation plan isor comprehensive termin 5 9ation. with a $I00 deductible1.6 and 80 percent least oone DEFRA court imposed decision a specifically 100-percent penre alty jectedtaxa onlower any disq cour ualified t's presump benefit tion termination One report, clause inin volving welfarea relati benefitvelyplans new manufacturing for retirees, comp regardless any with of5,000 how pro inflation For redu entavils ing ceretirees annu amuacacontinuing nd hl benefits redu gre covered acter ed right profits, when by cost-sh Medicare, retirees toaring benefits has . led ele especi The cemployers tlargely joint aco lly st-sharing aonnd those toretirees. sur focvusivors with forclosely ph benefits. chronic Retirees ysician on sour health whose As ccare esa II Ibid. and coinsurance. 1966 6 4 1.6 (I) Dis paid closure. from the Federal fund.law requires Disqualifiedthat benefits qualified in pension clude pl anayns assets under employers o who Sinceofferthisretiree type benefits of plan seldom is seldom contributeused,against employers their ahave ccruingno EBRI tabulations of Robert surveyB. data Friedland, collected Ph.D.*by the Bureau of Labor rose 1967 from $43 billion to $355 6 9 billion. The cost of hospital 1.6 care rose three that re Hansen tireereverting v. healWhite th and toFar_n life the Equipment benefit insuranceof Company benefi the tsemployer contested are life sponsoring tthe ime termination benefithe ts, welf absen of areta benefits acti clearly ve employees the wererights terminated and of 80 the retirees were employerresponsible (40 are of worded whom fororare proving communicated eligible that for to theemployees, Medicare) employer problems, imposed result, of cost by survi increases. Medi employer-sponsored vors care benefits is In a1983, majcan or employer health represent source of pco ayvments aerage cost signifi for for helps caemployer-sponsored nt health net finance insuran addition csubstantial e to retiree reacplan hed 12 Julie experience Kosterlitz, with"'Disaster' the plans Stories and are May uncertain Spur Congress about thetotechnical Protect 1968 The COB benefit plan, fuabsent nd. This 8 Medicare, 4 means would that apay ny ex $800 cess (.8of xfunds 1.8 ($i,i00greater - $i00)). than ERISA be funded. Employers receive tax deductions for contributions to a 7 3 Health Benefits aspectsfor ofRetirees," 401(h) trusts. National Journal (July 27, 1985), pp. 1743-1746. liability during the employee's working career. Statistics indicate that the prevalence of retiree health insurance benefits times 1969 However, faster than sincethe covered cost9 of 9 expenses other consumer less the goods Medicare and ser 1.9 vpayment ices, increasing are $500 noncontributorynecessary retireeto health cover retiree plan after benefits a bankruptcy cannot bereorg reacnization. aptured by The the measures breached since thisunfunded a right bargaining isliability notagreement otherwise at 20clearly recognized times current obligain tingERISA's plantheexpense. employer provisions to Thegoverning continue current health express out-of-pocket costs, plans. and contrac anexpenses t added languasour ge andcelimi represents oftinguncert their aan intyimportant dura intionfore . supplement casting Similarly, those to pension ano costs. ther 4.6 percent of payroll, compared to only 3.6 percent in 1979 (see Table I). Hearing before the 1970 (I,i00 600), a smaller 12 1 amount, the plan pays $500. 2.2In this plan, the employer. qualified pension trust fund, and investment income to the trust receives No data exist that indicate how commonly retiree health insurance is Given DEFRA's restrictions on the use of VEBAs, Section 401(h) plans may in medium-size and large establishments may be declining. In 1980, 59.6 six-fold 1971 beneficiary between 1965 pays nothing. and 131983. 7 The cost of physician care 2.4also grew faster bcost ankruptcy of retiree court health authorized benefitsreplacement in this firm of is the$60,000 plan with a year. a groUsing up plan the benefits, pension decision plans. in orcluded at least The the precedent implying following intent remarks: established to do so. by Hansen v. White Faz_ differs income--one Fin Forally, firms (4) the that Rethat cent possibility offer may litigation. exceed retiree of the vhe esting alth vThe alueinsur in rights ofmore amany nce of than retirees' benefits, retirees one retiree pension part to of health health plans. this growth insuran insurancc eis e United States Senate Committee on Finance 1972 16 2 2.6 favorable o tax DEFRAtreamade tment.all Inreser contrast, ves held retiree in VEBAs health sub and jecwelf t ato re the benefits tax do on promised receive much to workers more attention in smallerfromestablishments. employers seeking Available to fundevidence, liabilities however, for percent of unrel employees Subeon_ittee ated business in medium-size on Savings, income. Pensions, or large establishments and Investment Policy who participated than 1973 other The exclusion goods and plan services, 18 would 0 more pay th 80an percent tripling ofover covered that2.6period. medical expenses In 1983, actuarial arrangement rules finaunder nced consideration entirely byby particip FASB, afunding nt premi theums. accrued Reliability versing for the markedlyHowever, from earlier given stated precedent or implied under intent contractto pro law,vide andbenefits may be to an retirees, important benefits--in plan represents If a larger particular apri prva acte tic those asystem l problem thatof were health in not coordinating insurance funded during for benefits theretirees' elderly from is multiple working to be explained by an increase in the ratio of retirees to active workers as more (that is, the amount not paid by Medicare: $I,I00 - $600 = $500), less 1974 20 7 2.7 not have "...retiree to be funded, insurance and generally benefits arearenot [not] funded.necessarily Instead, employer retiree health benefits. Limits on contributions to these plans and suggests that retiree health insurance for workers in smaller establishments in a health insurance plan were September promised 9, 1985continuation of employer-paid 14.1 percent the planofdeductible. these costs In werethisfinanced case, the by pri plan vatewould insurance, payment princip would abe lly$320 by bankr factor the Many 1975 uhealth ptcy benefit inintcourt employer ermin care experts able costs decision, decisions by cof onsider 24 tcurrent heir the0 federal to DEFRA's natand ure. offerfuture district restri [retiree No]ctions retirees federal court health on held would labor using insurance 3.0 tharequire poli t,VEBAs cin y excl benefits. employer touding fund encouraged, several decisions severalinterpreted related the issues right must to retirement be addressed. benefits These broadly. includeThese the cworkers plans areers--have as werewell encouraged beenas the Medic tosub are, take ject aearly nd of anumerous nretirement additional court during sour decisions cthe e re ofcession. at uncertainty the federalin (.8 x ($500 - $I00)). The beneficiary would pay $180 ($I,I00 - $600 - 1976 1identified to this 28.8court presumptively favor[s] the3.2finding payments for retiree health coverage are treated as operating expenses in the is rare. uncertainty about the legislative and regulatory status of any plan coverage $320). after retirement. In 1984, 56.6 percent of these employees were employer group plans. By comparison, the federal government financed 17.3 welfare retiree contributions 1977 benefit health of inof terminable liabilities plans $1.2 million from righ 34the prohibiti 5tper sminimum tyear. ove,retvesting iree giveninsurance crequirements ompeting benefi uses3.5 of tsfor ERISA, when fundsCongress within decisions Moreover, by haverescinding, defined vesting in effect, for employers' retiree health abilityandtowelfare terminatebenefits benefits,as relati forecavsting e merits plan cof osts.an employer-based system of coverage, versus a more level. The decisions are based in contract law and generally define the 1978 39 3 3.6 year in whi the ch collec the benefits tive bargaining are paid.agreement is silent. "8 established under Section 401, however, may be important factors impeding promised health insurance after retirement. percentTheof carve-out personal health plan would care spending pay $800 in(.8 1983. x ($i,I00 - $i00)), but since adid 1979 firmnot --many (2) intend Taxoflaw. whi toch Concurrent pere rmit cei4v4e the 2preferential with unrestricted employers' tax treatment. termination growing recognition of 3.6 theseof plans accruing by Hansen implicitv. White in retirement Farm may bestatus, an important unless impetus otherwise to funding definedaccruing in the liability labor Types individualized Preliminary of Employer-Paid system estimates Retiree such as from Health thetheproposed Insurance U.S. Department dedicated of indiLabor's vidual retirement Office of property rights of retirees to plan benefits. Medicare pays $600, the plan will pay $200. The beneficiary pays $300. 1980 49 8 3.7 In a statement issued in November 1984, FASB established employers' 6 their use. History The decline in retiree health insurance promised to workers may result for retiree Health health care and spending welfare bybenefits. and for the elderly has risen faster than 1981 Section 401(h) of 57the 3 tax code defines a potentiall 3.8 y important retiree agreement. employers. Twohealth recen Furthermore, As tliabilities, early courtas the decisions 1960, court changes Cantor stated: upholding in v. tax Berkshire lawretirees' made Life the rights prospect Insurance to ofcon Company funding tinued accounts PensionEmployer-provided and (sometimes Welfare Benefits called healthmedical indi insurance cate IRAs), thatplans aspecifically ggregfor ate retirees unfunded earmarked are liability offorthree for the Court rulings have addressed the rights of new retirees to health 3 William * The M.authors Mercer are - Meidinger, Research Associates Inc., "Understanding of the Employee the Cost Benefit of 1982 65 7 4.2 responsibility to provide information about post-employment health and welfare Research Institute. (3) Retiree Medicare. health Recent insurance and appears expected tochabe ngespredominantly in Medicare aarepost-Medicare a critical from (I) employers simply withdrawing the benefit, or collective bargaining Post-Retirement these spendingliabilities for anyMedical other less population attr Benefits" active. (New group Prior York: in to theWilliam the United Deficit M.StaMercer tes. Reduction In - Meidinger, 1984, Act per of altern 1983 ative"thetomodern VEBAs for view funding 76concerning 5 retireebenefit health plans, insuranunder ce liabilities. 4.6 which an Section health insurance benefits have gained particular attention. These cases were purchase retiree established heof alth health thatinsur the care ancemployer e orbenefits health may insurance manot y hawithdraw ve re inached retirement. or $125 terminate billion Theythein also retirement 1983, include and general insurance types, and other definednonpension by their benefits relationship as well to Medicare. as the rights The first of current type Inc., May 1985), mimeo. benefits employer as a footnote may notof invoke their afintermination ancial statements. clause toIncutitself, off thethis is not 12 phenomenon. element in the Although development no dataof track retireethe health emergence insurance of retiree benefits. health Chinsur angesancein that trades retiree health insurance for higher wages, some other benefit or capita personal health care spending for persons age 65 and older was, on 1984 401(h) (DEFRA), abenefits uthorizes the of tax tax-exempt acode former defined employer employee two tax-favored who contributions has properly vehicles to health retired for pre-funding insurance Issues brought inunder the CominK the Emplo Debate yee Retirement Income Security Act of 1974 (ERISA) program mthe ay willingness continue after to theofgrow employee Congress by $5 has and billion complied the Administration eacwith h year all . conditions toEstimates sustain entitling of the addition near-term him alor retirees simply coordinates to continued benefits benefits with Medicare. in various These instancplans, es ofcalled plan "coordination termination. 4 Oddie v. Ross Gear & Tool Co., 305 F. 2d 143 (6th Cir.) cert. denied, pursuant to the employer's requirements, should be adopted SOURCE: a significant U.S. cDepartment hange in acof counting Commerce,practice, Bureau howe of ver, Economic the current Analysis costs (1981,of as Medicare an employee coverage benefit, and reimbursement anecdotal that evidence shift costs suggests to beneficiaries that few employers in turn reduced 371 U.S. layoffs; 941 (1962); (2) the UAW erosion v. Robertshaw of defined Controls -benefitCo.,pension 405 F.cover 2d a29 ge (2nd whichCir. is average, a2.66 s a rule timesofthe common levellawofunder per capit ERISA.a ''II personal health care spending for retiree benefits health for benefits: retirees, Section their spouses 501(c)(9)andtrusts, dependents, called Voluntary and tax-deferred Employee which Besides governs 1983,tlimiting he 1984). funding, the ves useting, of VEBAs and fiduciary for funding practretiree ices ofhepri alth vateinsurance pension her employer to retirement spending rights. per year Subsequent required tocourt meet rulings that liability have affirmed in 20 years that opinion. are $I0 Re revenue ofcent benefits" deloss cisions or implied COB haveplans, by affirmed taxpaypolicy retirees' beneficiaries to encourage rightsthe tolesser anthegreater benefits of either private promised (I)insurance the them, plan 1968); Burgess v. Kawneer Co., Memorandum Opinion No. K77-487 CA8 (W.D. Mich. these benefits are indicated and included in the calculating of net income. provided shift costs retireeto health employer-sponsored benefits in the retiree 1950's.healthThe plans. Medicare Observing debate in the the con_only the basis for continued health insurance coverage; or (3) a 1977); the population Turner v.as Teamsters, a whole. Local 302, 604 F. 2d 1219 (9th Cir. 1979); UAW v. contributions to retiree death and disability benefits. pl aExcludes Beneficiary liaability, ns. Inemployer DEFRA tAssociations hat mandated these contributions cases or Treasury VEBAs; were to to brough Medicare. and study tSection under possible401(h) ERISfunding A, trusts. Eardm and an vv. esting Although Bethlehem rules no billion benefit coverage Other to calculated among $15 court retirees. billion, without rulingsequi Possible regard concerning valent reductions tototheathe Medicare 13- in continuation tothe20-percent reimbursement, fiscal burden of inbenefits crease of or Medicare (2) in also the the generating some concern among employers that vesting standards for unfunded Houdaiville Industries, Inc., Case No. 5-70742, (E.D. Mich.) undated Slip op.; In the absence of legislation clarifying ERISA's protections for health Nevertheless, FASB's position is important in that it requires employers to early financial1960's, statushowever, of the brought Part A to (Hospital the attention Insurance)of Americ trust anfundworkers and thetherising high redistribution of the workforce into employment that does not offer continued Metal Despite Polishers theLocal rapidNo.increase II v. Kurz-Kasch, in health care Inc., costs, 538 F.particularly Supp. 368, II0 for LRRM the Steel 9Dataand indi Hansen cating v theWhite use of Farm 401(h) Equipment trusts do Company not I0 exist. Actuaries claim, data exist documenting• the use of these vehicles, apparently are depar verytures few firms from construed for retireeambiguity health plans, in contra similar ct language to thein rules favor now of retirees governing when pensions evidence underof and retiree covered average Medicaid amount expenses health spending spent andunder welfare by for employers the the pl benefits anelderly, for less are health thehowe being Medicare vbenefits er, defined arepayment. inan1983. inimportant conmA_onsecond law. offsetting type, These 3319 (S.D. Ohio 1982); UAW v. New Castle Foundry, 4EBC 2455 (S.D. Ind. 1983); and welfare plan participants, the precedent set by Hansen v. White Farm and recognize the current cost of retiree benefits separate from the cost of plan public cost of Part B (Supplementary Medical Insurance) coverage, employers coverage. The significance of each of these factors in explaining lower rates UAW v. Roblin Industries, Inc., 561 F. Supp. 288 (W.D. Mich 1983); Policy v. however, elderly, many that employers few firms did use not 401(h)focus trusts on the for rising retiree cost health of their benefits. obligations Those used the preceden either tvehicle established to fund earlier accruing underliability contract forlaw. retiree Hansenhealth v. Whibenefits. te Farm, ERISA. intent was Funding present. and vesting, In a series however, of cases are difficult since 1967,concepts the courts as applied obligated to vesting consider "exclusion" The ation. staemerging ndards plans, Possible may poli subtract cyimply long-term debMedicare ate signifi reductions centers cantpayments on employer inthe before public appropri costs, applying spending atein asome nd the enabled prudent plan's cases by The authors are research associates of the Employee Benefit Research Powell Press Steel Co., Case No. C82-24024, Slip op. (N.D. Ohio 1984); Struble benefits for active workers. earlier cases governs the organization and administration of retiree health Instit anticipate ute. that The vCongress iews expressed will impose in thisadditional statement cost-sharing are solely those on Medicare of the of The retiree views expressed health co inverthis age statement promised are to solely current those workers of the has authors not been and v. Welfare Trust Fund, F. 2d, 116 LRRM 2980 (3rd Cir. 1984); Bomhold v. Pabst to current and future retirees. Reasons for this are many. Typically, Those th fur atthermore, dothat may did limit citfund edplanERISA's these benefitsliabilities, failure to payment to reportedly, define of Medicatre he most Part rightsoften B premiums. of used retirees a VEBA; to employers service financingbenefits who of retiree promised like he he retiree aalth lth and insurance, benefits other to nonpension since continue the benefits, cost thoseofbenefits providing as well throughout service as the private exceeding deductible coverage emplo andyercopayment should costs for be provisions. weighed pension benefits. carefully The thirdagainst type, the and near-term probably the costmost of authors and should not be attributed to the Employee Benefit Research BrewinB should not Co., be (No.attributed 83-1327, July to the 6, 1984). Employee Benefit Research Institute, its insurance Ultimately plans. more In particul signifi ar,cant,common howevlaw er, hasmayestablished be the issue a general stillvesting under beneficiaries. Institute, its officers, In addition, trustees, employers sponsors, are concerned or other that staff.Medicare will expand investig officers,ated. trustees, sponsors, or other staff. employers do not distinguish between the cost of health insurance benefits for Employers may avoid Section 401(h) trusts for several reasons: the virtually nonpension benefits retirees' is nobenefi much employers lifetimes. tslessasuse predictable theGenerally, a b401(h) asis for than trust. these common thefindings cost law of defining were providing based the aon thecash the respec absence benefit tive aggressive rights con_on,Early ofareretirees tax court "carve-out" policy deto cisions receive toplans. encour regarding these age Carve-out benefits. private retirees' plans health rights While reduceinsurance feder toplan nonpension al reimbursement rules coverage go benefits, verning among by rule for these plans: former employees who properly retire gain a vested consideration by FASB: requiring that employers recognize accruing unfunded retirees. EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 K Street, N\V Suitc,_60 \Vashington, DL" 2007,7.Telcphone(202) 659.0070