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July 18, 2008

The Honorable Harry Reid
Majority Leader
United States Senate
528 Hart Senate Office Building
Washington, D.C. 20510-2803

Dear Senator Reid:

The Equal Employment Opportunity Commissions Rule (EEOC) published in the Federal Register on December 26, 2007 opened the floodgates for employers to reduce or eliminate healthcare plans for retirees when they turn age 65 and become eligible for Medicare. General Motors salaried retirees age 65 and older are now seeing their healthcare benefits swept away by the rush to ruin the retirement security of America’s retirees who had worked most of their lives to earn their retirement medical coverage.

As you are aware, GM announced on July 15, 2008 a plan to cut costs by $10 billion, suspend common stock dividends, and to sell up to $4 billion in assets in a bid to shore up cash and survive a slump in the automobile industry. Among the victims of GM’s restructuring plan are the salaried retirees who are currently on Medicare and those who will be in the future.  According to a GM document, on January 1, 2009 retirees, surviving spouses and dependents age 65 or older will no longer be eligible to participate in the GM Salaried Health Care Program.  At age 65, medical, dental, vision, hearing aid, prescription drug and extended care coverages provided under the GM plan will be cancelled.  In lieu of health care in retirement, eligible retirees and surviving spouses, age 65 or older, will begin to receive a monthly pension increase of $300.  This $300, of course, will be paid for with retiree pension trust funds, not GM operating cash.

The pre-tax $300 increase in pensions will not come close to paying the insurance premiums for the benefits that the retirees are going to lose. While the 65 and older GM retirees won’t know the full impact of the benefits that are to be eliminated until they begin trying to purchase similar coverage after January 1, 2009, here are some benefits that probably many GM retirees age 65 and older will not have in the future:
 

·Medicare does not include catastrophic coverage (out-of-pocket-maximum limits) The loss of catastrophic coverage is perhaps the largest single financial risk that will shift to retirees age 65 and older because it is most difficult to obtain and is very expensive.

·Corporate prescription drug plans that are dropped must be replaced through purchasing a 2009 Medicare D  plan on the open market. This will mean paying a $295 deductible and being exposed to the “doughnut hole” requirement to pay for 100% of drugs once the $2700 initial threshold is reached and before $6153.75 is paid by the retiree.  Medicare does not cover dental or vision care. These lost benefits would have to be purchased and alone would exceed $300/month after taxes.

·While most retirees’ spouses are covered as dependents under company plans, they are not under Medicare or under most carrier offerings. This change will have the effect of doubling coverage costs. Medigap coverage that pays deductibles and co-pays and offers extended (not catastrophic) coverage may cost $200 or more per person, per month.

In the letter that I wrote to you on behalf of the National Retiree Legislative Network (NRLN) on February 11, 2008, I stated the NRLN’s belief that the EEOC was running roughshod over the intent of Congress. Through its Rule, it made law rather than protecting older Americans as required by the Age Discrimination in Employment Act (ADEA) that Congress passed in 1967.

I am asking again what you as a Congressional leader will do to reverse the EEOC’s Rule. To do nothing is a statement by Congress that it cares little about defending the substance of the laws it enacts or safeguarding the citizens the laws were written to protect. It says a willing Administration under pressure from special interests can subordinate the intent of Congress through the writing of rules and regulations. Employers, such as GM, are using the EEOC Rule to single out older retirees as an easy, defenseless target.

The NRLN knows that ERISA protects pension benefits and assets held in pension trusts and acknowledges that ERISA unfortunately does not protect health care benefits. The erosion of corporate ethical and moral obligations to keep health care promises made to those who earned them is at the root of why ERISA itself must be modified to protect retirees’ benefits. Instead of protecting earned defined benefits, government has acted to shift corporate obligations onto the shoulders of retirees and taxpayers. Congress should recognize that being a non-competitive U.S company may have more to do with phasing out technologies, globalization, outsourcing, and inability of executives to manage competitively than it does with the cost of retiree benefits.

The NRLN proposes that Congress should introduce and enact the “The 2008 Health Care Protection Act.” Under the act, retirees would receive a Maintenance of Cost Payment (MCP) equivalent to the cost of their defined health care benefits as of the day of retirement. The MCP would pay for corporate plan benefits in effect on the retirement date. Corporations would benefit in knowing their bill for retiree health care would not grow. Retirees would be more secure in knowing that if a company reduced their benefits or shifted increased costs to them, they could replace benefits with the fixed payment dollars. Companies would have an incentive to retain defined benefits to the extent that pension plan asset transfers under Sec 420 of the IRS Code could offset MCP obligations. Companies who commit to retaining defined healthcare benefits would receive a tax credit equivalent to x% (say 25%) of the aggregate annual value of MCP payments offset by  401(h) transfers, instead of a taxable deduction for such costs. This proposal would be accretive with regard to Federal Tax Revenue.

In 1953, President Eisenhower selected General Motors President, Charles Erwin Wilson, as Secretary of Defense. During confirmation hearings before the Senate Armed Services Committee, Wilson stated, “…what was good for the country was good for General Motors and vice versa." What General Motors is doing to retirees age 65 and older is NOT good for the country!

The NRLN would welcome the opportunity to work with your staff to develop legislation to overturn the EEOC Rule and provide protection for retirees’ health care benefits.  While many corporate executives consider current retirees the “throwaway generation,” America’s retirees need to know that members of Congress still have a conscience for doing what is fair for them. Marta Bascom, the NRLN’s Washington Executive Director, can be reached at 703-863-9611. We will look forward to hearing from a member of your staff.

Sincerely,

President, National Retiree Legislative Network