Boston Globe, October 20, 2004, Wednesday

The Boston Globe

October 20, 2004, Wednesday THIRD EDITION
SECTION: BUSINESS; Pg. C1

HEADLINE: FACING A FUND GAP
LUCENT SEEKING TO SHIFT PART OF SOARING HEALTH COSTS TO RETIREES

BYLINE: By Kimberly Blanton, Globe Staff

BODY:
Lucent Technologies' population of retired workers has grown so large over the years, there are four retirees for every active employee on its payroll. With health insurance costs soaring, Lucent now is saying that it's time for retirees to help pay for the benefit.
In contract negotiations with its unions, Lucent, which fully funds retiree healthcare, proposed 70,000 retired union workers begin paying premiums, ranging between $200 and $700 a month. The new premium would be paid by retirees whose pension checks average $900 a month.

Lucent said healthcare expenses for all retirees this year will be $800 million, up from $539 million five years ago, and it already has raised premiums for retired managers to rein in those costs.
"We just simply can't afford to absorb these costs and remain a competitive business," said Lucent spokeswoman Mary Ward. Rising health costs, she said, are "a national issue, not a Lucent-specific issue."
Lucent may be a telecommunications company, but it has much in common with mature industrial companies that have slashed their employee base, which must support large numbers of retirees. Lucent inherited retirees from predecessors AT&T and AT&T's Western Electric unit and, more recently, retained retirement obligations from companies such as Avaya and Agere Systems when it spun them off.
Premiums for Lucent's union retirees were proposed during bargaining talks, continuing this week, with its two largest unions, the Communications Workers of America and International Brotherhood of Electrical Workers. "We've had no movement on healthcare whatsoever," Marcie Vincent, president of CWA Local 1366, which represents workers and retirees in the Merrimack Valley, said yesterday.
Corporations nationwide are trimming or eliminating retiree benefits. After declaring bankruptcy, Bethlehem Steel ended retiree health benefits altogether. The Boston utility NStar shifted hundreds of retirees out of a longstanding health plan into a lower-cost plan with less generous benefits. But Lucent's dramatic premium hikes are unusual for a profitable, ongoing concern.
"Its Draconian," said Kate Bronfenbrenner, a professor in Cornell University's School of Industrial and Labor Relations. "You have a group of workers who are extremely vulnerable and getting caught in the crux of this problem that's been caused by allowing profits to come before people."
Paul Sagawa, analyst for Bernstein Investment Research and Management in New York, said retirees are a huge burden for Lucent, which has shrunk dramatically since it was spun off from AT&T in 1996. It has 125,000 management and union retirees, compared with an active global workforce of 32,300.
"The big problem, born of the Bell System, was that it was saddled with a very large employee base and a long list of retirees when it spun off from AT&T," Sagawa said.
Health insurance is the central issue in Lucent's negotiations with unions to replace the contract that expires Oct. 31. The unions are trying to limit the size of the premium. Vincent said last week it is "more than likely it's going to be some cost-shifting to the retiree."
The majority of union retirees pay no premiums, the company said. Its initial proposal contained premiums ranging from $200 to $700 per month, depending on the retiree's age, Medicare status, and dependents. The premiums would take effect at the start of the new contract and be fully instated in 2007, the company said.
While pensions for retirees in CWA and IBEW average $900 a month, nearly 2,000 receive $450.
"They're not going to have any insurance, because nobody's going to be able to afford to buy it. It's about as simple as that," said Maddie Carrier, a retiree and former board member for CWA Local 1365, which represents workers in the North Andover plant. Carrier, 63, retired after 26 years at Lucent, AT&T, and Western Electric.
Carrier's husband, Frank, 65, also retired from Lucent. He said paying for health benefits will "squeeze" their household finances.
Although both receive Social Security, "that's beside the point," said Maddie Carrier. "We all earned our pensions."
CWA's Vincent is concerned premiums may be a first step to eliminating retiree health benefits altogether. She noted that the reason the company agreed to fund retiree healthcare was "because during bargaining over the years, we've given up wage increases in order to afford them."
Lucent, which posted years of losses caused by the telecommunications industry's collapse, recently reported its fourth consecutive quarter of profits. The company earned $387 million on revenue of $2.2 billion in the third quarter, ended June 30, of fiscal year 2004. Fourth-quarter earnings are expected to be released today.
Lucent has depleted a trust fund that paid health benefits for retired managers, Ward said. A separate fund, for union retirees, is expected to run out in three years, she said. When that happens, health expenses come directly out of Lucent's cash flow.
Analyst Sagawa said healthcare is an "enormous" drain on its cash. For its retired managers, Lucent estimated its cash outlay for post-retirement healthcare was $220 million in fiscal 2004. To reduce that, the company on Jan. 1, 2004, ended premium subsidies for dependents of 7,300 former managers who earned more than $87,000 upon retirement, Ward said; next year, dependents' premiums will rise for an additional 5,400 retired managers, those who earned at least $65,000.
Vincent said healthcare is crowding out other issues for current employees, such as wage increases. "We haven't even gotten to that point yet," she said.