THE BLOG

Last Night's Debate Left Unanswered Protection of Older Workers and Retirees

Alan Shaffer, a town hall participant, posed the question: what is the fastest and most positive solution to bailing out older workers and retirees in America and keep them from financial ruin? This was the first question presented in the second presidenial debate and it remains virtually unanswered, even though each candidate touched on their own version of a solution.

Senator Obama initially presented a general answer referring to economic reform that will address jobs, pensions, education and healthcare. As the debate proceeded, he became more specific about his proposals. Senator Obama identified oversight of the Wall Street bail out plan, including but not limited to, the firing of executives who abuse their power and resources given as part of the rescue plan to strengthen them in the financial markets. He also mentioned the importance of reforming our healthcare system, with the goal of saving money in the long term, and creating less of a drain on entitlement programs such as Medicare. Most impressive is Senator Obama's proposal to give a fifty percent tax credit to all employers that purchase or maintain health insurance coverage for their employees. According to Senator Obama, he has the stated goal of creating a plan that will make social security solvent and stable so that it will be available to the children of today.

Senator McCain's response was far more elusive. According to Senator McCain, he will protect older workers and retirees from financial ruin by encouraging energy independence, keeping taxes low, stopping the government spending spree (although he doesn't want to see the Iraq war ended) and stabilizing home values. Senator McCain indicated that we need to reform entitlement programs but Americans must accept that the government is not going to be able to provide the same benefits to retirees as it has done in the past. Senator McCain's clearly response begs the question, if retirees are abandoned by employers who slowly eliminate the "lifetime benefits" that were promised to them and they can not turn to Social Security or Medicare for assistance, what are they to do?

The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.Section 1001 et seq. was signed into law by President Gerald Ford. It was ostensibly enacted to promote the interests of participants in employee benefit plans given by private as opposed to government employers. These are the employee benefit plans that provide benefits in the form of life insurance, disability insurance, health insurance, severance pay and pensions. It can impact the rich, the poor and the middle class worker. The difference being, a Wall Street executive earning $400 million over the tenure of his or her career can afford to personally pay for a life saving medical procedure and the average working American can not. ERISA does not require that an employer provide health insurance or pension plan benefits to its employees or retirees, but it does regulate the operation of a health benefit plan if an employer chooses to establish one and .it regulates the operation of a pension plan once it has been established. The law's stated purpose is to protect participants' interests in employee welfare benefit plans by improving their equitable character and soundness and by providing for appropriate remedies, sanctions, and ready access to the federal courts. The operative term being federal court as opposed to state court.

Under the laws of most states, a wrongful denial of employee benefits such as health insurance, dental insurance, life insurance, retirement benefits and disability insurance, can result in a jury verdict awarding the employee the denied benefits, damages for emotional distress, and most importantly, punitive damages. Under ERISA, there is no right to a jury tria or emotional distress or punitive damagesl. The decision regarding whether there was a wrongful denial of benefits is made by a federal judge, and, it is generally known that federal judges issue decisions that favor corporate interests over the individual. At the end of a federal trial, the most that an employee can receive is wrongly denied benefits. The insurance company or employer can only lose the value of the benefits it denied in the first place, thereby creating an incentive to take the risk of wrongfully denying benefits, especially if the outcome is a federal court ruling that will most likely be in favor of corporate interests.

Unfortunately, ERISA Section 514 preempts all state laws that relate to any employee benefit plan, with certain, enumerated exceptions. A major limitation is placed on the insurance exception, known as the "deemer clause", which essentially provides that state insurance law cannot operate on employer self-funded benefit plans. The U.S. Supreme Court has created another limitation on the insurance exception, in which even a law regulating insurance will be pre-empted if it purports to add a remedy to a participant or beneficiary in an employee benefit plan that ERISA did not explicitly provide.

If Social Security is eradicated, Americans will most likely rely upon their employment retirement and pension plans which will fall under the regulatory guidelines of ERISA. At present, ERISA purports to provide equitable relief for employees, and, regulatory design for corporate overseers of retirement plans. Yet realistically, it often allows corporate decimation of lives of the American worker as witnessed in the Enron situation.

According to the Employee Benefit Research Institute, American workers show a record drop in retirement confidence with health care in 2008, the economy being the major concern. The Retirement Confidence Survey (RCS) conducted by the Employee Benefit Research Institute is the country's most established and comprehensive study of the attitudes and behavior of American workers and retirees towards all aspects of saving, retirement planning, and long-term financial security. According to Dallas Salisbury, president of the Employee Benefit Research Institute, "in the nearly two decades we have been conducting the RCS, this year's results (2008) show a very dramatic reduction in the public's confidence about having a comfortable retirement...If there is a silver lining, it's that Americans finally may be waking up to the realities of being able to afford retirement."

The RCS survey taken in April of this year revealed several signs of public unease about retirement:
1) The percentage very confident in having enough money to take care of basic expenses decreased from 40 percent in 2007 to 34 percent in 2008 for workers and from 48 percent to 34 percent for retirees; 2) Workers are increasingly not confident about having enough money for medical expenses and for long term care expenses; 3) 39 percent of retirees now think they are likely to live long enough to use up all of their savings Barely one-third of all workers now expect to have access to employment based health insurance in retirement, down 8 percentage points from 2007. Although 41 percent of retirees say they currently have access to health insurance through a former employer, many employers are eliminating health care coverage for future retirees.

It should be noted that these were the views of American workers and retirees in April of this year, months before the whirlwind spiraling of American and world financial markets. Were the RCS survey taken today, I'm certain the confidence levels would be far lower than in April.

"Employers are running away from writing the check for retirees' healthcare as fast as they can, and they're showing no sign of slowing down," said Paul Fronstin in 2005, director of the health research program at the Employee Benefits Research Institute in Washington, D.C. So many cuts are happening that Fronstin estimates a 55-year-old today who lives to 85 will need about $300,000 in savings to pay for supplemental health insurance and out-of-pocket expenses in retirement. That number has most likely substantially increased in 2008 with younger workers needing twice the amount as an older worker.

Reformation of ERISA must be balanced against the need to encourage employers to continue to make benefits available to its workers. Many private employers contend they can't stay profitable if they don't radically realign what they spend on retirees' medical care. Yet, Americans can no longer afford to be wrongfully denied health care and other benefits promised by their private employers in order to promote the profitability of corporate interests.

The solvency of an employer is a critical factor in our current economy. If an employer becomes insolvent and files for bankruptcy, pension benefits and assets should not be at risk because they are insured by the Pension Benefit Guaranty Corporation. Private 401k plans are not insured and are therefore at risk. Also, if an employer discontinues all of its health plans, COBRA continuation coverage will not be available.

Senator Obama's fifty percent tax incentive could be the balm to soothe harsh penalties for abuses and wrongful denials of employee benefits in the form of health insurance, disability insurance, life insurance, severance pay, private retirement and pension plans. Yet, a tax incentive is only a partial solution to the overall problem. Employers and insurance companies are presently permitted to oversee the allocation of benefits despite the inherent conflict of interests given their desire to increase their profitability. This is akin to the fox overseeing the hen house with no meaningful system of checks and balances. Profit motivated insurers and employers must no longer be allowed to give their financial statements priority over the needs of the American worker. Oversight by a disinterested and neutral third party will provide the protection the American worker and retiree needs.

ERISA imposes upon fiduciaries, insurers, employers and any entity that oversees employee benefits, the duty to act solely in the interest of the employee, yet this seldom happens. Responsibility for the interpretation and enforcement of ERISA is divided among the Department of Labor, the Department of the Treasury (particularly the Internal Revenue Service), and the Pension Benefit Guaranty Corporation. It is well known that the current administration has not actively regulated Wall Street. Change must begin with revision of the law and then translate to aggressive, regulatory oversight at every branch of government, including the courts and administrative agencies, as suggested by Senator Obama.