Workers Dealt Double Blow

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Workers Dealt Double Blow

By Diane Levick, The Hartford Courant

September 11, 2003

Employees at The Hartford Financial Services Group got a double-whammy Wednesday as the company announced it will replace its pension plan with a controversial alternative and shift more health care costs to workers.

Although the changes are raising employee anxiety, The Hartford cites soaring costs and says it's trying to save money and avoid another massive layoff.

The Hartford will switch Jan. 1, 2009 from a traditional pension plan, which is based on final years of pay, to a "cash balance" plan. The new plan will build up money in accounts throughout employees' careers. Workers hired by The Hartford in 2001 or later - about 30 percent of the employees - are already subject to a cash balance plan.

The Hartford is also revamping its health plans for 2004 so that workers making more than $50,000 a year will pay a greater percentage of premiums. In addition, many employees will probably have bigger medical bills because in some cases they'll be paying a percentage of the bills instead of flat co-pays.

The company has about 29,000 employees - 11,600 of them in Connecticut.

The company says it is facing a 53 percent increase in retirement plan costs next year because of low interest rates and a "three-year negative investment environment."

The Hartford says its overall health plan costs have risen 30 percent in the past two years and would jump another 13 percent next year if no changes were made.

If the changes are not made, the company estimates it would have to cut another 1,300 jobs to achieve the same savings. In May, The Hartford announced 850 layoffs including 640 in the Hartford area.

"The changes we're announcing now are the best option to bring our expense structure in line with peer companies and remain competitive for the future," said company spokeswoman Cynthia Michener. "We believe we struck the right balance between long-term cost control and our ability to offer a valuable and competitive benefits program."

At least some employees are worried about a potential financial bite.

One local employee said he was disappointed but not surprised by the pension switch, and that the health plan changes are a more immediate worry because "it hurts in the pocketbook."

"I'm very concerned about that because health care costs have been really escalating" and premiums have been rising the last few years, the employee said. "You end up taking home less net pay."

Another local employee said many workers needed more details and clarification, and "I think a lot of people have not figured out what the impact to them is."

Cash balance pension plans have been or will be adopted at many other companies including The Courant's parent Tribune Co., but have prompted multiple lawsuits alleging they hurt older workers.

The Hartford noted that in its cash balance plan, it will deposit an amount in each employee account each year based on a percentage of the person's salary, and that it will increase with age and tenure.

The company estimated that the average employee - age 40, making $52,000 a year, currently with eight years of service, and retiring at 62 - would get 7 percent less money under the cash balance plan than under the old plan. Some workers would be less affected, but the gap for some would be even higher than the 7 percent.

To partly offset the pension changes, The Hartford plans to increase the percentage of salary it contributes annually to many employees' 401(k) savings plan.

The company currently gives 0.5 percent of salary regardless of whether an employee contributes to the plan, but will give 1.5 percent starting next year to people earning less than $90,000 a year. For those making more, the company's contribution will remain at 0.5 percent.

Although The Hartford's pension obligation will continue to grow each year, the cash balance plan will moderate those increases, Michener said.

In a federal securities filing Wednesday, the company said that if the new plan had been in effect last year, it would have reduced the $2.6 billion pension obligation on Dec. 31 by about 10 percent.

The Hartford is waiting until 2009 to start the cash balance plan "to give employees time to understand the plan and the effect it might have on their retirement income, and give them time to plan," company spokeswoman Joyce Willis said.

Asked whether the company hopes the plan will encourage more workers to retire earlier than they might have, Willis said, "That was not in our thought process."

Meanwhile, The Hartford is replacing most of its HMO plans with preferred provider plans, and is in the vanguard of large companies imposing deductibles and cost-sharing of bills called "coinsurance."

The Hartford's employees will continue to incur a flat $20 co-pay for doctor office visits if they stick to network-listed physicians. But they'll have various deductibles and coinsurance for out-of-network doctors and even in-network hospital stays and prescriptions. Deductibles and coinsurance would generally be lower for in-network service than for out-of-network.

The move to coinsurance is "an extremely hot area of discussion among large companies but not something I would point to as a trend yet," said Eric S. Grossman, principal in the Norwalk office of Mercer Human Resource Consulting. Many large companies are seriously considering the switch for 2005, and a few large companies in the Hartford region are already using coinsurance, he said.

It's more common, though, on medical services than on prescription drugs, Grossman noted.

Mercer experts say employers are hoping coinsurance will wake workers up to the true costs of health care and encourage them to make more prudent and cost-saving decisions.

In coinsurance, employees tend to pay 10 or 20 percent of medical bills for in-network service, and 30 or 40 percent for out of network, he said. In-network deductibles can range from $300 to $500 for a single employee, and two or three times that amount for a family, he added.

The Hartford's employees who earn up to $50,000 will continue next year to pay 30 percent of the premiums for their health plan. But employees in a higher pay range will shoulder 32 percent of the price, and employees earning the highest salaries will pay 39 percent.

More employers are considering pegging premiums to salary range to encourage lower-paid workers to keep buying health insurance even though rates are rising, Grossman said.

In another change, The Hartford next year will pay for long-term disability coverage that replaces only 50 percent of an employee's salary instead of the current 60 percent. Employees can pay extra, though, to buy better coverage.