The Spokesman-Review
September 29, 1999

Kaiser owners propose cap on increase in medical expenses
Union labels it a raid on retirees' pensions

Karen Dorn Steele - The Spokesman-Review

After 30 or more years making aluminum, Kaiser workers get modest,
fixed-benefit pensions for their retirement years.

Now, Kaiser's owners are proposing changes in medical care coverage that
could whittle away at those pensions, which average $500 a month for older
retirees and $900 a month since 1994.

In a proposal the Steelworkers are resisting at the bargaining table,
Kaiser wants to cap increases in medical expenses for current retirees
starting Jan. 1. Until now, the company has absorbed those increases.

For retirees who've reached age 65, the cap would also apply to future
increases in Medicare costs.

Kaiser says the union agreed to the cap in 1994 negotiations. Union leaders
say they were misled.

Both sides agree that any future costs of health insurance and medical
expenses above the cap would have to come out of retirees' pockets.

"This is a huge raid on retirees. A great many of the current retirees
believe this is unlawful, but Kaiser doesn't agree," said David Foster,
chief negotiator for the United Steelworkers of America.

With medical inflation running 4 to 5 percent a year, pension benefits
could be quickly eroded, Foster said.

Under federal labor laws, Kaiser doesn't have to bargain over retirees'
benefits, said attorney Jeremy Sherman, lead negotiator for Kaiser.

"The parties can choose to talk about them, but neither side can be forced
to. That's the law," Sherman said.

Kaiser has raised the issue because it needs to save money and hopes to
rein in its "huge legacy costs" for retirees' medical expenses, Sherman

The company's current proposal also includes a similar medical cap in 2005
for current workers who retire during the life of the contract now being
negotiated, Sherman said.

The proposal to limit retiree benefits is unusual, said John Leinen,
secretary-treasurer of the Spokane Labor Council, which covers 74 unions in
six Eastern Washington counties.

"Once you negotiate benefits for retirees, they are usually set for life,"
Leinen said. "This sounds like Bunker Hill all over again."

In that North Idaho labor battle, 800 Bunker Hill retirees lost their
medical insurance a few months after the Kellogg smelter closed in 1981.

The Steelworkers union went to federal court, forcing the former owner,
Gulf Resources & Chemical Corp., to reinstate the medical coverage and pay
$3 million in damages in 1988.

Kaiser retirees who met in the Spokane Valley last week are mobilizing to
fight the proposal.

Through their retirement group, Steelworkers Organization of Active
Retirees (SOAR), they are threatening a class action lawsuit on behalf of
thousands of Kaiser retirees nationwide.

Of Kaiser's 6,158 union retirees, about 1,700 live in the Spokane area.

An additional 1,300 former United Steelworkers of America employees are
eligible to collect a pension in the future when they reach retirement,
said Kaiser spokeswoman Susan Ashe.

The average health care cost per Kaiser retiree or surviving spouse was
about $325 a month in 1998, the union says.

"They are going back on their promises to us. We will sue them if they go
ahead with this, and we will win," said Larry Hansel of Spokane, a SOAR

"If this happens, we wouldn't have any money left to live on," said Joanne
Rasmussen, whose husband Bob retired from Mead in 1988. He's had three
open-heart surgeries, and she has had breast cancer.

The controversy centers on contract language both sides agreed to in 1994
-- before either Sherman or Foster were at the bargaining table.

The union went along with Kaiser's proposal for the Jan. 1, 2000, cap. But
now union officials say they only agreed because Kaiser said it needed the
promise of a cap for accounting purposes -- but planned to keep postponing
it in future contract negotiations.

"According to my predecessors, there was never any expectation that the cap
would be exercised," Foster said.

"The agreement doesn't say it's an accounting device. It says the cap will
be in 2000," Sherman said.

Kaiser is offering an alternative to its proposed cap to current retirees,
but can't give specifics yet, Sherman said.

"We are saying, let's try to come up with a system to reduce health care
costs. We've told the union, we are open on this," he said.

Since November 1994, all Kaiser retirees must join health maintenance
organizations for their health care. But older retirees still can choose
between fee-for-service care and HMOs, said Kaiser Trentwood negotiator
John Witt.

"They are using this to try to force all retirees into HMOs," Witt said.

Kaiser's long-term debt, which includes the pension liabilities, is driving
the cap discussion.

Kaiser has a $694 million liability for retirees' medical benefits,
according to the company's 1998 annual report.

More retirees than current workers are covered by the master agreement with
the Steelworkers, Sherman said.

The liability includes retirees at several plants Kaiser sold or closed
since Charles Hurwitz of Maxxam Inc. bought Kaiser in 1988.

For instance, costs for 600 Kaiser retirees at the Ravenswood, W.Va.,
smelter and fabrication plant sold by Hurwitz in 1989 are still being
budgeted against Kaiser's current plants.

It's unfair to take Kaiser's debt problems out of retirees' pensions, said
Dick Herrmann, 71, who took early retirement in 1980 after 28 years with
Kaiser. His pension totals $547 a month.

"If medical costs go up 5 percent a year, 10 percent of my pension will be
gone by 2001," he said.

*Karen Dorn Steele can be reached at 459-5462 or by e-mail at

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