Pressure to Cut Employee Benefits Threatens Labor Peace
Looming 'Cadillac tax' on health plans, corporate pension burdens likely to complicate talks with unions
by Vipal Monga & Kimberly S Johnson, Wall Street Journal
Many big companies are pushing to cut spending on employee benefits-from pensions to health insurance-and could face labor strikes as a result.
In all, major employers have about 400,000 union workers whose contracts are up for negotiation this year.
They include the Detroit auto makers, whose workforces have a combined 140,000 members of the United Auto Workers; a group of railroad operators including CSX Corp., with 142,000 union employees; and telecom companies like Verizon Communications Inc., which is in talks with about 40,000 wireline workers.
Most labor talks involve some head-butting over benefits. But what's different this time, corporate finance chiefs say, are a looming "Cadillac tax" on health-care plans and pension burdens that are dragging down profits.
At New York-based Verizon, executives want to "redesign and reshape" health plans in a bid to cut overall cost, said Fran Shammo, chief financial officer.
Verizon also aims to rein in pension expenses. Its obligations for defined-benefit pensions-the kind that guarantee retirees a set payout-totaled $25.3 billion at the end of 2014, up 10% from 2013.
The company began talks last week in Rye, N.Y., and Philadelphia with the Communications Workers of America and the International Brotherhood of Electrical Workers. Neither union liked its opening offer, which included pension-plan changes, increases in employee health-care premiums, a 2% boost in wages this year and next, and a lump-sum payment of $1,000 per worker in 2017 in lieu of a raise.
"They're going to be very difficult negotiations," said Mr. Shammo.
Verizon said in a statement that its union health plans for a worker with one or more family members cost an average $20,000 a year, well above the $16,800 national average.
The unions say they made many concessions during the financial crisis, and with companies raking in record profits, don't want to give up any more.
Quarterly earnings for S&P 500 companies almost tripled from the first quarter of 2009 and this year's first quarter, making hardship a tougher sell.
"Workers have been told to toe the line, but corporate executives are not toeing the line," said Candice Johnson, a CWA spokeswoman. The union points to the company's top five executives, who receive $44 million in pay last year.
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