The Wall Street Journal - October 25, 2005

 

Retirees File Suit
Against Lucent
Over Health Care

Retirees of Lucent Technologies Inc. filed suit, saying the company illegally overcharged an estimated 120,000 management retirees for their health coverage and terminated coverage for many retirees' spouses.

The lawsuit, filed by three retirees in U.S. District Court in Newark, N.J., maintains that Lucent, of Murray Hill, N.J., violated Internal Revenue Service rules when it cut the retirees' health coverage. The rules state that when employers use the assets from the employees' pension plan to pay the employer's share of their retiree health-care costs, the employer can't subsequently cut the retirees' health benefits for five years.

While these "maintenance of benefits" rules allow employers to make some modest reductions to coverage during the five-year moratorium, the suit alleges that Lucent exceeded the reductions allowed when it made a series of more than 10 benefits cuts from 2001 to the present, including increasing co-payments and premiums, and eliminating company-paid coverage for dependents.

Lucent transferred a total of $881 million from the management pension plan between 1999 and 2001, according to the suit. These types of transfers, called "Section 420 transfers" after the section of the IRS code that pertains to them, have been implemented by other large employers, including DuPont Co., which withdrew more than $1 billion from its U.S. pension plans for retiree medical costs between 1997 and 2000, and SBC Communications Inc., which withdrew $286 million from pension-plan assets in 2001 to pay for retiree health costs.

A spokeswoman for Lucent says the company doesn't comment on pending litigation, but says, "We believe we're in compliance with Section 420."

The suit, which seeks class-action status, would cover managers who retired from Lucent and from AT&T Corp., from which Lucent was spun off in 1996. Curtis C. Shiflett, 71 years old, who worked at AT&T for more than 35 years, is one of the named plaintiffs. The health coverage for his wife, Betty, was eliminated in 2004. The other named plaintiffs are Peter A. Raetsch, 66, who also worked for AT&T for 35 years, and his wife Geraldine. The retirees are seeking a refund of some of their health-care and coverage costs.

Write to Ellen E. Schultz at ellen.schultz@wsj.com