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Retiree health benefits on the chopping block
April 03, 2014
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NEW YORK: Throughout a bitter winter, burly linemen gathered at daybreak around tiny fire pits on a street in front of where they’ve clocked in to work for years.

In good weather and bad - particularly bad - these were the men who climbed up utility poles to keep the power flowing to the people of Altoona. It was hard work, but it paid well, helped these men build a life in the middle class, and allowed them to look forward to secure retirements.

Now, locked out of their jobs since Thanksgiving in a contract dispute with Penelec, part of powerful Ohio-based FirstEnergy Corp., their only work was on their vigil.

American politics this election year is rife with discussion about the gap between rich and poor, with talk of raising the minimum wage for those at the bottom and about those at the very top.

But in Altoona, as in much of America, it’s about the vast middle, those who work hard, play by the rules and make decent livings. Now the rules are changing. The promise of the middle class is being broken.

Big companies are shifting their focus entirely to their stockholders. Globalization, endorsed by both major political parties, puts added pressure on the bottom line. Wages are stalled and benefits are on the chopping block.

The 142 blue-collar Penelec workers in Altoona personify this slow, persistent change in America.

“We’re coming down to two groups in this country: elites and those who have to work for them,” complained J. Merritt, 48, an 18-year employee of Penelec, who goes by his first initial. “That is not what this country was founded on. The forefathers of this country are probably flipping in their graves.”

Once a mainstay of blue-collar and government jobs, retiree health benefits are steadily disappearing.

Companies long offered them as a way of retaining workers. Now companies are shedding these plans and the expectations they entailed.

By 2010, just 17.7 percent of American workers had employer-provided retiree health coverage, down sharply from about 29 percent in 1997, according to the Employee Benefit Research Institute, a nonpartisan study organization.

FirstEnergy started notifying employees in 2009 that the company would end its subsidy for retiree health care in 2014.

“That is not a secret. That has been told to employees and retirees for four years plus,” Penelec spokesman Scott Surgeoner said.

Even with forewarning, the change reflects an erosion of retirement security for workers who often accumulate job-related injuries over their careers.


What irks the locked-out Penelec workers most is that their company and its parent corporation are quite profitable. FirstEnergy reported $142 million in profit for the final three months of 2013.

FirstEnergy CEO Anthony J. Alexander is among the 275 best-paid CEOs in the nation, according to Forbes, with total compensation of $43.04 million in the past five years.

“What man in the world is worth that?” asked Merritt.

He added that FirstEnergy had spent $120 million to acquire the naming rights to the Cleveland Browns football stadium in January 2013. “We make a decent living, I won’t deny that. But we also do a good job for people.”

Surgeoner scoffed at the issue of naming rights.

“Whatever we paid for naming rights ... does not come from operations and maintenance. It comes from shareholder funding,” he said. “It is separate from the operations and maintenance ... and is not connected whatsoever.”

As for Alexander’s high pay, Surgeoner said FirstEnergy operated in five states and provided electricity for 6 million customers.

“The board believes it has to set pay that it considers fair or commensurate for the responsibilities of the CEO,” said Surgeoner.

At the same time Penelec workers think the company focuses too much on its CEO, some analysts say companies overall have shifted focus to their stockholders at the expense of their employees.

“Much of it has to do with the change in corporate goals ... this big transformation from being focused on stakeholder values to shareholder value,” said Ed Wolff, an economics professor at New York University who’s a leading researcher on wages and income. “A lot of this has resulted in huge emphasis, almost singular emphasis, on corporate profitability, beginning around 1980.”

For much of the last century, corporations focused on a wider range of constituents. They were integrated into the community, and part of their mission was to ensure their employees prospered.

“The real crux of the matter is the corporate mandate, and it really has to be up to corporations to go back to their old ways, to actually think of benefiting a whole range of stakeholders,” Wolff said. “Unless you get this shifted ... not much is going to happen.”

The locked-out Penelec workers don’t much feel like stakeholders. Merritt and other linemen hurled insults at the “scabs,” union vernacular for replacement workers.

The linemen are represented by Locals 180 and 102 of the Utility Workers Union of America, which itself counts more than 50,000 members.

The Altoona-area locals were offered an 8 percent raise over three years, something that probably sounds good to many Americans. In fact, the average pay for a lineman in Altoona, said Surgeoner, is $81,500. That’s hefty in an area where $36,000 is the midpoint annual salary.

But as part of the new contract offered by Penelec, employees hired beginning this year would bear more of the burden for their pensions.

Existing employees no longer would get retirement health benefits paid by the company until they turn 65 and are eligible for Medicare. For workers who labored for decades, it amounts to making up new rules mid-game.

“It’s not changing the rules of the game; it’s a fact of financial life in today’s world,” said Surgeoner, who said the company didn’t “have the resources” to cover retiree health benefits. “We are not the first company (to end the benefits) and we will certainly not be the last.”

The oldest of the Altoona workers had been expecting free retiree health coverage; for newer employees, the cost of retiree health benefits was to have been shared.

“If we would have signed it, all the retirees that we have here would have lost their health coverage,” said Ron Hanna, 51, who himself is looking at losing promised retirement benefits after 26 years on the job. “We’ve got guys that are within a couple of years of retiring, and for the last 30 years they have been setting their retirement up knowing they’re going to have health coverage in retirement, and it’s not there.”

Local 102 President Robert Whalen did not return calls requesting comment, but he said in a statement at the start of the lockout that “our members fully understand that cuts to pension and retiree medical benefits will have a lasting effect on their livelihoods and inside their communities.”


Penelec operates a voluntary employee beneficiary association. That’s an entity established for the sole purpose of paying for employee benefits, and contributions to it by the company are tax deductible.

There’s at least $78 million in Penelec’s VEBA, and the money has been used primarily to help retired workers defray costs that aren’t fully covered for expensive medical procedures, Surgeoner said, stressing that the VEBA was paid into by the company alone.

The VEBA will be limited going forward to paying bills for workers who already have received help under it, he said, and not for defraying the costs of current workers when they retire.

Over the small fire pits, locked-out workers groused that the VEBA itself is large enough to cover their retiree health care costs, and wondered why this isn’t a solution.

“I think the key point is the union had no financial interest in that VEBA. At the end of the day, the company decides what to do with it,” Surgeoner said, declining to provide details about the VEBA. “It is not information we’re going to share publicly.”

Months out of jail and several weeks into the Trade Institute of Pittsburgh’s masonry training program, Ryan Kelley and Scott Snyder aren’t making any excuses.

Kelley’s decision to drive with a suspended license and the crash that seriously injured at least one person are burdens to be carried on his conscience and possibly his criminal record for the rest of his life. The aggravated assault, weapons and vandalism charges staining Snyder’s record are accepted repercussions of his own decisions.

Caked in layers of concrete and brick dust left from the training class, which pays $50 per week over the course of 10 weeks, Kelley and Snyder weren’t asking for absolution.

They only asked that, once the program ends, some employer could look beyond their felony convictions and give them second chances to earn an honest living.

“(The job search) was horrible,” said Snyder, who along with Kelley is a resident at Pittsburgh-based halfway house Renewal Inc. “All that was open was fast food. It would take forever to get out of the halfway house.”

“I went to big corporations and small places,” said Kelley. “Before I got (in the training program), I was just trying to get out of the (Renewal) building _ so I would apply for anything. It’s hard.”

In their cases, referrals from a Renewal counselor, a face-to-face conversation and a three-day trial period with Trade Institute founder Steve Shelton were enough to put the men back on a path toward gainful employment. But for millions with felony convictions hoping to build careers, getting a foot in the door _ let alone a sit-down with a CEO _ is often a discouragingly uphill battle.

The 2008 Urban Institute Justice Policy Center study, “Employment after Prison: A Longitudinal Study of Releasees in Three States,” reported only 45 percent of participants were employed eight months after their release, despite 65 percent being hired at some point.

For a population estimated at between 12.3 million and 13.9 million five years ago by the Center for Economic and Policy Research, a few months out of the workforce can equal years of separation in career advancement. The 2010 Pew Economic Policy report “Collateral Costs: Incarceration’s Effect on Economic Mobility” noted that a former inmate’s incarceration reduces annual work time by nine weeks per year and diminishes annual earnings by 40 percent.

“People who break the law need to be held accountable and pay their debt to society. At the same time, the collateral costs of locking up 2.3 million people are piling higher and higher,” said Adam Gelb, director of the Pew Center on the States Public Safety Performance Project.

Beyond the hurdles of criminal background checks and felon-screening job applications, many of the formerly incarcerated had fallen behind peers in several demographic measures even before they went to jail. A 2005 study by University of California professor Joan Petersilia found 40 percent of state and federal prisoners lacked a high school diploma or GED, nearly one-third had a physical or mental disability, and more than half reported using drugs during the month they were arrested.

Taken all together, it’s enough to solidify a lifetime of second-class citizenship, said Shelton, whose Trade Institute operates out of Hosanna House in Wilkinsburg, Pa., and provides 10 weeks of training for 10 students at least twice per year.

“The way I look at it is these guys go to jail at a really young age _ 17, 18, 19 years old. Then they get out at 26, 27, 28 years old. They don’t have any education. They’re a convicted felon; they don’t have driver’s licenses. What part of this system is set up for them to succeed?” he said.

General workplace policies surrounding individuals with felony convictions have been very guarded, but many of those barriers are slowly beginning to fall, according to Roberta Meyers, executive director of the New York-based advocacy organization, National H.I.R.E. (Helping Individuals with criminal records Re-enter through Employment) Network.

Small- to medium-sized businesses that have traditionally taken the lead when it comes to hiring people with criminal backgrounds are stepping up in even greater numbers, according to Meyers. Large corporations are also starting to get on board by eliminating questions about criminal history on applications and by working directly with organizations designed to bring individuals with felony convictions back into the workforce.

Partially attributing the shift to a 2012 Equal Employment Opportunity Commission update of discrimination laws surrounding pre-employment inquiries for the formerly incarcerated, Meyers said the single greatest factor in helping gain employment could be skills training acquired during time in prison.

In Pennsylvania, the PA Correctional Industries program offers job training that includes printing, textiles, housekeeping, engraving and personal care among its offering of more than 16,000 items and services. The program does not provide direct job referrals, but the skills acquired through such programs are giving former inmates across the country a leg up in the job search.

“There are a lot more opportunities that are developing and that have developed over the years, and a lot of that has to do with the type of training available in the corrections system,” Meyers said.


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