Workers face cuts in retiree benefits

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August 27, 2006|By Tami Luhby | Tami Luhby,Newsday

Workers increasingly will have to fend for themselves in retirement as companies continue to curtail pension and retiree medical benefits, according to two studies.

The reports, released by Watson Wyatt Worldwide, confirm other studies that show employers are shedding or trimming their retirement programs for employees who are still working. For those already in retirement, the changes are less dramatic.

On the pension side, the number of Fortune 1000 companies that froze or terminated plans in 2005 rose 59 percent, to 113, according to Watson Wyatt. And the number of companies closing plans to new hires nearly doubled, to 49.

Although the prevalence of traditional pension plans has been declining for years, the pace has picked up because of regulatory and legal uncertainties.

At the same time, most employers plan to curtail their medical plans for current and future retirees in the next five years, even though the federal government now provides a subsidy for continuing benefits, a separate Watson Wyatt study found.

About 14 percent plan to eliminate the benefit for future retirees and half expect to make changes. Two-thirds plan to increase employee contributions, and a quarter intend to either tighten the eligibility or open separate accounts for workers to save for their own retiree health costs with employer contributions.

Employers are reassessing the benefit options for 2007 and looking for ways to curtail costs, said Tricia Neuman, director of the Medicare Policy Project at the Kaiser Family Foundation. That could spell trouble for the millions of people who depend on employer-based benefits to supplement Medicare.

Tami Luhby writes for Newsday.

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