Lucent Cuts Retiree Healthcare

Lucent Technologies Inc. (NYSE: LU) will significantly reduce healthcare subsidies for about 50,000 retirees next year.

Starting in 2004, the company will no longer pay subsidies to dependents of former workers who retired on or after March 1, 1990, and whose base salary at retirement was $87,000 or more. Lucent's also jettisoning dental coverage and Medicare Part B expenses (any doctor visits and outpatient medical care not associated with in-patient stays) for all management retirees and their dependents.

In a filing with the U.S. Securities and Exchange Commission (SEC) this week, the company says it hopes to save about $75 million through the cuts. It blames the need for them on rising healthcare costs and the dramatic changes in the telecom market over the last few years. According to the filing, Lucent must struggle to support its many retirees, the majority of which never even worked for Lucent, but were part of AT&T Corp. (NYSE: T) and, in turn, many other companies acquired by that company prior to its spinoff of Lucent in 1996.

"In 1999 we had about 118,000 U.S. employees supporting 106,000 retirees. Today, we have about 24,000 U.S. employees supporting the healthcare benefits of about 240,000 U.S. retirees and their dependents," the filing states. The company's retiree healthcare costs have increased 85 percent in the last six years to about $850 million, according to the filing: "At the rate healthcare costs are increasing, unless we take action now we could face close to $1 billion in annual retiree healthcare costs in the near future – about 10 percent of our annual revenues and close to half the payroll costs for our entire business."

About 40 percent of affected retirees (roughly 20,000 people) have paid nothing up to now toward ongoing healthcare after they leave the company. The other 60 percent pay between $75 and $190 per month, according to Lucent's filing, and will pay anywhere from $150 to $370 per month next year due to the changes in coverage. Lucent will continue to offer comparable coverage at group rates for healthcare and dental plans.

Lucent will keep looking for ways to pare down coverage "in fiscal 2005 and beyond." It plans to bring up the issue to its unions in negotiations next year.

Lucent spokeswoman Mary Lou Ambrus says despite the changes, Lucent continues to be among just 12 percent of U.S. companies still offering healthcare subsidies to retirees. Further, she points out that discontinuing Medicare Part B coverage won't affect other healthcare plans for which retirees continue to get subsidies.

This is small consolation for members of the Lucent Retirees Organization (LRO). "We're shocked that Lucent is doing this to the retirees," says Ed Beltram, communications director of the organization, who once worked for Lucent PR. The group met with Lucent execs in April and July 2003 to propose ways to compromise on proposed cuts in other areas (see Lucent Retirees Ask Questions). Little came of it, but there appeared to be good will on both sides. Now this. "We were blindsided," Beltram says.

The LRO board will meet today to discuss several options, including legal action, being more visible in the news media, and asking members to petition Congress for new legislation that would prevent such benefit cuts.

"We... are astonished that Lucent seems to be placing the burden of much of its recovery on the backs of retirees," writes LRO president Ken Raschke in a public statement on the group's Website. He says Lucent execs "are continuing to receive millions in salaries, stock options and retention bonuses and are not experiencing the degree of financial pain that they are inflicting on retirees."

Lucent is known for paying its executives well (see Lucent Fat Cats Gorge in 2002 and Post-Bubble Arrogance). Not counting stock option awards, in 2002 the company shelled out roughly $11.7 million in cash to six top executives. This included $4.5 million in a retention bonus to COO Robert Holder, one of the execs paid to stay on through the company's restructuring after the dismissal of CEO Rich McGinn in October 2000. Holder left the company in April 2003 (see Russo Takes Place of Holder).

SEC filings indicate that if CEO Patricia Russo stays with the company and retires at 65, she'll be eligible for $1,167,962 annually in pension benefits.

Lucent's Ambrus says executive compensation has been in line with industry benchmarks. Even if all executive compensation was cut, it wouldn't make a dent in the healthcare subsidies, she contends. And she notes that executives have the same healthcare benefits as other management employees.

— Mary Jander, Senior Editor, Light Reading

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erbiumfiber 12/4/2012 | 11:26:54 PM
re: Lucent Cuts Retiree Healthcare It's just a little disingenuous for Lucent to complain about subsidizing the retirement health benefits of "AT&T Corp." employees. Maybe they have forgotten that these were employees who worked for the part of AT&T that became Lucent!! A little voodoo economics on their part. Cut a few executive salary and "perks" as well as their multi-million dollar pension deals and you'll have more than enough to pay for the extra $100/month or so of retiree health benefits. Hell, one of the few benefits that kept people going was the promise of a good retirement...but then, Lucent, AT&T and all its affiliated and former companies were never all that good at keeping promises...
lighten up!! 12/4/2012 | 11:26:49 PM
re: Lucent Cuts Retiree Healthcare Have never felt any pain despite the struggle in the telecom sector. While they lavish in the multi-million dollar salaries and hefty bonuses, most of us have lost their jobs and are struggling to put food on the table. They weren't even willing to take pay cuts as Lucent struggled to survive. Just goes to show you how selfish and incompassionate they have all been towards the very employees that helped build this company. I have no sympathy for these guys, and I wish class action lawsuits will be filed by thousands of employees that will directly hurt these guys for the pain they have caused.
waldoputty 12/4/2012 | 11:26:49 PM
re: Lucent Cuts Retiree Healthcare how can this possibly be legal?? isn't there some type of contract?
Dr.Q 12/4/2012 | 11:26:48 PM
re: Lucent Cuts Retiree Healthcare Hey ErbiumFiber -- long time no hearing from you. How's life in Japan?

- Dr. Q
telebud 12/4/2012 | 11:26:47 PM
re: Lucent Cuts Retiree Healthcare it's bye-bye pension for many Americans.

Soon many corps will cut pensions in half!
Check out Fortune magazine article.
telebud 12/4/2012 | 11:26:47 PM
re: Lucent Cuts Retiree Healthcare Does a BENEFIT require a CONTRACT?
Companies are cutting and passing costs to federal
government in form of MEDICARE.
Every Retired person in US is elligable for
MEDICARE (taxpayer expense)so comanies figure they
can save money this way.
I don't say it's right but that's what companies
like Lucent are doing. How many more will follow?
lightme2 12/4/2012 | 11:26:46 PM
re: Lucent Cuts Retiree Healthcare Did you mean to say this is unrestrained capitalism?

In unrestrained capitalism, it is the little guy that pays before the top execs bail out with their golden parachutes (like Holder in 2003).

Is it not obvious that the Lucent board (which is mostly composed of Lucent execs and appointees) has no interest in cutting its own exhorbitant lifestyle (which is inconsistent with the state of Lucent affairs)?

Is it not onvious that the Lucent board will never cut upper executives salary, bonus, benefits ...?

And I know the Lucent board should not be concerned about keeping exec payouts high to keep high caliber execs.

Shall I continue?
whyiswhy 12/4/2012 | 11:26:34 PM
re: Lucent Cuts Retiree Healthcare LU Board of Directors

To: All LU retirees:

Subject: Elimination of medical benefits

We hereby announce the elimination of the medical benefits you thought you had earned. Suckers!

Due to this turn of events, we have to go to the country club, and feign concern for you have-nots with our peers, who feign their condolences for our predicament, not yours. Frankly it's very depressing, and a lot of additional work.

Considering all the added work we have to do with this turn of events, we are experiencing an executive retention problem. Accordingly, we have voted ourselves a bonus to make it all worthwhile.

Look, do yourselves a favor, and don't whine too much. You are old, and with fewer medical benefits, will die sooner this way. It's better for society that you do so. If you whine, we will just have a bigger retention problem, and have to raise our bonus yet again.


LU Board of Directors.
BobbyMax 12/4/2012 | 11:26:29 PM
re: Lucent Cuts Retiree Healthcare Lucenthas not produce any product that it can sell. There are still 35,000 people on the payroll but everything is a big zero. How are these workers kept busy. I attempted to ask Pat Russo about these problems. But she has not replied to my letters.

It is my understanding that about $12 million dollars was distributed among some 5-6 people. This behavior is very disturbing as she is trying amass wealth at the cost of shareholders and workers.

Lucent's Board gets a favorable treatment in terms of per diem allowances, life insurance and health benefits. As a result of this bribery, Mrs. Pat Russo's performance has not honestly evaluated.

Lucent does want anyone to communicate with the board. Mrs. Russo does wish to discuss as to what 35,000 people are doing.
optical_man 12/4/2012 | 11:26:19 PM
re: Lucent Cuts Retiree Healthcare Author: BobbyMax Number: 10
Subject: Lucent Will Not Survive As a Company Date: 9/12/2003 3:42:42 AM
....How are these workers kept busy. I attempted to ask Pat Russo about these problems. But she has not replied to my letters.

WOW. Bobby are you REALLY sending letters to Pat Russo?
I'm gonna be smiling all weekend. Quietly chuckling to myself for the next 48 hours.

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