NWA retirees fear for benefits in bankruptcy

Northwest Airlines retiree
Donna Shaugnessy has been regretting lately that she retired from Northwest last August, mainly because the company is now proposing to raise the cost of medical care for retirees.
MPR Photo/Annie Baxter

When Donna Shaugnessy started working for Northwest Orient 36 years ago, flight attendants still had to pay for their own uniforms, and Shaugnessy lived at home with her parents in order to get by. But in the course of her career, she says she says she made a good living-- and liked where she worked.

"I had a lot of fun at Northwest," she says. "The people were great."

At her home in Eagan, Shaugnessy, 59, amidst hand-carved wooden couches and tables purchased during her travels, looks the part of a flight attendant who often flew the Tokyo route, as she did. She sports black, tightly bobbed hair, and bangs fringe her forehead. Her face is made up with glamorously long eyelashes and mauve lipstick.

She's been regretting lately that she retired from Northwest last August, mainly because the company is now proposing to raise the cost of medical care for retirees.

"A lot of people retired, as I did, because we knew we'd have something to take care of us until we could reach an age of Medicare. If we would've known this was going to happen, I don't think a lot of the people would've quit," she says.

Northwest declined requests for comment for this story and deferred to information about its proposals in its bankruptcy court filings. According to those documents, the company is looking for retirees under age 65 to cover 50 percent of the cost of their participation in the company's health plan. Current employees would pay 25 percent of those costs. And retirees 65 and over who are eligible for Medicare would not receive benefits.

The committee representing Northwest retirees says the company's proposal would run about $160 for a single retiree per month, and $340 for a retiree plus spouse. A deductible would apply to each person, and individuals would also have to pay a percentage of each doctor visit bill.

A slightly more expensive proposal would apply to retired ground workers.

Overall, Northwest's demands might not sound surprising, given skyrocketing health care costs. But Barbara Allison-Boldenow of the Northwest retiree committee, says the increase will be enormous for some retirees, many of whom only paid a deductible or co-insurance in the past, but not a monthly premium.

"Right now 80 percent of employees are on an indemnity plan which is no charge. And now they're looking at going from zero cost to these new figures that are proposed by the company," she says.

In its bankruptcy court filing, Northwest says there's no way for it to survive if it doesn't cut its labor costs, which are among the highest in the industry.

The company's proposals to share more costs with employees and retirees are not unusual, according to Paul Fronstin with the Employee Benefit Research Institute.

"When you ask employers what they're likely to do in the next three years, {it's} ask people to pay a higher premium -- retirees especially," he says.

Fronstin says it could be worse -- retirees don't have much bargaining power, and a lot of employers are cutting their benefits altogether.

"In 1997 about 39 percent of early retirees had retiree health benefits. And that's down to about 10 percent in 2002," he says.

John Fossum at the University of Minnesota Carlson School of Management says there are a lot of reasons why employers are trying to get out of the health care game. But one reason stands out in particular.

"They have no control over the costs. Costs escalate faster than wage costs, for instance, and it becomes a larger part of the total wage bill," he says.

Fossum says given current trends, people should probably not expect medical benefits when they retire. But he says that kind of planning isn't really an option for current retirees who will either lose benefits or pay more for them.

"Somebody whose company has radically restructured its plan is facing a situation much different from what they anticipated," Fossum says. "So they're in trouble."

That's how retired flight attendant Donna Shaugnessy feels. She says Northwest's proposal would hit her hard, especially since she uses medical coverage regularly for a condition affecting her electrolyte levels.

"In my case, it's going to affect me immensely. There's no way I could afford this. I'd have to go into my 401k," she says.

The retiree committee says it will try to get Northwest to make an offer that will be less costly to retirees.