Bankrupt benefits

NEW YORK -- Early retirement, the way Howard Worzel and Nancy Lovely pictured it, would be sweet -- severance checks would ease the move to Arizona and health insurance would ease their worries, particularly given Lovely's treatment for breast cancer, once they got there.

The benefits were picture perfect -- for 10 weeks.

That's when employer Polaroid Corp. headed into bankruptcy court, taking the Massachusetts couple's retirement benefits along in its financial baggage.

"One of the reasons it hurts so much for former employees is that it feels like the family is deserting you," said Worzel, a 56-year-old engineer who retired in July after working 34 years for the Cambridge, Mass.-based company.

Thousands of retired workers have been similarly shaken over the past year as a record number of publicly traded companies have filed for bankruptcy protection. Several big-name firms have suspended or raised doubts about retiree insurance, severance, and parts of pension checks.

Through mid-November, 219 publicly traded companies had filed for bankruptcy protection, far surpassing the 176 that filed during all of 2000, the previous record year, according to Bankruptcydata.com, a Boston research firm.

Many of those were younger technology and telecommunications companies with few retirees and without traditional pension and benefit programs. But the filers also include mainstays of American manufacturing with thousands of retirees relying on what had been generous corporate benefits:

Polaroid, which filed for bankruptcy protection in October, immediately cut off health insurance to its 6,000 retirees, about half still too young to qualify for Medicare. It also froze payment of severance checks to hundreds of workers recently offered early retirement.

"Who do we turn to?" said Peter Bass, president of the Polaroid Retirees Association. "People were calling for help and I said, hey, what can I do? I'm not a magician. I can't pull a rabbit out of a hat."

Retirement in limbo

The association, whose activities used to be limited to two social luncheons a year, recently rented out a Shriners auditorium in Wilmington, Mass. and staffed it with representatives of numerous insurance companies to field inquiries. About 2,000 anxious retirees showed up.

Outboard Marine Corp., maker of Evinrude and Johnson boat motors which filed for bankruptcy protection just before Christmas last year, cut off health insurance to thousands of retirees in February.

Those former workers have now been told that elimination of "supplemental pay" -- which bolstered pension checks for younger retirees not yet eligible for Social Security -- is imminent. The amount they'll lose varies from $375 to $750 a month, more than 40 percent of some retirees' monthly checks, according to United Steelworkers officials.

"It's just one lame story after another and here we sit, in limbo," said Christine Radun of Milwaukee, whose husband, Bill, retired from Outboard's city plant in 1998.

Bill Radun, 54, recently took a job working in a drug store so he and his wife will once again have subsidized health insurance. But the $6.85-an-hour job could prove even more crucial if his supplemental pay is eliminated, since that could cut $550 from his $1,300 monthly pension check.

Bethlehem Steel's bankruptcy filing last month initially raised fears about the future of its health insurance and pension benefits. While retirees has been reassured about pensions, the company has moved to sharply raise insurance costs for 130,000 people, including retirees, active employees and their families. For retirees who were salaried workers, the change will nearly triple their out-of-pocket costs compared to two years ago.

Protecting their pensions

"Some will return to the work force to the extent that they can and some will draw down on savings," said Bruce Davis, a Bethlehem retiree and attorney for the Retired Employees Benefit Coalition, which represents the interests of Bethlehem's former white-collar workers.

In each of those cases, the benefits in jeopardy fall outside the safety net provided by the federal Pension Benefit Guaranty Corp., which insures core pension benefits but not health coverage, severance or supplemental benefits. Bankruptcy laws give workers and retirees limited protection.

The law "puts them (employees and retirees) at the table to bargain but that doesn't mean they don't have ... to share in the pain," said Glenn Siegel, a New York attorney who leads an American Bankruptcy Institute committee focused on filings by public companies. "There are very limited priorities for employees in bankruptcy."

The limitations are obvious to many retirees trying to figure out why their interests in bankruptcy are secondary to those of banks and other secured creditors.

"We're the last ones in line and we might not even be in the line," Christine Radun said.

A number of the recent bankruptcy filings involve labor-intensive companies with thousands of well-paid workers and retirees on their rolls.

Through mid-November, 35 companies with more than $1 billion in liabilities each -- the biggest companies, with the largest payrolls -- had filed for bankruptcy protection. During the last economic downturn, from 1989-91, there was a combined total of 26 such $1 billion-plus bankruptcies.

The PBGC provides some protection by ensuring pension plans. It draws on premiums paid by employers, and income from those funds, to ensure continued payment to workers up to $40,704 per year. The PBCG has taken over Outboard Marine's pension plan, as well as those of other recent bankruptcy filers including Bradlees, the discount retailer.

Filling the void

But the void that envelops other benefits leaves people like Worzel gravely uncertain.

He and his wife, who worked 28 years for Polaroid, don't expect to ever get the additional six months salary in severance each was promised. Their insurance costs, about $36 a month just a few months ago, have zoomed to $253 under the federal law known as COBRA that allows workers to continue in employers' health plan by paying 102 percent of premium costs.

But that coverage is built around membership in a Boston-area HMO, that will be of no use once the couple moves to a retirement home in Arizona. Worzel, shopping for independent health insurance, fears that with his wife's cancer treatment, the premiums could run to more than $1,500 a month.

That leaves him hoping Polaroid can solve its problems, and those of retirees. But he's not optimistic.

"I still care about this company and I still pray that the leadership of this company will be able to get out of this situation," he said. "Do I think they'll be able to? No, I don't think so."