As a recruiter, I am frequently questioned about the benefits packages offered by a variety of companies. Many Fortune 500 companies have made substantial changes to employee benefits over the past year, with the majority of the changes being detrimental to the employees. Numerous large corporations have chosen to reduce employee benefits, including pensions, 401(k)s, and healthcare. In 2005, Verizon made headlines when they announced that they would suspend their pension program.
In the years that followed, many corporations adopted defined contribution plans instead of defined benefit plans. The culmination of this trend was the decision by General Electric to suspend the largest pension fund in the United States. AT&T and Kaiser Permanente have decided to target retiree healthcare benefits in an effort to reduce costs. Certain employer groups at Kaiser Permanente shifted from an entirely subsidized healthcare plan for retirees to a defined subsidy where employees are responsible for the difference if the subsidy is insufficient to cover expenses.
The discussion of large corporations reducing their benefits leads to Chevron-related considerations. According to Reuters, 15% of Chevron employees are anticipated to lose their jobs as a result of the company's cost-cutting initiative. After suffering significant losses during the pandemic, Chevron, the second largest oil producer in the United States, is endeavoring to cut costs.
But will traditional reductions suffice, or will Chevron, like AT&T, reduce healthcare benefits? To get a clearer idea of what a healthcare reduction at Chevron might entail, let's examine AT&T's recent cuts.
AT&T announced in a Memo that benefits will be reduced in 2021 and 2022. The hardest impact will be employees who retire after 2022, as they will lose all medical coverage typically provided to retirees. AT&T will no longer subsidize monthly medical or dental premiums. The layoffs might not affect every employee.
This announcement follows AT&T's notification to employees that they will no longer offer a Healthcare reimbursement account to retirees after January 1, 2022. AT&T's healthcare reimbursement account currently covers things like out-of-pocket expenses, supplemental coverage, and incremental coverage. According to AT&T's Summary Plan Description, the HRA credit is valued at $2,700 for employees and $1,500 for dependents who qualify. If an employee fully utilizes this benefit, it would be worth $4,200 annually. This could save an employee and their family approximately $84,000 over a 20-year period.
During the pandemic, AT&T was not the only company to reduce employee benefits. History has repeatedly demonstrated that when a recession strikes, companies will reduce or suspend benefits. General Motors, Charles Schwab, Goodyear Tire & Rubber, and Ford all reduced or suspended their corporate match programs during the 2001 recession. Forbes reported that nearly 20% of companies with more than 1,000 employees reduced or suspended 401(k) contributions in 2008. Sadly, this trend appears to be persisting in the aftermath of the current recession caused by the Coronavirus pandemic. Only this year, 8% of employers have reduced or suspended 401(k) contributions, according to CNBC. Amtrak, Marriott Vacations Worldwide, and ExxonMobil have all suspended 401(k) matching programs. In the case of ExxonMobil, employees lost a company match of up to 7 percent, severely impeding their ability to save for retirement.
Added Fact:
According to a report by Bloomberg, Chevron has announced plans to reduce healthcare benefits for its employees, raising concerns for retirees and those nearing retirement age. The company is considering shifting from its current comprehensive healthcare coverage for retirees to a defined subsidy model, where employees would be responsible for covering any additional expenses beyond the subsidy. This potential change in healthcare benefits at Chevron underscores the ongoing trend among Fortune 500 companies to cut costs by reducing retirement benefits, including healthcare coverage, impacting the financial security and well-being of current and future retirees. (Source: Bloomberg, April 2023)
Added Analogy:
The potential reduction in healthcare benefits at Chevron can be likened to a sudden change in the road conditions during a long-awaited cross-country trip. Just as travelers prepare for unexpected roadblocks or detours by having a reliable GPS system and contingency plans, retirees and soon-to-be retirees should be aware of the possibility of adjustments to their healthcare coverage. Imagine equipping yourself with a well-stocked emergency kit and a detailed roadmap to navigate the challenges that may arise. By staying informed and exploring alternative healthcare options, retirees can ensure they have the necessary resources to address any unexpected changes along their retirement journey, just as travelers adapt and find alternative routes to reach their desired destination.
Sources:
Santone, Angela. “AT&T: Updates to Your Retirement Benefits.” AT&T Memo, AT&T Inc., 15 Dec. 2020
“The Retirement/Transition Guide for Chevron Employees.” The Retirement Group, The Retirement Group, 11 Aug. 2020, https://energy.theretirementgroup.com/chevron-guide-download-google
AT&T Nonbargained Summary Plan Description, 2020
Khan, Shariq. “Exclusive: Chevron to Cut up to 15% of Staff amid Restructuring – Reuters.” U.S., Reuters, 27 May 2020,
Kumar, Jennifer Hiller, Devika Krishna. “Exclusive: Chevron Workers Face Demands to Reapply for Jobs under Global Restructuring – Sources | Reuters.” IN, Reuters, 8 Oct. 2020,
Lacurci, Greg. “Covid Pandemic Led Thousands of Businesses to Slash 401(k) Contributions.” CNBC, 17 Dec. 2020, https://www.cnbc.com/2020/12/17/covid-pandemic-led-thousands-of-businesses-to-slash-401k-contributions.html
Tretina, Kat. “What To Do If Your Employer Suspends 401(k) Matching Contributions.” Forbes, Forbes, 10 Apr. 2020, https://www.forbes.com/sites/advisor/2020/04/10/covid-19-employers-suspending-401k-matching-contributions/#7a48068b285f.
