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Employees Management: Retiree Health and Pension Benefits Essay (Article)

Issues concerning health care and pension benefits are widespread among companies. In fact, while some companies offer good working conditions to workers, others do not. Moreover, some companies find it difficult to offer good employment packages to employees. Additionally, a number of companies fail to guarantee continued payment of retirement benefits upon takeover or merger. However, it should be noted that such actions take diverse dimensions. These dimensions may take legal or moral obligations to guarantee payment of packages. To answer this question, the paper will examine conditions associated with payment of retiree pensions and health benefits. In addition, the paper will explore both dimensions to arrive at an answer to the question.

From the case study, it has to be noted that Sears was a blue-collar worker with the large mining company. Additionally, it has been noted that the union negotiated a deal to secure their health insurance and pension benefits. Interestingly, their retirement benefits were not indexed to inflation. In this regard, their benefits remained constant irrespective of inflation. Another issue that should be taken into consideration is the fact that the original company in which Frank Sears worked has been taken over by a new management.

In this regard, a new management has taken over with new plans and new strategies. Furthermore, it has been indicated in the case study that a union negotiated the benefits provided. This may mean that these benefits could be considered as postretirement benefits. Actually, the only exception to this is pension benefits, which complicates the situation with regard to retirees. Courts consider legal contracts to be binding to companies irrespective of their financial situation.

To add weight to this matter, I can give an example of General Motors, which have a number of workers on post retirement benefits. According to the company, the contract, which was negotiated (on behalf of workers) by their union, is not legally binding. Instead, the company pays its liabilities as a moral obligation to its retirees. In essence, informal plans do not force companies to honour agreements. However, formal plans are usually honoured as a legal requirement.

Most companies remit health care cover to retirees, however, this is covered under postretirement benefits. This explains why Sears and other retirees opted to pay their health insurance premiums from the pocket. Moreover, it has been indicated that the company targeted retirees’ health insurance as a profit venture. Essentially, it can be noted that post retirement benefits are not legally binding. However, as noted in General Motor’s case, they are morally binding. Therefore, to answer the above question, we have to establish whether the contracts indicated in the case study were legally binding.

To start with, workers union negotiated these contracts. This makes the contracts more binding whether morally or legally. In essence, these contracts could therefore fall between legal or moral lines. That is, they could not be ignored as with the case in the case study above. Essentially, I can therefore categorically state that the company erred in its decision to stop remitting pension benefits to the retirees. Reasons being that pension benefits are not considered as postretirement benefits. Moreover, this deal was negotiated formally by a union, which acted on behalf of the workers.

In this regard, irrespective of whether it was legally binding or morally binding, the company should have shown faith in its agreements. Additionally, the company should have ensured that pensions are remitted continuously. In the context given, it has not been specified whether the contract negotiated by the workers union was legally binding or not. However, based on the procedures and functions of a workers union as stipulated in law, any agreement reached is considered formal in court. Additionally, although it may not be as strong as a contract in law, it has more weight than an informal agreement.

From the case study, it can be noted that the company was obliged to pay pension to its retirees. In fact, given that the deal was negotiated by a union, this was to be considered a formal agreement, which is morally binding for the company to honour. In this respect, I would consider the moral obligation of the company to honour the deal since formal procedures were followed in negotiations for the pay. Additionally, I consider the deal a moral obligation to the company because workers had the right to change parts of the deal.

For instance, some retirees realised that the company was targeting profit out of health insurance deals. This prompted them to withdraw from the company’s insurance scheme to focus on self-funded insurance schemes. This was after the company increased its insurance premium to 21 % and 26 % respectively. Actually, this only shows that although the contract was formal, it was not legally binding as observed in the unexplainable changes to the agreements. Moreover, the ability of retirees to withdraw from health insurance scheme could only point to a contract, which was not legally binding.

In summary, companies have a moral commitment to all their retirees and unions. This commitment is towards payment of agreed dues or accrued rights concerning pensioners. This happens because some of the terms such as health insurance become postretirement benefits, which can be withdrawn upon request by the retiree. Additionally, some terms only apply during employment. Once a person retires, these terms sometimes require renegotiation or termination. In which case, the employer has a moral obligation to continue with some of the terms as noted in General Motor’s case. In other words, benefits other than pensions may not be legally binding to the company.

In this regard, they should be considered as morally binding since they were negotiated and signed before retirement. Companies should therefore ensure that they comply with their end of the bargain irrespective of consequences at the end of employees’ terms since employees also take risks in signing such agreements. For instance, Frank Sears is forced to cut on daily expenses including basic needs because the pension given is inadequate. Moreover, things worsen when the company withdraws even the little they depend on (Leimberg & Mcfadden, 2011).

Does the purchase of the original company by another company, or changing economic circumstances, obviate the employer’s obligation concerning retiree benefits? Why or Why not?

In a constantly dynamic business environment, companies try to remain profitable. This forces them to take some necessary but painful decisions. These decisions may affect their expenditure, quality of produce or even workers. The case of Frank Sears highlights the difficult situations under which workers are sometimes left when companies make necessary but painful decisions. The Sears are left without pensions in a difficult fiscal environment. They have to renovate their house, feed and buy other needs. Moreover, their withdrawn pension has been inadequate forcing them to miss some meals in order to survive. In the end, their situation is painful and severe for a person who committed his whole life helping the company to meet its goals. It is only responsible for the company to pay back this commitment by honouring its pledges irrespective of a takeover. Essentially, take over should not obviate an employer from honouring its financial obligations (EBSA, 2013).

Whenever a merger or take-over occurs, numerous aspects must be put into consideration. For instance, financial aspects regarding the level of funding for pensionable employees should be considered. These considerations are usually based on available resources based on assets of the company. Additionally, these considerations tend to include other benefits payable in respect of other services such as health insurance, among others. Moreover, the effect that taking over another company has on employees of original company should also be considered. Pension benefits of the original company to its retirees should be considered in this section. It should also be noted that, theoretically, pension funds usually lie outside the control of employer. Nonetheless, practically, employers decide on the trustees that oversee the operation of pension funds. Moreover, the employer is entitled to approve any amendments reached concerning pension funds. This usually complicates an employee’s retirement package as seen in the case above.

Employees are sometimes forced to seek ways of protecting their rights to pensions whenever takeovers happen. Additionally, original owners are tasked with the responsibility of ensuring that new employer consider retirees situation in their takeover deal. More often, retirees find themselves in traumatic situations during takeovers as observed in Frank Sears’s case. The question posted above requires consideration of a number of variables regulating employees’ terms of services and pensions.

For instance, employees get salaries based on available funds to the employer. Additionally, employees get retirement benefits based on pension funds available to the employer. In this regard, different negotiation packages can give rise to varied solutions. For instance, when employees fund their retirement packages, then it is mandatory that they receive the pensions as required. However, if the company solely funds the retirement benefits then it becomes available based on ability to fund them. These decisions tend to complicate remittance of pension to employees.

Protection of accrued pension rights is therefore important whenever takeover happens. In the case shown above, it is very clear that employee pension rights were ignored or were not protected by the original employer in the discussions that led to take over of the company. Actuaries have the responsibility of ensuring pension funds are transferred from one place to another whenever takeovers happen. This is done to reassure retirees of continued remittance of their pension funds even after a takeover.

From the case study above, this transfer did not happen. In fact, it seems that the original company as well as the new company ignored their pension rights. This was absurd especially in tough economic situations. It has been stated in the case study that Frank Sears and his wife even considered going back to employment in order to pay their expenditures. However, the rate of unemployment worsened their conditions since it was difficult for them to find any well paying job.

In considering the question above, it can be stated that purchasing the original company by another company, or changing economic circumstances, does not obviate the employer’s obligation concerning retiree benefit. In fact, it is the responsibility of the company to ensure that former employees are paid their dues without complications. Moreover, in the event of a takeover or merger, companies should ensure that pension funds are transferred to the second fund to enable continued remittance of benefits to former employees.

Additionally, the second fund should ensure that the package from the first fund is not affected or reduced to the disadvantage of pensioners. Therefore, in the event that the second company or the new company takeover the original company, they should ensure that pensions are remitted to pensioners. Alternatively, if they want to prevent such remissions, they should transfer pension funds to a second fund, which is responsible for such remittances. When this is done, both the employer and the pensioner will be contented with the solution. The events in the case study above show serious malpractices, which deny innocent pensioners their right to pension benefits.

From the case study, it can be observed that the company never considered Frank Sears’s right to pensions as well as other employees. Secondly, they did not tie the previous pensions to inflation although health insurance premiums were increased above normal rates. In essence, the company gave little assistance to its former employees. The company contravened its earlier promises to its employees through the union. Moreover, when the new company took over, all the pension benefits were withdrawn as well as health insurance benefits. However, based on employment laws, a new company can continue with payments of funds to its pensioners and present members.

Additionally, the new company can terminate the fund. In addition, the company can transfer the accrued rights of the pensioners or members to another fund. However, it should be noted that in rear occasions do the first and second options take place. Mr. Frank Sear’s company opted for the second option, which ultimately infringed on the family’s s right to pension. In essence, companies should not obviate their obligation concerning retiree benefits for moral reasons. It is inhumanly to deny a pensioner his/her accrued rights although there is an option for that (Leimberg & Mcfadden, 2011).

Could Mr. and Mrs. Sears expect to receive any retirement benefits as a result of ERISA?

Every retiree expects remittance of health and pension benefits for his/her survival. Alternatively, they have to receive pension benefits after retirement to help pay for their upkeep. It is immoral for a pensioner to resort to going back to work because his/her pension benefits have been held. Mr. and Mrs. Sears are facing traumatising situation in which they have to survive without in financially challenging environment without pension benefits. The company’s new decision to stop remitting pension benefits as agreed before retirement has increased pressure on their limited resources.

Moreover, the family was not given adequate time to prepare for such an announcement. Additionally, it was not indicated in the contract that such an occurrence would happen. In essence, this is quite challenging for an ageing family that has been considering going back to employment for lack of adequate funds. The first step in ensuring their survival is guaranteed would be to report the matter to ERISA, which is more than capable of resolving their issue.

ERISA is a federal law, which works to regulate every kind of employee benefit plans in private sector. In essence, ERISA regulates pension plans, among other plans. To access help, the federal government has tasked EBSA, an Employee benefits security Administration to answer to questions regarding employee benefit plans. ERISA performs numerous tasks to ensure that pensioners receive their accrued rights. For instance, they set minimum standards for participation as well as funding.

Moreover, it provided rules for funding to ensure that plans are sustainable. ERISA also ensures accountability of fiduciaries. In this regard, fiduciaries that mismanage their plans can be held responsible for such malpractices. Moreover, they allow participants to sue fiduciaries for breaches of contract as well as pension benefits. To this extent, it can be observed that ERISA would assist Mr. and Mrs. Frank Sears to receive retirement benefits from the employer since it is the responsibility of ERISA to protect their rights.

Several angles to the case study can be examined to find ways of reaching a solution for the Sears. For instance, the cruel nature of the company’s actions would warrant a contravention to ERISA’s regulations. This would in this respect result in compensation to the Sears. Moreover, it is quite likely that the takeover of such a large corporation would have been done in line with the regulations of pension benefit Guaranty Corporation. However, in case this was not done, then the company would be responsible for the compensation to the Sears. Moreover, ERISA gives the Sears the right to sue the company over accrued pension benefits as well as for breaches to the negotiated contract. Additionally, it should be noted that ERISA shields pension plans to ensure that malpractices, which may involve corruption, are mitigated. In this regard, it is clear that Mr. And Mrs. Sear’s rights concerning pension is protected under ERISA.

From the case study, it can be noted that the company contravened several agreements with its employees. For instance, they had negotiated a formal package with the workers union. This package was morally binding to the company even after takeover because the employees had sacrificed their lives to meet the company’s objectives. Moreover, the company did not inform all its employees on the increases on insurance premiums. Additionally, it was necessary the company inform employees of intended increase in premiums or of their intended change of policy to target profit on health insurance. Instead, Mr. and Mrs. Frank learned of these changes through colleagues.

Again, the company did not inform its pensioners of a possible takeover as well as what it would mean to their pensions. This would have given the pensioners adequate time to press for their rights or otherwise find alternatives to help facilitate their expenditures. However, the company did not consider them important in this matter or their union in order that the messes caused are mitigated. Instead, the company sent shocking letters to the retirees as seen in Frank Sears’ case. This was unacceptable since the company should have utilized alternative ways to pass the shocking information. One of the ways, which could have been utilised, was to call former employees and to advise them appropriately.

Furthermore, the company did not indicate in the agreement that such changes would result in pension funds being held. The resulting situation is a near death circumstance for former employees of the company. This practice should never occur because it would result into serious repercussions to pensioners and their families. From the case study, it is very clear that the company did not follow all the regulation as laid out by ERISA. Moreover, they did not communicate effectively with their former employees or their union to arrive at the best solution to health insurance and pension benefit issues. The procedure followed by the company to arrive at their decision did not put into considerations the regulations enforced by ERISA concerning pensions or termination of pensions. In this regard, the company was to follow ERISA’s regulations in order to process employees’ pension benefits effectively. Considering all the factors involved, Mr. and Mrs. Sears would receive retirement benefits through ERISA.

To achieve compensation, ERISA would require the company to provide a detailed plan on how pension procedures were followed. Additionally, the company would be held accountable to outstanding balances to their pensioners. Going by the flaws observed, (in the company’s actions) it is highly probable that Mr. and Mrs. Sears would get retirement benefits as negotiated by the union. Having examined all the factors relating to this matter, I can state that Mr. and Mrs. Sears will get their retirement benefits through ERISA. Firstly, it is highly impossible that after a sacrificial service to the company and the country, they are left to feed on nothing at an age in which they cannot actively seek for employment. Secondly, the level of accountability shown by the company is lacking based on their actions to loyal workers. Essentially, ERISA would come in handy in helping the family to get their retirement benefits (Leimberg & Mcfadden, 2011).


EBSA (2013). Frequently Asked Questions about Pension Plans and ERISA. Web.

Leimberg, S. & Mcfadden, J. (2011). Tools and Technique for Employee Benefits and Retirement Planning. Erlanger, KY: National Underwriter Company.

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Cec1l1aReyes. (2020, May 23). Employees Management: Retiree Health and Pension Benefits [Blog post]. Retrieved from

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Cec1l1aReyes. "Employees Management: Retiree Health and Pension Benefits." IvyPanda, 23 May 2020,

1. Cec1l1aReyes. "Employees Management: Retiree Health and Pension Benefits." IvyPanda (blog), May 23, 2020.


Cec1l1aReyes. "Employees Management: Retiree Health and Pension Benefits." IvyPanda (blog), May 23, 2020.


Cec1l1aReyes. 2020. "Employees Management: Retiree Health and Pension Benefits." IvyPanda (blog), May 23, 2020.


Cec1l1aReyes. (2020) 'Employees Management: Retiree Health and Pension Benefits'. IvyPanda, 23 May.

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