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Benefits Go the Way of Pensions

For years, the benefit packages of were considered to be so good that the company was known among workers and retirees as Generous Motors.

But now even G.M., struggling to maintain its grip in the global auto industry, is being forced to bow to a changing competitive landscape and join the ranks of hundreds of other companies that are moving to unburden themselves of as much of the cost of supporting their retired work force as they can.

For those who were counting on G.M. to care for them for life, the company's recent moves to pare back, in different ways, the pension and health benefits of union and nonunion retirees amount to a breach of a promise that was at the core of the nation's labor relations for much of the post-World War II era: workers would give their productive years to the company; the company would care for workers when they got old.

"The thing that annoys me about G.M. is that when I retired I had a letter that said I would receive health care for life at no cost," said Chester Clum, 79, a former sales and service manager at G.M. who retired in 1981 after 38 years of service. "They never brought up that they could change that at will."

But, in fact, the change has been long in coming. While there are exceptions in industries less subject to intense competition, G.M. is like many other once impregnable American corporate titans in arguing that reducing the burden of caring for retirees has become essential to compete against foreign companies with lower benefit costs and domestic rivals with younger work forces and less generous benefit packages.

With retirees living longer and accounting rules forcing companies to more honestly reflect their full costs on their books, the corporate-sponsored social contract is no longer sustainable. Something else, experts say, needs to replace it.

"It was easy to offer these things 40 years ago because they were cheap," said Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute, a nonpartisan group in Washington. "They're not cheap anymore."

Moreover, Mr. Fronstin said, "employers have cut benefits not just because of the cost of these benefits, but because of the competition. How do you stay competitive when your competitors are not offering these benefits?"

Companies have also noticed that, in many cases, offering a secure retirement package is no longer essential to attract formidable younger talent. found this out after closing its pension plan to new hires in December 2004. It hired about 7,500 employees last year, and observed that none of them seemed perturbed to be getting a rich 401(k) plan instead of the pension plan that was closed to them.

Last month, I.B.M. froze the pension plan, saying that employees would only get the benefits they had earned up until the freeze. In the future, everybody will earn retirement benefits in the 401(k) plan.

In many ways, G.M. is late to this transformation. G.M. said this week it would cap contributions to its health care plan for its nonunion retirees at this year's level and it would also pare their pension benefits. Nonunion employees hired after Jan. 1, 1993, are not eligible for any retirement health benefits at all. The automaker also closed its pension plan to new nonunion workers as of Jan. 1, 2001.

The union, meanwhile, agreed for the first time last November that retirees would start paying for part of their health care coverage.

Many of America's large companies took similar steps in recent years, closing their guaranteed pension plans and post-retirement health plans to new employees. Instead, they have offered fixed contributions to individual retirement accounts and health care packages limited to active workers.

If a private company still offers old-style benefits to its retirees, chances are it has union contracts or other legal obligations that forbid a wholesale unwinding of established benefit packages. Unionized companies are about twice as likely to offer retiree health benefits as nonunion shops, according to a survey by the Kaiser Family Foundation.

By last year, the Kaiser survey found, only a third of companies with 200 workers or more offered any health care benefits to their retirees, down from 66 percent in 1988. Small companies, which employ about half of the work force, never offered very generous retirement benefits.

The companies that still offer health insurance for their retirees have been trimming the plans in many ways. A survey of large companies by Kaiser and , a consulting firm, found that while only 12 percent of large employers ended all retiree health benefits last year, 71 percent required higher premium contributions from retirees, 34 percent increased co-payments or co-insurance and 24 percent increased deductibles.

Companies have been moving away from traditional, defined-benefit pension plans since the late 1980's, when Congress imposed a steep excise tax on corporate withdrawals from pension funds. The new penalty prompted consulting firms to start promoting new plan designs that reduced pension obligations, often by eliminating the rich benefits that older workers could earn under the earlier designs.

Companies that had never had pension plans in the first place, meanwhile, steered clear of them altogether, opting instead to create 401(k) plans, which are generally cheaper and easier to administer.

The only employer of any appreciable size known to have created a traditional pension plan in the last few years is the United Methodist Church, which, as a church, is exempt from the pension funding rules.

The exceptions to this steady erosion are in the public sector, where traditional retirement benefits abound, and in a few isolated industries that still have particular reasons for offering such benefits. Large pharmaceutical companies, for example, which still have greater control over their markets because of patent protection, say they continue to be committed to traditional benefits packages, while also providing 401(k) plans.

"The feeling here is the traditional pension offers certainty for our employees in their retirement," said Patty Seif, a spokeswoman for .

Ms. Seif said Glaxo also offers retirees the same health coverage that active workers get, as long as they have had at least 10 years with the company. Ms. Seif said Glaxo wanted to offer solid health benefits to retirees because it was in the health care business itself.

Given all the flux in today's corporate environment, many workers — especially younger ones — are rolling with the punches. According to a survey in 2004 by the Employee Benefit Research Institute, only 5 percent of workers consider retiree health care to be their most important benefit, and only 4 percent put a defined-benefit pension at the top of the list. And 9 percent put either of these benefits in second place.

And even those most immediately affected appear resigned to their fate. Gordon Goecke, 83, who worked at G.M. for 35 years before retiring, is currently undergoing treatment for prostate cancer, paying a $30 co-pay every time he sees a doctor, which he said is about once a month, and a $10 co-pay for each prescription.

"As we go on through the years ahead we're probably going to foot half or two-thirds of the bill," Mr. Goecke said. "Times change, and you've got to ride with them. G.M. is not the only company that's got financial problems."

Jeremy W. Peters contributed reporting from Detroitfor this article.

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