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CAMDEN, N.J.-Campbell Soup Co. will pay $114.5 million over 60 years to fund medical benefits for a group of more than 12,000 retirees and their dependents in a settlement approved Friday by U.S. District Court Judge Stanley S. Brotman.
The settlement ends all suits by retirees and their families against Camden, N.J.-based Campbell stemming from changes the soup maker made to its retiree benefit plan in 1991 and which took effect the next year (BI, Sept. 18, 1995). The retirees claimed they were not sufficiently informed of changes to the plan.
Before the change, Campbell had paid 80% of the eligible medical costs incurred by a retiree or any covered benefit that exceeded the Medicare benefit. This formula covered retirees who had worked at least 10 years before retirement.
Under the new formula, Campbell would cover only 80% of all eligible medical costs rather than 80% of the costs remaining after the Medicare benefit was exhausted. The change meant significant new out-of-pocket expenses for retirees.
Several groups of retirees and United Food & Commercial Workers Union locals sued Campbell, claiming the company had breached its contract by changing the formula.
In 1995, Judge Brotman rejected that claim but allowed the class to continue an action based on Campbell's alleged failure to meet the disclosure requirements of the Employee Retirement Income Security Act of 1974.
The plaintiffs held that Campbell had not adequately communicated the change to the retirees. In allowing that portion of the suit to go ahead, Judge Brotman wrote that "the disclosure requirements of ERISA are not empty suggestions for fiduciaries."
Under the proposed settlement approved by Judge Brotman last Friday, Campbell agreed to pay $114.5 million over a 60-year period to cover the costs of a medical benefit plan for the retirees and their dependents.
Although the payout period lasts six decades, Alan M. Sandals of the Philadelphia law firm Berger & Montague, L.C., which represented plaintiffs in the case, predicted about half of the money would be paid out in the first 10 years of the plan because of the age and health of the retirees.
A spokesman for Campbell said the company "put aside" money to cover the settlement but declined to elaborate.
The multi-faceted proposal does not affect retirees under age 65. Those over 65 and who enroll in Medicare HMOs would be reimbursed for 25% of their Medicare Part B premium, which covers among other things, physician services and hospital outpatient services, for the first three years of their participation in the HMO.
Those over 65 who live in areas where Medicare HMOs operate but who choose not to use the HMOs would be eligible only for Campbell's prescription drug benefits. Campbell would coordinate its own benefits and Medicare benefits for retirees who live where there are no Medicare HMOs to cover 90% of covered benefits after a $50 annual deductible.
Mr. Sandals said the settlement sends a clear message to employers.
"You darn well better tell the truth and the whole truth and not try to sugarcoat the fact. A lot of these cases have resulted in large liabilities for companies because they had a practice of repeatedly telling employees" that they were to receive lifetime benefits or of failing to warn employees that the benefits could be changed or ended after they retired, he said.
Mr. Sandals said the Campbell settlement is one of the biggest of its kind, and that some suits that have yet to be settled could prove to be more expensive. The biggest settlement to date involving retiree health benefits was reached in 1995, when St. Louis-based McDonnell Douglas Corp. agreed to pay about $500 million for an enhanced benefits package for retirees (BI, Aug. 14, 1995).