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CHICAGO-A group of Sears, Roebuck & Co. retirees is suing the retailing giant over cutbacks to their life insurance benefits.
The employees allege the cutbacks by Hoffman Estates, Ill.-based Sears of its life insurance benefits violate the Employee Retirement Income Security Act, and they are seeking a restitution of the benefits.
Under the cutback proposals, Sears plans to gradually reduce its contributions to retirees' life insurance premiums.
The retirees claim the contributions they made to life insurance premiums when they were working vested them in the policies for post-retirement coverage.
Also, the literature covering life insurance benefits given to employees does not indicate that the benefits can be altered in the future, the retirees argue.
They are seeking class-action status for the suit, which was filed in federal court in Chicago.
Sears announced cutbacks to its retiree benefits package in September (BI, Sept. 29). The company plans to scale back its contributions for retirees' supplemental health benefits as well as life insurance coverage. The life insurance cutbacks would affect 84,000 retirees.
Sears plans to reduce the life insurance benefits gradually over 10 years to about $5,000 per retiree from a current average of $17,000 per retiree.
If retirees wish to retain their existing level of life insurance benefits, Sears offers a group term life insurance plan with higher available limits, but to which the company does not contribute any of premiums.
In the case of one plaintiff who currently has $16,800 in life insurance coverage through Sears, the additional annual premium to switch to the group life plan would be $49.34 in 1998 and rise to $1,226.61 in 2007, court papers say.
In the suit, filed in U.S. District Court in Chicago, the 38 retirees allege the cutbacks breach ERISA.
"The benefit reduction is manifestly unfair and contrary to law. Participants, at the end of their professional lives, have prepared for their retirement years based upon certain promises made by the defendants," court papers say.
In numerous documents sent to employees since the 1970s, Sears had contractually committed to provide lifetime no-cost post-retirement life insurance to retirees who had, for at least 10 years, paid the employee portion of the premiums under the plan, they argue in court papers.
Several of the documents contained disclaimers that they did not constitute a legal document. However, Sears intended that
the employees rely on the documents as a source of information regarding benefits, the retirees charge.
Also, by paying the employee portion of the premiums for 10 years, employees contractually purchased the post-retirement coverage, they say.
"(Sears') unilateral decision to eliminate this benefit retroactively violates and breaches the plan's express promises to provide this benefit, which contractually vested for all class members upon their retirement after 10 years of continuous participation by previous premium payments," court papers say.
Sears would not comment on the details of the case, but a company spokeswoman said, "Sears has consistently communicated its right to change or modify its benefits, including retiree life insurance, at the discretion of the company at any time."
The lawsuit filed in Chicago is part of a volley of protests by retirees over the cutbacks, and other suits reportedly have been filed.
Groups of retirees in several cities also plan to protest the cuts by picketing Sears stores during the coming holidays.