Boeing cuts costs in retiree benefits.

Boeing Co. is using Southern California as a proving ground in its effort to reduce the amount it must pay in health benefits to retirees.

On Jan. 1, the provisions of a recently negotiated contract with the United Aerospace Workers' Long Beach-based Local 148 denies health benefits to any new hires once they retire.

The move follows a deal struck last year with two other UAW locals, Paramount-based Local 887 and Santa Susana-based Local 1519, that call for no health care coverage upon retirement for members hired after May 15, 2003.

Boeing also scored a victory in its most recent negotiations when the three L.A.-area locals agreed for the first time that their 4,000 workers would contribute to health care premiums.

"It's a serious issue because once you lose (health care coverage), it starts eroding your power on the rest of the contract," said Dean Zvorak, president of Local 887. "This just started in Southern California in this last negotiation. With any other Boeing-UAW (negotiation), they will go after them as well."

The new agreement is notable not so much for the impact it will have locally--only a handful of new employees have been hired by Boeing's Southern California UAW operations since the deadlines for retiree health benefits expired--but for the trend it seems to be starting.

Boeing joins United Technologies Corp., which has already eliminated insurance contributions for salaried employees retiring after Jan. 1, 2007. Employees of its Pratt & Whitney subsidiary have endured a steady decline in early-retiree health benefits for three years.

General Motors Corp., which has more retirees than any other U.S. company, is also in the midst of a campaign to reduce the premiums the company pays.

"Costs are going up too fast and the co-pays aren't slowing the growth of expenditures," said Gerald Kominski, associate director of the UCLA Center for Health Policy Research. "So the companies are saying, 'Can't afford it. You're on your own.'"

Mercer said that Boeing's acquisition binge in the past decade netted some companies that had already started down the path of health care cuts, adding that the cost-cutting plans can't be put into place without union ratification.

"Each union negotiates their total pay and benefits package and the membership votes on it," he said. "So there are variations among the 70 collective bargaining agreements with Boeing."

Medicare gap

Particularly hard hit will be union employees who retire before age 65 and are forced to purchase private insurance until they become eligible for Medicare. "Those co-pay out-of-pocket expenses can be substantial if you have a hospital episode or a chronic illness that requires a lot of physician care," Kominski said.

Southern California was a particularly vulnerable target for Boeing's cost-cutting campaign because layoffs in recent years have created a disproportionately low employment base compared with the retiree group.

As a result, current workers are contributing far less to the health care and pension funds than Boeing needs for its retirees. Local 148's Boeing-employed membership is less than 40 percent the size of its 7,000-member retiree base.

Boeing is responsible for all health benefits negotiated in contracts, even if contributions by a specific local can't match the benefits being drawn down by its retired members. "The union isn't paying for the health care," said Kominski. "They are negotiated benefits so it is up to the employer (to pay)."

Local 148 has endured layoffs of more than 3,000 members working on the 717 commercial jet program, which Boeing will shutter in May 2006 after the remaining 300 assembly workers complete the final 18 orders.

"It was designed by Boeing for patterned bargaining," Bill Schultz, president of Local 148. said of the latest contracts. "They want to show all of organized labor, not just the UAW, that they. want to get out of the retiree health care business."

Boeing first broached the subject with Seattle-based members of the International Association of Machinists and Aerospace Workers in 1999 and then tried to get the clause included in the current three-year contract that began Sept. 2, 2002.

But District Lodge 751, which oversees for four IAM local chapters representing 16,500 Boeing employees, had enough political muscle to ward off attempts to strip retiree health benefits.

"During the negotiations process, they told us they wanted to get out of providing the retirees with health care," said Bruce Spaulding, district secretary/treasurer and chairman of benefits negotiating committee. "We told them we didn't think that was the right way to treat workers who helped build the company."

Local 148 also represents 50 Boeing employees in Melbourne, Ark. Local 887 covers Boeing employees in Palmdale, Anaheim and Seal Beach while Local 1519 handles workers at Edwards Air Force Base, as well as workers at the company's Rocketdyne facility based in Canoga Park.

The cuts are not limited to Boeing's unionized workers. Non-union employees hired anywhere in the company after Jan. 1, 1999 are not be eligible for retiree benefits.

"We're talking about people like me," said Ken Mercer, a Boeing spokesman hired four years ago. "Overall, health care costs have increased dramatically over the years. It's an issue that faces all companies."

Asked if Boeing would seek company-wide concessions similar to those gained in Southern California, he said, "It's an item to be discussed during negotiations."

As health care costs skyrocket, corporations have been forcing their employees to pick up a larger share of the premiums. Boeing's strategy is working, in part because workers are concerned about their immediate well-being.

Local 887 members worked 11 months with no contract before ratifying a new 4g2-year contract last May. The new pact is longer and contains slightly better wage hikes than a deal workers rejected June 2003. The rank and file of Local 148 went against its leaders' recommendation and ratified a new agreement May 2 in a low voter turnout.

Although the agreement calls for 3 percent wage increases during the first and third years and a $2,000 lump sum payment in the second year. the workforce saw their health insurance premiums jump about 10 percent beginning this year.

In addition, hospital visits, which used to be free, now cost $200, Schultz said.

Boeing was able to gain a victory, he said, by promising no increases in health care premiums for anyone who retired between May' 2. 2004 and Jan. 1, said Schultz. "They dangled carrots in front of people." said Schultz. "'We weren't happy with that."