Are healthcare benefits for retirees a thing of the past?
According to a recent survey of 500 major Canadian employers, fewer than half of provide medical coverage for their retirees.
The time leading up to retirement is, for most workers, an emotional period that's measured in both financial and career-centred terms: Is this really the right time? Won't they miss me? Is the nest egg big enough? How are we going to make it last?
Add to that the prospect of reduced or even total elimination of health benefits, and aging boomers can be forgiven for not being in any great rush to head for the door.
According to recent research from Fidelity Investments, roughly 68 per cent of those approaching retirement say rising health care costs is one of their three biggest financial concerns (outliving savings and inflation being the other worries).
And, with people living longer and the number of retirees increasing each year, their employers feel exactly the same way.
Historically, retiree benefits were paid for on a pay-as-you go basis. Employers didn't have to record the liability for claims on their balance sheets, they simply paid for claims as they were incurred.
That all changed about 10 years ago when the Canadian Association of Chartered Accountants modified the accounting rules for retiree benefits, explains Greg Pallone, managing director with TRG Group Benefits in Vancouver.
Since then, the future cost of these liabilities has had to be accounted for and funded, with a corresponding hit to the company's bottom line.
As a result, many employers have decided that it makes little sense to provide retirees with the same coverage they enjoyed while working and are now scrambling to cancel, scale back, or somehow cap their soaring retirement obligations — not that this is always an easy thing to do.
It's all a question of whether the rights to these benefits have "vested" and are locked in. While the courts have generally been sympathetic to retirees who kept up their end of the bargain by delivering services to their employer while working, not everyone has gone home happy.
A couple of years ago, a BC municipality decided to cut the 100 per cent subsidy it paid on health insurance premiums of retired nurses to 50 per cent. Although the nurses fought back, the court ruled that nothing in the law that established the nurses' pension plan guaranteed fixed post-retirement benefits, confirming the pension board's right to readjust them.
MSN.ca Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.