The CEO Health Plan

At a time when companies are scaling back health benefits for other retirees, former top executives at many corporations are receiving partial or full lifetime medical coverage on top of pensions valued at millions of dollars, a Wall Street Journal analysis of dozens of recent securities filings indicates.

The trend spans industries, and it is common at airlines, which have been among the most aggressive in scaling back retirement benefits for the rank and file. Continental Airlines, for example, provides health care "at no cost" for retired Chairman Gordon Bethune and his dependents, the company's proxy statement notes. That's in addition to other perks, including a lifetime of free flights and a decade of free office space, plus a lump-sum pension payout of $22 million. A Continental spokesman says other retired executives have to pay 20% of the cost of coverage but then declines further comment. Mr. Bethune, who retired on Dec. 31, 2004, didn't return calls to his office seeking comment.

Companies often provide their top executives with more generous health-care plans than other full-time employees get and then continue to provide the richer benefits through retirement. AT&T Inc. pays up to $100,000 per family per year for its top executives' out-of-pocket health-care costs through a separate insurance policy, and executives who joined the former SBC Corp. before 1999 get to keep that coverage in retirement. An AT&T spokeswoman says AT&T gives other retirees and employees "very good medical benefits" compared with other companies.

Citigroup Inc. promised to pay the premiums and out-of-pocket expenses for both health and dental care for Chairman Sanford I. Weill and his wife now, and it will continue to provide those benefits for the rest of the Weills' lives, the company's proxy statement says. Citigroup will also continue to pay for any taxes Mr. Weill owes on the imputed income arising from these benefits. A company spokeswoman says the benefit dates back to a 1980s contract and isn't available to other executives.

Companies are most likely to promise lifetime health benefits when hiring midcareer or older executives, especially if their prior employers offered similar perks, says Steven Hall, managing director of Steven Hall & Partners, an executive-compensation firm in New York. But Mr. Hall says it's often hard to tell what retiree health benefits companies offer their top managers. "You read the proxy and then scratch your head -- they didn't say they have it, but that doesn't mean they don't have it," Mr. Hall says.

The practice angers retirees who face rising health-care premiums and co-payments and, in many cases, are losing their retirement health benefits entirely. "Executives are receiving multimillion-dollar pensions and are in a position to easily pay for their health care," says Jane Banfield, a retired AT&T manager. "Instead, they want the icing on the cake by also guaranteeing themselves free health care," she says.

Amid the growing backlash against opulent executive-compensation packages, health-care benefits haven't yet attracted much attention from compensation watchdogs. One reason may be that current disclosure rules don't require companies to provide any details about special retiree health benefits for executives, even though they can cost a company more than the home-security systems, country-club memberships and other perks that are routinely disclosed in the footnotes of corporate proxy statements.

Under current accounting rules, the current and future cost of executives' health benefits in retirement are combined with the costs of benefits for other retirees, so it can be impossible to figure out how much a company is spending on top officers. Occasionally, a company breaks out a figure in a securities filing, providing a hint of what such coverage costs. During 2005, for example, PVC Container Corp. recorded charges of $140,000 "related to" the lifetime medical benefits it had promised a retired chief executive and his wife. A company executive confirms the details but declines to comment.

If current trends continue, the disparity between what a company's regular employees and its top executives receive in retirement is likely to widen. Most companies have set a ceiling on what they will pay for retirees' health coverage and are passing on cost increases to them. When the premiums get too high, retirees who can't afford the cost will drop out or won't sign up.

Northrop Grumman Corp., for example, has a "medical inflation cost-sharing feature" for its regular retirees under which their share of the cost of coverage increases each year as inflation rises. Meanwhile, the board chooses a group of executives to participate in a special medical plan. One of its features is Northrop Grumman's absorption of any cost increases. A company spokesman declines to comment.

In addition to often being more generous, executive health-care coverage in retirement can also be easier to qualify for. At Northwest Airlines, regular employees must work 23 years to be eligible for the retiree coverage at age 55, which ends 10 years later when they become eligible for Medicare. By contrast, after only three years, top executives at Northwest are eligible for lifetime health coverage for themselves and their dependents, with the company picking up the tab "for all out-of-pocket medical and dental expenses."

A Northwest spokesman declines to say whether executive benefits will be affected by the company's current reorganization under Chapter 11 of the federal bankruptcy law. (The company has asked the bankruptcy court for permission to raise other retirees' health-coverage costs.) But the spokesman says in a written statement that the airline's executive benefits are designed to "retain Northwest's top officers" and that "the actual cost to Northwest of these benefits is fairly low when compared with the total compensation executives receive in other industries."

Many other companies protect executive health perks when they merge or reorganize under Chapter 11. If it looks likely that Cooper Tire & Rubber Co. will be acquired, the Findlay, Ohio-based tire maker is obligated to shift money into a special trust to pay for executives' lifetime health care. Meanwhile, in recent years, the company has increased the amounts that most of its other retirees must pay for their coverage, and it won't cover those hired after January 2003 at all.

A Cooper spokesman says that the cost increases for regular retirees were accompanied by "more flexibility and options" and that only two executives benefit from the lifetime medical provision.

When rival casino operators Harrah's Entertainment Inc. and Caesars Entertainment Inc. agreed to merge in 2004, they guaranteed Caesars' chief executive, Wallace R. Barr, and his family medical, dental and prescription-drug coverage for life if he was laid off afterward or left under certain conditions. The company declined to say whether Mr. Barr, who no longer works there, is collecting the benefit.

By contrast, the several hundred Caesars employees who lost their jobs in an earlier casino sale also lost their health-care coverage. Delicia Spees, director of the Family Resource Center in South Lake Tahoe, Calif., says that at least 60 families of laid-off Caesars casino and hotel workers have come to the center since August seeking assistance finding health-care services. She adds that the center has signed up many of them for Medi-Cal, the state health program for the poor.

Mr. Barr didn't return a message left with his attorney. A Harrah's spokesman confirms the terms of Mr. Barr's health-care benefits and adds that layoffs from the merger were "pretty minimal." The spokesman says Harrah's doesn't typically offer retiree medical coverage to employees.

Regular employees who lose their jobs can apply for continued health-care coverage under Cobra, the federally mandated requirement that employers of a certain size allow departed employees to remain in the company health plan for some 18 months. However, the coverage, which can cost more than $1,000 a month, can be too expensive for laid-off workers.

Sears Holdings Corp. requires regular employees who are laid off to pay all their Cobra costs themselves but pays part of the Cobra costs for some executives. A spokesman says only "a small number" of executives receive the benefit. Meanwhile, other companies, including Kimberly-Clark Corp. and Qwest Communications International Inc., pay 100% of executives' Cobra costs, according to filings. A Qwest spokesman confirms those details but declines to comment. Kimberly-Clark didn't respond to requests for comment.

Lowe's Cos. has agreed to reimburse former Chairman and Chief Executive Robert L. Tillman, who retired in January, for 18 months of Cobra costs for him and his wife. Then it will pay their health-coverage premiums until they begin receiving Medicare, when it will buy them supplemental coverage for life.

Health benefits for other retirees end when they turn 65 and become eligible for Medicare. A Lowe's spokeswoman says the company hasn't cut health benefits for retirees before they turn 65 in the last four years.