A stampede of early retirements after IPALCO Enterprises was bought by AES Corp. in 2001 is forcing cuts in health and life insurance benefits starting next month.
The IPALCO Enterprises Voluntary Employee Beneficiary Association has told its 1,900 participants that new members and rising health care costs have forced cuts that "are absolutely essential to extend the long-term viability of the VEBA Trust."
The retirement plan's assets have fallen to $88 million from $95 million at year-end 2004, according to trust officials. The plan incurred benefit claims of $10.6 million in 2004.
"If current trends continue, there will not be sufficient funds in the VEBA Trust to provide benefits throughout the retirement of covered participants," stated a letter sent to former IPALCO employees in October.
IPALCO stopped funding the plan after the Indianapolis Power & Light parent was bought by Virginia-based AES in 2001. That year, IPL also spun off the trust and its obligations to an independent trustee.
"So there's sort of a set amount of assets. As you know, medical costs are going up astronomically. In our situation, there's no company there to put in extra money," said Marc Sciscoe, an attorney at Ice Miller who represents the trust.
Starting next month, the VEBA plan will no longer pay for prescription drug and medical care coverage for dependent children except for some who are disabled.
The deductible for drugs rises to $250 from $75. Spouses of retirees will be required to make monthly contributions for coverage. Also, life insurance benefits will be reduced to $5,000 from at least triple that amount.
"Even with these cuts, this is a very good program... Retirees are paying nothing for very good medical coverage," Sciscoe added.
The cuts and asset drain have raised concerns of the International Brotherhood of Electrical Workers Local 1395. The issue is likely to come up in contract talks with IPL, said Geoff Lohman, an attorney at Fillenwarth Dennerline Groth & Towe who represents the union. Union officials could not be reached for comment.
Sciscoe said he couldn't quantify how much money the benefit reductions will save, saying there are too many variables.
"We expect the changes to add several years to the life of the trust," he said.
Some former workers are grumbling that AES and IPL are to blame for the strain on the 10-year-old VEBA trust because they offered an aggressive early retirement program that shattered previous actuarial projections of the fund's life.
From 2001 to 2004, IPL wrangled 551 early retirements as AES sought to squeeze cash out of its new holding.
The first 400 workers who retired early became eligible for VEBA benefits at age 55, according to IPALCO's 2004 10(k) report.
"When you add members, it increases the expenses, particularly when you add members who are below Medicare age," Sciscoe said.
In 2002, the trust informed IPALCO that the VEBA was significantly underfunded, according to a former IPL officer who asked not to be named. The trust administrator threatened legal action against the utility, the former officer said.
Later that year, IPL agreed to provide medical and life insurance until age 62 for 151 workers who accepted later rounds of early retirements, at a cost of $7.5 million. The retirees become eligible for VEBA benefits after that.
Asked about the strain on the trust, IPL issued a statement that it "has no control over or responsibility for the VEBA Trust.
"An independent plan administrator, totally separate from IPL, administers the assets in the trust and makes all determinations related to benefit coverage and costs," the company statement said.
The former IPL officer said the company is being too dismissive.
"No matter how IPL spins this, it is still an [IPL] plan and they should take responsibility for it. It might be different if IPL was doing poorly."
IPALCO has been a cash cow for AES. The utility reported in its 10(k) that it sent a total of $246 million in dividends to AES in 2003 and 2004.
That a big employer would want to get out of the business of offering health care benefits to retirees is no surprise; most companies are saying, "Get me out of this game," said Mark Sherman, an executive of Benefit Consultants Inc. in Indianapolis.
In recent years, health care costs have grown by double digits each year, in some cases 15 percent to 20 percent, Sherman added. The increases have been most significant for the retirement-age population that tends to access medical care the most, he said.
The IPALCO VEBA reported 2004 administrative expenses of $1.2 million. It did not report the salaries of the three trustees, at least two of whom had executive-level positions with IPALCO. Salaries are funded not out of the VEBA trust but from a separate fund established by IPALCO.
Not helping the VEBA plan from 2001 to 2003 was a downturn in the stock market that crimped investment income, Sciscoe said.