Kodak cuts mean crisis for thousands

Written by Matthew Daneman Staff writer - Oct. 11, 2012

democratandchronicle.com

 Eastman Kodak Co. started 2012 with a boatload of woes, from weak sales creating a worsening financial picture to a lot of expensive retirees.

This year, in turn, has become a trying one for many of those retirees —first as the company ended a pair of pension plans and then earlier this week as the company announced that, as long as U.S. Bankruptcy Court allows it, all spending on retiree health care and survivor income benefits will end Dec. 31.

“Maybe what they’re doing is understandable given the current circumstances,” said Jim Patton, 69, of Pittsford, who retired from the company in 2001 after 30-plus years. “But I’m terribly disappointed Kodak and Kodak management has let things get to where it is.”

For Kodak’s roughly 38,000 U.S. retirees dependent on the company for health care benefits, as well as an additional 18,000 disabled former workers and survivors, the benefit cuts will mean anything from a minor inconvenience to a major financial crisis.

Retirees under the age of 65, and thus not eligible for Medicare, could end up spending as much as $1,000 a month out of pocket for coverage comparable to what they get now through Kodak, said Ron Brandwein, a health insurance information specialist at the local Lifespan office.

That’s because being under 65 and buying an individual policy often means facing rates 40 percent to 60 percent higher than group rates, said Stephen Smola of Rochester health benefit firm Smola Consulting.

Kodak currently provides health coverage to more than 6,200 retirees under the age of 65, including thousands in the Rochester area.

While the state has a variety of programs, such as Healthy New York, for lower-income retirees, Brandwein said, “If your income is decent, you’re going to wind up either paying through the nose or taking a lot less insurance.”

For Medicare-eligible retirees, there are far more options available to replace the Medicare enhancement Kodak currently provides, Brandwein said. Those include Medicare Advantage products that can cost $120 a month per person and Medigap supplements that cost $100 to $300 a month, he said.

Since filing for Chapter 11 protection in January, Kodak has made a number of painful cuts to its expenses to stay afloat. This year will see it let go of nearly 4,000 workers worldwide, sell off numerous operations, vacate real estate around the nation, and shut down its digital camera business.

And the health coverage cut comes atop the end of the Kodak Excess Retirement Income Plan and Kodak Unfunded Retirement Income Plan —a pair of supplemental pension plans for highly compensated retirees.

“For a lot of people I know, that’s a much bigger deal” than the insurance cuts, said Patton, the Pittsford retiree. “You don’t have to make a fortune to wind up in one of those plans.”

Patton said he and his wife, also a Kodak retiree, are relatively lucky. “This current year, I actually paid nothing for my advantage plan. Kodak covered the entire amount.”

He anticipates having to pay maybe $1,000 extra a year for some similar supplement to Medicare coverage. “I’d rather not have to pay it, but I think my life won’t change one bit.”

Here are some questions and answers on additional aspects of Kodak’s move:

Q.What does Kodak spend now on retiree health care?

A.Roughly $10 million a month. According to paperwork the company filed with U.S. Bankruptcy Court, those benefits, over the course of five years, add up to nearly $520 million. The single biggest expense is the Medicare enhancement it provides Medicare-eligible retirees, with a five-year price tag of $200 million. For retirees under the age of 65, life insurance costs $113 million over five years, while survivor income benefits total almost $140 million over five years. Dental benefits would eat up $54 million over five years, according to Kodak.

As of the end of 2011, those post-employment benefits represented a $1.2 billion liability on Kodak’s balance sheet.

Q.What is Kodak giving up in exchange for those benefits?

A.The deal negotiated with a court-appointed retiree committee calls for the company to give the committee $7.5 million in cash, $15 million in secured claims and $635 million in unsecured claims. The committee would then have the power to set up a trust fund with the money being used to help offset some benefit costs for retirees.

Q.How much is that $635 million unsecured claim really worth?

A.Right now, that’s anyone’s guess. Earlier this year, in an aborted attempt to set up a bonus system for top executives, Kodak said it was figuring unsecured creditors would receive 30 cents on the dollar as the baseline for any bonuses to kick in —presumably indicating the company thinks a 30 percent return is pretty doable. Thirty percent of $635 million is $190 million —equivalent to what the company spends now in a year and a half.

Ken Luskin, president of California wealth management firm Intrinsic Value Asset Management, foresees Kodak’s various cost-cutting steps —along with its plans to sell several lines of business, reams of digital imaging patents and other assets —as helping to return the company to profitability and taking care of its outstanding debts.

That scenario would give unsecured creditors, including retirees, a 100 percent return on what’s owed, he said, which would make the $635 million claim “a decent sum (Kodak) is putting aside” for retirees.

Q.What should retirees do?

A.Start their homework, said Brandwein.

The area’s dominant health insurance providers, Excellus BlueCross BlueShield and MVP Health Care, have scheduled a number of information sessions this fall for retirees to learn about options for going on the open market for coverage. Lifespan also provides free seminars.

“A couple years ago, General Motors retirees went through this same process (of losing post-retirement benefits) and they’d been sheltered by General Motors for so long they had no idea what the health care system is like outside the umbrella,” Brandwein said.

“They were easily confused and misled. You have to understand all the options and make a decision. You can’t just take one salesman’s perspective and assume you’re getting all the information you need to make an educated decision.”