Company to cut health benefits for retirees under 65

Friday, Sept. 23, 2005 | 11:11 a.m.

Sears Holdings Corp., the largest U.S. department-store chain, will cut medical coverage to retirees under 65 to counter rising health-care costs.

About 6,750 retirees, or 15 percent of those enrolled in the company's retirement program, will pay the full cost of premiums starting on Jan. 1, spokesman Chris Brathwaite said today in an interview. Benefits will be restored for these former workers when they turn 65 provided they retired before Jan. 1, 2000.

Chairman Edward Lampert is cutting costs after engineering Kmart Holding Corp.'s purchase of Sears, Roebuck & Co. for $12.3 billion. Sears Holdings plans to reduce $300 million in expenses to compete against Wal-Mart Stores Inc. and Federated Department Stores Inc.

"Like most companies, Sears is struggling with the spiraling cost of health care," Sears said in a statement yesterday. Sears said medical costs for retirees accounted for about 17 percent of its operating income last year, while health spending for current workers and retirees consumed half of its domestic operating income.

Ending Contributions

"The new plan continues to be more generous than most," said Brathwaite, who said the company held focus groups and consulted with retirees before making the changes. He declined to provide specifics on premiums, the costs for retirees or the savings for the company.

Sears, based in Hoffman Estates, Illinois, in April said it would end pension contributions and tuition reimbursements for most employees to align its policies with competitors such as Wal-Mart and Home Depot Inc.

"Many of our retail competitors have much lower cost structures that allow them to run different business models that are valued by both employees and customers alike," Lampert wrote in a Sept. 8 letter to shareholders.

The company has fired 850 workers at its headquarters in Illinois and at Kmart's former headquarters in Troy, Michigan. It later said an additional 1,400 would be fired or relocated to headquarters or to a transactions processing center in Dallas.

Between 1999 and 2004, the average family health premium increased 73 percent to $9,950, according to the Employee Benefit Research Institute in Washington, D.C. Employers and workers are still paying about the same proportions of the premium.

Shares of Sears rose 72 cents to $122.70 at 12:34 p.m. in Nasdaq Stock Exchange composite trading. They have risen 23 percent this year through yesterday.