Retirement Heist

by Ellen E. Schultz

  But because the company has been so successful in denying claims, it has a pool of actuarial gains to draw on each year to offset the expense of its black lung obligation. As the company puts it in its financial disclosures: The gains are the result of “lower approval rates for filed claims than our assumptions originally reflected.” In 2010, Console recognized $21.6 million in gains; as far as accounting rules go, gains from denying benefits to dying miners are no different from profits from selling coal and methane gas.

  In an effort to get the coal industry to shoulder more of the costs for its afflicted workers, the Patient Protection and Affordable Care Act of 2010 created new rules to make it harder for coal companies to deny claims. For one thing, the new law established the legal presumption that miners suffering from totally disabling black lung disease who have worked at least fifteen years in coal mines, have, in fact, contracted the disease on the job, not from smoking, living with a smoker, or some other means. And rather than a miner’s having to prove he contracted the disease by breathing coal dust, under the new law, a coal company that wants to deny benefits has to prove that a miner doesn’t have black lung disease or didn’t contract it from breathing coal dust. Coal companies are also required to continue paying benefits to dependent survivors, even if the miners with black lung disease die from something else, such as lung cancer.

  Console Energy estimated that the impact of the new law increased its black lung liability by $45.7 million. But thanks to the flexibility built into benefits accounting, this didn’t hurt earnings. As the company explains, somewhat obliquely, in its financial disclosures, “In conjunction with the law change, Console Energy conducted an extensive experience study regarding the rate of claim incidence. Based on historical company data and industry data, with emphasis on recent history, certain assumptions were revised,” it says. “Most notably, the expected number of claims, prior to the law change, was reduced to more appropriately reflect Console Energy’s historical experience… This resulted in a decrease in the liability of $47.7 million.”

  In other words, the company retrofitted its assumptions, which not only kept its black lung obligation from increasing but actually reduced it by $2 million. Combined with gains it took from denying benefits to dying miners in the past, the company reported income of $3.5 million for its black lung benefits program in 2010.

  Only in the alternative universe of postretirement benefits accounting can a company profit from its black lung benefits plan. And Console Energy will likely continue to do so. The company disclosure is basically telling the world that while the company may be required to pay benefits to more old-timers, it will find ways to more aggressively deny them to everyone else.

  Massey Energy, another giant coal producer, didn’t go through the same actuarial acrobatics. It reported a $98 million obligation for “traumatic workers’ compensation” benefits, which is what the company estimates it will pay for black lung, crushed limbs, and other traumatic injuries one might expect to find in mines that have racked up thousands of safety violations.

  As for its black lung benefits, it estimated that the new law would increase its obligation by only $11.3 million, pushing its total black lung obligation to $77 million. “We do not believe the impact of these changes will significantly impact our financial position,” its filings said. The total amount Massey Energy paid out to miners for their black lung benefits in 2010 was just $2.4 million.

  To put this into perspective, compare it with what the company spent for a single Massey retiree, chief executive Don Blankenship, who stepped down in December 2010. During his eighteen years as CEO, Blankenship aggressively promoted “mountaintop removal,” the practice of blowing off the tops of mountains to uncover seams of coal, and was at the helm when one of the company’s slurry ponds spilled 300 million gallons of toxic sludge into nearby streams, an event the EPA calls the worst man-made environmental catastrophe in the Southeast.

  Though healthy for shareholders, the company’s practices haven’t been healthy for miners—or their families and neighbors, who have complained that poisoned groundwater has caused a litany of illnesses. Fatal mine accidents have been common, including the worst mining accident in forty years: the explosion at the Upper Big Branch mine in 2010, which killed twenty-nine miners. After the tragedy, shareholders sued Blankenship and the board of directors for mismanagement, and the Justice Department launched a criminal investigation into the Big Branch disaster.

  In the wake of all this, Blankenship decided to retire, a decision for which the board awarded him $12 million in cash. He’ll also collect a pension worth at least $5.6 million, and $27.2 million in deferred compensation, which was on top of $10.4 million in pay. He can remain, rent-free, in a company-owned home in Sprigg, West Virginia, a property well protected by steel fences and security cameras. He’ll retain his company office, plus a full-time secretary. And he gets to keep a 1965 blue Chevrolet truck.

  Blankenship will likely be healthier than most of his neighbors. Rolling Stone reported that Massey Energy constructed a pipeline to bring potable water from Matewan to Blankenship’s home. Corporate filings show that should he get sick, the company will pay 100 percent of the health coverage for him and his family.

  The total payout for all this in 2010? More than $55 million.

  The total the company paid its retired coal miners in 2010 for black lung, traumatic workers’ compensation, and other retiree benefits: $37 million.

  HOLDING THE LINE

  Profits may motivate many employers to hold the line on awarding pensions, retiree health care, or disability. Pension law helps them tackle retirees who push back.

  Victor Washington, a former San Francisco 49ers running back, spent most of his life fighting the NFL for disability benefits. His battle illustrates how federal benefits law, ERISA, though intended to protect workers, has become a legal shield for employers, enabling them to deny benefits with no penalty—and even finance their legal defense using pension assets.

  Football was Washington’s ticket out of the rougher towns of northern New Jersey, where he’d spent part of his teen years in an orphanage in Elizabeth. A college scholarship eventually led to the 49ers, who picked him in the 1970 NFL draft. He was the team’s rookie of the year in 1971–72 and went to the Pro Bowl at the end of the season. The fivefoot-eleven, 195-pound Washington later played for the Houston Oilers and Buffalo Bills. Playing as a running back, defensive back, and wide receiver, he took the field against the likes of Joe Namath, Terry Bradshaw, and O.J. Simpson. At his peak, he was earning about $50,000 a year. When he racked up injuries to a shoulder (in 1973), back (1974), and elbow (1976), he says teams gave him painkillers and Valium so he could keep playing. “I took every play like it was my last play—that’s the only way to play,” Washington says.

  Washington left the game the same way most players do: He was too injured to play. Knee trouble sidelined him for good in 1976. He’d lasted longer than most: Players on average leave after 3.2 years, often after multiple injuries. Players from the 1960s to the 1980s are a particularly busted-up bunch, having played on artificial turf that was little more than a carpet over poured concrete, in flimsy helmets and protective gear that provided little protection to someone who was rammed in the head by opposing players using the kinds of maneuvers that have since been banned. Concussions were regarded as badges of honor and, to keep players in the game, doctors doped them up with amphetamines and painkillers and looked the other way when players bulked up on steroids, oblivious to the long-term effects.

  When Washington left pro football, he was thirty years old and had no other marketable skills. His marriage unraveled, and he moved in with his grandmother in New Jersey. He enrolled in business courses at a community college, but, in pain and depressed, he couldn’t concentrate or sit still. It would take more than two decades for the league to acknowledge that concussions cause brain damage. Seven years after leaving the game, Washington, who didn’t have health coverage an
d couldn’t afford physical therapy, applied for football disability benefits and went through the gauntlet of doctors the league hires to evaluate players’ claims. Orthopedists hired by the NFL plan enumerated his ailments, which included arthritis, degenerative joint disease, and an inability to fully extend one knee. A Rutgers University professor of psychiatry hired by the NFL concluded that depression and difficulty with concentration, “combined with his physical injury and significant pain (both knee and back) indeed render him disabled by his football related injuries.”

  One would think that awarding the benefits would be a simple call. But league officials, though agreeing that Washington had a disability, deemed that it wasn’t football-related, so his benefit would be $750 a month instead of $4,000.[18] Washington appealed, and after more medical reviews, league doctors again concluded that Washington was disabled totally by football injuries. The determination went to the trustees for a vote, and they deadlocked: Three trustees representing players agreed his disability was caused by football; team-owner trustees said that Washington’s problems were the result of a crummy childhood, a failed marriage, and money troubles. It was all in his head—but not the result of a concussion. In 1986, three years after Washington first applied for benefits, the decision went to an arbitrator, who noted that the plan defined a football-related disability as being the result of “a football injury.” Focusing on the word “a,” the arbitrator said this meant a former player had to have a single injury to be eligible for football-related disability benefits. Because Washington had several injuries, he was out of luck.

  TIME OUT

  Based on this creative interpretation, the NFL plan denied the claims of many other former players that were pending at the time. If Washington’s claim had been brought before a state court, it would have come under state insurance laws regarding unfair claims denials, where a judge may have concluded that the arbitrator’s decision was “arbitrary and capricious,” a legal standard referring to a decision that has no reasonable basis.

  But employees benefits cases fall under ERISA, which “preempts,” or overrides, state laws, including insurance laws about fairness. Where does that leave plaintiffs? In a black hole.

  When Congress created ERISA in 1974, it assumed that the law would apply to pension plans, so it granted trustees of a pension plan broad “discretion” to make decisions, such as how to invest money and how to determine who is eligible for benefits. When it comes to pensions, this can be a straightforward decision: If the rules say that a person who works five years is eligible for a pension, then he’s eligible.

  But in 1987, the Supreme Court ruled that ERISA covers not only pensions but other benefits, such as medical and disability plans. Suddenly, trustees were deciding what constitutes a disability. But few players have disabilities as clear-cut as those of wide receiver Darryl Stingley, who was paralyzed during a preseason game in 1978. The more common injuries cited in disability claims—cervical-spine injuries, osteoarthritis, and knee, hip, and other joint injuries—can’t be as easily measured. Debilitating problems may not show up for years and can be exacerbated by the use of painkillers and steroids, along with substance abuse.

  And when it comes to depression or head injuries, determinations can be especially subjective. For years, the NFL steadfastly maintained that there was little credible research linking football with developing health problems, such as arthritis, heart disease, or cognitive impairment, in later life. This was like the tobacco industry insisting that smoking doesn’t cause lung damage.

  Though Congress didn’t intend trustees to have so much power to decide who gets benefits, employers have blocked and tackled every effort to create rules similar to those existing in state courts. The wellpublicized medical-claims denial cases in the 1990s weren’t really about rogue behavior by HMOs; rather, they were merely examples of what employers and insurers could do when unfettered by state insurance laws. Benefits provided in the workplace are all shielded by ERISA, which is why the employer-plan market has been so lucrative for insurers. Disability, long-term care, life insurance—if it’s provided in the workplace, even if the employee pays 100 percent of the cost, it falls under ERISA, and has no state-law protections for unfair denials or for compensatory or punitive damages.

  Ironically, the very people who decided that benefits would fall under ERISA are themselves exempt from that federal law: Congress. All government employees are exempt from ERISA, which means that judges, lawmakers, police, and municipal meter readers have access to state courts to ensure their benefits, while their neighbors who are employed by private businesses do not.[19]

  Vic Washington could have created a league of his own out of all the players the NFL denied paying disability to. Scores of other players from the 1960s to the 1980s faced similar long fights with the league over disability. Although most NFL players suffer injuries of one sort or another during their careers, only ninety of the more than seven thousand former pro players covered by the NFL disability plan were receiving football disability benefits at the time Washington was pursuing his claim in the courts.[20] And the total amount the league was paying in disability benefits was a mere $1.2 million a month, or just $14.5 million for the year. Of that, about $8 million came from the league’s more than $5.2 billion in annual revenue, and the rest was paid from the players’ pension plan, the Bert Bell/Pete Rozelle NFL Player Retirement Plan.

  The NFL has maintained that the generosity of the benefits attracts unqualified applicants, which is why it has to aggressively hold the line to protect the plan. “The trustees have to make some tough calls,” said a key league attorney, Douglas Ell. He maintained that many former players are too quick to blame football for causing their problems and that the league wants to avoid awarding benefits to someone “sitting in his den drinking beer and feeling sad and thinking football made him crazy. The trustees are fiduciaries, and can’t just say, ‘This guy was in the Hall of Fame’… and pay him extra money he doesn’t qualify for.”

  Certainly, players from the 1970s and 1980s didn’t have the gargantuan pay packages that today’s stars negotiate and have therefore had an incentive to apply for football disability benefits, but that doesn’t mean they’re all mooches. “Injuries may not put you in a wheelchair for the rest of your life, but you still have injuries,” said Randy Beisler, who was a guard and defensive end with the Philadelphia Eagles, San Francisco 49ers, and Kansas City Chiefs until a broken neck put him out of the game in 1978. Although NFL doctors concluded in the 1990s that he was 80 percent disabled, he gave up seeking benefits after his claim dragged on for five years.

  NO FOUL, NO PENALTY

  Another hurdle for employees and retirees: ERISA doesn’t say anything about punitive damages; there are no damages for wrongful death, financial loss, or pain and suffering. With no penalties for egregious conduct, employers have little disincentive to aggressively deny claims. The worst that can happen is that the plans can later be ordered to provide the benefit.

  Basically, under federal benefits law, if you mug an old man and steal his wallet, the worst that can happen is that you’ll have to give the wallet back. If the old guy dies from his injuries, you won’t have to do even that.

  Mike Webster had been a center on the offensive line for the Pittsburgh Steelers from 1974 to 1988, then played two more seasons for the Kansas City Chiefs. He played 177 consecutive games—the fifth highest in league history—and the games took a toll. Webster suffered multiple concussions in his career, and when he retired in 1991 he was so cognitively impaired that he was unable to hold a job. According to court papers, he earned $10,000 in 1992, and $1,000 in 1993, from signing football cards and making appearances. In the 1994–95 season, the Chiefs hired him as a “conditioning coach,” mostly because team officials felt sorry for him. Webster had been homeless at various points in the 1990s and slept in his car, train stations, and the Chiefs’ equipment room.

  In 1998, Webster applied for disability benefits, and
a series of doctors, including a neurologist, a psychiatrist, and a psychologist, concluded that he was totally and permanently disabled; one noted that he suffered from a “traumatic or punch drunk encephalopathy, caused by multiple head blows received while playing in the NFL.” And they all concluded that his disability arose when he was an active player, in 1991.

  The NFL plan trustees, however, pointed to a medical report by a neurologist Webster had visited in 1996, who made no mention of a head injury. On this basis, the trustees concluded that there was doubt about the onset of Webster’s disability, and awarded him “degenerative” benefits rather than “active” benefits, making him ineligible for payments retroactive to 1991.

  Webster appealed. His case dragged on. He died in 2002, at age fifty, while his appeal was pending. In 2003, the plan denied his appeal. The administrator of Webster’s estate then sued the NFL plan. In March 2005, a federal court said the plan had “abused its discretion,” because even if the trustees had found a “scintilla” of evidence to support their contention that Webster wasn’t disabled until 1996, that wasn’t enough to ignore the mountain of evidence presented by its own doctors. The court awarded Webster’s estate the value of the benefits he should have been paid.

  RESUME PLAY

  Vic Washington thought he had one more chance to qualify for disability benefits when the NFL and the players’ union adopted a new disability plan with more flexible rules in 1993. But the NFL trustees denied his claim, providing no explanation. When Washington appealed again, the league plan hired private investigators to question his neighbors, friends, minister, and ex-wife, seeking evidence that his injuries were exaggerated and that he’d held a paid job. It scrutinized his income tax returns for evidence he’d held a job. He had not.