Human Capital & Careers

Sears Cuts Legacy Costs

Last year, total health spending by the retail giant ate up roughly half of the company's operating income; retiree medical costs accounted for abo...
Stephen TaubSeptember 26, 2005

Sears Holdings Corp., the product of the merger between Sears and Kmart, is the latest old-line company making tough decisions regarding its legacy costs so it can better compete with relatively nimbler, younger peers.

The retail giant announced that it will no longer pay for health care coverage for retirees under age 65, according to Reuters. Reportedly, about 15 percent of Sears’ roughly 45,000 retirees will be affected.

Last year, total health spending by Sears ate up roughly half of the company’s operating income, according to press reports; retiree medical costs accounted for about a third of that total.

“The new plan continues to be more generous than most,” spokesman Chris Brathwaite told Bloomberg. Individuals who retired before 2000 but are younger than 65 will need to pay the full cost of their medical premiums beginning January 1. Once they reach 65 and are eligible for Medicare, they will again receive subsidies, Brathwaite added, according to Reuters. Those who retired after 2000 will be somewhat better off: They will still be able to buy into Sears’ benefit plan, the wire service added.

Sears’ plight — like that of the beleaguered airlines and automakers — is that it is strapped with huge costs stemming from benefits for individuals who no longer work for the company. Reuters pointed out that Sears is one of the only major retailers that provides health-care coverage to its retirees, a luxury that is becoming harder to absorb.

Incredibly, the 45,000 Sears retirees who receive benefits account for a mere one-third of eligible former employees. Luckily for the company, Brathwaite told Bloomberg, the others receive coverage through a spouse, another employer, or private plans.

MarketWatch also pointed out that Sears is not making changes to its pension plan or to the Sears Retiree Life Insurance plans for current retirees.

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