PRESIDING CHAIRMEN: Senator Prague

Representative Ryan

SENATORS: DeFronzo, Guglielmo

REPRESENTATIVES: Zalaski, Hetherington, Belden, Cafero, Hewett, Olson

SENATOR PRAGUE: Hello everybody. We're going to bring this hearing to order, and we'll start our proceedings. I want to thank all of you for coming. Do you want to say something too?

REPRESENTATIVE RYAN: Good afternoon. I'm glad you're all able to make it. I do want to introduce the Representatives from the Connecticut Delegation to Congress who are here to hear about this issue. They're representing their various officeholders.

We have from Christopher Dodd's office Anthony Householder. Is he here? And Rosa DeLaura, we have Lou Mangini. And for John Larson, we have Lisa Perrone. And I believe Ken Dagliere is going to join us from Senator Lieberman's office.

But they are here to hear testimony and bring it back to their respective officeholders about this important issue. And I'll return it to Senator Prague.

SEN. PRAGUE: To make one more comment about these folks who are here from the congressional offices. If you have any questions of them, you can feel free to ask it.

After all, ERISA is a federal program, and if there are ever going to be any changes made in ERISA, it has to come from the feds. And these are our representatives who can make those changes.

So having said that, I'd like to go down to number three. The first speaker to represent the retirees is Mr. Dwyer, who actually brought this issue to our attention. And, Mr. Dwyer, would you come up please and give us your testimony.

And we are being recorded, so you do have to speak into the microphone and identify yourself.

JOHN DWYER: My name, Senator Prague, Representative Ryan, members of the Committee. Good afternoon, my name is John J. Dwyer of West Simsbury, Connecticut. I have the privilege of serving as chairman of the Aetna Retirees Association formed last September because of the actions that Aetna took against its retirees.

In four short months, more than 900 members from the course of the country have paid their dues and joined the Association. More than 500 of them are residents of Connecticut, and all of them wronged when Aetna unilaterally decided to eliminate a retirement benefit that had been promised to us when we were active employees.

On behalf of our members of the 11,600 retirees of Aetna and their beneficiaries, I want to thank you for providing this forum and the opportunity to bring to your attention to what I believe was Aetna's outrageous decision to eliminate the dental subsidy.

By your leadership, you have begun the process of recognizing the unconscionable trend in corporate America of reducing or eliminating benefits that were promised to employees, and then taken away after many years of service.

To the best of my knowledge, no other state legislative committee in America has taken the time to focus on the problem and provide a public informational forum to gain further insight into the problem and the issues.

I must also thank the Representatives from the staffs of our Connecticut Congressional Delegation. I won't try to name each of them, but their presence here today suggests a recognition of the importance of this issue and encourages us retirees to continue our efforts.

My purpose today is not to suggest answers, but to review for you the history of Aetna's broken promise. And if you decide that a wrong has been done, to work with you and others to formulate a remedy.

At the outset, I should state for the record that loss of the dental subsidy does not represent a significant financial hardship for me personally. We don't know precisely what the average pension value is for all 11,600 retirees, but for many of them the Aetna action could be as much as 10% or more of a retiree's total pension.

My concern is for the clerical staff, the people down the line, all the wonderful employees who work so hard to make Aetna and people like me successful.

For them, this is a big deal, and a violation of everything that Aetna ever stood for. Perhaps more frightening is the uncertainty that their action has created in the minds of all retirees.

What's next? How far will they go to squeeze out another dollar of earnings? Do they recognize any limits? Imagine the person on a fixed income, retired for 10 or 15 or more years and compelled to worry about what plans Aetna might be working on to further reduce their commitments to retirees. I suspect you'd be worried too.

I joined Aetna as a claim representative trainee at the Harrisburg office in Pennsylvania in 1960. I left the company as senior vice-president of the Claim Department in 1994. In all of that time, it was clearly understood that while Aetna might not be the highest-paying company in terms of salary alone, we would always have very, very good benefits.

I want to repeat that I left in 1994. It was on February 6^th on 2004, 10 years later, that all Aetna retirees received a form letter from the Head of Human Resources at Aetna announcing Aetna's intention to eliminate the dental subsidy in January of 2005.

And as if eliminating the subsidy wasn't bad enough, when the annual enrollment period came around in November of 2004, they forced the issue by requiring that if you didn't renew the insured plan on an unsubsidized basis for 2005, you could not later enroll in subsequent years.

It was take it this year, or lose it forever, one more insult to those who gave so much of themselves to this company. At the time of the announcement, the supporting memo argued that they had to eliminate the subsidy to reduce their expense ratio and to remain competitive.

As the former chairman of a publicly traded company, I understand those goals. They're not unusual. In fact they're laudable. What I found difficult to accept was that the company had knowingly made their results worse by accelerating the rate at which they funded a pension-reserve deficiency, and yet the financial results were improving dramatically.

I went to the annual meeting. I even complimented the chairman of Aetna on the outstanding first quarter of 2004 results.

I found it very difficult to understand why, in the face of those vastly improving results, they would alienate and hurt so many retirees for a $3,000,000 annual savings. Of course, that committed them to then take $32,000,000 of reserves set aside to pay for those annual benefits into the future and re-deploy them into second quarter 2004 earnings.

A few months later, they received a federal income tax refund of approximately $740,000,000. They continued to buy back shares,8.3 million shares in the third quarter of 2004. Multiply that by $100 per share, and you'll have some sense of the magnitude.

And finally, a contribution of $45,000,000 to the AETNA foundation. Let me repeat the number, of course, our dental subsidy $3,000,000 annually.

By almost any measure, this is producing historic financial results, but I will tell you categorically, if Aetna were financially threatened in any substantial way, most of the people in this room would have a vastly different attitude than the one they have.

If Aetna was threatened at all, we'd have a very different attitude. Many of our retirees begin their retirement with the promise that they would receive free health and welfare benefits for life. Those people, many retired for 20 or more years, have been receiving free benefits until a month ago.

It is unconscionable that people led to believe for years that the benefits that they worked for and were promised could suddenly be eliminated for corporate profits. Why wouldn't all policyholders and beneficiaries be worried about the coverage they purchased?

Is there really any difference between coverage purchased with a dollar and coverage purchased with your years of service?

Consider the young man or the young woman who decides to go to work tomorrow for Aetna. He or she can look at the salary and benefits and can decide whether to join Aetna or go some other place where the salary and benefits are more attractive.

There's an enormous difference between that person and the man or person who spent 30 or 40 years at Aetna relying on the pension and benefit promise, only to have them reduced or eliminated 5, 10, or more years after retirement. Those retirees have no options.

Dr. Rowe, Aetna's CEO, in response to a question I raised at the last annual meeting, said that the expenses had to be reduced in order for them to remain competitive. I suggested that retirees resented being described as expenses.

The promises made to them were commitments, just like any other claim the company incurs in the ordinary course of being in the insurance and benefits business. Each time Aetna's spokesman, a Mr. LaBerge, has been interviewed by the media since this announcement, he has tried to make the point that some companies never offered dental benefits, and somehow that justifies what Aetna has done.

His statement is just nonsense. It's as if I were to tell you that I used to keep my promises. And then one day, I found someone who never made a promise. So now I don't have to keep my promises any longer.

In my last assignment at Aetna, I was a senior vice-president of Aetna's Casualty and Property Claim Department. Some of you may recall that in 1992 Aetna went through a significant restructuring, and I was deeply involved in that process.

In 1992, in my department alone, we eliminated more than 1,500 positions in that one year. And I'll tell you, it was the right thing to do.

Most of those people were retired early, and given enhanced separation packages to facilitate their early retirement, and in return for a signed release agreeing to forego litigation against Aetna, particularly litigation that might arise out of age discrimination.

My staff and I not only negotiated those enhanced packages, but if questioned, we reassured those employees that they didn't have to worry at all about their benefits.

And I can tell you categorically that not once in that entire process did corporate personnel, the human resource staff, the most senior levels of the law department, or the most senior levels of management ever advise us or alert us to otherwise warn the retiring employee that some years later his or her benefits might be reduced or eliminated.

There was no reason to even consider that someone 10 or 20 years later might seek to change or eliminate benefits that had been promised and, in fact, were being received.

For 150 years, Aetna has prided itself on the promises it made and it kept. As a young claim representative trainee, I was taught that if I made a claim offer, and later discovered that I had made that offer in error, it had to be honored irrespective of the cost.

There was no reason to suspect or worry about any other outcome. Perhaps most significantly, at the annual meeting of the Aetna shareholders here in Hartford on April 28^th of 2000, at a time when Aetna was selling off its financial services business, an Aetna shareholder and a retiree asked, and I take this directly from the transcript of that meeting, they asked Aetna's then-chairman William H. Donaldson quote, “Mr. Donaldson, do we have your assurances that these benefits will continue as promised?”

Donaldson responded, it's a good question. I know retiree benefits are of great concern, great concern. You have the commitment of this corporation that retiree benefits will not change in terms of what benefits you have now, and the obligations and the details of the future will be the same as they are right now. He went on, Aetna will stand behind its obligations.

Less than four years later, the retirees got the shameful letter. I offer for your Committee a copy of the relevant pages from that meeting transcript for your further review.

Interestingly, I have submitted a shareholder proposal for inclusion in the 2005 proxy statement asking Aetna's directors to review the decision announced in February of 2004 in the light of Mr. Donaldson's commitment in 2000. Aetna, in turn, has written to the SEC, asking the SEC to allow Aetna to exclude my proposal.

One wonders now if they're trying to protect Mr. Donaldson, the current chairman of the SEC, from being embarrassed by the actions of his successor, or seeking to protect themselves from his affirmation of the commitments that he made at the 2000 Annual Shareholder's Meeting.

If this Committee and other committed members of this Legislature are convinced that a wrong has been done, and that wrong should be remedied, then I'm persuaded that the creativity of this legislative body will find a way to induce the right behavior, and begin the process of protecting the benefits promised to retirees in the State of Connecticut.

Again, thank you very much.

SEN. PRAGE: Mr. Dwyer, I'm not going to let you go so fast. Do members of the Committee have any questions to ask? Representative Hetherington?

REP. HETHERINGTON: Mr. Dwyer, you were subsequently chairman of another committee. Your distinguished career is noted. Is the [inaudible] of dental benefits that seems to be the matter at issue, is that the heart of the concern? Or is the concern really that this is the beginning of the erosion of other benefits?

JOHN DWYER: It's both, Representative Hetherington. Still for some people the benefit or the cost for a retiree and his spouse went from $14 a month for dental, to $67 a month, and that's more than 10% for some of the low-level employees, at least 10% of their pension.

And I don't want to, Aetna, or it's obvious to think that if I say to you, well, that's really not the major issue they'll feel comfortable about it. But, clearly, the cloud overhanging, what else will they do is the real principle issue.

I think all of the people that belong to our Association, and more importantly, retirees across the country are scared to death. There are currently rules being promulgated, as you probably know, dealing with how prescription drugs are going to be treated in the year 2006. And the rules have been thus drafted that there is room for some considerable amount of mischief.

A subsidy to the corporation will include not only what the corporation pays, but what the employee retiree pays. And it will be a terrible outcome if corporations can receive a subsidy for the amount of premium they've managed to push over on retirees.

So the whole issue of benefits and what corporate America is likely to be thinking about down the road and doing, scares us all to death.

REP. HETHERINGTON: What are they relying on in trying to exclude your proposal, the ordinary business exception?

JOHN DWYER: As I understand, it Representative, and I am certainly not an expert, but I know that you've got some ERISA experts coming to speak this afternoon. If a company puts a reservation of rights language in its documents that it gives to its employees, that it reserves the right to modify, change, or eliminate, then they are, in fact, protected.

It's interesting, from my perspective, and I suspect from others if one thinks about it. What difference does it make if you can't do that with a pension, with the annuity monthly income portion? What difference does it make to the pensioner if he's entitled to $10,000 of annual pension benefits. They can't touch that.

But whereas he used to get $2,000 worth of health coverage, he no longer has to get that. So he has to take the $2,000 out of his monthly pension and put it over to buy healthcare coverage. Money is fungible. There is no difference.

So stealing from one pocket to pay the other, it seems to me is a ridiculous distinction that I frankly don't understand. But more importantly, interestingly as I understand it, and I haven't studied the document, this reservation language was first introduced in Aetna documents as I'm told, I think in 1988.

It's one sentence, in black ink, on purple-background paper. If you think about the amount of warning you get when you buy an egg beater or a toaster, I think you'd conclude that these warnings are inadequate or just a nonsense.

REP. HETHERINGTON: Thank you Mr. Dwyer, thank you Madam Chair.

JOHN DWYER: Yes, Sir.

SEN. PRAGUE: Representative Belden.

REP. BELDEN: Thank you for being with us today. I think you've kind of answered some of my questions, but you did indicate that my personal experience where an employer in a verbal communication with employees promising them work for a certain period of time. And then later on, in a civil suit, in fact, won the case that even though it was a verbal promise, that the employer had an obligation then to provide work for those people until that particular time period.

They do indicate that there is a reservation in the purple paper in the black ink that goes back, that says they do have the ability to modify?

JOHN DWYER: I have not seen it myself, but I am told that there was language first introduced in 1988, which was in the 28^th year of my employment. And I can tell you, if it was in there, hide it and read it. Because in the first 27 years, benefits just kept getting better and better.

So why would they begin? And if I had read it, I would have said, well, that's just somebody in the law department doing an excessive amount of lawyering, and it doesn't mean anything. God knows, we've been around for 150 years. Aetna has never decreased or eliminated a benefit. They have just made them better.

REP. BELDEN: Plus it theoretically would apply for only any employee hired after that date is another part of the equation potentially.

JOHN DWYER: That would be my sense, Sir.

REP. BELDEN: Thank you. Are there any lawsuits or legal actions pending regarding this issue?

JOHN DWYER: From the perspective of Aetna retirees, not yet, Sir.

REP. BELDEN: Thank you.

SEN. PRAGUE: Do you have questions for Committee handling? I have some questions. First of all, could you please give the testimony to our chorographer, so we'll make copies and all Committee members can have copies of the testimony. And we'll have extra copies for the press, the congressional offices particularly want them to have copies of the testimony.

JOHN DWYER: I'll do that. Yes, ma'am.

SEN. PRAGUE: Secondly, people took early retirement with a promise that they were going to have continued health benefits—-

JOHN DWYER: Yes Senator, there's no question about that. As I said in my testimony, in 1992, we had two claim departments at Aetna, and I was given the responsibility to put them back together again. I said 1,500 jobs were eliminated. It was probably closer to 2000.

But those people all went, all left knowing that a) they had an enhanced separation package, some extra weeks of severance pay, and you just didn't have to worry about your health, your pension. You knew you were going to get that.

And, I mean, if you've been around Hartford long enough, you know Aetna used to be referred to as Mother Aetna. And some smart Wall Street analysts have suggested that the paternalism atmosphere was excessive, and I won't comment on that.

But Aetna's reputation was just unquestionable in terms of a) its willingness and its ability to pay claims to the public, and b) its willingness and its sense of responsibility with respect to its employees and retirees.

Of all the 2,000 people that might have left the claim department in those 18 months that I was responsible for those terminations, I suspect some of them are here today, and I still consider them all friends. And I'm not ashamed of anything, because what we knew was that Aetna was going to take care of it.

What I'm ashamed of is that acting as the senior officer of a department with 8,000 people, I think the laws of agency say that I had the authority to made commitments. And they're not now being kept, and that's why I'm here today.

If they had just reneged on me, that's okay. But they reneged on the commitments that I made to 2,000 people. And a lot of senior people at Aetna who made those same kinds of commitments, their commitment is being reneged upon as well.

So, I'm a layman, but my understanding of the laws of agency is that a principle must honor the obligations taken on by his agent, and that's not being done. Yes, Senator.

SEN. PRAGUE: It's a pretty bitter pill for you to swallow. Is there, do the shareholders have the final word in telling what the law's problem is and what it can do or does do?

JOHN DWYER: As the chairman of a corporation regulated by the SEC, I'm going to say the answer is yes. But you have to have a management team that's willing to put the issue before the shareholders.

If I'd ever ask you a question, you might have the right to say no. But if I never ask you the question, you'll never give me the chance to say. So in the instant case, as I've said again, I have submitted a proposal to Aetna for inclusion in the proxy materials scheduled for the April 28, 2005 meeting.

Aetna has asked the SEC to allow them to not put that in the proxy materials. The SEC has not yet decided that issue, and I am anxiously awaiting their decision. If the SEC is true to its mission of trying to watch out for the little investor, and I am a little investor in Aetna, they'll let that issue go forward.

But, theoretically, they have the right and the obligation, the directors represent the shareholders, and, but as I said, the issue has to be framed properly and put before them for them to speak appropriately. We are retirees.

You'll be interested to know that we've written to the State Treasurer, noted to be, here in Connecticut, noted to be a pretty astute investor, and hold significant holdings in a lot of large corporations. She apparently is not in the business of taking on causes for the sake of causes, but to protect the interests of the pensioners in the State of Connecticut.

But the State of Connecticut holds 4.2 shares of Aetna common, and we have written to her to ask that if, in fact, this issue survives and gets into the proxy materials, that she would be willing to support the shareholder proposal, which merely asks the directors, look at what the managers have done four years after Bill Donaldson gave a commitment in open court, in front of all the retirees and shareholders that none of you have to worry.

How do you reconcile those two things? I don't know. And that's all I want those directors at Aetna to think about. How do you step over that obvious distortion, contradiction?

SEN. PRAGUE: I'd like to just carry this one step further, if you don't mind.

JOHN DWYER: I'm a retired Senator. I can stay here all day. In fact, Senator, I'm going to tell you I want to spend the rest of my days on this issue.

SEN. PRAGUE: I commend you for that. Somebody has to stand up for the rights of these retirees.

JOHN DWYER: Well, thank you, ma'am. I'm not going to run for office though, so you need not worry.

SEN. PRAGUE: It's not like you can run. Would you support this Committee backing your proposal and writing to the SEC backing up what you have requested? I don't know whether it would have any impact whatsoever.

JOHN DWYER: I don't either. One, because I don't have his permission, I won't use his name, but one very well-known columnist, TV commentator in the Hartford area, who is not a retiree but is an Aetna shareholder, read the little squib in the Hartford Current and called and asked if he could write a letter, and he did so. I don't know what weight the SEC lawyers gave it or will give it, but we sure as heck appreciated it.

And if your Committee saw fit to do that, I'd urge you to do it quickly, because I think they're probably fairly close to reaching a decision, but I don't know specifically.

SEN. PRAGUE: Okay, and I think we ought to sit down with the Treasurer and discuss this. We'll send her a copy of your testimony and ask her for a meeting.

JOHN DWYER: Very good, thank you.

SEN. PRAGUE: Thank you very much for being the crusader on this issue.

JOHN DWYER: It's some great people. I've got some great volunteers too. Thank you very much.

SEN. PRAGUE: You're welcome. Out of respect for the time of the attorneys who have come here to offer testimony, we're going to ask them to come up next to testify. Would Helen Kemp, the counsel of Robinson & Cole, where are you, Helen? Oh good. If you have written testimony would you give a copy to your? Okay, I guess we have a copy of it. Where was this? Okay, thank you, yes. Make sure your microphone's on.

HELEN KEMP: Okay. Can you all hear me? I have a slight cold and I apologize if I repeat myself or sniffle. Senator Prague, Representative Ryan, members of the Labor Committee, my name is Helen Kemp, and I'm testifying as an ERISA expert with regard to this Committee's hearing.

I am an attorney with Robinson & Cole, and its health and benefit litigation section, and I practice in the life health and disability benefits area.

I think to understand some of the issues, one needs to understand the intent and purpose of ERISA. The intent of ERISA was to provide a uniform body of employee benefit law for pension vesting, funding, insurance, and portability standards.

It proposed to eliminate conflicting or inconsistent state and local legislation of employee benefit plans, and to establish exclusive federal authority for such legislation.

ERISA not only applies to pension plans, but also applies to welfare benefit plans for unionized and non-unionized workers. ERISA defined plans that provide medical benefits as welfare benefit plans.

However, ERISA treats welfare benefit plans different from pension plans in the following ways. ERISA does not require welfare benefit plans to be funded. ERISA does not regulate employee participation or coverage in employee benefit plans.

And most importantly, ERISA does not require the vesting of employee benefits. Well, why doesn't ERISA require vesting of benefits?

As the Court of Appeals for the Second Circuit has observed, automatic vesting was rejected because the cost of such plans are subject to fluctuating in unpredictable variables. Actuarial decisions concerning fixed annuities, such as a pension, are based on fairly stable data.

Investing is appropriate. In contrast, medical insurance must take into account the inflation, changes in medical practice and technology, and increases in the cost of treatment independent of inflation. These unstable variables prevent accurate prediction of future needs and costs.

Because ERISA does not require the vesting of health benefits, employers are free to amend or terminate welfare benefits under an ERISA plan, and most employers specifically reserve the right to change, amend or terminate benefits at any time or for any reason.

However, an employer may relinquish this freedom to amend or terminate benefits by contracting with its employees for the vesting of employee welfare benefits. If an employee can prove that his or her employer promised vested benefits, the courts will enforce this promise. However, because vesting of welfare plan benefits is not required by law, an employer's commitment to vest such benefits is not to be inferred lightly.

I note historically, before 1980, most employers that provided retiree health coverage did so on a lifetime basis. The trend, back then, especially for firms with labor unions, was to continue to improve retiree health benefits with each successive labor contract.

Beginning in the early 1990s, however, two things happened to stop this trend. One was sharply rising medical costs, which equated to sharply rising premiums. And two, the adoption of Financial Accounting Standard 106, which made employers aware of the extent of their liabilities in this area.

In brief, FAS 106 requires employers to calculate their accumulated post-retirement benefit obligations, i.e., the cost of providing future health benefits, and to charge the entire future cost against current earnings, or to accrete the liability over 20 years or more with an annual charge against current earnings.

As a result of these two events, more and more employers began to cut back or eliminate altogether health insurance coverage.

From the employer's perspective, courts or the Legislature should not lightly impose an indefinite financial obligation, when unlike with pension plans, the employer lacks the ability to predict or control cost.

Additionally, the employers believe that courts or the Legislature should hesitate to impose such an obligation when the result could be to discourage employers from providing such benefits in the first place.

Commentators have suggested that stringent regulation by either the courts or the Legislature designed to protect employees will increase the costs of benefits to employers, and thus, at some point, may create an incentive for employers to exercise their prerogative not to provide benefits at all.

And I thank you for listening.

SEN. PRAGUE: Thank you for coming with this testimony. I'm sure there will be lots of questions. My first question to you is, do you represent Aetna?

HELEN KEMP: No I do not. I am here as an ERISA expert, just to give kind of a background and overview.

SEN. PRAGUE: Thank you. We did invite Aetna to come, but they have refused to come. And I was wondering if maybe they had, maybe had you worked at Aetna. We are very pleased that you're here to give us this explanation.

HELEN KEMP: Thank you.

SEN. PRAGUE: And I'll hold my questions until the Committee and the [inaudible – microphone not turned on.]. Just based on what you have heard from Mr. Dwyer, is this a common practice to your knowledge, that corporations as large as Aetna do something like this?

HELEN KEMP: I wouldn't say it's a common practice. I do see, there are a lot of court cases and court actions with regard to the elimination or the modification of retiree health benefits. My experience has been most of those come about with regard to union contracts. And then there's an interpretation of what the union contract stated.

I am aware of several articles and several papers and surveys and studies, which indicate that more and more employers intend to reduce or modify their retiree health benefits packages.

SEN. PRAGUE: And just one more brief question. Do the courts under similar circumstances usually come down on the side of the employees when benefits have been promised and there's a commitment made?

HELEN KEMP: I have to say that, and I'm sure that Attorney Rintoul, who is going to be the next speaker, will elaborate. I think that if I was a retiree whose health benefit was reduced, and if I was a plaintiff's attorney, I would be very happy to be both in Connecticut and in the 2^nd Circuit, which Connecticut is a part of.

The 2^nd Circuit I think has made some very favorable decisions, I mean, not always, they're not always on one side. They are judges and they try to go based on the law. But I think they have one of the broadest holdings with regard to fiduciary duties, fiduciary liabilities.

And so I think with this Circuit, and again Attorney Rintoul can discuss it further, but I think that it's beneficial for the retirees that this occurred in this particular Circuit.

SEN. PRAGUE: Thank you very much, and thank you for coming today. Oh, I'm sorry, Representative Zalaski.

REP. ZALASKI: Thank you. I just have a question, and that is, I come from a labor union, Associated Spring in Bristol, the Barnes Group. And we were taken on by the corporation, our union was, the retirees in the same manner as you're going through now. The question that I have now is on FASBY, I think we used to call it FASBY.

HELEN KEMP: Yes, I did too, but I'm careful now, I leave off the b.

REP. ZALASKI: Yeah, right, I see there's not a b on there. Anyway it's, is this the same instance where because they're not a union group, does that still have to be on the balance sheet in total, for all the benefits of everybody that works there? Is this the same instance as if they're a labor union right? Well, we ended up in court for a long term, and finally came out with somewhat of a settlement, but it wasn't to all of our satisfactions, but—-

HELEN KEMP: At least it was a settlement, so that was good.

REP. ZALASKI: --Yeah, thanks.

SEN. PRAGUE: Representative Belden.

REP. BELDEN: Thank you, good afternoon. Did I understand, and I'm looking at various documents that we have before us, the only area in the courts where welfare benefits can be adjudicated would be through the ERISA, through the federal court system. Is that your understanding?

HELEN KEMP: If it is an ERISA plan, a person can bring suit in either state court or federal court. There are some nuances. For example, if I believed my health insurer should have paid for a treatment and they did not, I have the right to go through the Department of Insurance and ask for external review of that decision.

But if I was seeking a benefit that had been eliminated or terminated or reduced, and it wasn't a treatment specific to me, then my recourse is to file a suit in either state or federal court.

REP. BELDEN: You did mention an ERISA approved plan, ERISA plan, what does that mean versus what are the other types of plans?

HELEN KEMP: ERISA does not apply to all employers. For example, it would not apply to a church employer. It would not apply to a government employer. And there's also a very few oddball things. Employees under the US Postal Service, the Railroad Act, so there's a few oddballs like that. But outside a few oddballs like the church and the government, it does apply to I would say 90 to 95% of all American employers.

REP. BELDEN: Thank you. One other question. There was some discussion before about when Aetna first published a disclaimer anywhere in their documents. In your litigation, have you run across cases where, let me put it another way.

When we changed the retirement plan for the State of Connecticut, it's only, it was only for future hires, not retroactively. In your litigation, have you ever seen cases where employees hired prior to a disclaimer or prior to a change in the policy actually being recognized and given those benefits?

HELEN KEMP: Yes, there are some court decisions out there which state that I'm hired in 1970 and I expect a certain benefit. And then they changed the plan say in 1985, there are cases that say that the plans can be changed, that just because something was promised in 1970 does not mean that you cannot change it going forward.

Again, what the courts usually look at, is they look to see what the plan states. They'll look to see if there's a reservation of rights. They'll look to see when things occurred, when did the reservations of right come up, what were the employees informed, how were they informed, what document was the reservation of rights contained in, and there's a variety of facts they look at.

It's not just one straw or one issue. They usually look at a variety of factors. However, in most cases if there is a very, very clear, unambiguous reservation of rights, and by reservation of rights all I mean is that the employer is saying, look, I reserve the right to change, modify, terminate employee welfare benefits at any time for any reason.

If that's very, very clear, then the courts generally say that, well, since the employer reserved the right, they can change the benefit or eliminate the benefit at any time.

[Inaudible – microphone not turned on.]

REP. HETHERINGTON: With respect to a plan such as Aetna's, which is an ERISA plan, would, to what extent can a state act in this area? Is this pre-empted by the federal legislation under ERISA or known as ERISA?

HELEN KEMP: All I can give you is my opinion based on the law to date. And I would say that what this Committee can do is somewhat limited because of ERISA pre-emption.

And I'll draw the Committee's attention to a Statute that was on the books for a very, very long time, and it had to do with worker's comp.

And under the statute, they said, look, if an employee's on worker's comp, the employer has got to pay for their health insurance benefits during the time that they're on comp.

And that was a very noble statute, but the court came in and said, look, that statute is [Gap in testimony. Changing from Tape 1A to Tape 1B]

That way. And so perhaps with that example, that might guide you as to what the Committee can do in this area.

REP. HETHERINGTON: Thank you, and thank you, Madam Chair.

SEN. PRAGUE: So in answer to Representative Hetherington's question, we can't do very much can we? Or anything, but--

HELEN KEMP: With regard, I mean, I think, if I understood you correctly, you think of, perhaps you would send a letter to the SEC or whatever. I think, certainly ERISA doesn't affect that whatsoever, but I think ERISA and the doctrine of pre-emption really limits what this Committee could do in a very practical sense.

SEN. PRAGUE: ERISA, am I correct, ERISA is for companies that are self-insured?

HELEN KEMP: No, ERISA can apply to all companies. The only things that it doesn't apply to are, as I said before, are governmental plans, church-related plans. But otherwise, it would apply to most all employers.

SEN. PRAGUE: Okay, well again thank you very much. Representative Ryan has a question.

REP. RYAN: Part of your testimony on page two, you say that an employee may relinquish his freedom to amend or terminate benefits by contracting with its employees for the vesting of welfare benefits. Can you just expand on that, explain how that can happen or why it would happen?

HELEN KEMP: Certainly. I think the most common area that this happens is in context of a union.

REP. RYAN: Okay, that's what I was thinking.

HELEN KEMP: And the union says, listen, I'll tell you what, instead of a 5% increase this year, we'll go for a 3%, but we want lifetime benefits for our retirees. And it's negotiated, it's put in the contract.

And, therefore, the employer has basically given away or relinquished the right to unilaterally change that.

Now again, with unions, you could come back and bargain. The union could come back 20 years later and say, listen, I want my 6%, and to get my 6%, I will get this part on the retiree health benefits. But that's the most common area where employers give up benefits.

Now, or excuse me, their right to change or omit. Now, quite frankly, there are court cases and situations where it is a non-union employer. And the employer perhaps, in their summary plan description or their personnel handbook or some other document, states we will continue retiree health benefits, we will continue your benefits.

And then the issue is, well, was that a promise, was that a clear promise to relinquish their right to change the benefits? So it has happened in non-union situations.

REP. RYAN: Thank you.

SEN. PRAGUE: Along that same questioning, Mr. Dwyer mentioned that Mr. Donaldson committed, and he was the former president, former CEO of Aetna, he committed that health benefits would not change. Does that hold any water?

HELEN KEMP: Well, I'll tell you, I'll give you the answer you don't want to hear, and that's yes and no.

I'll go no first because it's a little bit easier. You know people's benefits are very important as you can see by the turnout today. And ERISA does not require vesting. And the courts have said that, well, because it doesn't require vesting, if an employer makes a promise or gives up its right to change or amend, that's not to be inferred lightly.

And that means we want to see a document, we want to see something in writing, we want something to show that, yes, the employer did agree not to change this benefit or not to remove this benefit.

So what ERISA, or I should say what courts usually do, is they will first look at the documents. And if the documents are very, very clear, and say look, we reserve the right to amend at any time etc., etc. Then the fact that someone may have promised lifetime benefits may not even get to the court.

But there's something the attorney should realize, and I think Attorney Rintoul will cover this as well. As they say in the legal trade, there is more than one way to defer a feline. Meow.

And that is, you may not be able to secure your benefits based on whether or not the benefit was promised you, but if you can create, if you can persuade the court that there was an ambiguity between the plan documents and what's done, you might be able to file a claim for breach of fiduciary liability.

You might be able to file a claim based on equitable estoppel. Now these aren't easy, and you're very lucky today because Attorney Moukawsher and Attorney Rintoul are speaking They've done a lot of plaintiffs work in this very, very area. So, I mean, they're going to be great resources for your Committee.

But that's another way you can handle it. You can say, well, listen, you're right, maybe the employer did reserve the right to change the benefit.

But, on the other hand, maybe there's enough information to show that certain representations were made, and there might be an avenue based on a breach of fiduciary liability or equitable estoppel to resolve the issue that way.

SEN. PRAGUE: Thank you very much. And Senator DeFronzo's with us.

SEN. DEFRONZO: Picking up on your last statement. If, for example, as was indicated in your earlier testimony, that a number of retirees took early retirement predicated on the notion, not the notion, but the commitment of the company that they would receive a benefit package, and in their cases might have a clearer claim to established benefit or a commitment of established benefit package, a long-term commitment, would their claim to retaining those benefits be stronger than others' perhaps?

HELEN KEMP: It could be. The 2^nd Circuit does have a few cases, which state that, again, you might not get the benefit because it was promised to you, but you might get the benefit because you relied on a representation to give up something, i.e. equitable estoppel. But I don't want to give anyone any false impressions or false promises.

These are difficult legal theories to claim a benefit, equitable estoppel very difficult, breach of fiduciary liability difficult, and why? Because basically most of the courts have said, look, people are going to say things. They're going to say, yeah, don't worry about it, or, yeah, don't wait until next year.

So you've got to show that the comment or promise was more than just misleading. It's got to be materially misleading. And those are issues really for the court to decide.

And again, Attorney Rintoul and Attorney Moukawsher, they do this type of work. They certainly could explain it in greater detail than I. But, yes, if you gave up something in return for what you were told, if you can get it in front of a court, you might have a chance to succeed.

SEN. DEFRONZO: Thank you very much.

SEN. PRAGUE: [inaudible – microphone not turned on.]

REP. HEWETT: That was my very question. In other words, thank you, Madam Chair. If it did get to the court system, and the testimony of Mr. Dwyer that was here earlier that made that promise, in other words, the court would have to weigh his testimony versus what was signed in the contract as to the right to reserve, the right to do what they want to do.

In other words, the courts will be the ones that weigh that testimony. So it's a possible chance that it could have some weight to it.

HELEN KEMP: Yes, what a court might do is, let's say they might see a very clear reservation of rights, very clear. We reserve a right to change any place, way, shape or form, whatever. And then someone might say, yes, but I gave something up in reliance on a promise.

The court could also turn to you and say, yeah, but you don't have the necessary reliance. How could you rely on a verbal promise if there's something different in writing?

So again, there is, it's a very difficult hurdle, not insurmountable and other retirees have done it, but it is a hurdle they would have to go through.

SEN. DEFRONZO: Thank you, Madam Chair.

SEN. PRAGUE: Representative Cafero.

REP. CAFERO: Thank you, Madam Chair. With regard to Representative Hewett's questions, does, what is the quid pro quo then for the fact that the company might have reserved the right to change it? Is that just a one-sided agreement? What's the consideration?

So I take a job, I know I'm going to make certain salary, have certain health benefits. I know when I retire I'm going to get X, Y, and Z. That's the plan at the time I sign up. But there's this reservation clause, which says, we reserve the right to change anything we want.

So now I work. I turn vested, whatever and all this, and now I'm retired. I'm relying on these benefits. And all of a sudden, I get a letter in the mail that says, you don't got nothing. That's okay?

HELEN KEMP: For the majority of the cases? Yes, the courts have said, yes, that is okay.

REP. CAFERO: In your experience and your knowledge of the process, is it within our power here in the State Legislature to change a law that would affect that circumstance? Or is that a federal matter?

HELEN KEMP: In my opinion, that's a federal issue, because that would be an ERISA plan.

REP. CAFERO: Well, you know, this might sound trite and obvious, but you know, all of us who were raised from the time we get to the kitchen table that you keep your word when you make your word, and especially for those people who are relying on it when they're most needy.

I just think it stinks, and I'm not looking for that. But I just think that if you make a promise in this world, whether you're a labor union or a company or whatever, you make a promise to someone that's put in that kind of time, and you summarily change their benefits at your whim, that stinks.

And maybe there's no state law that could deal with it, maybe it has to be a federal law. But I would hope that any company that does business to volume that's done by this particular company thinks long and hard about that.

Because what would happen in this world if we, as a Legislature, were to pass certain say, tax breaks, and in the middle of the year, when that company is relying on that tax break as part of their revenue picture to either open up a new building or open up a new plant or whatever the heck they might do with it, we said, eh, we changed our mind.

What would they do? What would they think of this Legislature? How can we go through our lives in reliance on everything if that's the rules of the game? I hope whoever's out there from the company thinks long and hard about that, because that just stinks.

And it's unfortunate that we can't do anything about it, and maybe that remains to be seen. But Madam Chair, I hope that we send a strong message to all companies with regard to the way I hope this Legislature thinks of those kinds of things, because it is just wrong.

SEN. PRAGUE: You know, maybe Representative Cafero is on to something when he mentioned the tax breaks. Maybe what we need to do is look and see if Aetna gets a tax break. Maybe that's an area that we could do something about.

That's the value of this Committee. When all of us put our heads together, maybe there's something we could do. And I would think that what Representative Cafero said is something we ought to look at.

So, anyhow, thank you again for coming.

HELEN KEMP: Well, thank you for having me.

SEN. PRAGUE: Thank you very much. Do we have a phone number or something where we can get in touch with you? Would you give it to our clerk? Thank you.

HELEN KEMP: Oh, yes, I will. Thank you.

SEN. PRAGUE: So our next attorney is Attorney Moukawsher. Where's my agenda? Welcome Attorney Moukawsher. You have a brother here in the Legislature.

TOM MOUKAWSHER: Yes, I am not Representative Ted Moukawsher.

SEN. PRAGUE: But you look just like him.

TOM MOUKAWSHER: I am former Representative Tom Moukawsher though, and I have spent many years in various capacities hanging around up here. But I've reformed, and now I'm here in my capacity as co-chairman of the American Bar Association's Committee on Employee Benefits and Individual Rights.

I also edit the American Bar Association's newsletter on employee benefits, and I practice employee benefit law exclusively on behalf of employees and retirees here at Hartford at Moukawsher and Walsh.

And so that's the capacity in which I address you. And I certainly want to echo some of the things that Attorney Kemp said. She and I just did a presentation on some of these difficult subjects for the Bar Association in Phoenix.

And ERISA is indeed a complicated and annoying statute. These employee and retiree termination questions are some of the most annoying, because it's actually becoming quite common.

More and more companies today are terminating retiree health insurance. And every time I've read about one, it always turns out that the employees, the retirees, are shocked to find out that their benefits that they believed were lifetime benefits, in fact, were not lifetime benefits because, as the companies tend to explain, you didn't read the small print.

And that there was, in one place in the documents that were given to employees, a promise of lifetime benefits, and in oral explanations a promise of lifetime benefits, but somewhere in some document there is, in fine print, a statement to say that the company reserves the right to change its benefits at any time.

Now the good news is that the federal courts, at least in this Circuit, in the 2^nd Circuit, in the District of Connecticut, enforce lifetime-benefit promises. The bad news is that they usually also enforce the small print telling them that lifetime benefits aren't exactly lifetime benefits.

The really interesting thing is, and that may be the issue in this case, is what do you do when it's not so clear what happens?

As Attorney Kemp pointed out, if there's, if it's been made unequivocally clear to employees that these benefits don't vest, as she put it, don't last a lifetime, if that's unequivocally clear, then retirees are out of luck.

If, on the other hand, it's absolutely clear that they were promised retiree benefits, then clearly they have a right to enforce them. The real issue is what happens when you have a mixed message.

What happens when, for instance, the disclaimer, the statement that the benefits aren't for a lifetime, are in one document, and then in another document, without any sort of disclaimer, there's a very explicit promise that there are lifetime benefits, and that these promises are reinforced over and again by the personnel of the company at issue.

Here, a perfect example, of course, is when the chairman of the company comes out and says, we are going to live up to our promises. Just like, apparently, Mr. Donaldson did in this case.

Now that has to be weighed off against the nature of the disclaimer, the disclaimer in this case saying we reserve the right to change benefits. Many questions can determine whether that's enforceable, such as where was it, how prominent was it, was it only in one document and not in another.

For instance, I have a case with Lucent Technologies that I'm litigating in Ohio on this question where, what else was it accompanied by? And I think Representative Cafero and others have addressed the situation about what's the inducement here, what's the consideration.

And, many times, the company will say look, we're promising you lifetime benefits. And in exchange for the promise of these lifetime benefits, we not only want you to retire, we want you to retire early.

And in the Lucent case that I'm litigating now, they kept telling people that if you leave by the end of the year, your benefits for healthcare will be X and such, excellent ones. But if you wait another three months after that, they won't be so good anymore, so go now.

And the company obviously had some goals that they were trying to meet financially, and they needed to go out the door, and they got them to do it by doing that.

But sure enough in the Lucent case, after maybe six months to a year, the company turned around and said now that you're out the door, you didn't read the small print over here which says we can change the benefits at any time. And they reneged on the lifetime benefit promise.

We're litigating that now, and there are lots of bad law out there, as Attorney Kemp said. Fortunately, some of the better law is actually here. The District of Connecticut has good law on this subject, the 2^nd Circuit Court of Appeals has good law on this subject.

And, really, unless it's a clear case, unless the disclaimer of lifetime benefits was unequivocal, this is going to be one of those situations where, this is just my personal opinion, others would have a more skeptical opinion perhaps, but that a court would probably look at the totality of the circumstances, the things that I said, where was it, published what else was said, was there any reason to believe that the people didn't get these disclosures?

In one case I'm litigating up in Boston, where that happened it was explained to an employee that, oh, I know, don't you, you're showing me this disclaimer I know, but that doesn't apply here.

So a company, for instance, might give you this very clear written disclosure. And then somebody else may say that that doesn't apply under these circumstances. And in that case, a court shouldn't, and some haven't applied the disclaimer, because an employee's been misled.

As Attorney Kemp said, that's a breach of fiduciary duty.

Companies in this situation explaining about benefits to employees and retirees have a fiduciary duty to give truthful and complete explanations in response to questions.

So if employees were going to their supervisors or to their human resources people, to anyone that they had a reasonable expectation that that person was the right person to ask about it, and that that person assured them that notwithstanding anything else, you're going to get lifetime benefits, then those promises could lead to an action for breach of fiduciary duty.

Because the company did not provide truthful and complete answers to a question under that circumstance. So even if you have a disclaimer in front of you, somebody explains to you it doesn't apply and you then rely on that and leave, in instances like that, you can enforce the promise of lifetime benefits.

But, again, I'd say it's the totality of the circumstances. I think it was a question though.

SEN. PRAGUE: I didn't know you were done.

TOM MOUKAWSHER: I'm not done, but I like to be interrupted with questions at any time. In any case, so I would say that the totality of the circumstances is what would matter under those circumstances.

As Attorney Kemp said, these suits aren't easy. As Attorney Kemp also said, and I would agree with, that with respect to the simple issue of whether you could say that companies must give lifetime benefits if they promise lifetime benefits, the Legislature, the Connecticut General Assembly doesn't have jurisdiction, the Congress does.

And it sounded like you had a number of things that took into account that fact, and that there are some things, perhaps in the nature of leverage that the Connecticut General Assembly can do. But I would also like to take this opportunity to urge the Legislature to urge its federal delegation because you would get a lot more credibility than I do with them, and to make some changes in the ERISA statute.

This is a symptom of a disease in ERISA. It is not the only symptom of the growing disease. There are many problems with it. And ERISA, of course, if it doesn't protect employees, nothing does, because, of course, of the doctrine of pre-emption. But there are many other problems. I want to give you an example.

There's a case in California called Bast v. Prudential. And that was a case in the Federal Appeals Court where it held that the only thing that ERISA could do, a woman named Rhonda Bast, after her insurer refused to pay for a vital operation, was to, of course, order the insurer to pay for the operation.

It didn't do Rhonda Bast any good, however, because she died waiting for the operation, which the insurance company failed and refused to pay for. The court said that ERISA could have provided her the money for the operation, but it also prevents her from getting anything for dying while waiting for it.

In a recent case, actually that involved Aetna, called Aetna v. Davila, the United States Supreme Court confirmed that this was the right result, and that it struck down a Patients Bill of Rights law that Texas had passed.

There are lots of bad things like that about ERISA. That's just perhaps the most egregious case. There are no jury trials under ERISA. There are no punitive damages even in a case where, for instance, a company deliberately decides to withhold benefits and lets someone die.

There are no punishment damages an employee could seek under ERISA. A small case under ERISA can't be brought in small claims court. You have to file a federal lawsuit.

So let's say you have a situation where you have a benefit of $20 a month, you have to file a federal lawsuit to try and recover that. And if you win, the only thing you can get out of it is the $20 a month.

There's no guarantee that a court will, in addition, order the company to pay your attorney's fees. It's up to the judge totally in their discretion.

Finally, and this is one thing I'd like you to take particular note of, because it's going to, I have a recommendation about something you actually can do.

And, finally, this is about the deck being stacked against employees, including the retirees here today if they go to federal court, is that under ERISA what are called discretionary clauses that are written into the health insurance contracts under which companies claim it gives the insurers virtually the final say over what medical treatment employees can get, over what a plan covers, over what a plan says etc.

The bottom line, the courts have said, is that when a company refuses your benefits, or interprets its plan as not providing you any more benefits any more because there's no lifetime promise, the courts will generally overturn that decision only if it was arbitrary and capricious.

So one of the worst things about the statute is that it's been interpreted as requiring the courts to side with the employers in these circumstances from the start, and only overturn them if they're arbitrary and capricious.

With that, I have five things I'd like to recommend that you pass on to Congress that would in part help the retirees in this room, but in many ways help so many others, and one that could help them and many others that you can do.

The first of them is that there, this is a problem in this case of disclosure. And I think that there ought to be minimum standards in ERISA governing the size and placement of any disclaimers of the topic that are at issue here.

SEC law and elsewhere covers these things quite clearly, the nature of the disclaimers, lots of consumer protection laws obviously are the same.

ERISA ought to make it clear that you can't put a teeny disclaimer over here, and then an enormous advertisement of life benefits over there. And I'd certainly recommend that you recommend that to Congress.

Also the external review process that was discussed earlier ought to be expanded and ought to cover all of these ERISA plans. States have been doing a pretty good job with it, and it should cover all of this.

The family of Rhonda Bast also shouldn't have been left in legal limbo without a remedy. ERISA should let people recover not just the benefits, but reasonable damages in death cases, like Rhonda Bast's.

And I personally believe that punitive damages not permitted under the current law ought to be there for the worst cases, clearly for the worst cases, especially in the situation where someone intentionally causes someone else's death. There should at least be some punishment that an employee, a state could seek as a remedy for that.

Fourth, ERISA should replace the current practice of judge trials with jury trials. There is absolutely no reason to deny this basic right to people simply because, say, they're suing an HMO.

Fifth, the existing Attorney's Provision should be strengthened to mirror the Civil Rights Attorney's Fee Statute, under which if you win, if you're a prevailing plaintiff in a Civil Rights Statute, you're going to get your attorneys fees.

And I know that might not affect the matter that's before you today, but it's a very important thing, because the person out there with $20 of benefits to recover simply has no access to the courts, because there's nothing other than the $20 they can recover.

Attorneys won't take their cases to recover a third of $20 a month for the next 20 years, and those people deserve representation. And people like us are forced to turn them down.

We have other business, it's not a complaint of ours, and the shame of it is that these people get stuck from it. So the fifth thing I'd recommend is for Congress to do something about that.

Now as for the Connecticut General Assembly, I think I don't want to make too small a thing about this, because you could have an enormous impact on people's lives, on the retirees who go to court to challenge decisions like that which was made here, and also the lives of people with health insurance and disability insurance by doing something about the discretionary clauses, which I described a moment ago, which gives plans the discretion to decide virtually without challenge what's covered, what's not covered, what the plan says, what the plan doesn't say, in which the courts interpret as granting them the right to make any decision they want unless it's arbitrary and capricious.

This is an area of insurance regulation. One of the things you need to know about ERISA is there's one little section in it that's called a savings clause, which says that if what you're doing is purely a regulation of insurance that the State Legislatures can act.

Now in August of 2004, the National Association of Insurance Commissioners passed a model act, which it recommends to the states. And that model act forbids these clauses, giving these companies this wide latitude to defeat lawsuits like the one that may emerge here and the ones that others filed. And they've recommended to the states that they adopt them.

If the Connecticut General Assembly adopts that, it will shift very much, very strongly, and any practitioner in ERISA would tell you this, very strongly what's rated against employees and beneficiaries today towards something that might be a more neutral ground.

In my testimony, I put the NAIC website in there. You can go there and order a copy of the model act, and you'd be really doing something within your power, number one, and something that would make a big difference perhaps in the lives of retirees like the ones here today, but also for thousands of others in Connecticut that suffer because courts presume that companies are right and employees are wrong.

And I thank you for your indulgence, and I'd be happy to answer any questions.

SEN. PRAGUE: Thank you very much Attorney Moukawsher. Let's give Representative Cafero his chance.

REP. CAFERO: Thank you, Madam Chair. Thank you so much for your testimony. Just to focus on that last part, this disclaimer. When you say disclaimer, are you referring to the small print that says, but we reserve the right to change whatever we want whenever we want?

TOM MOUKAWSHER: No, you're not going to be able to change that law. There's an additional provision in most insurance policies that's a discretionary clause as opposed to a disclaimer.

The discretionary clause says that the insurance company will have the final and absolute control over the meaning of the words in the plan, what they mean, such as, for instance, the promise of a lifetime benefit, and also will have final and absolute discretion over things like what kind of benefits are covered, what kind of health benefits are covered, etc.

That's a different kind of clause. But it adds another problem for people like the people here today, and for anybody who makes a claim, because courts interpret that to mean, this is the most bizarre, but the courts interpret that to mean that you have to treat an insurance company in that situation like you would a state or federal agency.

In other words, you defer to their judgment unless it's deemed to be arbitrary and capricious.

REP. CAFERO: That being the case, maybe I'm misunderstanding the difference, that being the case, when you refer to various clauses that, for instance, we insist upon in regard to consumer protection, the size of the print, the locale of the print etc., does that pertain to what you're talking about?

In other words could we pass, our Insurance Committee and our Legislature Committee pass a law that insists that all insurance-related policies issued by whomever, if, in fact, they provide a discretionary clause which allows them to change the stated benefit, this discretionary clause must be prominently displayed in a certain print typed etc., etc., is that within our power to do?

TOM MOUKAWSHER: I think it's something that you really could explore if you confined it to the insurance policies, and confined it to something like disclosures, something like, if you're going to say this benefit can be changed at any time, put it in so big a type and things like that. I guess I'm a little more optimistic than lots of lawyers in this field.

And if it hasn't been held to be something that's outside your jurisdiction on insurance, like lots of things have, I'd give it a try. I wouldn't suggest for a minute that I think you have the power to require someone to provide lifetime benefits or to interfere with the substance of ERISA plans, because only Congress could do that and I don't think they would.

REP. CAFERO: That I understand, but with regard to changing the rules in the middle of the game, I guess is it within our power to say, when you outline the rules, if you're going to reserve a clause to change the rules, you better make damn sure you put it prominently of a certain type that someone signs off on or checks them off as they understood them, like Miranda rights, or something like that. Is that within our power to do?

TOM MOUKAWSHER: I wouldn't say that as a consumer protection type of thing, but if you stuck it as an insurance thing, ERISA has this savings clause for insurance. It would be worth researching, I guess, would be the fair thing to say about that.

It would be worth researching that if the policy of insurance has some language like that in it, that the policy has to put it in so much size type or something of that nature.

I guess my point is that I've never seen anything that's said that's out of bounds too, so why not, you know, research the issue, and then consider it as a piece of legislation.

The other thing about outlawing these clauses that give them the absolute discretion to interpret the plan, that has been researched and you can do that. So I'd certainly recommend you do that, and I would recommend you research doing exactly what you just described.

REP. CAFERO: Thank you.

SEN. PRAGUE: Representative Hetherington.

REP. HETHERINGTON: Thank you, Madam Chair. So the area that is left to regulation of insurance would include such things as defining the terms, defining the terms of the policy, is that right? I mean, the terms, the words providing the definitions.

TOM MOUKAWSHER: Well, as long as it's within the context of traditional insurance regulation. Once it gets to impacting a common plan, once you get beyond traditional insurance regulation, that's where you get into problems.

REP. HETHERINGTON: What if you were to define lifetime benefit as meaning a benefit that exists for a lifetime, not one subject to further modification. Could you get in the back door, in effect, by defining the term?

TOM MOUKAWSHER: It's only my opinion, but I expect that they would say that that would be related to the substance of the ERISA plan and would be pre-empted and you couldn't do it.

REP. HETHERINGTON: I guess another problem is that there's some question whether or not a plan such as the Aetna plan would be characterized as an insurance plan.

TOM MOUKAWSHER: It's a plan that provides insurance. So I guess you'd have a planned document that lays out what the terms are, and there may also be an insurance policy, but it's the presence of the plan, not the policy that makes it covered by ERISA.

Something sponsored by an employer as a plan is what ERISA covers. If you went out and bought your own individual policy, or any employee who didn't have coverage from his company went out and bought an individual policy, that's not covered by ERISA.

It's the plan. It's the fact that you've got this group plan that you're under which ERISA covers. And it was originally done for a very good reason, which is that it would be nice if there was one set of laws we could look to to do this.

So Congress originally thought this would be a great way to protect employees all across the country, but it's turned out to do exactly the opposite when it needs to be fair.

REP. HETHERINGTON: Okay. Thank you for your helpful counsel. Thank you, Madam Chair.

SEN. PRAGUE: I'm going to ask you for a favor if you would do it or have time to do it. Would you briefly jot down for us the language you would like us to present? Because even though we're not the Insurance Committee, we are the Labor and Public Employees, and retirees' benefits are something that we could deal with.

And because it's related, if you could just give us the language on those two issues that this Committee could offer, we would very much appreciate that.

TOM MOUKAWSHER: I would be happy to look at the disclaimer issue for you, and then I can get for you the Model Act that the National Association of Insurance Commissioners is recommending. I'd be happy to do that.

SEN. PRAGUE: Okay, thank you very much, and thank you for coming in.

TOM MOUKAWSHER: Thank you.

SEN. PRAGUE: I just have to leave this hearing for a few minutes, and Representative Ryan will take over. The next speaker is Attorney David Rintoul.

REP. RYAN: Good afternoon, Sir.

DAVID RINTOUL: Good afternoon. My name is David Rintoul. I'm an attorney with the law firm of Brown, Paindiris & Scott. And among other things, I represent many claimants who are bringing claims for benefits under ERISA.

I've represented people both in cases involving changes in retiree health benefits as well as getting people coverage for medical conditions, and also for long-term disability benefits. I think the basics of this area were covered well by Attorneys Kemp and Moukawsher.

What I would like to point out to the Committee on the basic issue of the change in retiree health benefits is that the current state of the law is very inconsistent with the way most people operate.

They get an announcement from human resources saying, you retire by the 30^th of the month, and you'll get lifetime health benefits. They go to presentations where HR puts up wonderful beautiful PowerPoint slides, which again repeat, lifetime retiree benefits.

Situations like the CEO, like Mr. Donaldson, saying lifetime retiree benefits. Senior vice president, like Mr. Dwyer, repeats, lifetime retiree medical benefits. Yet many courts will enforce the black ink on the purple page, saying that they reserved the right to change benefits.

I don't think the point is necessarily that the retirees here are looking to put Aetna into a straightjacket in terms of the benefits that they offer into the future that are going to affect it's financial viability.

I think what they want, and what the law doesn't require, is being forthright. If you're going to have a paragraph saying lifetime free medical benefits, the next paragraph should be, but only so long as we decide to give it to you.

Every PowerPoint presentation that says free retiree health benefits, the next slide up there should be until we decide to change it.

So certainly, I don't think anyone in this room would want to impose a continuing obligation on a company that the company did not intend to adopt, but at least they should be required to say it. They should be required to say what their obligation is.

And currently, the law does not require that. Now the law is developing. It is in much better shape than it was five years ago. Five to 10 years ago, both Attorney Moukawsher and I would say, it doesn't matter if it's on page 34, in footnote 7, in 8-point type, you're out of luck. The law has gotten better, particularly in this Circuit.

The people, there's one particular case in the 2^nd Circuit that has a pretty complete explanation of this issue. And I'll give you the site, in case you would want to have you or your staff look at it. It's a case called Devlin v. Empire, and it's 274 F.3d 76, which goes through this entire issue of changes in retiree health benefits.

Now as Attorney Kemp pointed out, there are possibilities of bringing claims for a breach of fiduciary duty or estoppel. But let's say in that first announcement that came out, and you've got the retiree health benefits promise in the first paragraph?

If that language reserving the right to change is in that same document, it's going to be a really tough claim. Even with the PowerPoint slides, even with CEO Donaldson and the senior VP, it's going to be an awfully tough row to hoe.

Now I would like to, and I will certainly answer any questions on this point, but I want to reinforce some of the other points that Attorney Moukawsher made about the remedies available under ERISA, particularly the availability of attorney's fees.

In the current political climate, the idea that an elected official would be concerned about attorneys getting their fees would not seem to be a very high priority.

The problem is the Department of Labor doesn't bring these cases to enforce a claim to disability benefits. The Attorney General doesn't bring these cases to get people the medical benefits they've been promised, or the disability benefits.

Tom and I are the only types of people that do it. There aren't many people in the state that are willing to bring the plaintiffs' claim under ERISA, because it's tough.

So the point is, these are rights that society once vindicated. And if you want to do it, you've either got to pay an attorney. [Gap in testimony. Changing from Tape 1B to Tape 2A]

Patients to get their attorneys fees from the people that didn't meet their obligations.

I recently had a case where I obtained disability benefits for somebody who suffered from Fibromyalgia. I thought it was an outrageous case.

They rejected the claim based on a file review by someone who had worked in a rural medical clinic for 15 years, and rejected the opinions of 2 national experts on Fibromyalgia.

I managed to prevail, but the court did not award attorneys fees. That meant my client had to pay a third of her benefit to me. I came out, I have no complaints, I came out pretty well, but it makes me furious that the insurer who wrongfully denied benefits didn't have to pay, and it had to come out of my client's recovery.

The point is, corporations are profit maximizers, right? What is the incentive to pay a benefit? You don't pay. If you've got any argument that would justify you not paying it, why would you pay it?

The worst you're going to have to do is pay the benefit and maybe pay your lawyers', attorneys' fees, and maybe pay the claimants attorneys' fees, maybe.

But think of the number of claims, which are never going to be brought because there aren't attorneys' fees.

The companies are much better, unless it's an absolute lead pipe cinch to deny the benefits and, say, sue me. There has to be an incentive. There has to be a financial reason to make sure the companies are actually complying with their obligations and what they say.

And currently, there are not those incentives. The incentive is not to pay benefits.

Furthermore that's related to the issue of punitive damages. It doesn't matter how outrageous the benefit denial is. All they're going to have to pay, no matter how bad it is, is the benefit, their own attorneys' fees and my attorneys' fees.

So there is no financial incentive to actually pay the benefits. Now on the attorneys' fee issue, this has to be something that's done by Congress, due to the pre-emption of ERISA. If it's anything concerned with the plan, there's not a lot you can do about it.

This also relates to the issue of punitive damages. The purpose of punitive damages is to punish companies who are duly wrong. And then you have an outrageous benefit denial. The only way you're going to avoid that is if, occasionally, there's a big hint.

So I would reinforce Tom Moukawsher's point about the importance on the federal level of expanding the remedies, particularly attorneys' fees. I won't bring the claim if it's going to be worth less than $60,000. I won't even talk to the people. It's not, I can't do it from a business sense.

Secondly, the issue of arbitrary and capricious language that Attorney Moukawsher talked about. This is such a dry issue about whether it makes a difference about one sentence saying the plan reserves the right to interpret the terms of the plan and make decisions regarding benefits.

If that language is in a plan I'm looking at, 90% of the time I don't take the person's case. Because as long as there's any rational basis for the company's decision, any rational basis, I'm going to lose. And you can be sure that it's a very rare plan, which doesn't put that sentence in.

So that case where I told you about, where they denied benefits based on an internal foul review from a GP who had worked 15 years in a rural clinic and 10 years for the insurance company, under the arbitrary and capricious standard of review I probably would have lost.

I probably wouldn't have brought the case. It just happens it was an old plan. The language had never been cleaned up.

So there, in the area of ERISA, there are vast areas where there is no remedy for circumstances where, when one looks at it, one would think there's got to be something to do.

And I would certainly reinforce Attorney Moukawsher's view that if arbitrary and capricious language was banned in an insurance contract, that would make a huge difference to the rights of Connecticut workers. Where it won't make a difference is in the self-insured plans, which is one of the points Attorney Prague made.

For instance, Aetna, their health benefits are self-insured. They don't have the insurance policy. The money comes out of their general fund. You can't do anything about that.

If it's self-insured it's totally pre-empted by ERISA. And there's nothing you can do to affect that. And the only remedy can be at the federal level.

I'd now be happy to answer any questions the Committee might have on any of these points.

REP. RYAN: Thank you, Mr. Rintoul. Do we have any questions? Senator Guglielmo.

SEN. GUGLIELMO: Just a quick question. When you mentioned the federal law, obviously, that's the same in all 50 states, but you said that you and a prior attorney mentioned that there is good federal law in the 2^nd Circuit. Does that mean they're interpreting it differently than other circuits?

DAVID RINTOUL: Yes, for instance, one illustration of that point with this issue of vesting. Many Circuits say you actually have to use the word vesting, it's got to be in the plan, and it's got to say retiree health benefits vest for life.

In the 2^nd Circuit, however, if your plan says you will be provided with lifetime health benefits, that language is sufficient to vest the benefits in the absence of language reserving the right to change.

So, basically, you have the same law, but you could have different outcomes in Connecticut than you'd have in Montana. That's where they're different.

SEN. GUGLIELMO: Has anybody ever brought it up higher than that, to the Supreme Court to test it?

DAVID RINTOULE: Eventually, I think this issue will probably go to the Supreme Court, because there's such a clear split in the Circuits, but it has not happened yet.

SEN. GUGLIELMO: Okay, thank you.

REP. RYAN: Thank you very much for your time. The next portion of the testimony, we're going to ask people to stay within three minutes. You're going to hear a bell. That will just give you an indication of how long you've been speaking. That's just so we can get everybody in to give their testimony that they brought in today. We can see that there are a number of people here today, and we don't want to make anybody wait any longer than they have to.

The next person to testify is going to be Representative Guerrera, and his testimony is going to be presented by Ben Baigle.

BEN BAIGLE: Thank you, Representative Ryan, Members of the Committee. For the record, I am Representative Tony Guerrera, the 29^th Assembly District serving Rocky Hill, Newington, and Wethersfield.

I come before you today to speak in support of legislation that would prohibit any stock corporation doing business in the State of Connecticut changing its retiree benefit package in respect to employees that have retired.

I have heard from a number of constituents in my district who are retirees who were recently notified that a portion of their health benefits policy was being stripped from their package, leaving them without coverage.

I submit to you that this is unfair. It adds an extra financial burden to those who had planned their retirement based on certain assuring expectations, are living on fixed incomes, and can little afford the additional financial burden placed on them.

I ask that the Committee look favorably on passing any legislation that would protect the benefits of all retirees, and I thank you for allowing me the opportunity to speak before you today on Tony's behalf.

If you have any questions, I'd be happy to bring them back to him.

REP. RYAN: We want the answers now. Do we have any questions to bring back to Representative Guerrera? Thank you. Thank Representative Guerrera for presenting some testimony this afternoon.

We'll now go to the testimony by Aetna retirees. And the first person giving testimony would be Jack Moore, and he'll be followed by Charlotte Bradbury. Good afternoon, Mr. Moore.

JACK MOORE: Good afternoon, Senator Prague, Representative Ryan, and Senator Guglielmo, and also the Committee. Thank you for allowing me to have some time here.

I retired from the Aetna after 33 years. And one of the reasons that I retired was I was promised lifetime no-charge dental and medical coverage, in other words, no premium charge.

Now, interestingly enough, Attorney Moukawsher described exactly my case. It was explained to me that if I left in 1987, the benefits went with me. But if I waited until 1988, they would not. That's exactly what he described to you just a few minutes ago.

Now, at the time, there was no reason for me to suspect that there was anything wrong with this promise. After all, the essence of insurance is promises.

And for 150 years, or actually a little more than that, the Aetna had held itself to an exceedingly high standard of ethical standards of ethics and morality. Obviously, the present administration has a different standard, lower.

I have two personal reasons for being concerned with this matter. For one thing, for one, I inherited poor teeth and a not-so-good heart. In the past three years, I've gone through all kinds of surgery on my jaws and my teeth, and had I had to pay all of that, that would have been very, very expensive. Well, it was expensive anyway, but I didn't have to pay for all of it.

I've had one heart attack, and I'm going to have a pacemaker installed fairly shortly. Most of the members of my family have passed away as a consequence of heart attacks, so obviously, this is a serious concern to me.

If the Aetna's broken, my big problem here is that if the Aetna's broken promises continue, I can envision escalating costs of my premiums, and perhaps even the abolition of my free medical coverage. And if that happened, it would be disastrous, it really and truly would.

You know, the thing that really annoys me about this whole thing is that this is a self-correcting problem. The Aetna never had to do this. If you're looking back at me, you won't see a bunch of blond-haired 20-year-olds. All of these people are going to pass away, fairly shortly.

When that happens, when that happens, I'm not, you're going to die, I'm not going to say, I'm with you. When that happens, there's no problem, it goes away.

So why did they have to do this? Why did they have to discriminate against their employees? These are the same people who built that company. I mean, they inherited a pretty good base, that's for pretty sure, but nevertheless.

John Dwyer commented on the fact that the company's doing very well financially. Boy, it sure is. The CEO's compensation is roughly $100,000,000 a year.

Now my guess is that every member of this Committee could scrape by on $100,000,000 a year. Additionally, the company intends to buy back stock. I'm not sure what that does is totally understood.

If the company's income is up here, and their numbers of stocks are here, if the stock quantity is reduced by 50%, the value of each share doubles.

Now who do you think owns a huge block of this stock and options to buy it? The very people that made this decision. Now isn't that a coincidence. No, I don't think so.

By the way, another thing you should understand is that the situation regarding this, I call it a broken promise, does not apply to future retirees.

As of about three years ago, these promises were not made, officially were not made. So consequently, all we're talking about is a finite group predating I think it was 2001.

I don't really know what you can do to help us, but I certainly hope you can do something. I've heard some of the attorneys here giving you some suggestions, and I hope you're able to act upon them, because you have a group back here that needs your help.

And by the way, you have Aetna employees in each of your districts, so this is not just a local thing, it's not just from New Hartford, which is where I come from, it covers all 669 towns.

Thank you very much for your time.

REP. RYAN: Thank you, Mr. Moore. Do we have any questions for Mr. Moore? Thank you, Sir. Thank you for coming in and waiting for the other testimony, I appreciate it. Miss Bradbury, followed by Alfred Bradbury.

CHARLOTTE BRADBURY: Senator Prague, Representative Ryan, and all assembled, my name is Charlotte Bradbury. And as the wife of an Aetna retiree, I have every reason to be very, very interested in these proceedings. But today, I'm here to read the statement of Marilyn Wilson, who is very ill and unable to be here to do this for herself.

Good afternoon, my name is Marilyn Wilson, and I'm an Aetna retiree. I spent 29 years of my working life at Aetna and retired in 1991. Aetna was a very, very fine company, and I was proud to say that I worked for them.

I'm a widow. My husband died in 1978, when my daughter was entering her last year in college. I was so thankful that I had a job and good company, and that Aetna offered its employees medical and dental benefits, a 401(k) plan, life insurance, and the knowledge that I would receive a pension and medical/dental benefits upon retirement based upon salary and years of service.

Aetna has started to erode the medical and dental benefits promised to its retirees. At retirement, based on years of service, I was to pay 15% of the premium.

Now the dental subsidy has been taken away, and retirees must pay 100% of the dental premium. That's a change from about $100 to $800 per year. While this may seem like a relatively small amount, to some retirees, it is a definite hardship.

Some retirees are now in their 80s and a few even in their 90s. They retired at a time when salaries were much lower than they are today. Therefore, their premiums are very small, and their Social Security payment is low for the very same reason. Some retirees cannot afford this extra dental premium.

As retirees, we are worried that the rescission of the dental subsidy is only the first step in reducing or eliminating other benefits such as prescription drugs or the medical plan. Many people of retirement age take several medications, and cannot continue to take them if they have to pay the full premium and the increasing deductibles and co-pays.

Aetna, without its current employees and its retirees who have spent their careers there, is really just a building. Without the people who have done the myriad of jobs involving running an insurance business, it is nothing.

Aetna has gone through some rough times, but it is now doing very well. Aetna's stock is at an all-time high.

Just recently, Aetna took $32,000,000 out of the money set aside for payment of dental premiums and benefits for its retirees and added it to its bottom line.

Just recently, former retirees with whom I was acquainted have died [inaudible], and eventually they will all be gone, and Aetna will no longer have to hold the monies for them.

Whatever would be left in benefit funds at that time could then be applied to the bottom line, and their liability would b