Kraft Heinz pushes retirees to private health exchanges to cut costs

Sept. 10--Global food giant Kraft Heinz Co. is going after retiree benefits as the recently merged company accelerates cost cutting to try to boost profitability.

The company, which was created through the July combination of Kraft Foods Group and H.J. Heinz Co., is eliminating a group health insurance plan for about 15,000 Kraft retirees and will give them money to buy coverage on a private exchange. The company is also allowing some retirees to cash out their pension plans. Heinz retirees experienced similar cuts in 2013 and 2014.

The moves are the latest efforts by Kraft Heinz and Highlight the belt-tightening that is typical of corporate shake-ups implemented by Brazilian investment firm 3G Capital, which partnered in 2013 with Warren Buffett's Berkshire Hathaway to buy Heinz. Berkshire and 3G engineered the merger of Kraft and Heinz to create the world's fifth largest food and beverage company, which is expected to have annual sales of about $28 billion.

Kraft Heinz spokesman Michael Mullen said Thursday that Kraft retirees who are 65 or older will stop receiving company-sponsored health insurance on Jan. 1. Instead, Kraft Heinz is following a trend by companies to control costs by subsidizing coverage purchased in a private insurance marketplace.

"These retirees will have a selection of health plans that provide equal or better benefits than our group coverage, at a similar or even lower cost," Mullen said.

Private exchanges are becoming popular among companies as a way to limit increases in health care spending from higher premiums or costly medical bills. Employers pay a set amount of money each year, known as a defined contribution, toward the cost of plans sold on the exchange. Workers who want better benefits can choose a higher-level plan but must pay the additional cost.

Many corporations are trimming retiree benefits to reduce future obligations, including freezing pensions, shifting workers to defined contribution retirement plans such as 401Ks, and ending health coverage for Medicare-eligible retirees.

Consol Energy, Alcoa, Sears, IBM and Walgreens have recently cut benefits for retirees or active workers, or switched them to exchanges.

The percentage of large businesses offering retiree health coverage dropped to 25 percent in 2014 from 66 percent in 1988, according to the Kaiser Family Foundation, a nonprofit research organization in California.

Mullen declined to say whether the change covered both former salaried and unionized workers.

Doug Leikness, president of the United Food and Commercial Workers union in Madison, Wis., where Kraft Heinz has an Oscar Mayer plant, said the change will hurt workers and reduce costs for the company.

"They're going to be saving a ton of money on this, by getting rid of their retiree insurance and providing a small supplement so retirees can buy their own," he said. "Our members will take a huge hit on prescriptions."

Kraft Heinz is also trying to shift some retirees away from pension plans under a voluntary program. Mullen said former Kraft employees who have a "future estimated benefit value" of under $2,500 a month at age 65, and have not started receiving the money, can "receive it as an immediate lump-sum payment or begin receiving annuity payments right away."

"This program supports the company's ongoing efforts to manage our future benefits obligations while giving plan participants additional choice and flexibility in how they invest and manage their retirement funds," Mullen said.

Last month, Kraft Heinz said it was laying off 2,500 salaried workers across the United States and Canada. The company also instituted rules in July to avoid unnecessary spending, including instructing workers to print on both sides of paper, reuse office supplies such as binders and file folders, and turn off computers before leaving the office.

Corporate donations to charities also had to be approved, as did memberships in industry associations. At its office in Northfield, Ill., the company stopped providing free Kraft snacks such as Jell-O.

Berkshire and 3G own 51 percent of Kraft Heinz, and a 3G partner, Bernardo Hees, is CEO of Kraft Heinz. As CEO of Heinz, Hees oversaw the elimination of more than 7,000 jobs and the closure of factories in North America and across the globe.

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or anixon@tribweb.com. Bloomberg News contributed.

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