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GAO-03-412R 1 (2003-02-27)

handle is hein.gao/gaobaamdt0001 and id is 1 raw text is: I Accountability * Integrity * Reliability United States General Accounting Office Washington, DC 20548 February 27, 2003 The Honorable Carolyn McCarthy House of Representatives Subject: Retiree Health Benefits at Selected Government Contractors Dear Ms. McCarthy: Since World War II, some employers have voluntarily sponsored postretirement health plans as a benefit to their employees. According to government sources, these health plans constitute the primary source of health coverage for retirees aged 55 to 64 and supplemental coverage for nearly one third of retirees aged 65 or older with Medicare coverage. However, with costs already amounting to hundreds of millions of dollars for large employers and the baby boom generation nearing retirement age, employers are taking actions to control the costs of providing these benefits. In your letter of April 3, 2002, you expressed concerns that government contractors may be receiving undeserved financial benefits by reducing retiree health benefits that were paid for under government contracts. Because data limitations precluded us from determining whether a trend exists among government contractors to reduce postretirement health benefits, as agreed with your office we selected on a nonstatistical basis three of the largest government contractors to determine (1) what changes, if any, they had made to their retiree health benefit plans and (2) the extent to which government agencies oversee retiree health benefit costs. The three contractors we reviewed-Lockheed Martin Corporation, Northrop Grumman Corporation, and Raytheon Company-accounted for about 14 percent of all federal contracts awarded in fiscal year 2001 and collectively incurred about $756 million in postretirement health benefits-related costs between 1999 and 2000 (the 2 most recent years for which data are available). Because we selected the contractors on a nonstatistical basis, our results cannot be generalized to all government contractors. However, we obtained data on general trends in employer-sponsored retiree health benefits from two widely cited surveys-conducted by Mercer Human Resource Consulting (Mercer),' and Kaiser Family Foundation and Health Research and Educational Trust (Kaiser/HRET). We determined what actions the government takes to oversee retiree health benefit costs at the selected contractors by interviewing officials from the Defense Contract Audit Agency (DCAA) and Defense Contract Management Agency (DCMA)-the two principal agencies responsible for overseeing the selected contractors-and reviewing various audit reports and analyses. For more on our scope and methodology, please see the enclosure. I Prior to April 2002, Mercer was known as William M. Mercer, Incorporated. GAO-03-412R Retiree Health Benefits Page 1

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