Wells Fargo CEO John Stumpf apologizes to Senate Banking Committee
Wells Fargo is scaling back a key medical benefit for retirees in a move upsetting some former employees who will soon see their health care subsidies slashed.
The San Francisco-based bank is planning to reduce the funding it contributes to medical accounts from which retirees receive reimbursements for health care expenses. Some affected employees and their dependents say it will cut their subsidies by hundreds of dollars a year, making it tougher to cover medical costs.
“That was supposed to pay for medical for me and my spouse for the rest of our lives,” said Donna Hargett, who worked for Charlotte-based First Union, a predecessor bank of Wells Fargo. Hargett, 64, said her family’s annual allowance will drop from $1,320 to $900 after the change takes effect Jan. 1.
“Twenty-something years of service, and I end up with $900 bucks,” she said. “I just think it’s wrong.”
Wells Fargo, which has been under fire recently for a fake-accounts scandal, said the change to the subsidies stems from the bank’s move to introduce a more “cost-effective” Medicare Advantage plan next year.
Switching to the new Medicare plan means retirees enrolled in a Wells Fargo medical plan will pay the same or less in monthly premiums in 2017 compared with this year, the bank said. As it introduces the new plan, Wells Fargo said it is reducing the subsidies it provides all Medicare-eligible retirees.
“The subsidy changes for 2017 were applied consistently across all retirees who receive a subsidy from Wells Fargo, regardless of how their subsidy is received,” the bank said in a statement.
“As we review our retiree benefit plans, we seek to offer those that are valuable, affordable and market competitive,” Wells said. “We review the retiree plans annually and we make changes to benefits offered, what’s covered and the cost of coverage,” the bank said.
Some retirees who use the subsidized accounts, instead of the bank’s medical plans, said it feels unfair that their funding is being reduced because of a change affecting a different group of retirees.
Further frustrating some retirees is a pre-existing Wells Fargo policy that has restricted them from enrolling in Wells Fargo’s medical plans once they’ve chosen to use a subsidized account. The bank says the policy is consistent with industry standards.
“I have no other option than to just smile and say, ‘Yeah, you cut my benefit,’” said a retired senior executive who worked for Wachovia and asked that his name not be published so that he wouldn’t violate terms of his severance.
The former executive said he opted for an account due to the “exorbitant” cost of medical coverage being provided by the company at the time of his departure. He said his annual subsidy is being cut by more than $300.
“That doesn’t seem very kosher at all,” he said. “Theoretically, they have the right to cut it. But whoever thinks the bank is going to?”
Wells Fargo has used a formula that includes the number of years an employee worked for the company in determining the amount of subsidy it gives their retirement accounts, which function somewhat like flexible spending accounts.
Employees can use the accounts for, among other things, reimbursements for costs of certain over-the-counter drugs prescribed by a physician. Premiums for medical coverage are among costs the allowance cannot be applied to.
The Charlotte region is home to numerous retirees from Wells Fargo and predecessor banks, including Charlotte-based Wachovia, which Wells bought in 2008 during the financial crisis. Wells Fargo, which employs more than 23,000 in Charlotte, declined to say how many retirees use the accounts.
Hargett, the former First Union employee, said she had picked the subsidized account when First Union displaced her position as part of a reorganization of its credit card division.
“I was loyal to that company, worked for them for 23 years,” she said. “Now you’re going to come back 15 years later and tell me we’re going to reduce your flexible spending? ...I just think it’s wrong.”