In August, those people who are "pre-spin" retirees enrolled in the Solutia medical plan received a letter from Solutia which said that the Defined Dollar Limit (DDL) was being increased by $650 per participant. The DDL is the capped dollar amount that Solutia is projected to pay for its portion of medical costs in a given year. The balance is paid as premiums by the participants. This means that premiums are being reduced for each participant, $650 per year for a single retiree and $1300 per year for retiree and spouse.
This change in the DDL is a result of negotiations between Solutia's management and the Retiree Liaison Committee. The committee consists of Ken Kettler and Larry Shayer, retirees of Monsanto Chemical Company Engineering, and Ed McCormick, a retiree of the Krummrich Plant.
Solutia management approached the committee in November 2010 about the status of the VEBA Trust, which they described as over-funded. The money in the Trust is Solutia's money but, at that time, it could only be used to provide retiree benefits for pre-spin retirees until such time that there were none living. Solutia proposed that the benefit costs for those retirees not covered by the Trust, post-spin and post 1/1/03 union retirees, be included because funds were available and that the investment parameters be expanded to include high grade corporate bonds because the financial markets had changed since the Trust was initiated. Negotiations commenced and were completed in July.
The resulting changes were agreed upon. The Solutia stock will be sold over a period of time to reduce the impact of price fluctuation. Trust investment parameters were modified because of changes in the financial markets since the Trust's inception. Post-spin and post 1/1/03 union retirees were included for reimbursement from the Trust and the reimbursement rate is 100% as of January 1, 2011 for actual out-of-pocket net costs as currently established. Due to the increased financial load on the Trust, Solutia agreed that, in the event the Trust falls below 90% of its funding requirements, Solutia will contribute cash to fund the trust at 100%. In consideration for accepting the changes proposed by Solutia, it was agreed that the pre-spin retirees would be compensated by the increase in the DDL. The increase is retroactive to January 1, 2011 resulting in a credit for this year.
These changes obviously benefit Solutia financially but there is also a benefit to retirees. For those receiving medical benefits, premiums are reduced for this year and will be reduced in coming years, subject to increases in medical costs. For those people receiving pensions, any improvement in Solutia's finances provides support in meeting its pension liabilities. The committee thinks these changes have a positive impact on all affected retirees.