www.DukeEmployees.com - Duke Energy Employee Advocate
Pensions - Page 1 - 2001
Speak your mind and fear less the label of 'crackpot' than the stigma of conformity. And on issues that
seem important to you, stand up and be counted at any cost." - Thomas J. Watson, founder of IBM
USA Today - By Christine Dugas - March 26, 2001
Millions of Americans who've bet their retirement future on the stock market are now coming up way short. Sam Blodgett, a civil engineer in Albany, N.Y., was planning to retire next year. But he has to work four years longer to make up for about $200,000 in market losses, a 60% drop in his retirement accounts.
At least Blodgett has that option. Many retirees are seeing the value of their holdings plummet. And there's still no telling when the stock market will hit bottom, let alone recover. The Dow Jones industrial average ended the week at 9504, dropping more than 1,300 points in the past 10 trading sessions.
"It's really scary," says Liane Farber, a recent retiree. "You wonder how the money is going to last if the principal keeps going down."
In the space of just a few months, scores of retired investors or those close to retirement have lost hundreds of thousands of dollars — a third or more of their portfolios — that they worked so hard over years to save. It's happening at a time when they can least afford it, and most don't have the luxury of long-term investing to recoup their losses.
Welcome to the future of retirement in America — one in which workers' financial security depends on whether they can save enough money, invest it wisely and retire at a time when the market is on the upswing. Over the past decade, there has been a fundamental shift away from traditional pensions, which offer retirees a guaranteed lifetime stream of income. Instead, companies have turned to tax-deferred retirement savings plans, such as a 401(k) plan or 403(b) and 457 plans, which are similar to 401(k)s but designed for government workers and employees at non-profits. These plans put the burden on workers to contribute to them and select investment options.
As long as the market was going gangbusters, even novice investors were able to profit. In a short time, 401(k) plans became one of the most popular employee benefits as participants saw how market gains and regular contributions made their balances soar.
But Wall Street's sell-off has exposed investors' inexperience and called into question the wisdom of do-it-yourself retirement plans. Too many workers have cast aside common sense rules about diversification in order to cash in on the stock market mania.
"Traditional pensions are a lifetime benefit that is insured by the federal government," says Karen Ferguson, director of the Pension Rights Center. "Now, for millions of employees, that security is gone and is replaced by risky investments that may turn out fine, but may not. For those whose account balances have gone down and are close to retirement, they may not have time for it to come back."
The reality is sinking in. Faced with shrinking nest eggs that must support longer life spans, many people are scared and frustrated. It's no wonder that one-third of Americans said they are less confident that they will be able to live comfortably when they retire, according to a USA TODAY/CNN/Gallup Poll taken in mid-March, when the Dow Jones industrial average first sank below 10,000.
Blodgett, 61, is not only postponing retirement, he's cutting back on spending and looking for ways to reduce his credit card debt. "I won't be living life in the style I'd planned, " he says.
By working longer, he not only will give his retirement plan investments more time to recover, but he will be eligible for a bigger pension. "By working an extra four years, it will increase by 50%," he says.
About 13% of all workers had both a company pension and a 401(k) plan in 1998, according to the Federal Reserve's most recent Survey of Consumer Finances. You might think they'd be in great financial shape. But many say their pension will pay for only a portion of their bills in retirement.
When Rock Verrochi retires, he will receive a military pension. He says it will be just enough to pay for housing and food. For the rest of his living expenses, he's counting on his 401(k) plan and IRAs. But they have dropped nearly 50% in the past 18 months.
"It's been one wild and wooly year," says Verrochi, 54, a systems engineer for a defense contractor in Belleville, Ill. "I don't need the money tomorrow. The idea was when I hit 59, I'd shift money into bonds and cash so that by 62 I'd retire and clip coupons on the bonds."
Now Verrochi calculates that he'll have to work until he's 70. "It's not like I'm going to starve to death," he says. But with tuition bills to pay for two college-age kids, he's not only planning to work longer, he's also putting off buying a new car for another year or two.
Many 401(k) plan participants have been especially hard hit by the market downturn because they sank most of their retirement savings into aggressive growth stock funds or company stock, instead of diversifying into a mix of various types of stock mutual funds, bonds and cash. In 1999, nearly 75% of all 401(k) plan assets were invested in stock mutual funds and company stock, according to an Employee Benefit Research Institute/Investment Company Institute database.
"Everyone got caught up in the belief that this market was different," says Faye Doria, a financial planner in Wolfeboro, N.H. "And they weren't getting enough sound investor education. Instead, they were consulting their co-workers, their brother-in-law, or Joe Blow down the street."
Chuck Young, 53, of Ottawa, Ill., has put 100% of his 401(k) assets into his employer's stock. "My original plan was that if the market — and especially my company stock — continued to go up, I'd retire in about three years," Young says.
Unfortunately, it's down about 60% from its value a year ago.
"I'm now hoping I can be out by 60 or 62," says Young, who works in sales. "Work is fun, but it's not everything it's cracked up to be."
While the stock market was rising, it was easy to make money, and many workers enjoyed managing their retirement portfolios, despite the risky nature of Wall Street. The sell-off has made self-directed investing far trickier.
"The anxiety level is higher if your retirement depends on the whims of the market," says Norman Stein, a University of Alabama law professor who specializes in pension issues.
Market risk is not just a matter of being diversified and picking good investments. It's also about timing. Although the traditional age for retirement is 65, many people are retiring earlier or working longer. Workers generally can begin tapping 401(k)s and IRAs without penalty at 59½.
In most cases, they must begin withdrawals in the year after they turn 70½.
Recent retiree Farber, 59, was planning to begin taking withdrawals from her IRA in May. But she has decided to wait until next year, hoping that the market will have improved by then. She can afford to hold off because she is working as a consultant for a year. Not everyone has that luxury.
"Even if a person has done everything right — saved well and managed their investments well — all that can go by the wayside if the market goes to hell broadly just before you retire," says Greg Cusack, chief benefits officer for the Iowa Public Employees' Retirement System. Cusack is glad that he can rely on a traditional pension.
Frank Glen of Columbia, S.C., feels fortunate that he retired three years ago because his retirement nest egg got a healthy boost from the bull market for two years.
"It's the luck of the draw," he says. Glen wasn't as heavily invested in technology stocks as some of his friends, so his portfolio is down only about 12%. "I'm in it for the long term," he says. "Even though I'm 62, hopefully I'll live another 20 to 25 years."
Longer life spans
Medical advances and more healthful lifestyles are contributing to greater longevity. That's no problem if you have the income stream from a traditional pension. Although there usually is no cost-of-living increase, at least you can count on earning a certain amount.
But workers with a 401(k) plan or a cash balance pension, which provides a lump sum payment, have to make sure their retirement savings don't run out.
For Farber, that's a scary proposition. The San Mateo, Calif., resident retired as president of a market research firm Feb. 1. Like many other retirees, she's watching her holdings go down in value.
"It's really hard to know how long you'll need your money to last," she says. Though she doesn't want to know exactly how much time she's got left, "if I knew I would die in 10 years, I'd have the kitchen redone," she jokes. Some retirees are dealing with the uncertainty by putting their retirement savings into immediate annuities, which provide payments for as long as they live.
Jeffrey Turner of Clark, N.J., retired 3 years ago and put his 401(k) assets into three different variable annuities. The amount he gets in income from the annuities fluctuates according to his investment choices. "But if I have a 30- or 40-year life expectancy, at least I won't outlive my income," he says.
In the future, retirees will be at even greater risk of outliving their resources, according to an about-to-be-published study by Jack VanDerhei at Temple University. VanDerhei found that men age 65 can expect to receive on average nearly 40% of their income from a guaranteed pension. However, that proportion will drop to 26% by the time men who are now 37 reach retirement.
Many pension experts say 401(k) plans are better suited to today's more mobile workforce. But a new study by Teresa Ghilarducci, associate professor of economics at the University of Notre Dame, suggests that employers are the real beneficiaries. She found that many employers were able to cut employee pension costs up to 50% by switching to 401(k) plans.
"Two things are going on," says Ferguson of the Pension Rights Center. "Companies are shifting the risk to employees and saving money on retirement costs. Employees have gone along because the market was so good for so long. Now, for the first time, a lot of people are scared, and they may start asking some serious questions about whether this system makes sense."
Duke Energy Employee Advocate - March 10, 2001
Someone has noticed that cash balance plans pay employees rather cheaply. Any excess from the actual return over the artificially cheap rate paid to the employee is kept by the company.
The Groom Law Group has published an article addressing the problem:
Duke Energy Employee Advocate - March 7, 2001
"The Charlotte Observer" published an article about companies having a very difficult time finding employees with a strong work ethic. Well, well, can you imagine that? The following certainly does not apply to all companies, but it applies to many of them. Some companies are getting exactly what they deserve. In their own parlance: "they are getting exactly what they have indicated that they want."
Many companies have laid off excellent, world class employees for no pressing reason. Again, this does not apply to all companies. Some lay offs will always be necessary. But many fine employees have been axed simply because it was the politically correct thing to do ("all the other companies were doing it").
These companies regarded their good employees as just so much cannon fodder. They assumed that there would always be an inexhaustible supply of employees eager to toil their lives away just for them. These are the companies that pulled the rug out from under employees just as they were approaching retirement age ("Oh by the way, you can work another 10 years for your promised pension").
After these companies have downsized, misled, and lied to the employees, who have built their firms, they whine because the new hires are not up to par. It brings a tear to one's eye - a tear from side-splitting laughter! Remember, this is what you asked for.
The McGINN FORUM - February, 2001
It's 6:30 p.m. at a modest house in suburbia, the home of John and Jan Jones. Jan, a woman of about 50, is on the phone to her mother in a distant city.
Jan: Mom, I'm excited. After 20 years of working in somebody else's gift shop, I'm going to have my own, along with John. He's retiring from Tensile in just about a month when he's only 55, and he'll have a pension of more than eleven thousand dollars a year. That's less than a fourth of what he's been making, but it should be enough to live on while we get the shop going.
Just this week we signed a lease for a great location in a little strip mall just three miles away. We'll be moving in the week after John retires. We paid $5,000 for the first and last month's rent, which is a big bite out of our savings, but we'll make that back in a few months. John's just ecstatic at the prospect of not having to drive 30 miles to work at the plant every day. Takes him almost an hour and a half each way in traffic.
There, he's coming in the door now. Bye, mom, I'll keep you posted.
John comes in from the garage. His shoulders are sagging, and he's wearing a long face. Jan is immediately concerned.
Jan: What's the matter, dear? Only about a month from retirement and you're depressed?"
John sighs and slumps into his easy chair.
John: It's all off, sweetheart. Everything we've dreamed of and planned out, it's all down the tubes.
Suddenly Jan's consternation matches that of her husband.
John, wearily: I went into the HR office today to make sure everything's OK with my pension. And, well, it's not OK. Instead of getting eleven thousand, five hundred dollars a year I'll get just five thousand.
Jan, sputtering: But, but...how can they do that? They promised you'd get eleven-five when you turn 55 and take early retirement.
John: They can do it, Jan. I was just as surprised as you are. And when I checked with our lawyer, he confirmed that the company hasn't done anything illegal. In order for me to get the full eleven-five, I'll have to work ten more years, until I'm 65.
Jan bursts into tears.
We've constructed this little playlet to dramatize what's happening to thousands of American workers these days. It provides a scenario that illustrates what was described in a recent Wall Street Journal article, "Raw Deals: Companies Quietly Use Mergers and Spinoffs to Cut Worker Benefits" (December 27, 2000).
In case you didn't see the article, let's review an example of how these raw deals work. Using our playlet background, here is how John might have lost his Retire-at-55 supplemental option rights.
Just over one year ago, Chisel Industries wanted to spinoff its Tensile division, where John was employed as a middle manager. The company had a pension plan with a normal retirement age of 65, but workers who had accumulated 20 years of service by age 55 could retire then with an unreduced monthly pension.
That early retirement subsidy feature of the plan is what's called a supplemental benefit. And, as you can imagine, that benefit is expensive to fund. So it's not surprising that some companies that have funded such a subsidized early retirement benefit would like to abolish it and capture a big chunk of the excess funds. But how to accomplish that without creating serious morale problems among its employees?
Chisel brought in a team of consultants and actuaries, wearing their Management Consultant hats. Looking at Chisel's pension plan, they found that of the $50 million of pension assets Chisel had accumulated on behalf of its Tensile Division employees, $20 million was earmarked for funding the "Retire-at-55" option.
Then, the management consultants and their actuaries showed Chisel's management how the company could induce another company to buy the Tensile Division on terms that would transfer both the pension liability and related assets to the control of the buyer and work to Chisel's advantage as well.
Chisel's president and CEO explained that Anvil Corp. had tentatively agreed on a sale price of $150 million for the Tensile Division.
"Pay us $165 million instead of $150 million," Chisel said to Anvil Corp., after being coached by the consultants and their actuaries. "Agree to maintain the basic Normal Retirement Age 65 plan as it is, but keep the early retirement supplement in place for only one year. Any employees who retire a year or more after the acquisition becomes effective won't get this supplemental benefit.
"That will enable Anvil to benefit from most of the $20 million excess funding in the Tensile Division Trust Fund that's been accumulated to fund the Retire-at-55 supplemental option. Anvil pension contributions can be sharply reduced for many years."
The lawyers for both companies agreed that there was nothing illegal about these machinations--which was the only way to describe what was going on.
Sometime after the acquisition became final, Anvil notified the employees of the former Chisel Division that, after the one-year "transition", their benefits "will be coordinated" with the Anvil Plan benefits that provide no early retirement subsidy. Nothing was said about abolishing the early retirement subsidy for the former Tensile Division employees after a year.
Unfortunately for John Jones, he would not have completed 20 years of service with Chisel/Anvil until a month after the one-year anniversary of Chisel's sale of the Tensile Division. And so the retirement dreams of John and Jan, along with those of a number of co-workers, evaporated, becoming another roadkill along the acquisition trail.
It's not surprising that companies like Chisel are looking to lower their pension plan funding costs and that they sometimes accomplish this by cutting employee benefits. What distresses us, though, is that management consultants and their actuaries are often the henchmen for employers, devising the brass-knuckle tactics used to achieve certain employer objectives.
We've been in the actuarial profession for more than four decades now, and we can remember when consulting actuaries were highly regarded. Until the economic boom of the 1980's, few consulting actuaries probably would have even considered suggesting anything like what we've described here, especially since ERISA stipulates that the Plan's enrolled actuary is retained "on behalf of the Plan Participants." However, given the short time horizon of the modern corporate executive and huge accumulated pension plan assets, consulting actuaries have turned to identifying actions that benefit the company (and the executives) and have ignored plan participants.
Partly, as a result of the machinations of management consultants and their actuaries, there are far fewer traditional defined benefit pension plans today. Most of these plans have been destroyed by actions that precipitated "reversions" in the 1980's, the movement to Cash Balance Plans in the 1990s and, recently, to spinoff of corporate divisions, as described in this forum. These many actions have produced less long-term retirement security for employees. The management consultant/actuary has been busy dreaming up ideas that companies can use to benefit their bottom line, regardless of the pain their actions cause American workers.
We strongly suspect that schemes of the type we've described here will come under the scrutiny of the IRS and new, more restrictive regulations will be adopted to protect employees who suffer the loss of supplemental benefits soon after a corporate spinoff occurs.
We're pleased that the Wall Street Journal has spotlighted the technical machinations that some corporations use to obtain "reversion" type benefits from their well-funded plans through spinoffs. Unfortunately, the actuaries clearly are not exercising the level of professional ethics that ERISA imposed on them when the employer retained the actuary "on behalf of the plan participants." A return by such actuaries to a professional standard of conduct that emphasizes the obligation they have to plan participants, rather than just the employer, would be a welcome change that would benefit many American workers.
Duke Energy Employee Advocate - February 24, 2001
It is very possible for employees to win the battle for benefits. But no one ever said that it would be easy. The CEO's, lobbyists, and other assorted "good old boys" have been building a system for decades that does not benefit employees.
Beating this solidly entrenched collection of money grubbers at their own game will not be accomplished by a half-hearted effort. Many employees will need to change the way they think. They can no longer remain oblivious to what is taking place in the corporate world and expect to retain the benefits that they have been promised.
Politics cannot be ignored. Legislation cannot be taken at face value. Titles often hide the true intent of various bill.
A bill designed to take everything from employees will invariably be titled "The Give Employees Everything They Want Act." If legislation that is truly good for employees is passed, the devils will scheme for years to find a way to use the legislation against employees! It has happened many times. It is happening today.
Read this excerpt from the February 21, 2001 edition of "The Poughkeepsie Journal" for one such example:
"By federal law, companies have to run pension funds for the benefit of employees and pensioners, and such monies can't be used by the company for anything but pension expenses. But in the 1980s, many plans were underfunded, jeopardizing pensions and straining the federal Pension Benefit Guarantee Corp. So in 1985, the Financial Accounting Standards Board, an accounting industry group, ruled management had to report such deficits on the bottom line.
"That dragged down earnings -- effectively penalizing companies for failing to fully fund pension plans. Because top executives typically get large parts of compensation from performance, they had an incentive to shape up the plans.
"Then, with rising stock market prices, plan assets burgeoned, and an era of surpluses dawned. Just as deficits had dragged down the earnings, surpluses pumped them up. This was only fair, companies argued.
"The practice took on a sharp edge when executives began to reduce pension obligations, much of it in the form of conversions to cash-balance plans, critics argue."
How did you like that one? A law was put into place to help keep pensions funded. The law worked...for a time. Then the schemers found a way to pervert the intent of the law, and use it to take pension money from the very employees that the law was supposed to help!
That is just one way that your promised pension dollars wind up in the top executive's pockets. This plotting against employees goes on day in and day out, whether you are aware of it or not. And it suits the CEO's just find if you are not aware of it.
(End of DOL Comment Period, But Not End of Fight!)
Duke Energy Employee Advocate - February 23, 2001
February 22, 2001 was the close of the Department of Labor's request for cash balance pension plan comments. But the pension fight is just beginning!
Thanks to employees of all companies who sent comments to the Department of Labor. Your letters are the only way the federal officials will ever know the truth of how pension plans were actually converted.
A double thanks to all employees who also responded to the Internal Revenue's earlier request for cash balance comments.
If you have specific cash balance problems or questions, the DOL's e-mail address is: email@example.com
For employees who are tired of playing around, and want to do everything possible to get their pension benefits restored, an age discrimination charge filed with the EEOC is still the best route.
Duke Energy Employee Advocate - February 23, 2001
Many labor unions have been of tremendous help to employees in fighting cash balance pension plan conversions. Many unions were able to stop the conversions on the spot.
Other unions were not as helpful to employees. At least one group of employees sued the union for its part in the cash balance pension conversion!
Read the letter to DOL from a Portland General Electric employee, and see the problems that the employees encountered with a cash balance plan conversion.
Duke Energy Employee Advocate - February 22, 2001
Veterans, who were promised free lifetime medical care, had to go to court to get what they were promised.
Many employees in the private sector have found that their promised benefits have disappeared. Too many have lost pension benefits, early retirement benefits, and retirement health coverage.
The courts may be the only way for these employees to actually receive what they were promised for many years.
Duke Energy Employee Advocate - February 20, 2001
If there is anyone that has not noticed that there is a pension war going on in America, then they have just not been paying attention. The pension lawsuit by Delta Air Lines pilots is one of the latest battles.
Companies want to fatten their bottom line in the easiest manner possible. Taking money from the employees is about as easy as it gets. Well, it used to be anyway. Now that more employees are rising up against these predatory practices, many companies are dumbfounded. Employees were always supposed to meekly submit to any shakedown by employers.
The greedy CEO's always have one thing in common; they never know when to stop. Taking money from the employees used to be so easy.
There is usually nothing original about these pension grabs. One company finds a way to take pension money, and everyone just copies the method. The backlash against these greedy companies is only beginning. But this is what they asked for.
Click the link below to read about the Delta lawsuit:
Duke Energy Employee Advocate - February 19, 2001
Specific action at the appropriate time can be very effective. Random action taken sporadically will almost always be useless.
Many employees have vigorously complained about the cash balance conversion to their supervisors, managers, plant managers, site vice presidents, department vice presidents, and the CEO. They have complained to friends, neighbors, and strangers.
All these complaints will have a net result of zero. Most of the management types that were complained to have zero authority to change anything. They most likely did not like the pension change any more that you did.
The very few that could make changes have no desire to do so. They really do not care whether you like it or not; they just wanted your pension money. They have your pension money now, and they want to keep it. All you will ever hear from them is “We determined that employees did not value the plan, blah, blah, blah.”
Your friends and neighbors have their own problems; they cannot help you. To take on the pension grabbing machine, a powerful agency is needed. One such agency is the U. S. Department of Labor. They have the full power of the federal government behind them, and their job is to enforce pension law. Not only that, but they are requesting your cash balance plan input NOW. Your input is not needed next month or even next week; this is the final week to send it to them. At the request of employees, they have extended the comment period until February 22, 2001.
The DOL is investigating to determine if companies illegally withheld pension information, hid facts, misled employees, or otherwise did not perform their fiduciary duties. Such infractions are violations of federal ERISA law. If you have any cash balance plan complaints, you only have a few days left to send them in.
If you clam up now, complaining later may be just too late. When you retire and find out just how little pension money you will actually receive, it will probably be a tad late to complain to anyone.
Don’t wait until you retire and then bore everyone to death complaining about it. The bank tellers, cashiers, bag boys, and your mailman will most certainly will not want to hear it day in and day out. The DOL wants your cash balance plan complaints now, so give it to them now. They may be able to help. Your barber or cosmetologist will not be able to help.
Remind your coworkers to write the DOL by February 22, 2001. The DOL is not asking for your money or your blood; they are just asking for a letter.
Duke Energy Employee Advocate - February 13, 2001
Al Capone was allegedly guilty of crimes from bootlegging to mass murder. Ah, this time of year always brings up memories of the St. Valentine’s Day Massacre. But we digress.
The Feds were never able to successfully prosecute Al Capone for his most notorious crimes. He was just too slick for them, and dead men make very poor witnesses for the prosecution. But even the slickest racketeers make mistakes. The Feds were finally able to nail Al on income tax evasion. It is a safe bet that he never saw that one coming! They nailed him, and nailed him good; he died in prison.
And just what does the Al Capone story have to do with pension injustice? Al Capone literally got away with murder. Corporations have been getting away with murder with cash balance pension conversions. And so far, they have been getting away clean. It does not matter how immoral, unethical, and underhanded the conversions were, unless specific laws were clearly broken, the corporation will slip off the hook.
It seems that employers have a fiduciary responsibility to their employees to provide them with pension plan information. The failure to meet these responsibilities is a criminal violation of federal law. There are individual criminal penalties and corporate criminal penalties for such violations. The U. S. Department of Labor is investigating for possible violations now. They are requesting your comments by February 22, 2001.
The Department of Labor enforces provisions that relate to the protection of employees from breach of ERISA duties by employers. "The DOL will respond to employee complaints of ERISA abuses. The DOL can recover benefits due from the plan or enforce rights under the plan." If you have a beef with the cash balance plan, this is no time to suffer in silence. It is time to tell all. For the Department of Labor to enforce the pension laws, it must have facts. You can provide them with these facts.
Some employees have wondered if they should write the Department of Labor, because they did not know how much pension money they had lost. That, in itself, is reason enough to write them! It is four years after the pension conversion. If you still have not been given the facts, there is a real problem.
Now is the time to write to the Department of Labor about ALL your cash balance plan problems. They are specifically interested in lack of disclosure. If you feel the company tried to hide pension facts from you, the DOL would really like to hear about it. If you feel that you were misled, if you feel that your pension questions were ignored, by all means, write to the DOL now!
Do not wait until the time limit has expired and lament about what you “should have” written. Woulda, coulda, shoulda will not correct the cash balance pension injustice!
Binghamton Press - By Jeff Platsky - February 11, 2001
In vigorously fighting a change in their pension distribution formula, IBM Corp. workers may have unknowingly helped save the pension benefits of thousands of other workers across the country.
That's the estimation of U.S. Rep. Maurice D. Hinchey, D-N.Y., who supported thousands of IBM workers in publicly chastising the computer giant in 1999 for making wholesale changes in the pension plan, changes that workers said cheated them out of hard-earned pension benefits.
"IBM employees not only helped themselves but also helped untold others," Hinchey said this week. The wave of companies switching from defined benefit plans to cash-balance pensions has ebbed, and Hinchey said that may be a direct result of the very public, and uncharacteristic revolt by IBM workers.
In switching from a traditional pension plan, in which workers earn most of their retirement benefits toward the end of their careers, to a cash-balance plan, where workers accrue benefits over the length of years, IBM drew the ire of their long-time employees who said the change would cost them tens of thousands of dollars in pension benefits, in some cases.
IBM eventually reversed its decision and allowed those with more than 10 years of service in mid-1999 and who were more than 40 years old retain their old pension plan.
"IBM's behavior was better than most," Hinchey said.
Nevertheless, Hinchey and his Democratic colleagues want to close off the avenue that allows companies to change their pension plans without giving employees a choice in the matter.
Legislation that arrived on the floor of the House of Representatives last year was watered down, Hinchey said. It only required that companies provide extensive explanations of how the pension plan changes specifically affect each of those affected.
Cash balances are being challenged across the country right now," said Lee Conrad of Alliance IBM, an Endicott group trying to organize a union at IBM. "We're hoping for Congress to do something."
Eighteen months after Hinchey started lobbying for dramatic changes in pension regulations he and his cohorts have little for their efforts. Attempts to pass a pension reform bill failed in the 106th Congress, and prospects for similar legislation this term are dim.
"I can't honestly be optimistic," Hinchey said, given a Republican controlled Congress and a George W. Bush administration.
Still, he said he'll battle on with others to prevent the IBM scenario from repeating itself at other corporations.
"IBM was not the first to do this," he said.
Of more immediate concern to current IBM retirees is new, and higher fees for retiree health care coverage. Hinchey said he is joining with U.S. Rep. John F. Tierney, D-Mass., in introducing a bill that would prevent companies from curtailing health benefits after retirement.
Hinchey said he has received several letters and phone calls from IBM retirees who are irked by their former company's move to have retirees kick in for health benefits.
The Tierney bill "would attempt to safeguard people who have retired from having their benefits cut back or eliminated," Hinchey said.
"This would essentially prevent post-retirement changes."
Dow Jones - By PHYLLIS PLITCH - February 6, 2001
NEW YORK - Empowered by a larger-than-expected show of support for their shareholder resolution last year, pension-choice advocates at International Business Machines Corp. (IBM) are back for a second round.
The IBM patent agent who led the charge last year against the company's controversial 1999 switch to a cash balance plan from a defined-benefit plan has returned with a similar shareholder proposal for the 2001 annual meeting. The resolution, which also targets medical plan changes, is co-sponsored by 284 IBM employees, retirees and stockholders.
Big Blue evoked an outcry among employees when it announced changes to its pension plan in May 1999. They complained that it would reduce benefits for longtime employees. In the face of employee unrest, IBM eventually expanded the number of employees who could choose between the two plans to anyone over 40, with 10 years of service.
But the sponsors pressed on, asking that all employees receive "the same long-promised retirement medical insurance and pension choice," and that the new portable cash balance plan provide a monthly annuity equal to the amount expected under the old plan, or a lump sum equivalent.
The new resolution mirrors last year's non-binding recommendation, which won more than 28% of the votes, following endorsements from the California Public Employees Retirement System and the New York State Common Retirement Fund, as well as major proxy advisory firms. Only 3% of the vote is needed in order to resubmit a shareholder proposal. Also signing on to this year's proposal are two labor unions, including the Communications Workers of America, which has tried to unionize IBM employees, as well as two socially conscious investment funds.
"Persistence is important. You have to continue to come back for a number of years" said James Leas, the primary sponsor, currently on a leave of absence from his patent job at IBM. "There's only so long they can just ignore 28% - which hopefully will be higher this year."
The Securities and Exchange Commission last year rejected IBM's attempt to exclude the resolution from its proxy and the company has indicated it will indeed reappear this year, when it files its materials in March. IBM's annual meeting is set for April 24 in Savannah, Ga.
As it did last year, the board will urge shareholders to register a "no" vote. In a note to the filers, IBM supplied the board's expected response, which paralleled some of last year's arguments.
A decision to alter the pension fund came "after an exhaustive analysis," collecting information from more than 75 companies, according to IBM's stated recommendation. IBM found that "a number of its programs and plans were significantly out of line with what the competition was offering their employees."
IBM also found that its equity award programs "lagged behind" competitors' programs, adding that since 1995 it has increased the number of non-executive employees receiving stock options by 3000%, growing from 1,000 to about 35,000 last year…
Washington Post - By Albert B. Crenshaw - January 28, 2001
Baby boomers have been hearing it. Now the message is being beamed to Generation Xers: You're going to be pretty much on your own when it comes to funding your retirement.
It's not clear yet whether this potentially unpleasant news has been falling on deaf ears -- many expect it has, at least among the boomers -- but the drumbeat is certainly getting more insistent: The days of the traditional gold-watch pension are rapidly fading into history.
The latest and loudest iteration came last week at a meeting of the National Academy of Social Insurance, where researchers associated with the Employee Benefit Research Institute (EBRI) took a fresh look at the decline of traditional pension plans.
These pensions, also known as defined-benefit plans, guarantee a lifetime stream of income to retirees and generally to their surviving spouses. This is money that the retiree cannot outlive, and coupled with Social Security, which also lasts a lifetime, these pensions are a highly successful way of ensuring an adequate income throughout retirement.
They are not bulletproof, of course. Most private defined-benefit pensions are not adjusted for inflation, and in an economic environment like that of the 1970s, retirees can see their buying power shrink alarmingly. And even when inflation is "under control" at 2 percent to 3 percent a year, the long-term impact is significant. Jeffrey R. Brown of Harvard's Kennedy School noted that 3 percent inflation can cut real purchasing power by 45 percent over 20 years.
Nonetheless, in an era of sharply increased life expectancy, income that you can't outlive should be a most welcome asset.
The nation's pension system, though, has been moving rapidly in the opposite direction.
Defined-benefit plans are shrinking as a proportion of pension plans offered, and their place is being taken by defined-contribution plans, in which the worker, the employer or both make regular contributions to an investment account. At retirement, the contents of the account, adequate or not, are the retiree's to live on. In addition, a growing number of companies are switching to "cash balance" pensions, which, though technically defined-benefit plans, are much more like defined-contribution plans in practical terms. The net result, according to the EBRI report: On average, male workers born in 1964, the last year of the baby boom, are likely to find that only 17 percent of their private "pension wealth" (the value of all their retirement assets derived from their jobs) will be from defined-benefit plans. The figure for today's male retirees is 44 percent.
For women, the numbers are 25 percent for those born in 1964 vs. 50 percent for today's retirees. The paper was written by Craig Copeland of the EBRI and Jack VanDerhei of Temple University, who is also an EBRI fellow.
The findings mean that for younger baby boomers and Generation Xers, more than three-quarters of retirement income, other than Social Security, will come from assets they could outlive.
For the past 20 years, this hasn't seemed so frightening. In fact, with the stock market cranking out double-digit returns year in and year out, employers and employees have been in agreement about the desirability of switching to defined-contribution plans, such as 401(k) plans.
Many social scientists and public policy experts have grave reservations about tying the retirement well-being of future generations to the stock market and to the retirees' investment acumen. And pushing Social Security in the same direction makes them doubly nervous.
Harvard's Brown recommends that if individual accounts are to be set up within Social Security, workers should be required to convert at least part of the balance at retirement into a lifetime annuity. Otherwise, he says, some retirees will take lump sums, "thus increasing the likelihood that these individuals will run out of money before they die."
There is, of course, a school of thought that people should make their own decisions and live with the consequences. But in this context, such thinking overlooks two things: First, some people never earn enough to build a nest egg that will last them through retirement, and second, such people, combined with unwise or unlucky investors, could have the political clout to demand a bailout at taxpayer expense. Remember, the twin mantras of our society today are "It's not my fault" and "You owe me." Individuals, meanwhile, are stuck with the pension environment as it is and have to live with it. This means that today's worker should:
• Appreciate a defined-benefit plan if you have one. The plans tend to be somewhat invisible, since they are handled by the employer, but if your company has one and you plan to work there a long time, find out all you can about it. If the company wants to drop it, yell, or at least make sure you get fair value for the trade-off.
• Maximize your 401(k) or other defined-contribution plan. Examine its options. If you don't understand them, ask. If you feel you don't know enough to make an informed choice, seek outside advice. More companies today are willing to help arrange that.
• Don't overlook your IRA. Even relatively modest sums, invested over a long period, can reach impressive levels. And time is the one commodity that young people have in abundance. If you can squeeze out the $2,000 this year -- and next year and next year and next year -- and set it aside, especially in a non-deductible but tax-free Roth IRA, it could go a long way toward making your retirement comfortable.
Duke Energy Employee Advocate - January 25, 2001
The Department of Labor’s cash balance plan investigation, which closed on January 12, 2001 has been reopened! This is terrific news for all employees that intended to send in a letter of complaint, but missed the deadline. Many employees have already sent in their letter, but we need as many as we can get. Complaining to your coworkers and neighbors may make you feel better, but will be of zero actual help. This is exactly the federal agency that needs to hear your complaints: the Pension and Welfare Benefits Administration. It is a branch of the Labor Department. The Labor Department shares information with the Treasury Department, Internal Revenue Service, and Equal Employment Opportunity Commission. One letter to the right place at the right time is worth more that 10,000 letters to the wrong place at the wrong time. They are asking for your cash balance plan complaints now. So now is exactly the time to send them. The extended deadline is February 22, 2001. Please do not put off writing this important letter. Do it right now, while you are thinking about it.
If you have already sent your letter, but need to add something; by all means, send in another letter. There is no penalty for sending in more than one letter. The penalty for not sending in any letters could be having to work ten extra years for a meager pension and no retirement health insurance.
Tell everyone you know who was affected by a cash balance conversion (any company) about this opportunity. The fact alone that an extension is being granted should tell you something. It is time to flood the DOL with letters of complaint about cash balance pension conversions! Before any action can be taken to correct this situation, employees must be willing to tell the facts. The more letter that are sent, the more the DOL will realize the extent of the problem and the cover-up of facts involved.
Duke Energy Employee Advocate - January 22, 2001
“The Charlotte Observer” published “Payphone investment becomes black hole, not blue chip.” ETS Payphones filed for Chapter 11 bankruptcy protection in September; $400 million of investor’s funds may be in jeopardy. Not all the investors were from Concord and Kannapolis and not all were seniors, but many of them were.
One senior couple invested $12,000 in the company for their retirement. They may never see the money again.
"We thought we were going to retire and have a good life," the 58 year old lady said. "But it's not going to happen."
$12,000 would have not afforded them a lavish retirement, but it would have been so much better than zero.
Many of these people will have to continue working when they thought they would be enjoying retirement.
These people were told that the money was safe and would be there when they needed it.
What does this story have in common with cash balance pension conversions? Plenty! Employees were promised that a certain amount of retirement money would be available to them at a certain age. It was all lies. Many of these employees will have to work an extra ten years to receive what they were promised year after year.
This story also exposes another misconception that Duke Energy and its shills promote. There are those who would have you believe that by taking the cash balance sum and aggressively investing it, you can make up what Duke Energy took from you. First of all, why should you have to take undue risk to make up what you should have already received?
The second problem is risk itself. Risk is a two edged sword. The aggressive investment that can gain you fifty or one-hundred percent, can just as easily lose fifty percent or wipe you out completely! If anyone doubts this, they just have not played with fire long enough; it will burn you. Those who are retired are in a poor position to lose their entire nest egg. It can happen. It does happen. It will continue to happen.
The annuity that you were originally promised does not have this potential for catastrophe. You would receive a fixed dollar amount monthly for life. No matter how badly you managed your investments, you could not go broke and have nothing to live on. The annuity check would come rolling in each month to ward off eviction notices, living in cardboard boxes, and eating cat food – and don’t think that it does not happen.
Some people will not have a chance to lose it; they will blow it. There will be those who will get a few hundred thousand dollars as a lump sum and think that they are truly wealthy. They will buy everything in sight until they are flat broke. What they buy will of course be on credit. Their purchases will be taken back and they will be infinitely worse off than before they retired. They will have no paycheck coming in. The annuity will not be there to save them either. They can look forward to trying to live the rest of their lives on Social Security.
Those who tell you to take the lump sum and aggressively invest it do not necessarily have your best interests at heart. These people are generally anticipating the fees and commission that your lump sum will generate for them.
Yes, some will self-destruct without actually investing anything. Heck, they will not have the money long enough to invest it! There will be a number of those who do invest their lump sum that will lose it all.
You may say that it cannot happen to you. It can.
You may say that people should have known better than to invest in payphones during the cellular phone boom. But hindsight is always 20 – 20. When it is your money on the line, you may not think as clearly.
Duke Energy Employee Advocate - January 22, 2001
The “Oregonian” has reported: “One of the biggest investment fraud cases in Portland history is being put under wraps by a federal judge.”
This case concerns fraud involving IBEW member’s pension fund. Capital Consultants is one of the defendants. Losses could run over $200 million.
Read the many articles about this case at the “Oregonian” website: