DukeEmployees.com - Duke Energy Employee Advocate
Pensions - Page 2 - 2001
Duke Energy Employee Advocate - June 26, 2001
The pension plan at Verizon is really a strange kettle of fish. To complicate matters, the company is composed of employees from several different companies. Somehow, managers ended up with less benefits that the unionized workers. Employees have been working with management for some time for more equitable treatment. Verizon may have just given them the “treatment.”
Plan Sponsor had this to say: “Verizon unveiled its employee retirement package last week to 260,000 employees. As part of that new package, employees with less than 10 years of service will get a cash balance plan, while workers with at least 10 years of service can pick from either the new cash balance pension or the old pension plan, which was based on the five years of highest earnings. The firm has a calculator on its intranet to help employees make the choice.”
Judging from posts on the Bell Atlantic Coalition for Retirement Security Message Board, most employees are not swallowing the company line. Below are some recent comments:
Verizon employees have been fighting the pension battle for some time. They are not defeated; they just need to bring out the big guns. The employees have won victories in the past, and will win more. We wish them success in the battles to come.
Duke Energy Employee Advocate - June 13, 2001
Today, The New York Times published “Wall Street Firms Endorse Ethics Standards for Analysts.” It seems that many investors believe that Wall Street research is “biased, obfuscating or downright untrustworthy.” It looks like investor’s are wising up.
What about employees? When will “Pension Ethics Standards for Corporations” be published?
Many companies, such as Duke Energy Corporation, have rolled out Ethics Policies. But these policies are useless if not followed.
The Pension Ethics Standards could cover such things as:
Of course, these standards would have to be more than just guidelines. They would have to carry the full weight of law and offer stringent punishments for violators.
Duke Energy Employee Advocate - June 11, 2001
WWW.realbeer.com reports that Irish workers at a Guinness plant in Dundalk, which is closing, have accepted a pension deal that will include free beer.
140 employees will receive pensions at age 45 and lump sum payments of up to £137,000. Along with the free beer (14 bottles per week), they will receive health insurance, and scholarships for their children for 10 years.
Did this pension deal just fall out of the blue? No, they seldom do. The employees staged a one-day strike that shut down all of the company’s Ireland operations. After the strike, the employee’s union negotiated the pension deal for them. It will allow the plant to operate, until it closes near the end of July, without the specter of another paralyzing strike.
Duke Energy Employee Advocate - May 16, 2001
May 15, 2001, The Motley Fool published Where Has Corporate Integrity Gone? by Whitney Tilson.
Integrity was defined: "Adherence to moral and ethical principles; soundness of moral character; honesty." And, then he presented a list of corporation which have sorely missed the mark.
He wrote: “There are few things I value as highly as a reputation for integrity: both my own and that of the people and institutions I deal with. It's so important, yet so fragile. Such a reputation is built up over a lifetime, but can be destroyed in seconds. Just open the newspaper and look at the countless politicians, celebrities, and corporations that have had fine reputations tarnished by a moment of indiscretion.”
Some corporations may have a moment of indiscretion. But many have had countless acts of indiscretion that just pile up year after year.
IBM was mentioned for pension fund cheating: “At the Wesco annual meeting, Charlie Munger railed against the way corporations use inflated return assumptions for their pension funds to boost current reported earnings. He specifically named IBM, which he said recently increased its pension fund's assumed rate of return from an already-high 9% to 10% annually. If IBM and other companies were forced to lower this number to 6%, they would have to take huge charges to earnings.
“IBM has used many tricks like this to keep earnings per share steadily rising over the past few years despite anemic revenue growth, one of the reasons I named the company in my column, ‘Stocks to Avoid.’(I discussed it further in a subsequent column.) No wonder a friend of mine who manages a hedge fund -- and who has shorted the stock in the past -- called IBM ‘the world's biggest accounting cheater.’ That's a bit of hyperbole, perhaps, but not much in my opinion.”
IBM is certainly not the only company indulging in pension cheating. Most companies that have converted their pension fund to a cash balance plan are just as guilty as IBM.
Mr. Tilson offers this wisdom: “My advice to investors is, first, to view Wall Street with an extremely skeptical eye and, second, to place management integrity at the top of their criteria for evaluating potential investments. If there's even a whiff of aggressive accounting or excessive promotion, don't even consider investing.”
Duke Energy Employee Advocate - May 12, 2001
May 6, 2001, The New York Times published Penny Pinching Wizardry for Leaner Companies.
One example of penny pinching involved American Airlines. By removing only one olive from every dinner salad, the company saved $40,000 per year! Such a story would warm Ebenezer Scrooge’s heart. The rationale: the passengers would never know it, and the company wanted the bucks.
United Airlines got into the act by eliminating olives, lemon peels and grapefruit juice from the bar condiments. It was worth $50,000 per year.
Employee perks, no matter how meager, are going out the window. Celebrations are getting chintzier. Have you noticed that “award” meals now usually covers two or more accomplishments?
Think of the money saved by such penny pinching. Then think of the cash balance plan pension conversion. By comparison, it can only be called dollar pinching!
Many employees lost significant retirement money. Many will have to work an extra 10 years to come close to breaking even.
Airline passengers are not likely to notice a missing salad olive. Employees did notice huge pension losses and an extra 10 years of their lives to be spent toiling!
Duke Energy Employee Advocate - April 25, 2001
Most articles about cash balance pension plans are woefully inadequate. If you understand the plans at all, it is easy to see that many of those who write the stories do not really comprehend them. The management consultants are always happy to explain how great the plans are. The articles often come out weak or miss the boat entirely.
“The Pension Game,” Boston Globe, was a refreshing surprise. The article does a terrific job of covering one aspect of cash balance pensions. There were only a couple of management canards slipped into the article.
The main gist of the story was on the money: Cash balance plans usually mean a windfall for the company and losses for the employees!
Scroll on down to read “The Pension Game.”
The Boston Globe - by David Warsh - April 24, 2001
One of the biggest changes wrought by the great bull market of the 1980s was that corporations learned to think of pension funds as assets to be managed at least partly for the benefit of shareholders rather than as trusts operated strictly for the benefit of employees. For a time, corporate raiders actually used their targets' surplus pension funds to help pay for their raids after they took control. Congress put a stop to the practice in 1990 with a 50 percent tax on such ''reversions.''
About the same time, a handful of companies began developing a new approach to retirement benefits called ''cash-balance'' pension plans. Ostensibly designed to attract younger workers by vesting benefits immediately in highly portable plans, cash-balance plans also gave employers a powerful tool to use against older workers.
With conventional defined-benefit plans, the eventual payout is related to time of service; much of the benefit is earned the last five years. By ''front-loading'' benefits, cash-balance plans reduce the incentives to employees to stay around. No longer does the employee who stays longest does the best.
With the boom of the 1990s, companies once again have been learning to use the huge surpluses that have built up in their pension funds, this time mainly for their own accounts. The new cash-balance plans have proved to be a cornucopia of benefits - for corporations. A raft of controversial and little-understood new practices have been detailed over the past few years in an extraordinary series of reports by Ellen E. Schultz, a reporter for the Wall Street Journal.
Some corporations have terminated pension plans and substituted ''replacement'' plans, containing as little as one-quarter of previous assets, thereby avoiding the 50 percent excise tax and flowing the difference directly to reported earnings tax free. Other companies have discovered ways to use cash-balance conversions to smooth their reported earnings.
Summing up, Schulz has written, ''The upshot of the pension changes, which are often poorly explained to employees, is that millions of people will retire with pensions that are sharply lower than they once would have been'' despite the boom.
Now one of the lesser abuses (known as ''whipsaw'' to pension professionals) has been stopped by a decision of the US Court of Appeals for the Second Circuit in New York. A pension plan conversion by the Bank of Boston in the long ago winter of 1990 may come back to haunt the ''cash-balance'' industry. Certainly it will cost cash-balance companies a good deal of money.
Lynn Esden was a 36-year-old assistant branch manager for the Bank of Vermont when its corporate parent in Boston laid her off. Her traditional defined-benefit plan had been converted to cash-balance the year before. From the traditional plan, she received a lump-sum benefit of $3,772; her cash-balance account came to $1,548 - not much, she thought, for a year as a manager.
When she saw a story on the front page of the Burlington Free Press about the National Center For Retirement Benefits, a company organization that for half of any potential gains reviews documents for puzzled pensioners. She thought, ''What have I got to lose? Fifty percent is better than nothing.'''
The ''pension detectives'' found what they thought was a significant error under the IRS rules that govern cash-balance accounting - the heads-we-win, tails-you-lose choice known as ''whipsaw'' - but the bank didn't agree. The detectives sent Esden to an Illinois lawyer, Douglas Sprong. He lost in the US District Court but won on appeal, and the Supreme Court declined to review. Case closed. Law changed.
The overall cost to the bank may be $7 million or so spread over some 5,500 claimants. (FleetBoston Financial, formed through the merger of Bank Boston and Fleet Financial, will pay.) Esden won enough for a good vacation. A new, more generous basis for valuing lump-sum payouts was established - ''the Roe v. Wade of cash balance law!'' one lawyer exclaimed. And another glimpse was afforded of the fertile field for mischief that pension fund management has become.
Duke Energy Employee Advocate - April 17, 2001
“What If You Are Not Guilty?” was published by “The New York Times.” It is the story of a man wrongly convicted of murder.
For the man to be alive today, it took the efforts and resources of a team of corporate attorneys. The cost was five million dollars!
It is a fact that there are a “few” inequities in the law. Justice in a court of law is seldom obtained cheaply. Very often the question is: “just how much justice can you afford?”
A favorite employer tactic is stonewalling…hoping to out wait the employees…hoping that they will just go away. Employees engaging in, or preparing for, litigation with cash bloated corporations need to have realistic expectations. Being right does not guarantee a victory. Letting corporations get away with cash balance plan money grabs - uncontested, is not an option for many employees. Employees can win, but only by being focused and dedicated to the effort. We cannot afford the luxury of complacency. Be sure to take advantage of every opportunity that you have to affect the outcome. Filing an age discrimination charge with the EEOC is still the single best step most employees can take. Everyone can and should write Congress about the situation.
Your letters, calls, and visits to congressmen and senators will make it more difficult for the corporations to lobby (buy) their way out of their predicament.
Duke Energy Employee Advocate - April 16, 2001
ACE CORP sent out the AT&T employee’s newsletter on April 12. Understand that this is a “real” employee newsletter, published BY employees FOR employees, not just company garbage. Here is some interesting pension information from the newsletter:
“In our February 19, 2001 mailing, we informed you of documents that AT&T recently produced in discovery (gathering data from AT&T on the way AT&T rolled out Cash Balance) [we are in the discovery step of the pension lawsuit] showing that AT&T knowingly and concertedly avoided answering questions about the disadvantages of the cash balance plan. As shown in documents that AT&T has stamped as "Confidential" in discovery, AT&T was determined to "sell Cash Balance" as an improvement to its employees. Notes of meetings concerning disclosures to employees plainly state, "We can't tell the bad parts upfront." Documents obtained in discovery also indicate that, on instruction from AT&T, the special communication seminars were to be uninformative of the losses due to Cash Balance. Even from the preliminary review of the first set of documents, it appears there was a systematic "campaign of confusion" about the cash balance conversion. Because we gave you notice of this information, several of you called the pension service center, and that has disturbed some AT&T executives.”
The above facts demonstrate the results of a typical cash balance pension conversion:
We wish the AT&T employees success in their quest for pension justice.
Duke Energy Employee Advocate - April 9, 2001
Some employees like the concept of the cash balance pension plan. They like the idea of receiving a lump sum payment when they retire. The problem, even for those who like the concept, is that they do not receive the total amount of money that they should receive. We have proof that Duke Energy Corporation reduced some employee’s opening cash balance by as much as fifty percent! The reduced balance is then subjected to a very stingy rate of appreciation. That is why many employees have to work for years with no increase in pension benefits. What you lose, the company gains.
Some employees think that if they receive a lump sum pension of $150,000 that they are rich, rich, rich. If the amount they should have received was more like $300,000, then they should feel cheated, cheated, cheated.
We hate to burst any bubbles, but $150,000 to retire on is a pitiful amount anyway. A million dollars would be a more reasonable amount for retirement. Employees should receive at least the pension amount that they were promised for years.
Some employees have fell for the company’s implicit line that the lump sum amount can be invested to receive an astronomical rate of return. They do not tell you that to do this you must take on an astronomical amount of risk. The fact is that at retirement age you will not live long enough to recover from any serious financial mistakes.
This is not conjecture. This fact is being demonstrated in the market each day. Having total control of your retirement account is not necessarily a good thing. Picture the retiree that had the whole wad invested in dot-com companies. The retiree may recover his losses – if he lives to be a 1,000!
The hot shot financial planner that says: “I can get you a sixteen percent return,” does not mean a guaranteed return. The translation is that you may or may not get any return; you may lose it all!
When the financial world is falling apart, having a steady annuity check coming in each month is not a bad thing. If the check is for the full amount that your were promised by the company, it will go a lot farther. It will also go farther if you receive the retirement health coverage that you were promised for years.
The link below is to a story published in “The Charlotte Observer,” about “guaranteed” investments gone bad. What if your lump sum pension had been invested in such a venture? A meager cash balance can easily become a zero cash balance. Meanwhile, the company executives are laughing all the way to the bank.
Plan Sponsor - April 2, 2001
The nation's high court had no comment on its refusal to hear the case, Lyons v. Georgia Pacific Salaried Employees Retirement Plan.
Last summer the 11th Circuit held that employer Georgia-Pacific had, in fact, violated ERISA when it failed to use the IRS method of discounting a cash balance plan participants' lump-sum distribution to present value.
The court found that as a result employees who left the company before reaching normal retirement age were severely under compensated.
Georgia-Pacific had paid participants the amount equal to their stated plan balances at the time of termination, as with a 401(k) plan.
In making its determination, the court noted that since cash balance plans are actually defined benefit plans, payment amounts should be calculated using the same type of formulas used for these pension plans. That involves projecting an employee balance ahead to their normal retirement date, using an interest rate specified by the plan, then discounting the amount back to the termination date using a Treasury-specified rate of interest.
The IRS standards at issue are generally referred to as the "whipsaw" calculation. "To whipsaw" an opponent is to get the better of her with a two-sided strategy. In this case, it refers to a two-step calculation that requires cash balance plan sponsors to annuitize participants' lump sums and then convert the benefit back to a lump sum once more.
Dow Jones Newswires - By Fowler W. Martin - April 2, 2001
In a setback for major employers, the U.S. Supreme Court Monday declined, without comment, to review a case involving the manner in which certain payouts should be made under cash balance pension plans.
The decision let stand a circuit court ruling that found Georgia-Pacific Corp. (GP) had substantially under compensated employees who left the company before reaching normal retirement age.
Georgia-Pacific paid participants sums equal to their stated plan balances at the time of departure, as would be the case under a 401(k)-type defined contribution pension plan, which cash balance arrangements (sometimes called hybrid plans) appear to resemble.
But the circuit court said that because cash balance arrangements are actually defined benefit plans, payments should be calculated according to a different set of rules. This involves projecting an employee's balance forward to normal retirement age using a rate of interest specified by a plan and then discounting the retirement benefit back to an employee's departure date using a rate of interest specified in Treasury regulations - a procedure sometimes known as "whipsaw."
In the case of Jerry L. Lyons, the named representative of a class of former Georgia-Pacific employees, the difference was 36.6%. The company paid Lyons $36,109.15 on departure, but he should have received $49,341.83 if formula the circuit court found applicable had been applied.
In seeking reconsideration by the Supreme Court, Georgia-Pacific argued that if the lower court's decision were allowed to stand, the company and other cash-balance plan sponsors "may be obligated to pay hundreds of millions of dollars more than expressly provided in the plans they sponsored."
Two major trade groups - the National Association of Manufacturers and the American Benefits Council - that together weighted in on behalf of Georgia-Pacific expressed a similar view. The lower court decision "retroactively imposes hundreds of million of dollars in pension obligations that plan sponsors never funded, plan participants never anticipated, and the law never before required," they said in a submission to the Supreme Court.
Whereas Georgia-Pacific and the employer groups argued that plan participants would receive unjustified "windfall" benefits under the lower court decision, those sympathetic to the affected employees said companies should be required to abide by existing rules and not try to invent new ones.
"The employers have created this fiction and want the law to conform to it," said Dave Certner, who follows such issues with AARP, an organization that represents millions of retirees and persons nearing retirement. The Supreme Court's decision not to review the Georgia-Pacific case means that employees will get the benefits to which they are entitled under the law, he said.
Cash balance pension plans first emerged in the mid 1980s as an innovative form of pension plan within the regulatory framework of defined benefit pension plans. Unlike traditional defined benefit plans, where most benefits accrue in the last few years before retirement, benefits build up steadily under cash balance arrangements.
As such, they are said to be more suitable for the modern workforce, where workers tend to change jobs relatively frequently as opposed to remaining with one employer for their entire careers.
In recent years, however, the plans have become increasingly controversial for a variety of different reasons, only one of which was at issue in the Georgia-Pacific case. Among other things, critics contend some conversions of defined benefit plans to cash balance arrangements, and even the manner in which benefits are calculated under such plans, may involve unlawful age discrimination. That issue, and various other controversies surrounding the arrangements, remain to be decided.
Bloomberg News - April 2, 2001
Georgia Pacific Corp. failed at the U.S. Supreme Court to derail a class-action lawsuit demanding more money for thousands of former employees who cashed out their retirement benefits.
The nation's highest court, without comment, let stand a lower court's conclusion that the parent of Georgia Pacific Group, the No. 2 U.S. paper and lumber company, underpaid workers through its ``cash-balance'' pension plan.
The decision sends the case back to a lower court to determine exactly how much Georgia Pacific owes. The workers are seeking tens of millions of dollars, according to lawyer Carter G. Phillips, who represented the company in its appeal.
Cash-balance plans are a relatively new, increasingly popular mechanism that combines features of other types of plans. Assets in a cash-balance plan are pooled to reduce risk, yet workers maintain individual accounts, letting them track their balances.
Georgia Pacific paid departing workers the amounts stated in their accounts when they requested a cash-out. The Atlanta-based 11th U.S. Circuit Court of Appeals concluded that was inadequate, saying the company must work backward to get the present value of the annuity that workers would have received had they stayed on.
That method leads to larger payments because the interest rate Georgia Pacific applies to individual account balances is higher than the rate required under federal law for determining the present value of an annuity.
``There's no question that's just a flat-out windfall,'' said Phillips, the lawyer for Atlanta-based Georgia Pacific.
The workers don't see it that way. They are led by Jerry L. Lyons, who worked for 25 years as a paper inspector and tester for Georgia Pacific and a corporate predecessor until 1991. He is seeking to increase his cash-out payment from about $36,000 to $49,000.
Lyons's lawyers say the individual account balances are simply a bookkeeping device and can't be used to determine a cash- out award. Federal law classifies cash-balance plans as ``defined- benefit'' plans, which must abide by strict rules when workers seek to cash out their pensions.
``This case involves a straightforward breach'' of those rules, Lyons' attorneys said in a court filing.
Business groups, hoping to persuade the high court to step in, contended the appeals court ruling threatens to impose hundreds of millions of dollars in liability on companies with cash-balance plans.
The workers disputed that contention, saying the Georgia Pacific plan uses an unusually high rate of interest. Cash-balance plans, now in place at hundreds of companies, have drawn fire in recent months for a separate reason. Older workers say they have been penalized when such companies as International Business Machines Corp. have switched over to cash-balance systems.
The case is Georgia Pacific Corp. Salaried Employees Retirement Plan v. Lyons, 00-1234.
Duke Energy Employee Advocate - April 2, 2001
Here they go again. Watson Wyatt Worldwide and William M. Mercer are ultimately responsible for the cash balance plan pension uproar moving across the nation. They wrecked the pension plan for IBM employees by converting it to a cash balance plan. The employees did not take kindly to the loss of earned benefits and nothing in the pension industry has been the same since. William M. Mercer did the same thing to Duke Energy employees.
These companies have been under investigation by the Department of Labor for their part in the pension fiasco. They desperately want to deflect attention to another direction – any direction. Just how do they plan to pull this off? They post various “studies” on their web site that proclaim how they are right and everyone else in the world is wrong! But the facts can only be massaged so much. Their own reports only confirm their guilt. It is like watching a defendant, who is guilty as sin, on the witness stand. They will twist and contort each fact and grasp at the smallest of straws. A better approach for them may be to crawl back under the rock that they came from.
In a feeble attempt to “whitewash” the issue, Watson Wyatt has posted: “Breaking Through The Hybrid Hype.” An ambitious title for an article that is all hype! The subtitle is: “Major New Study Finds Employer Costs Remain Flat; Benefits Are Redistributed Democratically.” Even the subtitle exposes a problem: Employees did not ask for their pension benefits to be redistributed! Their argument seems to be that it is alright to take $200,000 from one employee and spread it among other employees. The employee who lost the $200,000 has a legitimate complaint. The complaints are not going away because Watson Wyatt is able to twist a few words.
Most cash balance plans were devised to save/make money for the employers – period. It is just that simple. Once you understand that, you can see how everything else fall into place. The only way employers can save/make pension money it to take it from the employees. Saving money becomes making money, which is actually taking money.
Some companies have already started returning their ill gotten gains. If the game had been honest, there would be nothing to return.
The article states: “The accusation has been supported by anecdotes about participants who felt they were cheated out of benefits they should have received under their old plans, and who felt they were misled by communications about their new plan.”
Yes, those are the accusations. They are true and many employees stand ready to prove them to the courts and Congress.
The article further states: “Congressional debate on cash balance conversions is currently underway, threatening to produce legislation that would preclude employers from changing plans for some workers even on a prospective basis. But the scrutiny doesn't stop there. The Equal Employment Opportunity Commission and the Internal Revenue Service are also looking into the plan changes and threatening to pursue actions against sponsors that have converted to a cash balance design. The Pension Rights Center and other organizations are attempting to organize affected participants to bring a class-action suit against selected plan sponsors.”
Mind you, this article is supposed to be showing that the pension consultants are good guys! Any endeavor that is squeaky clean just does not draw this kind of scrutiny. The level of debate and investigations are a good indication that something is rotten with cash balance plans.
Employees want the pension that they were promised. They can pay us now, or they can pay us later. The longer they stonewall, the more it will likely cost them. We will not go away until the guilty pay.
Modern Maturity - By Tess Canja - March-April, 2001
Question: I just received a letter notifying me that my company is changing my defined-benefit retirement plan to a cash-balance plan. The younger employees seem to be pleased with the change. But as an older employee with more than 20 years of service at this company, it looks to me as though I’ll be receiving a smaller benefit under the new plan. Do I have any recourse?
Answer: I hate to tell you this, but not without a fight. Not yet, anyway. And you’re probably right: You, like many other older long-term employees, indeed may end up receiving a lower benefit because of a company switch from a traditional defined-benefit plan to a cash-balance plan. Think about talking to your employer or your union representative about any inequities. Some employees have succeeded in persuading their employers to give them the option of remaining under the old plan or of providing transition benefits. Other employees have filed age discrimination complaints with the federal Equal Employment Opportunity Commission and/or their local state and fair employment practices or civil rights agencies. Federal and state legislative bodies are taking a careful look at this issue.
Here’s how some older long-term employees lose out: Under standard defined-benefit pensions, employees earn most of their retirement benefits toward the later years of their careers. Cash-balance plans, on the other hand, generally offer a much larger accrual of benefits during the earlier years of employment. This often benefits younger employees. But a long-term employee could end up losing tens of thousands of dollars in the transition.
Some other problems:
• Many employers don’t fully inform their long-term employees about the effect a cash-balance conversion can have on their retirement benefits. By the time the employee finds out the details, it’s too late to do anything.
• No set rules exist on how companies should calculate the conversions. Five different companies could use five different systems, some more equitable than others.
• Sometimes longer-service employees don’t accrue any new retirement benefits until their account balances under the new system exceed their already-earned benefits, a process known as "wearaway." The consequence of this is that a long-term employee could work for several more years at the company without accruing any new pension benefits.
AARP is working with legislators and other agencies to make sure that cash-balance pension plans fully comply with the law and that they don’t adversely affect long-term employees. And AARP has urged Congress to pass legislation that would require employers to fully inform their employees of how such a switch might affect them. For more information about this subject, log on to www.aarp.org.