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Janet Krueger still spends part of every day thinking about how she can put right what she feelsIBM set wrong back in 1999. That is the year the company converted its defined benefit plan to a cash balance formula. Krueger was part of a crusade that accomplished what many would have viewed as an impossibility;she helped lead a movement that convinced Big Blue to alter its pension strategy, broadening by 35,000 the number of individuals it would allow to opt out of the cash balance plan and stick with the old-style annuity plan. Ultimately, the traditional plan was offered to anyone who was older than 40 years of age and had more than 10 years of service at the time the plan was switched. However, three years after quitting a 23-year career as an IBM software consultant, Krueger is not satisfied.

"We believe all IBM employees have a right to be covered by a nondiscriminatory plan," says Krueger. "In addition, we would like to see IBM honor long-term commitments relative to retiree medical insurance."

Also displeased is 81-year-old Helen Quirini, who is leading fellow retirees fromGeneral Electric Company in a tooth-and-nail battle to convince the company that it should use at least some of the billions of dollars of surplus assets in its pension plan to voluntarily give retired GE workers annual, across-the-board cost-of-living increases.

AtQwest Communications and Verizon, retired telephone workers are pushing shareholder resolutions that would prohibit those companies from including income from pension surpluses in the calculations used to set executive compensation. Their goal: to remove any incentive that top managers might have to pump up pension surpluses at the expense of improvements to retiree income.

Elsewhere, retired workers from the now-defunctPan American World Airways Inc. have kept attorneys for the Pension Benefit Guaranty Corporation occupied for the past five years with a lawsuit alleging that the PBGC, as trustee of the Pan Am pension plans, has not fairly awarded their pension benefits.

At companies across the country, activist groups comprised of retirees and current workers are battling perceived benefit slights, from the termination of retiree health care benefits to the absence of cost-of-living increases in pension benefits. In addition to class-action lawsuits and shareholder resolutions, their anger has translated into street demonstrations, unionization movements and,in the case of some cash balance plan conversions, complaints of age discrimination filed with the Equal Opportunity Employment Commission.

Plan sponsors may feel they are between a rock and a hard place. At a time when employers are trying to cut costs to deal with a slumping economy, the employee activism movement is only becoming stronger. In September, a federal judge in Tulsa ruled, in a class-action lawsuit filed by former McDonnell-Douglas workers, thatthe company had closed a plant in Tulsa in 1993 to deprive about 1,000 workers of benefits there were due under ERISA. That same month,a federal judge in Illinois certified as a class action a 1999 lawsuit alleging that changes IBM made to its pension plan in 1995 violated ERISA by causing the rate of benefit accrual to diminish as workers age. An attorney for the plaintiffs says that the class could cover as many as 140,000 current and former IBM employees. IBM says the suit is without merit and it is appealing the judge's ruling. McDonnell-Douglas has since merged with Boeing, which has said that it disagrees with the judge's conclusion and is evaluating its legal options.

"I have been involved in retiree activism since the mid-1970s, and I have never seen the current workforce so enraged and alerted to what is happening with retirement benefits," says Paul Edwards, chairman of the Coalition for Retirement Security, a national grassroots organization whose members include retiree groups from some of the largest companies in the nation.

"This is no longer activism with one face," agrees Karen Friedman, director of the Pension Fairness Project of the Pension Rights Center, a nonprofit group in Washington. "It's becoming a multi-face form of activism. It's the whole American work force.We're seeing the start of a revolution." How did it come to this?

Seeds Of Discontent

Clearly, growing numbers of retirees and soon-to-be-retired baby boomers are unhappy with the status quo. Their reasons go much deeper than a pension conversion here or a refusal to award COLAs there. James Delaplane, vice president of retirement policy for the American Benefits Council, a nonprofit industry group comprised principally of Fortune 500 companies and vendors who assist them in offering retirement benefits, says US workers are more aware of personal finance issues in general. This is a consequence of their widespread participation in defined contribution plans over the past two decades, the alluring roar of a bull market that lasted for two decades, and the rabbit-like proliferation of magazines, television shows, and TV networks devoted to business and finance. Financial news, it seems, is everywhere.

The maturation of the baby boomer generation, the 76 million souls born in 1946 through 1964 who will begin to retire in earnest in 2010, also is contributing to the focus on retirement issues. "That group has been politically active, relatively outspoken, and quick to talk about its needs and wants in public debate," observes Delaplane. They approach retirement at a time when personal savings have come to play a critical role in retirement security in this country, and when the long-term health of the nation's Social Security system is in question.

Graying of America

In fact, the graying of America has already begun. By November 2000, there were 34.9 million Americans age 65 or older and 4.4 million age 85 or older, according to the US Census Bureau, up from 12.5 million and 841,000, respectively, in April 1990."For the first time, you are starting to see a lot of people retire or approach retirement who still have parents alive," says Krueger. "I think your views on planning for retirement become fundamentally different if you are also trying to balance the needs of 80- and 90-year-old parents who are not coping so well, who either did not save or have gone through their savings, and who may be saddled with $500 or $1,000 per month prescription drug programs to keep them alive. It gives you a much more compelling view of what retirement will be like for you if you do not get your rights protected."

Of course, there have been disgruntled workers and retirees in the past, too-before life expectancies grew to their current levels, before plan sponsors bore the pleasant weight of pension surpluses, and before defined contribution plans played a significant role in retirement planning. What those early activists did not have that today's breed does is the Internet-the life-changing technology that has made it easy for activists to share information among themselves and elected officials. "The Internet and e-mail are the tools that have facilitated greater employee activism," says Delaplane.

"Blue" In The Face

That was certainly true at IBM, where a Yahoo chat room-once devoted to the prospects for IBM stock-became the launch pad from which Janet Krueger and a handful of her fellow employees began to share their concerns about the company's proposal to convert its traditional pension formula to a hybrid cash balance format.

Few would have expected that Krueger would end up inciting a pensions revolution. A bright student, she used a Watson Scholarship sponsored by her father's employer, IBM, to attend Central College in Pella, Iowa. She then earned a master's degree in computer science from the University of Iowa, funding her graduate school experience with a National Science Foundation scholarship. Finally, after spending her college summers working for IBM, she followed her dad into a career at Big Blue. She was, by all accounts, the quintessential IBMer or, in the language of the company's workforce, "true blue."

However, like many of her colleagues, Krueger concluded that the cash balance conversion would result in lower pension benefits for mid-career employees, with individual losses in some cases on the order of hundreds of thousands of dollars. Incensed, Krueger quit her job and helped to launch the IBM Employee Benefits Action Coalition, or IEBAC, which she still helps to lead. The group does not keep membership rolls, but Krueger says it has 150 members on an active e-mail list, and more than 2,000 who are members of the IBMPension Yahoo club, a Web-based chat site the group also uses to deliver informational updates to its supporters. IBM has about 316,000 employees worldwide; approximately half are US-based.

"It just made me really, really mad," recalls Krueger, now a software consulting engineer for Andrews Consulting Group. "I had worked for IBM for 23 years and had more ties to the company than a lot of other people, so maybe it made me madder than them. I was a second-generation IBMer. IBM had put me through school. I had never worked anywhere else."

The episode was almost as wrenching for IBM. Long viewed as a paternalistic employer, the company suddenly found its battle with its own employees splashed across the business pages of newspapers and magazines across the country. Today, it claims to have weathered the storm reasonably well, and continues to insist that its pension conversion can only be viewed fairly in the context of changes it was making to its total compensation package, such as broadening the number of IBM employees eligible to receive stock options.

"While there was a small group of employees who had difficulty with the transition, what's important to remember is that there are large numbers of employees who, in fact, understood what the company was trying to accomplish in its total compensation program and were supportive and enthusiastic," says IBM spokeswoman Carol Makovich.

Nonetheless, IBM's turnaround was a wake-up call for corporate America.It demonstrated that even nonunionized employees could be a force to be reckoned with. And, as similar benefits battles would show at other firms, so too were retirees long removed from the company fold.

"This is a turning point," Krueger says now. "If it blows over, it won't be until the entire baby boomer generation is gone from the workforce and retired."

Pension Surplus

Riding the crest of a long economic expansion and the greatest bull market this nation has ever seen,most corporate pension plans ended the last century vastly overfunded. At the end of 1999, the average company in the Dow Jones Industrial Average had $123 in pension assets for every $100 in liabilities, according to Towers Perrin, a benefits consulting firm. That was up from an average of $104 in assets per $100 in liabilities a year earlier. Some surpluses were staggering; at GE, for example, pension assets totaled $50.2 billion, or roughly twice its pension liability of $25.5 billion. The company has not had to make a contribution to its plan since 1987. Among the more than 400 employers that responded to PLANSPONSOR's 2001 Defined Benefit Survey in March, 57% said their plans remained overfunded, and another 24% said their plans were funded at a 95% to 100% level. Only 5% were less than 80% funded, and a healthy 38% of the respondents were planning to make no contribution to their plans this year, the same percentage as in 1999.

To be sure, the decline in stock prices over the past year has pared down the pension surpluses at many plans that typically invest more than half their assets in equities and, in some cases, eliminated them. A continued market slide, a weakening economy, and the staggering uncertainties that have prevailed in the aftermath of the terrorist attacks on September 11 have darkened the picture considerably.

However, with so much money on hand in recent years, employees and retirees have said that it should be easy for companies not only to maintain their retirement benefits but also to improve them. But, while some employers, including GE, occasionally have awarded voluntary cost-of-living increases to their pensioners, others have taken the position that, as long as the company's mandated obligations to retirees are being met, the pension surpluses can properly be stockpiled for a rainy day. For plan sponsors, this has multiple benefits. Not only do they guard against having to make extraordinary contributions at a later date,they also reap immediate benefits to their bottom line by forgoing current contributions and by recording surplus assets as a credit to pension expenses. According to a study by investment bank Bear, Stearns & Company, the latter practice, mandated by US accounting rules, allowed 25% of the companies in the S&P 500 to report income from their defined benefit plans in 1998. GE's pension surplus contributed $703 million to its profits that year, then $1.1 billion in 1999, and $1.3 billion in 2000.

Activists also point to extraordinary CEO compensation packages as proof that many companies could afford to do more for their retirees. Recently retired GE Chief Executive Officer Jack Welch, for example, earned a salary of $4 million in 2000 plus a bonus of $12.7 million-and also got three million stock options exercisable at $57.3125 per share. His total compensation for 2000, which included long-term gains on the exercise of stock options and other benefits, was about $125 million. On top of all that, he will now receive an annual pension of $10.5 million per year, plus other lavish perks.

"To insist that they are cutting benefits because the economy is slumping, or because they want to be more competitive, is patently untrue," says Krueger.

Boeing Retiree Takes To The Web

"If you go back five years, pension disputes were happening, but they were not public," observes Don Shuper, another Web-site warrior. "Some individuals would stumble across a problem and go pound on their company, and HR or whomever would say,'Oops, we made a mistake,' and give that person a minor correction in pension benefits," Shuper says. "But, since that time, we've got this thing called the Internet, which I think is responsible for about 90% of the increase in activism because it has made it relatively easy to maintain communication with people in other companies."

A retiredBoeing engineer in Seattle, Shuper had been an on-again off-again activist for years, beginning in the mid-1980s when he campaigned to raise wages for Boeing's production and manufacturing engineers to the same levels enjoyed by its design engineers. In the mid-1990s, after he had retired, he skirmished again with the company over changes to its retiree health-care plan. He did it again in 1997, when he began to question how Boeing was calculating his pension benefit.

Shuper says his complaints in the mid-1990s centered on Boeing giving retirees about a month to choose between two different medical plans or risk losing their medical benefits. He finally backed off, he says, when a Boeing representative told him that retirees would not actually lose their health-care coverage, but that the notice was designed to encourage people to make their choices promptly. In the 1997 incident, Shuper says, he hired an ERISA attorney to review how Boeing was calculating his pension benefit and assess whether a class-action lawsuit might be merited. He says the attorney concluded that, while mistakes were being made, they would not justify a lawsuit. Shuper largely worked alone in his efforts until three years ago, when he put up a Web site to share his concerns with other retirees. He also became a frequent visitor to the Web site that had been launched by Krueger and her colleagues at IEBAC.

Today, Shuper says, sites such as www.cashpensions.com, a multi-company employee "e-organization" launched by IEBAC and focused on retirement preservation and other labor issues, have become the local watering hole for workers concerned about their retirement benefits.

"People look at what they find on these sites and start digging up their own paperwork," Shuper says, "and they say, 'Hey, this does not make a hell of a lot of sense.'"

Activists' Targets

One major catalyst behind the new wave of employee/retiree activism has been corporate America's growing fondness for cash balance plans. According to global consulting firm Hewitt Associates, 18% of large US companies that offer defined benefit plans used a cash balance formula last year.

However, activists have a host of other concerns as well. Among them:

Early retirement benefits: For years, workers at many companies have been able to take advantage of subsidized early retirement benefits, usually beginning at age 55. Employers offered this perk as a way to lure expensive older workers off the payroll. It was especially popular in the 1980s at companies that were "reengineering" themselves, typically with the help of massive work force cutbacks. During the 1990s, with the economy booming and skilled workers at a premium, many of those same employers eliminated their early retirement benefits, often at the same time they introduced cash balance plans.

That is whatDuke Energy did in 1997, and it prompted Jim Matthews, a nuclear instrumentation and control specialist at the company'sMcGuire Nuclear Station near Charlotte, North Carolina, to join the activist movement after 27 low-profile years with the company.

Suspicious of the retirement plan changes from the outset, and emboldened by the activities of IBM activists, Matthews hired an ERISA attorney and an actuary to verify Duke Energy's methodology in calculating his opening balance in the cash balance plan. He concluded that he was being shortchanged and, in 1999, filed an age discrimination charge against Duke with the Equal Employment Opportunity Commission. Matthews, who turned 54 this year, says his case is still open. In the meantime, he says that, while he had "never considered working beyond age 55" prior to the cash balance conversion, he now has no plans to retire.

COLAs: All across the country, activist employees and retirees are urging companies to tap their pension surpluses to fund cost-of-living increases in pension benefits. At the heart of the COLA dispute is the question of who has claim to pension surpluses. From a legal perspective, the answer appears clear: As long as employers are meeting the benefit obligation specified by their plans, they have no requirement to provide COLAs. But, many retirees insist that, because pension plans are created specifically to benefit retirees, sponsors have some moral imperative to use any surpluses on behalf of retirees.

Retiree health benefits: Activists are waging still more campaigns at companies that have chosen to eliminate or scale back retiree health-care benefits, sometimes succeeding in forcing change. In May of last year, for example,a federal judge in Minneapolis ordered NCR Corporation to restore retiree health-care benefits to 3,400 NCR retirees who had agreed to retire early from NCR in 1993. The ruling was the result of a class-action lawsuit brought on behalf of a retiree who had enlisted the aid of the Minnesota Senior Federation's Pension Rights Project. More recently, retirees filed two more class-action lawsuits against NCR claiming the company improperly reduced pension benefits after they retired.

What Sponsors Can Do About It

While activists claim that employers routinely display a callous disregard for their current and future retirees, companies themselves insist that is not the way they feel-or act.

"We do care about the concerns our retirees have, and we are always willing to listen to those concerns," says Audrey Mautner, a spokesperson for Qwest Communications International, which, last year, acquired U S West and has since wrangled with some of that firm's employees over its plan to eliminate retiree health-care benefits for current employees who retire with less than 20 years of service. Late last year, the Telephone Retirees Association of Arizona sued the Arizona Corporate Commission to reverse a decision it made in June that would allow that to happen. A spokeswoman for the Arizona Corporate Commission said the suit was dismissed by the Arizona Superior Court in June.

ABC's Delaplane predicts that the recent surge in employee and retiree activism will prompt more companies to initiate early and extensive discussions with their workforces about the need for, or desirability of, changes to their benefit plans.He also suspects that companies converting traditional pension plans to cash balance plans will take steps to make those conversions more palatable, either by allowing more or all employees to be grandfathered into their existing plans, by supplementing the opening balances of those workers most harmed by the conversions, or by promising substantial portions of the workforce that they will receive benefits from whichever plan-old or new-gives them the biggest pension upon retirement.

"Companies looking at cash balance plans now are leaning more toward pension choice," agrees Thomas Murphy, a principal with the Unifi Network, a benefits consulting and actuarial services subsidiary of PricewaterhouseCoopers. "They're saying, 'Okay, this is what you have now, this is what you will have under the current formula if you remain in this plan, this is the new program we're moving toward, and this is what you would be projected to have if you switch to it.It's up to you if you want to stay with the current program or change."

Delaplane says that, while the pace of cash balance conversions has slowed a bit recently, he expects it to pick up again once the Treasury Department issues regulations that spell out how employers must comply with a provision of the recently approved Economic Growth and Tax Relief Reconciliation Act of 2001, which expands requirements that they notify participants in defined benefit plans of any plan amendments that would decrease future accruals to that plan, as well as some other gray areas relating to cash balance plans.

"Employee benefits are intended to serve as a perk," Delaplane adds flatly."If they do not result in better levels of employee satisfaction, they are an inefficient use of corporate resources."

Activists Remain Skeptical

"Our advice to plan sponsors is that they take the needs of their workers and retirees into account as they are shaping their pension policies, and to know that people care deeply about their pensions," says Friedman.

"I think that what people want most is a sense of security, of being able to understand what they can plan on, and what they should not plan on," adds Krueger.

Plan Sponsor: Mad As Hell