From the September 2000 AARP Bulletin, published by the American Association of Retirement Persons
Pension Revolt Catches Fire
by Trish Nicholson
A grass-roots movement is gathering steam as employees and retirees of some of the nation's largest corporations band together to fight an erosion of pension benefits.
Using the Internet to orchestrate their campaign, the activists charge that changes in pension plans are threatening retirement savings and securitY for millions of Americans.
They are calling for full disclosure of how these changes affect individuals' benefits. They're fighting against cuts in pensions and retirement medical benefits and demanding cost-of-living adjustments (COLAs) for retirees.
Moreover, they're taking their grievances to Congress, the courts, the media and sometimes even their companies' shareholder meetings.
"This is the beginning of a pension revolution in America," says Karen Friedman, director of the Pension Fairness~ Project at the Pension Rights Center, a nonprofit watchdog group in Washington. "This should be a warning to employers that employees will not sit by idly while companies slash their benefits in the name of global competition. Employees are going to organize ... and they are ultimately going to win." Employee activists from IBM made inroads when the Securities and Exchange Commission (SEC) overruled Big Blue's effort to bar stockholders from considering an employee-sponsored resolution at a shareholders meeting in Cleveland last spring.
The proposal called for giving all IBM employees a choice between the company's old and new pension plans and restoring cuts in retirement medical benefits.
Although no debate was allowed before the vote, the proposal garnered 28 percent of stockholder votes-well over the 3 percent needed to guarantee it a place on next year's agenda.
In explaining changes at IBM, Chairman and CEO Louis V. Gerstner, Jr., said, "We must compete for talent and loyaltY the same way our 'dot com' competitors do-more stock and cash up front and fewer 'old fashioned' benefits like pensions." But at a rally outside, activist Alan Crudden recalled the day in 1999 when he learned that after 18 years as a professional at IBM, a change in plans had reduced the value of his pension to less than what his wife accrued in eight years as a member of the clergy. Last September IBM restored the choice between two plans for some employees, including Crudden. Now he's working to have that choice available to all his colleagues.
"Wrong is wrong," Crudden says. "An employee vested under a plan should be able to stay under that plan because that represents a bargain... It's like shaking your hand on something." But IBMers are not alone in the fight to preserve retirement security:
At the heart of the activists' complaints is a corporate trend to replace traditional retirement plans with so-called "cash-balance" plans. More than 300 U.S. companies switched to these plans in the last few years, until the Internal Revenue Service in essence put a moratorium on in 1999, pending a federal investigation of whether such conversions discriminate against older employees.
Critics say that because benefits accrue differently under the new plans, midlife workers with about 20 years of tenure get the worst of both worlds when their companies switch. Some stand to lose 20 percent to 50 percent of the benefits they would have accrued under the traditional plans.
An AT&T employee, who asks not to be identified, tells the AARP Bulletin he had planned to retire at age 55 with an annuity he calculated at $68,000. With the company's conversion to a cash-balance plan, he figures his annuity will amount to no more than $38,000.
Burke Stinson, a spokesman for AT&T, says companies are moving away from a paternalistic philosophy of compensation: Businesses no longer assume that they know "how to take care of you . . . [rather] the enterprise is giving you money to take care of yourself." But Paul R. Edwards, chairman of the Coalition for Retirement Security, says, "If you lose half of your expected retirement benefits at age 50, you can't go to another corporation and make that up.
It's too late. It's over, Charlie. It's gone." The coalition is an umbrella advocacy organization representing more than 1 million employees and retirees nationwide. Its membership has more than doubled in just the last-year.
A group of IBM employees were the first to object publicly to a cash-balance conversion. The clamor began in May 1999, and four months later-days before a Senate committee hearing on the issue-IBM more than doubled the number of employees allowed to choose between the traditional and the cash-balance plans. Still, more than half of its U.S. employees were not given a choice.
Other companies have made concessions, too:
In January, three years after Bell Atlantic instituted its ~ash-balance plan, management announced a new arrangement for 20,000 employees with 15 or more years of tenure: Each will receive the amount that would accrue either under the company's new plan or under a modified version of the old, whichever is greater.
And in April, General Electric gave its retirees their first pension increase in four years, although the company declined to institute regular COLAs.
Activists claim that in a long-running bull market, with pension funds earning high investment returns and largely overfunded, companies ~ using those funds to bolster their income statements.
James Leas, the engineer and lawyer who penned the IBM employees' shareholders resolution, is now calling on the SEC to enforce its directive requiring companies to explain fully in their annual reports how much of their reported income comes from pension funds.
Activists are keeping the pressure on through litigation as well. Employees at several companies have filed lawsuits charging employers with violations of the Employee Retirement Income Security Act (ERlSA). And the Equal Employment Opportunity Commission is investigating more than 700 claims alleging cash-balance conversions violate the Age Discrimination in Employment Act.
Meanwhile, activists are pushing a legislative agenda in Congress to beef up pension protections.
Plan administrators should be required, for example, to provide participants with annual statements summarizing their accumulated benefits, says Janet Krueger, a spokeswoman for the IBM Employee Benefits Action Coalition (EBAC).
In July the House passed an amendment sponsored by Rep. Bernie Sanders,I-Vt., that would prohibit the IRS from awarding tax-exempt status to any pension plan that discriminates on the basis of age. And cash-balance critics are hoping that when Congress returns from its Labor Day recess, the Senate will take up legislation championed by Sen. Tom Harkin, D-Iowa, that would further curtail age discrimination in cash-balance conversions.
The ERlSA Industry Committee, which represents employers, says the House measure was based on an "erroneous belief" that cash-balance plans violate age discrimination laws.
But Sanders maintains that reducing workers' pensions as they get older is "not only illegal" but "absolutely immoral." While moral outrage keeps the movement burning, the Internet provides the means to organize. For workers whose companies are spread out at multiple sites across America, employee-sponsored Web sites have become-like the water coolers of yore-places where workers exchange unsanctioned information.
"The Internet actually gave employees a way to get together and put tremendous pressure on the employer from all different fronts," says Norman Stein, a law professor at the University of Alabama. Without Web sites and e-mail, that would have been almost impossible, he says, because "the opportunities to do that at work are very limited, and the consequences are pretty extreme." "Before we had the Internet, what could you do, gripe to your office mate?" asks retired IBMer Lynda French, who developed the first employee Web site on cash-balance plans.
At least half a dozen pension rights groups now offer Web sites where members can study the issues, calculate their benefits, post messages, write openly or anonymously to corporate executives, issue press releases and weigh in with members of Congress and other policy-makers-all from the privacy of their home computers.
"We know how to use the Internet," says IEBAC's Krueger. "We built it, we can use it to pull people together."
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