Feathering the Nest Egg

As has been widely reported, IBM employees didn't take the conversion lying down. After months of protests, Leas and 329 other shareholders submitted a shareholder resolution calling on IBM to give all employees, regardless of age, the same pension choice and retirement medical plan as older employees were given. And although the resolution did not pass, it captured 28.4 percent of the shareholder vote--far more than the 3 percent needed for employees to win the right to bring the issue up again at next year's annual shareholder meeting. And, largely in response to the protests of employees at IBM and other companies, a Senate panel, the Internal Revenue Service, the Equal Employment Opportunity Commission, the Department of Labor, and the Pension Benefit Guaranty Corp. are all in the process of reviewing cash- balance plan conversions to determine if, among other things, they violate U.S. age-discrimination laws.

Meanwhile, General Electric's huge surplus, and the $4 billion it has contributed to earnings in the past five years, have also stirred up dissent. At demonstrations throughout the country, GE retirees and union representatives have been pressing for permanent cost-of- living increases. And at GE's last two annual meetings, union workers and retirees proposed resolutions seeking shareholder approval of top executives' benefits. Although the resolutions didn't pass, they appear to be gaining institutional investor support. GE retiree groups are also uniting with retiree groups from IBM and four other corporations to seek protection from benefit reductions in the event of a merger.

Such protests from retirees and labor could be the main price companies pay for increasing their pension assets. "There's no question that this has made employees more cognizant of pension trusts and where they sit in the overall spectrum of the employer's assets," says Bob Patrician, a research economist at Communications Workers of America. Retirees are also more likely to push for cost-of-living increases and, in the process, revive the decades-old debate over the proper use of surplus pension plan assets.

"The only thing that will stop this is political intervention," says Norman Stein, a professor at the University of Alabama School of Law. "The idea is now too well entrenched that this money belongs to the shareholders, not the employees, and [companies] are going to give as little of it as possible to the employees--even though it was supposedly put aside for their retirement." 

The Deductible Debate

Congress addresses limits to pension contributions.

For years, companies have pushed for legislative changes that would allow sponsors to pump more assets into their pension plans. Most recently, major employers have advocated for a repeal of the limits on deductible employer contributions to pension plans.

On July 19, the House of Representatives overwhelmingly passed the Comprehensive Retirement Security and Pension Reform Act of 1999 (H.R. 1102), introduced by Reps. Rob Portman (R­Ohio) and Ben Cardin (D­ Md.). A key provision of the proposed legislation is the repeal of the funding limit. Employers currently cannot deduct contributions to a defined benefit plan once the plan's assets exceed 150 percent of its liability. As a result, many corporations haven't made contributions to their pension plans in years (General Electric Co., for example, hasn't contributed to its pension plan since 1987). Under the current law, the funding limit will be raised to 170 percent by 2005.

The Portman-Cardin bill, in contrast, phases out the ceiling on deductible contributions more quickly and eliminates it entirely after December 31, 2003. If passed by the Senate (a vote was expected at the end of September), the bill would also raise the existing percentage of salary limitations on employee contributions to qualified savings plans (defined contribution plans, 401(k) plans, and individual retirement accounts), relax existing antidiscrimination and "top- heavy" protections, and provide some anticutback relief to employers under specific circumstances.

The bill's opponents, which include the Clinton Administration, say it primarily benefits higher-paid employees while relaxing the nondiscrimination rules designed to protect lower-wage workers. Some also fear that it includes language that could have the unintended consequence of giving employers greater leeway to cut benefits, such as early retirement subsidies. In addition, the bill is likely to cost the U.S. Treasury tens of billions of dollars in revenue losses. "There's a significant amount of support for the bill in the Senate," says David Certner, senior coordinator at the AARP. "The question is whether or not the problems with the Clinton Administration can be worked out."

WHO'S OVERFUNDED

The 10 most overfunded defined benefit pension plans

**Projected benefits obligation 
*The % increase (decrease) is calculated using adjusted operating income that reflects pension adjustments only.

• « previous
• 1
• 2
• 3
• 4
• next »