Should Be Allowed to
Retire with Dignity'
A company presentation on the pension plan dominated
the day’s proceedings.
In the morning, GE benefits specialist Barbara
Beckman offered both a general review of retirement income in the
United States and a more specific look at the structure of the
General Electric pension plan. Her presentation was frequently
punctuated with questions and comments from the UE committee. Union
representatives were unrelenting in their criticism of the mandatory
employee contributions to the pension fund and complaint that GE
management misuses the plan as a business.
Beckman’s observation that the employer has
"full risk" for the pension plan provoked an objection
from Stephen Tormey, secretary of the UE-GE Conference Board, who
reminded the company that with $50 billion in the fund GE faces no
Beckman noted that some defined benefit plans
require employees to pay contributions. Questioned by the UE
committee she conceded that perhaps about 95% don’t require
General President John Hovis, Patrick Rafferty of
Local 506 and Tormey argued that the contribution subsidizes the
pension plan. Workers get back their own money plus a relatively low
rate of interest. The contribution, said Tormey, "is a
"total and complete anachronism" without any
As in the past, the company described retirement
income as a "three-legged stool" of personal savings,
Social Security and company pension. Beckman produced recent
quotations from the Social Security Administration, the AFL-CIO and
the firm Ernst & Young to bolster the GE argument. In response,
the UE committee declared, "We’re here to negotiate a
significant pension increase. We can negotiate how the GE pension
better integrates into Social Security, but we can’t negotiate
Social Security. We can’t negotiate personal savings."
"One of the things we look at in my local is
how much money there is in the fund, and the company’s ability to
pay," said Bill Callahan, Local 751. "We don’t want it
all, we want a fair, reasonable share." Added Betsy Potter,
Local 618: "Each and every local feels the same."
"Ability to pay is not the measure we’re
going to use," responded John Curtin, the company’s
Tormey invited GE to join with the union in opposing
the "wild privatization schemes" that would undermine the
value of Social Security.
Beckman said the company assumes that employees will
see 70 to 80% of their earnings replaced by a combination of Social
Security, the GE pension plus their Personal Pension Accounts and
personal savings, based on a full career of 35 years. She showed an
example of a worker earning $35,000 a year, retiring at age 62 in
2000 after 35 years’ service. The company would expect that 37% of
the replacement would come from Social Security, 37% from the
pension, and 2% from savings.
The UE committee had several objections to this
scenario. First, 35 years is no longer a typical length of service —
although this figure represents an improvement over the 40
year-career GE has long used in such presentations. Union
representatives said that increasingly workers are retiring at age
60 with 27-28 years’ service, according to the company’s
figures. Fewer workers can expect a career of 35 years. Instead, the
company brags about its outplacement services. As fewer workers
produce the same output, the pressure on those remaining encourages
them to move on, said Bob Brown, Local 332, and Bill Callahan, Local
Also, the UE leaders said, savings can’t be
predicted and are not guaranteed. "With an income of $35,000,
there’s not much scope for saving," observed Betsy Potter.
And with about half of those retiring in 2000 taking the
survivorship option, the proportion of income replaced by the GE
pension falls to nearly 30%. Getting a GE pension that actually had
a 37% replacement rate would be "a major step forward,"
Tormey told the company.
President Hovis blasted the company for being
"philosophically opposed to allowing hourly employees to retire
with dignity." The replacement rate could be 90% or 110%. And
he complained that GE is presuming to "give us a budget"
by forcing contributions to the pension fund. "It’s not for
you to make these decisions for people. It’s not right that money
is sitting in the pension plan."
Tormey said because the company forces workers to
make contributions, it claims there’s less income for the pension
to replace, and at the same time argues that workers have more retirement
money to live on because of the forced contributions. He denounced
this practice as "double accounting" and "voodoo
Callahan said that for the company to require
workers to contribute to an over-funded pension fund was
"fundamentally wrong." Workers know that the $50 billion
fund has twice as much money as needed to meet present and future
obligations, and they want that wealth to be used for pension
improvements, he said.
In her presentation, GE’s Beckman pointed out how
the regular pension consists of 1.45% of pay up to $26,000 and 1.90%
of pay above that figure. The UE committee said that the system
needs to be simplified and improved and that the 1.45% portion be
eliminated, so that pensions are calculated with the higher
Beckman discussed the Personal Pension Accounts,
begun in 1989. Participants contribute 3% of pay over $30,000. Again
criticizing this forced contribution, Callahan said, "I still
haven’t heard a reason for this. Is there a logical reason?"
Beckman responded by saying that the contribution has always been
part of the plan and that GE’s philosophy is that employees should
share in the cost of benefits. "It’s crazy that we’re
contributing to a fund that’s so over-funded," Callahan
objected. Ted Bradley, Local 1010, was incredulous that GE hasn’t
contributed a cent to the pension fund since 1987. Tormey argued
that the contributions, like the career earnings formula, represent
an attempt by the company to maintain a discriminatory pension plan
that benefits management at the expense of workers.
In response to Beckman’s explanation of the 1997
Special Adjustment to Regular Pension, Tormey said it was not really
a career earnings update, but rather an adder. He said GE made the
adjustment in the belief that the number of workers earning overtime
would skew pension figures. Tormey and Hovis told the company it’s
unfair to expect workers to work overtime and for the overtime to
then affect their career earnings update. Younger workers were
unfairly affected by what the union considers a takeaway, Tormey
said. "A true career earnings update is necessary," he
The GE Pension Trust, its purpose and uses, provoke
considerable discussion. In her explanation of the trust, Beckman
stated that benefit levels are not based on investments — on how
the fund is doing — but rather on benefit amounts negotiated with
the union. However, she also went on to maintain the health of the
trust was irrelevant to bargaining over pension improvements, a
position Tormey characterized as "absurd." When questioned
by Tormey, Beckman conceded the trust exists for the sole purpose of
funding GE’s pension obligations. If that’s the case, he said,
then the company should stop putting communications into the plant
saying a big trust is good. Whether over-funded or under-funded, the
pension plan would not be any less secure, Tormey said — GE is
obligated to provide benefits.
David Kitchen, Local 506, said that nothing in the
presentation so far gave any indication that the company regards the
pension plan as providing for the security of the retired workers
who made GE successful. GE management operates the pension trust as
a separate business, "and there’s been nothing said here to
convince me otherwise," Kitchen declared.
Ted Bradley, Local 1010, said that many of his
co-workers believe the GE executives are waiting for a change in the
law to dispose of the bloated pension fund as they choose. Tormey
said that if the only purpose of the plan is to meet GE’s
obligation to beneficiaries, the door should be open to dramatic
improvements in pension benefits. But, said Hovis, since company
profits are tied to the pension fund’s performance, it becomes
more difficult to get improvements.
GE representatives said that while no real cash is
involved, the costs of the pension plan are charged to the
individual businesses. Under questioning from Tormey, they admitted
that GE businesses also receive credit for the pension fund’s
"profits." "And so now we have another reason for the
trust to grow and grow," Tormey said. Last year’s change in
the Plan’s interest rate assumptions reduced plan liabilities by
$2 billion, many times more than the cost of every union proposal to
improve the pension.
"We can have a very, very dramatic increase in
benefits for retirees and future retirees without in anyway
undermining the soundness of the trust, which you say is there for
just one purpose," Tormey told the company. "But it turns
out that the trust is being operated for another purpose" —
to improve the company’s standing on Wall Street.
The UE committee dismissed the company’s
complaints about the pension plan’s "competitive
disadvantage." One potential competitor missing from the
company’s list — General Motors — offers considerably higher
benefits, the GE representatives admitted.
GE’s pension benefits are paid for by the
over-funded trust; the money doesn’t come out of operations, the
UE committee said. The trust doesn’t cost GE a cent, instead, it
makes money that benefits GE businesses and provides GE with a
competitive advantage. But no matter how well the pension fund does,
GE workers can never expect better benefits, under the company’s
philosophy. "We don’t buy it. The members don’t buy
it," declared Tormey. UE members understand the $25 billion
pension fund surplus, he told the company.
In the afternoon, GE benefits specialist Tom Conway
examined specific features of the pension plan, including vesting,
disability, survivor benefits, successor employer and job loss
The UE committee said the disability benefit is long
overdue for updating, particularly the 12% reduction in the benefit
before age 60.
Discussion on the Special Early Retirement Option (SERO)
and other benefits tied to job-loss events rekindled the debate over
the purpose of the pension trust. Conway said the SERO-30 part of
the window in 1997 was "a costly experience," with outlays
resulting in an additional $213 million charge to GE businesses in
the fourth quarter of 1997. A total of 5,349 employees (hourly and
non-exempt, union and non-union) took advantage of SERO.
While there was no cash flow from operations, GE
businesses were "charged" for the expense — and the
bottom line was smaller in the fourth quarter that year. "The
real surprise was on Wall Street," said Tormey. Decisions about
the pension fund should be based on the needs of the beneficiaries,
not on Wall Street or shareholders, he insisted.
"You’re reluctant to improve benefits because
of constituencies which have nothing to do with the fund,"
Tormey said. "We’re tired of it." The pension fund is
not an investment vehicle. This issue will not go away, Tormey said.
UE will bring it to every public forum if GE persists.
GE spokesperson Curtin said, "We are concerned
about what Wall Street thinks."
But was there really a problem? the UE committee
asked. The over-funded pension trust easily accommodated the
larger-than-expected outlay. The fund has $16 billion in
"booked" profits which haven’t even shown up on the
balance sheet yet, and will further bloat the fund in years to come.
Further, due to accounting rules, the pension fund provided GE with
pre-tax profits of $1.3 billion last year. And GE’s actual
obligations declined by $2 billion, the union pointed out.
David Adams, Local 506, pointed out that the GE
pension fund provided $345 million of the $820 million invested in
the purchase of the swank Pebble Beach golf courses in southern
California — an amount far in excess of the monies spent on SERO.
The company should not have been surprised by the
number of workers who took advantage of the SERO window, said
President Hovis. "We’ve been telling you at the table that
our people want out," he said. Besty Potter, Local 618, and Bob
Brown, Local 332, confirmed that many GE workers want to leave the
company because of the stress levels. By closing profitable plants,
the company had no one but itself to blame for the number of workers
exercising the SERO option, suggested Ted Bradley, Local 1010.
GE’s Conway said that layoffs, not plant closings,
and the expansion of eligibility, fueled the unexpected use of the
David Kitchen, Local 506, announced that with
operating expenses showing losses as a result of SERO, "it’s
no surprise to us that there is less transfer of work and
contracting out of work and more attrition." The company is
retaining the work in its plants but not the jobs. Jobs are being
doubled and tripled, he said. And Kitchen questioned why the company
has a plant-by-plant SERO quota and asserted that its use has been
manipulated. Pat Rafferty, Local 506, said that jobs have
disappeared through attrition while the company avoids hiring new
workers or paying SERO.
Bill Callahan, Local 751, said the company’s
experience with SERO shows the need for "30 and out." He
said he was informed just yesterday that his plant in Niles, Ohio
will probably lose between 30 and 35 workers, making SERO an
important feature. "We’re not looking to lose or give that up
because of some misjudgment." Hovis pointed out that at the company’s
unorganized Parkersburg, W. Va. plant, it has suited GE to have a
more liberal, continuous SERO.
David Kitchen, Local 506, raised issues of the
application of SERO’s replacement pool, and particularly the
denial of the SERO 30 feature to incentive workers who take an 18%
cut or more in earnings. Tormey commented that with this benefit,
negotiated in 1997, workers have to take "a nasty fall in
pay." He characterized the benefit as more symbolic than real,
saying there is probably only a small number of people who will ever
be able to use it.
GE’s Curtin said that this was negotiated as a
safety net position which he does not expect to see changed.
Pat Rafferty, Local 506, "We want a balanced
contract, but that doesn’t take away the strong desire of many
older workers to find a replacement and leave early." Joyce
Sumner, Local 332, reiterated the demand for "30 and out."
In concluding for the union, Tormey said, "We
believe the company has room for substantial improvements by making
use of the surplus."
The negotiations recessed with the union scheduled
to present job and income security proposals on Wednesday. The union’s
own pension proposals will be forthcoming next week.