Pound Pension Plan
Negotiations resumed with a company presentation on
GE’s businesses that emphasized the shift towards services,
followed by a union presentation on the GE pension plan and a
lengthy consideration of UE pension proposals. On this long and
productive first day of the third week of national bargaining, the
UE committee gained Pat Campbell of Local 731 (replacing Pat
Wojtowicz), and Lynda Leech, Local 618. Bob Roberts of the IBEW sat
at the UE table and UE Research Director Lisa Frank rejoined the
Robert W. Nelson, GE vice president for corporation
finance and planning, presented a profile of a successful,
broad-based and expanding company. GE’s record performance
continues in 2000, with revenues up by a "really unusual"
15% in the first quarter and on track in the second quarter.
Products represent a diminishing share of company employment and
particularly revenues and earnings, with service and "original
manufacturing" service together accounting for nearly 75% of
By redefining GE’s markets, with an emphasis on
service, the company has dramatically improved market share and
revenues, Nelson said. The most dynamic example is Power Systems,
which GE now defines as extending from ‘well-head to consumption’,
providing products and mostly services for the entire cycle.
"GE Capital, the company’s biggest entity, is a leader in
thinking of markets in a different way," he said. The purchase
of a lawn mower at Home Depot on credit goes through GE Capital,
which also finances high-tech businesses such as Microsystems and
Lucent. GE is now a major player in the insurance business. GE has a
global position in key financial service markets and is involved in
consumer finance in 30 countries. When Europe’s banks
restructured, GE Capital gained entry. Taking advantage of the
collapse of Asian financial markets, GE moved into Japan’s credit
and personal loan markets.
Entering the 21st century, 70%
of GE revenues come from services, Nelson stressed. Expansion into
service has resulted in increased sales in aircraft engines, medical
systems, power systems and transportation. E-commerce (sales through
the Internet) is a recent arena for expanded sales.
GE, Nelson concluded, is "a 21st
century solutions company ... in large, expanding markets with
Stephen Tormey, secretary of the UE-GE Conference
Board, commented in response, "We’ve been a little too modest
in what we’ve asked of the company."
In answering a question posed by Patrick Rafferty,
Local 506, Nelson confirmed that significant profits continue to be
generated by GE’s core manufacturing businesses. But he indicated
that the service component will continue to grow while manufacturing
Rafferty and Betsy Potter, Local 618, said workers
in the Erie, Pennsylvania plant have not benefited from GE’s
business expansion, despite their contributions. The Erie workforce
has been denied the opportunity to service locomotives, work that is
instead done in Mexico; locomotive testing work has been
subcontracted. "You talk about a world-class product, what
about the people who are making it?" asked Lynda Leech, Local
General President John Hovis pointed out that the
hard work of UE members in Erie boosted GE’s share of the market
to 70%; from 320 locomotives a year in a 92-day cycle, Erie workers
now complete 910 locomotives annually in a 20-day cycle. "What
more do people have to do?" he said. "How much more
productivity do they have to achieve," before the company is
willing to afford them opportunities like the servicing work done in
Hovis said GE management should have to face the
people whose lives they have devastated through loss of jobs. The
company looks only at the bottom line and ignores the human
dimension of its business decisions.
A comprehensive, detailed UE pension presentation
made the case for a broad range of substantial pension improvements.
The presentation, delivered by Tormey, looked at plan funding, some
problems with the GE plan, the GE pension business and some
(Excerpts from the UE Pension presentation can be
viewed online; they may be viewed in your
current browser window or opened
in a new window)
The fund’s fair market assets have doubled in just
five years, to $50 billion. In the same period, 1994-99, the
projected benefit obligations have remained relatively flat; the
fund has nearly twice as much money as required to meet obligations.
The fund’s surplus has increased by 250% over the past five years.
Compared to the total assets of entire companies (and not
just their pension plans), the GE pension fund surpasses those of
Boeing, Hewlett-Packard and USX, and compares favorably to Time
Warner and Bell Atlantic. If the GE fund was a company, its huge net
worth would beat out those companies and IBM and General Motors,
By the same measure, the GE pension fund dwarfs the
entire net worth of GE "competitors" DuPont, Raytheon,
Dow, United Technologies, Emerson, Rockwell and Whirlpool.
The GE plan is self-supporting, with annual income
greatly exceeding annual benefit costs, and rising. And as the
surplus outstrips obligations, this "profit" is credited
to GE businesses. The GE plan takes in more than it pays out. In
1999, the GE plan paid out less than $2 billion in benefits and
enjoyed a return on assets of more than $8 billion. The considerable
wealth of the plan has been augmented by more than $1 billion in
employee contributions since 1989. GE, meanwhile, has not
contributed to the fund since 1987; its average annual contribution
1979-1985 was $435 million. "This is a tremendous windfall for
the company," said Tormey.
GE employees’ Personal Pension Accounts (PPA)
subsidize the fund, the union said. A chart comparing PPA rates with
the pension fund’s return on investment revealed sometimes
dramatic gains by the fund. "You take our money, give us
five-plus percent and then make between 15 and 20%," Tormey
said. "This is worse than usury."
GE workers face a triple whammy with the accounts,
Tormey said. Their money is taken to subsidize the plan; their PPA
is used as an excuse for a smaller pension benefit; and subtracted
from the income that the pension is supposed to replace.
Turning to problems with the plan, Tormey pointed
out that the pension provided by the guaranteed minimum tables
represents a benefit equal to only 1% of pay. "This is supposed
to be our safety net, what we rely on if we don’t make it on
Career Earnings, but it is more of a sieve than a net," he
said. A significant number of hourly workers continue to rely on the
guaranteed minimums, including 38% of workers retiring in 1999.
Within UE’s ranks, 41% of those retiring between July 1, 1997 and
March 29, 2000 retired on the guaranteed minimums, 45.5% excluding
disability. The earning replacement rates for average UE retirees
(Feb. 1, 1997-March 29, 2000) were: 27% optional; 32% SERO; 21%
disability and 53% SERO plus supplements. The 1999 figures are
mostly worse — 31% SERO, 19% disability and 50% SERO Plus.
As pensions are tied to wages, flat wages in the
1990s have led to flat pensions, in real dollars. GE wages
increases, adjusted for inflation, failed to advance wages beyond
$12 an hour in the 1990s in terms of actual purchasing power.
Looking next at the discriminatory nature of the
Career Earnings Formula, the union presented charts that show how
the formula favors higher-paid GE employees. In one example, a
worker earning $39,000 a year would accumulate only 45.7% as much as
an employee earning twice as much, and just 29.6% as much as another
earning three times as much. Assuming all three worked for 15 years
(without a salary increase or inflation), the lowest paid would have
to work for 37 additional years to receive the same pension as the
highest paid. The plan is skewed to benefit the better-off, Tormey
explained, supposedly to compensate for the higher replacement the
lower paid receive from Social Security. In reality, lower paid
workers pay S.S. on all of their earnings, unlike their higher paid
counterparts in the plan.
Updates are formulated to preserve the plan’s
inherent discrimination, so that the rich continue to get richer,
Under the heading "Speed, Simplicity and
Self-Confidence?," the union presented a page from a GE benefit
book to demonstrate the unwieldy complexity of an earnings formula
Despite adjustments in the benefits of active
retirees, GE pensioners have continued to lose purchasing power, the
union said. A chart showed how the average 1981 retiree suffered a
9% loss of purchasing power; the average 1986 retiree 22%; and the
average 1991 retiree 12%. The 77,000 hourly retirees receive an
average of $553 a month; the 12,000 current surviving spouses an
average of just $260.
The GE pension falls short of other major
industries, including auto, aerospace and steel. The West Coast
longshore union (ILWU) negotiated a $90 multiplier, $95 in 2001,
with a 35-year cap. UE-represented workers employed by companies far
smaller than GE enjoy pensions that exceed some or all of the GE
tables. The average multiplier at Deerfield Plastics (UE Local 274)
is $48; Asea Brown Bovari workers receive a 2.5% career formula.
"What about industries we actually compete
in?" asked John Curtin, the company’s chief spokesperson.
That’s answered by the huge size of the GE pension fund, and how
it dwarfs the total assets of so many GE competitors, replied Tormey.
Using a page from GE’s 1970 benefits book the
union pointed out how the company continues to penalize the disabled
with a 12% reduction in their pension benefit.
The union called the company’s attention to the
1987 law that gradually raises the age for retirement with full
Social Security benefits, from 65 to 65 and 2 months for those born
in 1938 to 67 for those born in 1960 or later. The age to receive
80% of Social Security benefits is also rising.
Why should a pension plan with such a phenomenally
healthy fund have so many problems? the union asked. Part of the
explanation lies in hide-bound tradition, some in simple greed.
Another explanation is what UE terms "The GE Pension
Due to accounting rules, GE was able to report
almost $1.4 billion in profits from the pension plan on its books in
1999. The amount of money GE is able to show on the balance sheet
becomes a driving force in how decisions are made about the plan,
Tormey charged. Barbara Beckman, GE pension manager, objected that
accounting rules require the company to report pension income on its
books. Nevertheless, Tormey responded, decisions about pension
benefits should not be made as a result. And more than $7 billion
from the pension plan over the last decade has appeared as operating
profit on GE’s books.
Those pension profits compare favorably to other GE
businesses. Last year’s pension surplus beat out the revenues of
GE’s plastics, technical products and appliance businesses and
NBC. In its overall portfolio, the pension has become a significant
factor, Tormey said.
Quoting an article in the National Post,
Tormey pointed out how these pension profits add considerably to GE’s
overall profit statements. GE has accumulated $16 billion in
actuarial profits from the pension plan not yet put on the balance
sheet which he said will be used to ensure a smooth, upward earnings
curve for Wall Street’s benefit. This is why the unexpectedly
larger outlays on the Special Early Retirement Option (SERO) upset
the company — not because of the impact on the overfunded pension
plan but rather because of how the cost of SERO affected the company’s
GE uses the pension plan to "manage"
earnings," the union said. Largely by increasing the discount
rate on the plan from 6.75% to 7.75% last year, GE wiped out $2
billion in projected benefit obligations. When returns are greater
and compensation less, GE "books" future profits. Due to
the 1996 retiree benefit increase of about $100 million, GE was able
to restate the discount rate and reduce its liabilities by about
$200 million, for a "net profit" of $100 million. In other
words, GE actually profited from the 1996 retirees increase, but
didn’t tell anyone, even as it took public relations bows for the
The union revealed how GE used the pension plan to
help defeat the 1995 UE organizing campaign at the company’s
Parkersburg, West Virginia plastics plant. The company pledged there
would be no layoffs — but at the same time offered a wide-open
SERO benefit not tied to a job-loss event, in order to downsize the
plant without layoffs. That could only take place, Tormey said, if
SERO was run differently than as provided for in the Pension Plan.
The company then threatened to lay people off and run SERO in a more
restrictive fashion if the union organized the plant. This is an
example of the abuse of the plan for purposes having nothing to do
with what the pension is for and represents a breach by the company
and plan trustees of their fiduciary responsibility to plan
The union charged the company with conflicts of
interests in the management of the plan. UE noted that all of the
pension plan trustees are employees of the General Electric
Investment Corporation (GEIC), a division of GE Capital. GEIC
manages the pension trust and uses its position to get outside
customers and to raise profits for GE Capital. (The plan’s
administrative costs increased sevenfold between 1986 and 1998.) The
same accounting firm audits both the pension and the regular GE
corporate account. GE common stock now represents 9.8% of pension
trust assets — but there is no independent employee representative
among the trustees. And there is no check on GE investments of
pension dollars, including those used against the interests of
employees, UE said.
Some solutions would include building on the
positive changes to the plan negotiated in 1997, eliminating the
negative aspects of that settlement, revising the company’s
outmoded pension assumptions and inclusion of long overdue reform.
The pension plan must be run as a benefit plan, not as a business,
the union insisted. "In many respects it’s a good plan, with
many positive features that we’ve worked hard to achieve,"
A lengthy afternoon session was devoted to detailing
the union’s pension proposals.
UE called for substantially increased benefits —
both career earnings and the guaranteed minimum formulas. The UE
committee also proposed a career earnings "update" of past
service. The union emphasized the need to substantially increase the
guaranteed minimum tables while offering its willingness to discuss
with the company a variety of ways of fundamentally improving the
UE insisted that the company simplify and end the
discriminatory nature of the career earnings formula, by eliminating
the rate step in favor of the 1.9% or a higher rate.
The union made a strong case that GE should provide
an automatic cost-of-living adjustment for present and future
retirees. "It’s an absolute necessity given pension
levels," declared Pat Rafferty, Local 506, who said he
frequently hears from pensioners who are having a hard time making
ends meet. Betsy Potter, Local 618, said that after the latest
adjustment, her 82-year-old mother receives a net monthly GE pension
of just $177. She retired in 1978 after 14 years’ service, not
including World War II employment — she was not permitted to
"buy" her back service. GE’s Curtin commented that GE’s
philosophy is that retirees should not rely on the pension alone —
they should also look to Social Security and personal savings. At
age 82, the "third leg of the stool has been gone a long
time," Potter replied.
Raising a family on GE wages doesn’t allow workers
much of an opportunity to save, objected Bill Callahan, Local 751.
Retirees shouldn’t be placed in a position where they are forced
to find jobs, he added.
The company should at least consider a mechanism
that prevents retirees from falling below a rate equal to the
minimum multiplier, suggested Tormey.
UE called for an end to the compulsory employee
contributions to the pension plan. Tormey said the company should
give workers reparations equal to the amount their contributions
earned for the pension fund.
The union proposed that: the guaranteed minimum
pension be based on the highest three years of earnings in the last
10, consecutive or non-consecutive; the regular early retirement
supplement be increased and the disability supplements be adjusted
accordingly; all reductions for disability pensions be eliminated
and eligibility requirements for disability pension be reduced; and
that the $325 special supplement be retained and substantially
increased, and that the eligibility for the special supplement be
reduced from 25 to 20 years.
The UE committee called for a new supplement to run
from age 65 to the age of full Social Security retirement for
employees retiring at age 65, and for a supplement that will allow
workers to continue to retire at 60, due to the changes in the
Social Security system. The union said that early retirement
supplements should continue until the statutory age under which 80%
of Social Security benefits are paid, including supplements for
those presently retired under SERO and the Plant Closing Pension
The union argued that anyone affected by a job loss
event be eligible to retire based on the eligibility requirements
now existing under PCPO.
The union and company clashed over continuation and
improvement of SERO and early retirement. GE spokesperson Curtin
reminded the UE committee that SERO expires with the expiration of
the present contract. President Hovis declared that the union would
consider loss of SERO "a takeaway." "This is an
extremely important issue for us," stressed Bill Callahan,
UE called for a full pension at age 55 with 25 years’
service or with 30 years’ service, regardless of age. GE’s
Curtin said the company "doesn’t want to hear it."
"You want us to do whatever we can to increase
your productivity and your profits, you give us more machines to run
and increase the hardship on us," objected Pat Campbell, Local
731. "You have a lot of money in that pension plan," she
added, terming the company’s objections "utterly
ridiculous." Bill Callahan, Local 751, and Pat Rafferty, Local
506, said that speed-up and "management by stress" leave
workers hoping for an early exit. President Hovis pointed out that
workers in Erie and elsewhere would like to retire early before
their jobs disappear.
The union also proposed that GE recognize UE as the
bargaining representative of retirees, substantially increase
retirees’ pensions and provide the union with copies of all
significant documents and data relating to the pension plan.
Negotiations will resume Wednesday morning with UE
proposals on medical insurance.