Important Pension Plan Lessons
GE Turns Down
UE Appeal For Retirees' Pension Increase —
the letter written by UE President John Hovis to
General Electric. Writing in December, he called on
the company to "in the spirit of the holiday
season ... grant to its retirees an immediate and
substantial pension increase." GE, of course, was
December 10, 1999
General Electric Company
3135 Easton Turnpike
Fairfield, CT 06431
It has now been over three years since General Electric
has adjusted the pensions of its retirees. Since the last
increase in November 1996, consumer prices have risen by
over 6%. Moreover the modest raise granted at that time
did not apply to those retiring after June 1, 1994.
Accordingly, these retirees have endured price increases
of up to 13.6% since they began collecting their pensions.
Living on fixed incomes as they do, GE retirees can ill
afford such a loss of purchasing power. Nor does the
overall inflation rate adequately reflect the sharp
increases GE retirees have endured in their living
expenses. To cite just one example, the United Health Care
Plan which supplements Part "B" of Medicare will
cost participating retirees and spouses $65.00 per person
next year, a near tripling of the cost in just ten years’
The loss of purchasing power weighs particularly
heavily on those many thousands of GE retirees who are
existing on pension multipliers in the range of $10.50 to
$20.00 per month. The average pension of this group comes
to around $100.00 a week. Many surviving spouses are
faring even worse.
In marked contrast, both the pension fund’s assets
and its level of overfunding continue to grow
exponentially. As of last year the Plan was 58% overfunded
(up from 31% in just three years). Each year the growth in
assets substantially exceeds any increases in projected
obligations. We expect that when the 1999 figures are
released the overfunding will be in the neighborhood of
$20 billion. No other company that we are aware of comes
anywhere near this staggering number.
Under the circumstances, it seems appropriate to remind
you of what we have stated in the past, namely that the
Pension Plan is a benefit, and not another GE business.
The Plan exists solely for the benefit of
its participants, retirees, and beneficiaries. It does not
exist to fatten GE’s earnings statement and therefore
its stock price through the use of accounting gimmicks.
GE would also do well to remember that the efforts of
its many thousands of retirees in large measure account
for the company’s current unprecedented level of
In the spirit of the holiday season, we call on the
Company to grant to its retirees an immediate and
substantial pension increase, and additionally to increase
substantially the minimum pension multiplier.
Very truly yours,
John H. Hovis
United Electrical, Radio and Machine Workers of America (UE)
Six weeks after UE General President John
Hovis wrote to GE and made the case for an immediate and
substantial increase for GE retirees (see text, at right),
GE wrote back. Their letter of reply was hardly worth the
Unsurprisingly, the Company does not
dispute any of the arguments set forth in Hovis’ letter.
Rather they fall back on the fact that they have granted
some increases in the past (five since 1981) which they
say compares "very favorably with our
competitors". Therefore, "GE has taken on
greater obligations than were originally bargained with
the UE..." Finally, GE pulls out their old
refrain that "Pension levels and improvements have
never been related to the value of assets in the Pension
Trust." So for now at least, it’s no dice
to any pension increase for retirees.
As always, it’s clear that any future
increases for hard-pressed GE retirees will depend upon
the extent that GE active workers and retirees around the
country agitate and keep the heat on the Company over this
critical issue. The best response to GE’s miserliness is
letters, demonstrations, and old fashioned hell-raising
every chance we get.
At the same time, we should not ignore GE’s
arguments in their defense, or let them go unanswered. Let’s
take a look at them one by one:
GE ARGUMENT #1:
MORE THAN OUR
It is true that many companies have
curtailed or abandoned altogether the once common practice
of adjusting retirees’ pensions periodically. So in that
sense, GE is correct when it says it has done more than
most companies. But as is typical of GE, they only give
you a small part of the story.
In the first place as we have documented
elsewhere on this web, GE has no competitors worthy
of the name. And just as GE outstrips the
"competition" in every measure of economic
performance, so too is it a fact that no real or imagined
competitor of GE is in the favorable position GE is with
respect to pensions. For GE the pension is a freebie. The
Plan is so overfunded that GE has contributed nothing
since 1987 and the likelihood is that the Company will never
That puts GE in a position of competitive
advantage over other companies. GE can easily give our
retirees the pension adjustments they need and deserve and
not have their cash flow affected by one red cent!
In the second place, over 90% of defined
benefit pension plans require no contributions from
employees. GE has taken millions of dollars from employees
in pension contributions ($112 million in 1998 alone) and
made a killing by investing the funds. Moreover, with the
overall assets of the fund exploding upward, GE is now
able to use accounting gimmicks to show over $1 billion a
year in annual profits on its books attributable to
the pension plan. No other company can come close to
matching this. Once again, GE enjoys a competitive
advantage compared to other companies.
In the third place, GE pension benefits
are too low to start with. The basic pension benefits for
GE hourly and non-exempt salaried workers are
substantially below those in auto, steel,
aerospace, trucking and many other industries and
companies far smaller than GE. With each passing day, the
GE Pension Plan is becoming less "competitive".
Having started out with inadequate pensions in the first
place, GE retirees are particularly vulnerable to
In summary, GE’s argument that it
"beats the competition" on retirees’ increases
doesn’t hold water. It’s like an overstuffed hog
arguing that as a percentage of body weight, it eats less
than a newborn piglet at suppertime.
GE ARGUMENT #2:
"GE IS ALREADY
GIVING MORE THAN WAS BARGAINED"
This one is a real howler. Yes, it’s
true that because GE is not legally obligated to grant
retirees’ increases, that they are providing more than
the union bargained over the years in negotiations. Of
course what the Company doesn’t say is that they have
steadfastly refused to bargain with the Union on
Many years ago the U.S. Supreme Court
ruled that bargaining for retirees was not mandatory. An
employer may elect to bargain about this subject as
many do, but it is also legal to refuse to bargain. There
was never any doubt about which option GE would pick. The
Union makes its arguments anyway and GE does listen. They
also make it clear however that they will not
Thus having ruled out any real bargaining
on this crucially important subject, GE now says they are
giving us more than was bargained! This is an argument
that defies even Six Sigma analysis.
GE ARGUMENT #3:
"PENSION BENEFITS HAVE
NOTHING TO DO WITH THE VALUE OF ASSETS
CONTAINED IN THE PENSION TRUST"
As of last year, the GE Pension Trust had
assets of about $43 billion and was overfunded by $16
billion. If it were a separate company, the GE Pension
Trust would rank as one of the country’s largest
industrial corporations. So naturally GE is most eager to
assert that pension benefits on the one hand, and this
gargantuan pile of cash on the other, really don’t have
much to do with each other. And of course it is true, as
GE says, that as the assets continue to grow, there is no
mechanism in the Plan to increase benefits. But of course
that is precisely the point!
What GE doesn’t say is that all of the
assets in the pension fund legally exist only for
the purpose of funding and paying benefits. The money
cannot and should not be used for any other purpose! In
short, though GE has kept tight control over the money, it
doesn’t belong to them. It belongs to GE employees,
vestees, and retirees!
GE’s hypocrisy is exposed every three
years in negotiations when the union puts forward
proposals for higher pensions, retirees’ increases,
pension COLA, earlier retirement, and so on. One thing GE
says in response is that these proposals will
"cost" a lot, not in actual cash out of profits
mind you, but in accounting charges or "service"
costs to the fund!
Thus pension COLA which would greatly help
retirees, is rejected by GE on the basis that to provide
it would be a "big charge to the fund". In other
words, GE says the size of the fund is irrelevant when it
comes to making improvements, yet tells us our demands are
rejected in part because they cost the fund too much!
The real problem is that the purpose of
the Pension Trust has become utterly perverted even as it
has grown in value by leaps and bounds. The Company now
treats the pension fund as a GE business which, in
the Company’s mind, exists to impress Wall Street, drive
up the stock price, and enhance GE’s balance sheet.
It will take the concerted efforts of GE
workers and retirees across the country to begin to
address this outrageous state of affairs. In the meantime
the campaign of GE retirees for a measure of relief will
continue and is deserving of the wholehearted support of