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Union Demands
Early Retirement,
Pension Improvements
NEW YORK, June 4 — The UE committee devoted the day to argument for pension and retiree benefit improvements.
Among the union’s demands: full retirement at age 55 with 25 years’ service or 30 years’ service regardless of
age.
In the morning, UE-GE Conference Board Secretary Steve Tormey gave a detailed, two-hour presentation on GE pension in
which he examined the plan’s funding, problems with the plan, and union-recommended solutions. Both sides of the table
had more participants, as CBC representatives and GE benefits specialists crowded into the conference room to hear the
UE perspective on issues critical to these negotiations.
Tormey first looked at the GE Pension Plan assets, still huge despite a fall in fair market value following collapse
of the 1990s boom. The assets are currently at approximately $37 billion, "a stupendous amount of money," he
observed. The Pension Plan assets are so enormous that they compare favorably with the total assets of entire
corporations, and are larger than those of DuPont, Boeing and USX.
The GE Fund weathered the "perfect storm" of interest rates at a 40-year low and a stock-market downturn
that’s the worst in 30 years, Tormey said. While the Fund surplus has declined over the last three years, the Fund is
still in good shape, he stressed. A comparison of the assets’ fair market value and the plan’s projected benefit
obligations revealed that the GE Plan is still overfunded, and at a level nearly equal to that of the early 1990s. The
current level of overfunding ($4.5 billion) is greater than it was at the end of 1993—"when no one was writing
warnings that this was a ‘cautionary tale,’" Tormey said (in reference to the GE spokesperson’s opening-day
statement).
Over the past decade the Pension Fund has experienced more boom than bust, exceeding 20% growth in some years, the UE
spokesperson said. The last two years, in which the Fund lost almost $8.2 billion, are as much of an aberration as the
boom years, when the Fund realized an $8.5 billion gain in one year. The Fund continues to enjoy a huge surplus that
compares favorably with the net worth of corporations such as General Motors and Boeing and exceeds that of USX, and
so-called competitors such as Rockwell and Whirlpool.
In sharp contrast to the vast majority of manufacturing employees covered by defined benefit plans, GE workers
continue to make contributions to the Pension Fund, Tormey pointed out. GE employees have contributed $1.3 billion since
1989—subsidizing a plan to which the company by contrast has contributed nothing since 1987.
Tormey stressed that the company began its pension-contribution holiday "much, much earlier" than other
comparable firms, and continues that holiday today, even when it’s ending for most other companies. He noted the
discrepancy in GE’s approach to benefits: the company seizes medical-insurance inflation as an excuse for
cost-shifting, but when the pension-contribution holiday freed up $435 million a year the company made no effort to
share with employees.
GE may have stopped adding to the Pension Fund but since 1997 has contributed about $450 million to the
"Supplemental Plan" for highly paid executives, Tormey pointed out. That plan’s liability increased 16% last
year to $1.54 billion.
Tormey examined the plan’s actuarial assumptions to reveal what’s driving the decline in the Fund surplus. It’s
not primarily because of generous pension benefits to employees, but rather a result of the collapse of interest rates.
A chart entitled "Low Interest Rates Mean Higher Projected Benefit Obligation" clearly illustrated the
relationship.
GE enjoys a tremendous competitive advantage because of the Pension Plan, Tormey asserted. A study of major
corporations (members of the S&P 500) found they had a total pension deficit of $177 billion at the end of 2002.
Only 36 out of the 320 companies studied were overfunded, and their aggregate contribution to their plans had risen from
$12 billion to $41 billion between 2001 and 2002. Compared to its "competitors," GE stands alone by virtue of
its overfunding and ongoing contribution holiday. This is a global phenomenon, Tormey pointed out—"competitors"
in the United Kingdom and Germany are facing serious pension deficits.
If GE has to resume contributions to the Fund, what of it, Tormey said. GE’s ability to pay for pension improvement
would in no way be impeded, he argued.
Turning to problems with the GE Plan, Tormey described the structural changes in the guaranteed minimum tables
negotiated in 2000 as a significant improvement that didn’t go far enough. A number of GE workers rely on the
guaranteed minimums for their pension benefits, he said. Between July 1, 2000 and the end of the first quarter 2003, 29%
of the 801 UE retirements were on the tables.
In an earlier company presentation, union members were told that pension benefits typically represented replacement
of 38% of their pre-retirement income, Tormey pointed out. That’s based on a 35-year GE career, when the reality is 28
years on average, he said. UE members who retired at age 60 over the last three years did so with 30.15 years of
service; their pensions accounted for only 30% replacement of income. "These may not be outhouse pensions but they’re
not penthouse pensions," he said.
Tormey dissected the discriminatory nature of the career earnings formula, using examples of GE employees in three
earnings levels ($42,000, $84,000, $126,000) to show how those with higher earnings benefit disproportionately. The
update formula is even more discriminatory against the lowest-paid workers than is the regular formula, he said, with
charts that clearly illustrated the point. "The updates are structured so that those who have the most get the
most," he said. Tormey explained that GE bases the disparity on the fact that Social Security is structured to
favor lower incomes. That’s two legs of GE’s famous three-legged stool of retirement income. What about the third
leg, savings? Higher-earners have great opportunities to save, and so they benefit yet again.
The simple solution would be to eliminate the lower-step in the career-earnings formula, Tormey said. This would add
$315 a month or $3,780 a year to the pension of a worker with a typical GE career of 28 years, he said.
The GE Pension falls short of other major industries, including auto, aerospace, steel and rubber, Tormey said.
Further, multipliers are greater at some companies that bargain with UE that are much smaller. Even the UE Staff Pension
Plan, with 50% of high three, and retirement at age 60 with 25 years’ service, offers a better benefit, he noted.
"We’re not here to trash the GE Pension, it’s not bad, but could be better," Tormey stressed. It’s a
benefit overdue for significant changes. The UE spokesperson noted that in 1979, GE’s net earnings were $1.409 billion
and the optional retirement age was 60 years. In 2002, GE’s net earnings were $15.1 billion, and the optional
retirement age was still 60 years. The disability pension supplement (for those workers eligible for Social Security),
has been $75 since 1968. The disability pension supplement (for workers not eligible for Social Security) has been
capped at $150 since 1976.
Another problem, Tormey asserted, is the company’s ability to show extensive profits from the Pension Plan. The
Pension Fund shows up on the books as among GE’s more profitable businesses, outstripping Medical Systems, Materials,
Appliances, Transportation and Lighting. This is a problem because it creates conflict: "It’s a benefit plan. As
soon as the pension is used for other things, conflicts of interests can and do develop," he said. During the Welch
years, the company applied accounting techniques to pension earnings to enhance the predictability of GE profits. The
SERO cap, which denied workers with less than 33.216 PBS years the opportunity to retire in 2000, was the company’s
response to the costs of SERO in 1997, which cost GE no actual cash but which reported earnings, or vapor "pension
profits."
Detailing the potential conflict of interest, Tormey observed that the Pension Plan is a profit center for GE
Capital, which manages the Fund’s earnings; Pension Trustees are employed directly by the company; the same accounting
firm audits both the Pension Fund and the regular corporate account; GE common stock represents about 6% of Pension
Trust assets, five-fold increase since 1993; there is no independent employee representative among the trustees. Tormey
noted that the accounting firm, KPMG, has been censured by the Securities and Exchange Commission (SEC) and has been
accused by the SEC of illegally helping Xerox to inflate its profits.
Retirement does not represent "the golden years" for current retirees, Tormey said, who took a close look
at the value of the benefit today for those who retired in 1981, 1986, 1991, 1997. All have seen considerable erosion of
their benefit, although for most the erosion was checked somewhat by pension updates. Tormey pointed out that the
pension of the typical hourly retiree is now based on a multiplier of about $28, and that 6,451 GE retirees receive
pensions based on an $18 minimum retiree multiplier—an argument for an automatic pension COLA. Among the 79,565 hourly
retirees, the average benefit is just $678. Among the 12,945 current surviving spouses, the average benefit is only
$331. The post-65 retiree typically pays $148.45 for Medicare Part B and optional GE medical plans that supplement
Medicare, or $296.90 if a spouse is also covered—a significant hit to an already small income.
Not surprisingly, Tormey presented a number of solutions these pension problems on behalf of the UE committee.
First, he said, accentuate the positives of the 2000 negotiations, mentioning in particular the first internal
restructuring of the guaranteed minimum tables and elimination of the flat 1.45% accumulation beyond 34 years of service
with regards to the career earnings formula. Secondly, Tormey continued, eliminate the 2000 negatives, with included a
cap on SERO Window retirees for the first time, the upward float of the career formula break point for 2004 and the lack
of change in the basic career accumulation formula. The UE spokesperson also called on GE officials to revise outmoded
assumptions, such as the idea that a typical GE career lasts 35 years and the "anachronistic and indefensible"
employee contributions. And finally, there is considerable "unfinished business" with regards to pension
improvements, including a substantial increase in the guaranteed minimum tables and the first movement in unreduced
early retirement since 1979.
In conclusion, Tormey said, "we still have a strong, overfunded plan, a good plan, but one with significant
problems."
"The view from your side looks quite different from the view from our side," said GE’s John Curtin.
Describing the GE Pension plan as a good one, he added, "There will certainly be improvements."
The union committee moved directly to presentation of contract demands.
First, UE called for a substantial increase in benefits under both the career earnings and guaranteed minimum
formulas, and for a career earnings "update" of past service. Patrick Rafferty, Local 506, insisted that the
cut point be kept as low as possible. "If the cut point changes, we’re going to see a lot of people change back
to the guaranteed tables, and we’re going to need a substantial increase on the guaranteed tables," he said.
Asked by a company representative if UE has a preference for either the career earnings or guaranteed minimum formulas,
the union stressed its continuing interest in having two ways of figuring pension benefits.
UE called for the reduction in the voluntary retirement age which has not been changed in a quarter of a century—specifically,
a full reduced pension at age 55 with 25 years or 30 years regardless. Tormey told the company there’s precedent. He
stated, "The company’s historic opposition to lowering the voluntary retirement age has been somewhat eviscerated
by SERO." SERO replacement in 2000 was not linked to job loss, he reminded the company.
The stress and uncertainty on the shop floor is too great, and workers want the option of retiring early, the union
committee argued. "People want to know they are eligible to retire in the event of a plant closing or sale,"
commented President John Hovis. If they can’t be sure of their jobs, they want a reliable pension as a means to
security, he said. "I’d hate to go back and tell the people that the plant will have to close before they get
out," said Bob Brown, Local 332. Fort Edward, New York workers want to have the option of early retirement, he
said. "People told me, get me out of here," reported Lynda Leech, Local 618. Stress levels have produced
tremendous support for early voluntary retirement, said Pat Rafferty Local 506. The pressure workers are feeling leads
to a number of problems, from discipline cases to illness, he said. Rafferty added, "This isn’t idle talk, it’s
what we see every day."
The union committee called for a substantial increase in the regular early retirement supplement, and an adjustment
in the disability supplements. UE members said the $350 special supplement should be retained and substantially
increased; the eligibility for the special supplement should be reduced from 25 to 20 years, and the period to qualify
should be broadened. A new supplement should run from age 65 to the age of full Social Security benefit for employees
electing the age 65 retirement. "Does American industry really want to accept 67 as the age of full retirement?
Have we regressed that much as a society?" Tormey asked.
The union called for automatic cost-of-living increases for present and future retirees. "Are we ever going to
start, in a minimal way, to address the question?" Tormey asked. "Or are we stuck waiting for Immelt to make
the decision?" Retirees shouldn’t have to campaign for pension updates with rallies and petitions, but the union
will continue to back them if necessary, union members said. Pat Rafferty, Local 506, read a letter from Charlie Fry,
president of the Retirees Alliance of General Electric (RAGE) to CEO Immelt. In it, the pensioners’ leader said
retired workers earned a decent pension through their contributions to the company and the Pension Fund. Lynda Leech,
Local 618, observed that the retirees "made a quality product and made GE what it is today." She suggested
that "the people who determine the benefits ought to try living on what the retirees get."
"COLA is not in the cards, but we will continue to review pension increases periodically," GE’s Curtin
said.
President Hovis said he didn’t understand how top GE officials became so "hard-hearted." "I realize
GE’s not a social service organization, but have some compassion for your fellow man and woman out there," he
said.
UE renewed its demand to be recognized officially as the retirees’ bargaining representative. GE’s Curtin
responded, "We’ve been willing to listen to your concerns and retirees’ concerns. We are not prepared to
recognize the union as the retirees’ bargaining representative."
The UE committee proposed application of the supplement extender to the age of eligibility for 80% of Social Security
benefits to all current retirees and vestees who are eligible for the regular supplement. Union members said the
reduction factor for Accelerated Payment (age 55) pension should be reduced from 5% to 3% per year before age 60. The UE
committee also called for a "buyback" of pension participation for those with broken service.
The union called for the elimination of compulsory pension contributions. Tormey said UE would consider as a
compromise raising the threshold to $87,000, the point at which income is capped for Social Security taxes.
The UE committee had several proposals for improvements in retirees’ insurance. Dental and vision care should be
added for retirees and spouses, union members said. The plan should pay the Medicare Part B premium for retirees and
spouses, including the disabled spouses of active employees. The union urged a substantial increase in the benefits for
the Medical Care Plan for Pensioners, the Pensioners Prescription Drug Plan and the Pensioners Hospital Indemnity Plan.
Taking a page from the company’s book on cost-shifting, the union called for the introduction of a company
co-payment for the GE Medicare Insurance Plan and Long Term Care Plan. The UE committee proposed the right to enroll in
the GE Medicare Insurance Plan for anyone leaving Medicare Plus, even if not previously enrolled. The union further said
that Medicare Plus should be fully negotiable. "We should have some opportunity to say something about changes
before they are implemented," said Pat Rafferty, Local 506. Also, the union said an opportunity should be provided
for conversion of retiree life insurance and AD&D after retirement. "Affordable conversion is what we’re
looking for," said Rafferty.
"Our basic thrust is that not only should you not be looking at adding to the retirees’ costs, but that other
things should be addressed that will make the retirees’ lives easier," said President Hovis.
"You know where we’re coming from, any improvements will add to costs, and we’re looking for additional
cost-sharing," responded GE’s Curtin.
Representing the union today were General President John Hovis; UE-GE Conference Board Secretary Steve Tormey;
International Representative Chris Townsend; Bob Brown and David Dennison, Local 332; Frank Fusco and Pat Rafferty,
Local 506; Lynda Leech, Local 618; Ed Baran, Local 751; Marco Coeur and Bill Wossum, Local 1010; Jeff Ogg, American
Flint Glass Workers Union; and Bob Roberts, IBEW. Joining the committee today were John Agrela, Sheet Metal Workers;
Vinnie Vines, IUE; and Rudy Gomez, UAW.
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