Corporate Retiree's Health-Care and Pension Plans- Part I of a II Part Article

Corporate Health-Care and Pension Plans- Part II of a II Part Article

To see Part I of this article please go to: "Corporate Health-Care and Pension Plans-Part I"

In respect to the issue of health care and pension plans for governmental organizations please see our article "Federal, State and Local Government Pension and Health Care Plans"

(1/25/22)-Data from Willis Towers Watson Plc,, the consulting firm ,estimated that 40 of the largest 100 U. S. companies were funded at 100% or more in 2021. The 13+ years of the current bull market was instrumental in helping almost all companies improve their funding levels because of the increase in value of the assets in the plans.

All of the 40 plans were defined-benefit plans that promised to pay a fixed amount to the retiree for life, were overfunded by a total of $45.49 billion last year, up from $22.58 billion among 16 overfunded plans in 202x, according to Willis Tower.

(4/15/20)- Linda Lacewell, superintendent of New York’s Department of Financial Services said that Athene Holding Ltd, the parent of Athene Annuity & Life unit agreed to settle and pay a$45 million civil fine related to charges it conducted insurance business in New York without a license.

The alleged wrongdoing occurred from 2017 to January 2019. As part of the settlement it will move the handling of pension risk transfers to a licensed based New York unit from Athene Annuity & Life.

The settlement involved Athene’s unlicensed unit conducting 14 large pension risk transfer transactions covering tens of thousands of policy holders and engaged in thousands of unauthorized communications with plan sponsors.

A pension risk transfer takes place when the insurer takes over a plan’s assets and liabilities and writes a group annuity contract obligating the insurer to pay the participants, The plan sponsor pays the insurer up front money to assume the risk of its pension plan.

(3/10/20)- Stocks make up about 60% of pension fund assets, a 13 year high, according to Wilshire Trust Universe Comparison Service. With interest rates closing at the 0.49% level for the 10-year U. S. Treasury note, and the equity market having undergone an over 10% correction this can mean more possible trouble on the horizon for pension funds.

Public pension funds hold about $4.5 trillion of assets, as of September 30, 2019, which is $4.3 trillion less than the value of future promised benefits, according to Wilshire.

(11/20/19)- FedEx Corp. announced that it would close its defined benefits plan to new hires starting next year. At the same time the company also announced it would launch a new 401(k) plan at the start of 2021 under which it would contribute up to 8% of employee salaries, if employees contributed 6% of their salary.

New hires will be eligible to participate in the current 401(k) plan, which matches up to 3.5% of salaries, until the new plan launches. Existing workers will have the option of continuing under the defined benefit plan and existing 401(k) plan, or transition to the 401(k) plan with the higher match.

FedEx had a pension deficit of nearly $4 billion and obligations of $28.9 billion at he end of its fiscal year ended May 31, 2019. The company reached an agreement with MetLife Inc. under which the insurer would take responsibility of about $6 billion of pension payments to about 41,000 retirees and their beneficiaries

(11/7/19)- Public pension plans had a median 47.3% of assets in U. S. equities at the end of the third quarter, according to database Wilshire Trust Universe Comparison Service. State and local pension plans have about $4.4 trillion in assets, but they have about $4.2 trillion less than the value of promised future benefits.

Alternative investments made up a median of 5.6% of public plan portfolios at the end of the third quarter, according to Wilshire data.

The median returns over the last 10-years for public pension plans was 8.57% a year, according to Wilshire.

(10/9/19)- GE announced that it is freezing its present defined benefits pension plan for about 20,000 U.S. workers and offering pension buyouts to 100,000 retired workers. The company’s defined benefit plans are underfunded by about $27 billion as of the end of 2018. GE has funded 76% of its projected pension obligations as of the end of 2018, according to Millman Inc.,a consulting firm.

It is the 2^nd largest corporate obligation only exceeded only by IBM, according to Millman, which is 91% funded.

It will contribute up to $5 billion in cash to the pension plan next year. Employees will join its existing 401(k) plan, and will get an extra 2% of their salary for 2 years

(7/17/19)- Corporate pension funding fell from a 93.7% ratio at the end of September 2018 to 85.6% ratio at the end of May for companies in the S&P500, according to Wilshire Consulting.

Pension contributions by the Russel 3000 companies are expected to decline 40% to $40 billion this year, according to Wolfe Research, a pension consulting firm.

Total funding were helped by the fact that interest rates rose in 2018, which benefited long-dated pension funds, according to Zion. Pension funds also benefited from the fact that the funded status of the S&P 500 by could still deduct contributions at the higher tax rate of 35%

(6/30/17)- United Parcel Services Inc. will freeze pension plans for about 70,000 nonunion employees, as the company takes measures to reduce its almost $10 pension plan deficit. It will freeze the pension benefits in five years for the nonunion employees, while offering them a 401(k) plan, while contributing to the 401(k) plan for employees who take up the offer.

The company has more than 434,000 employees worldwide, but the company hopes that it will be able to make the same change for its unionized force as its labor contracts come up for renewal.

In 2014, 37% of Fortune 500 companies with defined benefit plans had frozen them in some way, compared to 35%with open plans according to the consultant firm of Willis Towers Watson.

The consulting firm of Mercer & Co. estimated that the total deficit for the 1500 companies in the S&P was about $406 billion at the end of 2016.

(3/1/17)- Avaya Inc., which originally was the technology division of AT&T, and then was spun off and became part of Lucent Technologies Inc., only to in turn be spun off as Avaya in 2000, filed for Chapter 11 Bankruptcy protection on January 19, 2017. The company was weighed down in the 2007 leveraged buyout debt when purchased by the private equity firms TPG and Silver Lake.Partners

In a letter to the company’s retirees, it advised them that it would stop paying supplemental pension benefits as of Feb.1 until further notice. The company would continue to pay the pension benefits as guaranteed by the Pension Benefit Guaranty Corp; (PBGC), but for many of Avaya’s retirees this means a substantial cut in their monthly checks.

Avaya’s qualified pension plans cover about 1,700 active employees and 13,000 retirees. These plans pay out about $55 million to beneficiaries per quarter, but it is unknown at this time, how much this amount will be reduced.

(4/19/16)- When the compromise budget bill was passed in 2014, many of its provisions included items that are just now coming into the limelight. One provision in that bill allowed trustees of multi-employer retirement plans to cut retirees’ benefits if a pension fund’s failure would overwhelm the Pension Guaranty Corporation, the federal government’s main insurance program for pension plans.

About 400,000 of the retirees who have received notice of cuts in their pensions and worked mainly in the trucking, parcel delivery and grocery supply industries gathered in Washington recently to protest the cuts. The cuts would take place effective July 1, 2016.

The beneficiaries of the Central States Pension Fund, which is projected to be insolvent within a decade, were informed of their projected cuts via letters they began receiving in July 2015.

Under the terms of the law, the cuts must be approved by the Treasury Department. That Department has in turn handed off the decision to Kenneth R. Feinberg, the attorney who administered compensation related to the 9/11 attacks, and the BP oil spill in the Gulf of Mexico.

Mr. Feinberg has been given a May 7 deadline to make a decision. That decision will in turn be voted on by the beneficiaries. A quirk in the law states that any beneficiary who does not send in their ballot will be considered as having voted in favor of Mr. Feinberg’s decision.

The bill at the center of the controversy is called the Multistate Employer Pension Reform Act.

(4/14/16)- Last year 21 of the 50 largest corporations lowered their expected rate of return for their defined benefit plans, according to a research report from Goldman Sachs Asset Management. A defined-benefit plan guarantees set payments to retirees, unlike 401 (k) plans.

The 100 largest corporate pension funds had a combined deficit of $364 billion in February, according to Millman Inc, a consulting firm. This was an increase of $35 billion from the prior month.

The value of the assets in these plans compared to their liabilities fell to 79.3% last year, with assets having fallen by $75.8 billion in market value, while liabilities dropped by $94.5 billion

(3/18/16)- The percentage of Fortune 500 companies that have frozen their corporate pensions have almost doubled to 39% in 2015 from 21% in 2012, according to the benefits management firm of Willis, Towers Watson.

Frozen plans stop earning further benefits for employees in defined benefit plans. Under defined benefit plans, the employer guarantees a set benefit for its workers once he/she retires. 401(k) plans are then used to replace the defined benefit plan for the employee, but the employer does contribute a certain amount each year to the worker’s 401 (k) plan.

The employee at the same time does have a certain percentage of his/her salary that goes into his/herplan.

The 100 largest corporate pension plans had a $326 billion underfunding, according to the consulting firm Milliman. The plans were in surplus in 2007, but fell into deficit because of the stock market losses of 2008. Low interest rates also contributed to the growing deficit of the plans.

(10/14/15)- The voluntary employees’ beneficiary association (VEBAs) that we discussed in Part I Corporate Health-Care and Pension Plans-Part I of this article for the United Auto Workers (UAW) is back in the news again, since the administrators of the plans that cover medical expenses for hundreds of thousands of Detroit automakers’ hourly retirees reported a funding shortfall of $20,7 billion last year, according to government filings.

The trusts representing retirees at General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV recorded net assets of $60 billion last year, down less than one percentage point in the filings made with the U.S. Labor Department. The funds cover more than 750,000 UAW retirees and dependents..

The funds benefit obligations grew to $80.84 billion, and were 74% funded, down from 93% in the prior year.

(9/13/15)- American International Group became the latest corporation that announced it would freeze its traditional defined benefits pension plans, effective January 1, 2016, in favor of 401k plans for its employees. The company already has a 401(k) retirement program in place for employees.

\The company has $4.1 billion in assets to pay out $5.7 billion in future obligations.

(9/9/15)- Data compiled by S&P indicated that pension liabilities of the S&P 500 companies owed to their retirees and their pension assets was about $389.1 billion at the end of last year, up from $224.5 billion in 2013.

Premiums companies must pay to the government’s pension insurer this year rose to $57 for each pension plan participant, up from $49 last year, and will climb to $64 next year. The Internal Revenue Service has ruled it would continue to use its current life-expectancy tables until 2017, when longer life expectancy figures will be used.

Companies expect to use a 7% return on pension assets this year, down from loftier levels in prior years.

(3/3/15)- The repercussions on corporate pension plans of the longer life-expectancy by the Society of Actuaries is coming more and more into the news as shown by the increased pension liabilities of corporate America. The Society’s recent revision estimated that the average 65-year-old male would live to 86.6 years, up from the 84.6 years it estimated 10-years ago. The average female 65-year-old will live to 88.8, up from the 86.4estimate, a decade ago.

The revision does not affect companies whose employees have 401(k) plans, but it does impact those that have defined-benefit plans. Under a defined-benefit plan, the company is obligated to pay the pension benefit to the individual for the length of his or her life.

GM announced on Feb. 4 that it would change its life expectancy for people under its defined benefit plan, resulting in an additional need for $2.2 billion. Towers Watson, a consulting firm, estimated that the funding status of 400 large companies could weaken by a total of $72 billion as a result of the change made by the Society

(1/30/15)- The U.S. Supreme Court unanimously reversed an appeal court decision that we discussed in out item dated 11/13/14 below that asserted that health benefits for retirees had vested, when the collective bargaining agreement between the company and its union failed to deal with this issue.

The case, M&G Polymers USA v. Tucker, No 13-101 arose as a result of the Apple Grove, W.Va. chemical company and the union representing its workers arriving at a collective bargaining agreement that did not specifically state whether or not retiree free health care benefits could be rescinded. The lower court ruled that these benefits could not be rescinded.

The Supreme Court returned the case to the appeals court, instructing it to use ordinary principles of contract interpretation to determine whether the collective bargaining agreement had granted free lifetime health care. M & G Polymers USA, a subsidiary of Mossi Ghisolfie Group of Italy bought the plant in 2000. In 2006 the company required retirees to contribute to the cost of their previously free health care benefits.

Several retirees sued, saying they had been promised free lifetime health-care benefits.

(1/26/15)- As noted in our item dated 12/31/15 below, the recently passed budget measure contained a provision allowing for reduced pension benefits for retirees covered by multi-employer retirement plans. In October, a bankruptcy judge allowed the Trump Taj Mahal Casino, which was purchased out of bankruptcy proceedings, to withdraw from a multi-employer fund.

Cutting retirees’ pension benefits could help save the Unite Here National Retirement fund, which covers thousands of casino workers, and as many as 200 funds in dire financial condition.

“The two big troubled plans are the Central States and United Mine Workers of America”, said Alicia Munnell, director of the Center for Retirement Research at Boston College.

One of the basic problems continues to worsen for pension funds, as well as for Social Security, in that with the aging of the population, there are fewer active workers left to cover the greater number of retirees. The nonprofit Society of Actuaries recently updated its mortuary tables for the first time since 2000, to reflect the longer life-spans today, which is about 2 years longer than what it was in 2000.

Aon Hewitt estimates that the longer expected life-span will add about 7% to corporate pension obligations to corporate pension liabilities.

(12/31/14)- The recently passed $1.1trillion budget measure contains a provision that permits benefit cuts for retirees in some circumstances. The measure is aimed at multi-employer retirement benefits, which are plans that are jointly administered by unions and employers, but for which the Pension Benefits Guaranty Corp.(PBGC) last estimated that there was a $42 billion deficit. For more information on this matter please see our articles on the Pension Benefits Guaranty Corp.

There are about 1,400 of these multi-employer type plans, which cover about 10 million individuals. With a declining percentage of the number of active workers to the growing number of retirees, the fiscal health of these plans continues to weaken.

Under the bill, trustees of financially troubled plans could vote to cut retiree benefits. Participants of the plan could vote against cutting the benefits, their vote could be overridden for a plan that is considered big enough to pose a risk to the PBGC.

As of fiscal 2013, public employee funds had a long-term deficit of more than $1 trillion, and an average funding level of 72% according to the National Association of State Retirement Administrators.

(11/13/14)- Are retired workers health benefits protected, if the collective bargaining agreement between a company and its unions fail to cover this point? The U.S. Supreme Court has accepted a case that will be argued and hopefully decided, when the court makes its ruling in the late spring.

The case, M&G Polymers USA v. Tucker, No 13-101 arose as a result of the Apple Grove, W.Va. chemical company and the union arriving at a collective bargaining agreement that did not specifically state whether or not retiree health benefits could be rescinded.

The U.S. Sixth Circuit, in Cincinnati, ruled for the retirees, relying on that court’s prior decision back in 1983 in the Yard-Man case ruling that the health care benefit had vested in certain workers. Should this case be decided as a simple contract matter, or should the court determine the meaning of the collective bargaining agreement?

(4/26/14)- A bankruptcy judge ruled that former American Airlines parent AMR Corp., doesn’t have the unilateral right to terminate health and welfare benefits for nearly 47,000 union and nonunion retirees.

The company, which exited bankruptcy last November through its merger with US Airways Group Inc., wanted to shift the cost of the benefits entirely to the retirees, while throwing them the bone of providing them access to benefits at a group rate.

AMR was seeking a summary judgment in a suit it brought during the bankruptcy case.

Judge Sean Lane of the U.S. bankruptcy Court ruled that the benefits programs largely “lack language categorically reserving” the company’s right to terminate or otherwise modify them.

(3/30/14)- On the one hand, corporate pension plans have been strengthened by the stock bull market since March, 2009, but on the other hand employers face a 52% increase in the regulatory cost of administering their pension plans, and are also faced with the fact that Americans are living longer lives.

As we have written about in this article, more and more of corporate America is abandoning the defined-benefits type of pension plan in favor of 401(k) type plans. In many of the corporations today, new hires are being offered no pension plans or smaller contributions to their employees for their 401(k) plans.

38% of the U.S. private sector was covered by pension plans in 1979, whereas only 14% are being offered to employees, as of 2011 according to the Employment Benefit Research Institute. The Institute also estimated that 42% of private-sector workers were covered by 401(k) plans.

The Society of Actuaries recently updated its mortality tables for the first time since 2000, to more accurately reflect the longer life-span of the average American today. Based on the update, the average man who turns 65 this year is expected to live to 86.6, up from 82.6 in 2000. Women are expected to live to 88.8, up from 85.2 in 2000. That means that retiree life-expectancies will have to be lengthened by pension-plan actuaries.

(3/14/14)- Boeing Co. announced that it would freeze the defined benefits pension benefit plan of 68,000 of its workers, and shift them over to 401(k) retirement savings plans, starting in 2016. Previously, the company made the same move with its unionized machinists.

The company had contributed $1.5 billion to its pension fund in 2013. It had stopped offering pension benefits to new nonunion workers in 2009, and has done so increasingly for new hires in 28 of its unions.

Macy’s Inc., froze its pension plan in December 2013 and increased its 401(k) contribution.

(2/21/14)- Although the final numbers are not in yet for 2013, total pension funding levels of companies in the S&P 500 index are projected to have improved by $303 billion last year. That means the average pension is 93% funded in terms of its assets and liabilities, according to ISI Group.

That number was at the 78% level in 2012. With companies now having far less pension liabilities to make up for their deficits, they now can utilize that cash to increase dividends or buyback more shares of their own stock.

(12/13/13)- It all depends on whose number you use to arrive at the average funding level for corporate pensions, but the bull market in the stock market that has now lasted since March 2009 has rejuvenated the pension funding levels of most corporations in this country.

J.P. Morgan Chase & Co. put the level at an estimated 96% by the end of this year versus the 77% it was at the end of last year. Millman Inc., which has the number at 89.4% for the 100 largest corporate defined-benefits plans at 89.4% and at 94% for all the corporations it covered in its survey, while the pension specialist firm of Mercer put the number at 91% at the end of October.

Unfortunately after the stock market debacle of 2008, most corporate pension plans reduced their equity exposure while increasing their fixed income percentage of total assets of their plans.

There were 45,258 defined-benefit plans offered in 2011, the latest year data is available from the U.S. Department of Labor.

(9/17/13)- Millman Inc., an actuarial consulting firm reported that the obligations of the 100 largest corporate defined-benefit pension plans were 89.4% funded at the end of last month, up from 72% a year ago. This improvement of about $351 billion was primarily due to rising interest rates since the end of May. At that time, the 10-year U.S. Treasury bond was at 1.61%, whereas today it is at 2.9%.

(9/10/13)- It didn’t take long for the bandwagon to get rolling, but now Time Warner Inc., will be following in IBM’s path in that it too plans to no longer cover its retirees under the company’s health plan. Each retiree will be offered a sum of money that can be used to pay the premiums for the health care coverage the retiree selects from a private exchange.

Extend Health, the subsidiary[ of Towers, Watson & Co., the Utah based exchange that IBM will use, has signed up around 300 companies, after having added about 100 companies so far this year. An officer for Extend stated that it now covers more than 500,000 retirees. Time Warner will make the change beginning January 1, 2014 . Extend Health also stated that almost 50 companies among the Fortune 500 had become customers including Caterpillar Inc., and Dupont Co.

(9/8/13)- In a major cost cutting move that is sure to be followed by other major corporations, IBM plans to move about 110,000 from its company sponsored health-plan to a private health-exchange plan option for which the company will give them a certain sum of money. The health-exchange from which they will have options for the type of coverage that they will choose is not the same health-insurance exchange set up under the terms of the Patient Protection and Affordability Act of 2010.

IBM selected Extend Health, which is owned by Towers, Watson & Co., to provide the retirees the information they will need to make their choices for medical, drug, dental and vision coverage. January 1, 2014 is the date that the retirees will begin to be covered under the new arrangement. The amount of the payments from IBM to its retirees has not been publically announced yet.

The U.S. Supreme Court has previously ruled that it is legal for corporations to renege on their written promise to continue health-care coverage for it employees when they retire.

(8/17/13)- Patriot Coal Corp and the United Mine Workers of America (UMWA) announced that they had reached a potential settlement that would ease the severity of the wage and benefit cuts that the bankruptcy judge Kathy A.Suratt-States had allowed the company to impose. For more background material on this matter, please see our items dated 4/15/13 and 3/24/13 below.

The bankruptcy proceeding began in July 2012 in the U.S. Bankruptcy Court for the Eastern District of Missouri.

Patriot, based in St. Louis, said it would seek the court's authorization to enter into the agreement. Terms of the settlement have not been publicly announced.

(8/7/13)- The 100 largest corporate pension plans had a combined funding deficit of $179.3 billion as of June 30, 2013, according to the actuarial firm Milliman Inc., down from $390.7 billion on December 31, 2012.

More than 208 companies in the S&P 500 index have improved their funded status by over $100 million each since December 31, according to analysts at ISI Group.

Almost all pension plans are benefiting from the rise in the discount rate, which has increased by almost 0.80% this year, with most of the improvement taking place since May 21, 2013, when the 10-year US Treasury bond was at 1.61%

(6/18/13)- Chrysler Group LLC, which is owned by Fiat SpA, will freeze its U.S. pension plan for about 8,000 salaried workers, transferring those employees to a defined contribution or 401(k) plan starting in 2014. The move affects only current salaried worker, not those who have already retired or who are hourly employees.

Chrysler has not offered pension benefits to new white-collar workers for almost 10 years now. The company also lowered the age in which retirement eligible workers can start collecting pension benefits to 58 years from 62, as long as they retire on or after January 1, 2014.

GM Co reduced its pension liabilities last year by giving 42,000 of its 118,000 salaried retirees the option of taking a one-time payment rather than receiving monthly checks.

(4/5/13)- Was the spin-off by Peabody Coal Corp. of its Patriot Coal Corporation subsidiary a "fraudulent transfer"? Patriot and its creditors in the bankruptcy court are alleging that the spin-off was designed to intentionally rid Peabody of the obligations and liabilities of Patriot.

In papers filed by Patriot and some of its creditors at the U.S. Bankruptcy Court for the Eastern District of Missouri, the petitioners are seeking to obtain approval to subpoena Peabody for certain emails and documents, including material that arose after the spin-off, which took place in 2007. For more information on this matter, please see our items dated 3/21/13 and 3/8/13 below.

Evidence of a "fraudulent transfer" could result in a large recovery for Patriot and its creditors.

(3/21/13)- Patriot Coal Corp. has filed a request in the U.S. Bankruptcy Court for the Eastern District of Missouri to reject the companies contracts with the United Mine Workers of America (UMWA), and to terminate retirees' current health benefits. The company would create a trust to fund retiree health benefits for current miners, retirees and their spouses.

Cecil Robers, head of the mine workers union blasted the proposal as "totally unacceptable" and said it would put thousands of retired mine workers and their widows "on a path to financial ruin, worsening health conditions or even death."

For additional info on this matter, please see our items dated 3/9/13 and 2/1/13 below.

(3/9/13)- At the same time that Patriot Coal Corp. is trying to limit its health benefit obligations to its 22,000 active and retired unionized workers and their families, it is seeking to terminate these benefits entirely for up to 1,000 salaried retirees who were not unionized.

These retirees include foremen, superintendents, and other supervisors who were promised these benefits in writing for life.

The company sent a letter to these retirees in December saying it intended to terminate of their retiree health and life insurance benefits. A hearing it set to be held in the U.S. Bankruptcy Court for the Eastern District of Missouri to create a committee to represent salaried retirees' claims.

(2/1/13)-Do you remember at the height of the financial crisis how GM used the voluntary employee benefit association (VEBA)when the company was in bankruptcy? Well, VEBA is back in the news in connection with Patriot Coal Corp.'s present Chapter 13 bankruptcy protection proceeding.

The company is attempting to limit its obligation in connection with its active and retirees and their spouses health benefits. Patriot estimated that its liabilities to be about $2.1 billion.Patriot has proposed an initial payment of $15 million, and a maximum insertion of $40 million annually, with a cap of $200 million.Its retiree heath cost are expected to reach $73.8 million in 2013.

The Patriot VEBA would apply to all beneficiaries in the company's retiree health plans.Patriot assumed the majority of its legacy liabo;ities when it was spun off from Peabody Energy Inc.the nation's largest coal producer in 2007.

It acquired some additional liabilites when it acquired Magnum Coal in 2008Magnum was owned by a private equity firm at the time.

(11/9/12)- In an attempt to cut their pension liability shortfalls, many large corporations are following in the footsteps of Verizon Communications Company and General Motors Co. by buying so-called annuity settlements from insurance companies.

Verizon did it last month when it bought an annuity that transferred $7.5 billion of pension liabilities to Prudential Financial Inc., while GM had a similar arrangement last summer for roughly $25 billion of pension obligations with Prudential.

Under this approach a company transfers pension obligations to an insurance annuity company by buying a group annuity for its employees at a price that included a premium. The insurer agrees to use the funds it gets from the company's pension plan to make regular payments to the company's retirees for as long as they live.

In the case of Verizon, it plans to contribute $2.5 billion to its pension plan to keep its funding levels stable at roughly 89% of its obligations before transferring those obligation to Prudential. J.P. Morgan Asset Management estimates that Verizon will also pay the insurer a premium of about $1 billion.

(3/5/12)- Ellen E. Schultz in the Conquering Retirement column of a recent edition of the Wall St. Journal wrote about "The Pension Health Checkup", and what you can do to determine the fiscal condition of your company's pension plan.

In the article she wrote: "Your employer or former employer is supposed to send an annual funding statement showing the status of the pension plan. ( A healthy funding range is 85% to 100%)"

That statement "should include the plan's total assets and liabilities over the previous two years, as well as the number of people in the plan who are currently working, the number who are receiving benefits and the number who have left the company but aren't yet collecting a pension"

The annual statement must be sent within 120 days of the end of the plan year (or 7 months if there are fewer than 100 people in the plan). The employer may obtain extensions to the timing of this requirement. You can obtain a copy of the company's annual report by going to efast.dol.gov

Help is available for free by going to a pension-counseling project funded by the U.S. Administration on Aging. or pensionrights.org

(12/7/11)- Just when it had appeared that corporate pension shortfalls had seen their worst levels, it turns out that the 3^rd quarter of this year's results showed that the levels were worsening from prior quarters. The pension deficit grew to $440 billion for defined benefit plans in the country's100 largest plans, up from $186 billion at the end of the June quarter, according to a report from Milliman Inc., a actuarial firm.

The third quarter of 2011 was the second worst in history for "pension liabilities", said John Ehrhardt, a principal at the firm.

Only the fourth quarter of 2008, which reflected the collapse of Lehman Brothers Holdings Inc., showed a greater percentage increase. Pension fund deficits increased to $269 billion at the end of 2008 from just $6.7 billion at the end of the third quarter at the end of the third quarter.

(11/15/11)- With interest rates staying low, even though they have risen a tad recently, and with the stock market having sold off in September and October, it is now estimated that corporate pension funds are 75% funded, as opposed to being 84% funded at the end of 2010.

Among the larger under-funded health plans are the Voluntary Employees' Beneficiary Association (VEBA) that were established for the members of the United Automobile Workers and the United Steel Workers as we discussed in our item dated 4/10/09 and several other items referred to therein.

The problem has been compounded by the fact that medical expenses has risen at a much greater rate than was estimated, and the assumed rate of return for the funds has been negatively impacted by adverse market conditions.

According to trust documents filed with the U.S. Labor Department last month the U.A.W. VEBA, which covers benefits for over 820,000 current auto workers, retirees and their dependents is under-funded by nearly $20 billion.

To make up for the shortfall, the union will seek to divert 10% of active workers profit sharing checks, that they will be receiving from their auto employers, into the VEBA. The funds will increase deductibles and out-of-pocket payments from its members, while at the same time it will lower the assumed rate of return for the plans from 9% to 7%.

The fund currently has total assets of $33.23 billion and total benefit obligations of $44.68 billion, resulting in an $11.4 billion, or 26%, shortfall.

Just 26% of large U.S. companies that provide health care extend those benefits to retirees, down from 37% a decade ago, according to the Kaiser Family Foundation.

(9/27/11)- The combination of declining stock markets worldwide, and declining interest rates are the one-two punch that is putting an end to the declines in pension underfunding of both corporate America, and municipal and state pension funds.

According to David Zion, an analyst at Credit Suisse, S&P 500 companies with pension funds faced a deficit of about $388 billion, meaning that they were about 77% funded. That compares with an estimated $200 billion deficit at the end of 2010. With the stock market declining throughout August and September the deficit has probably grown to about $450 billion.

With interest rates staying low for an "extended period of time", and with many of the pension funds having assumed a rosy return on their equity investments, a lot of recalculating will be taking place in the coming months and years.

(6/9/11)- Chairman and Chief Executive Officer Daniel Ackerson of GM stated that the company has cut its pension shortfall from $17 billion in 2009 to less than $9 billion at the end of the first quarter this year. The company has contributed $2 billion in stock so far this year, on top of the $4 billion in stock it contributed last year. As a result of the government bailout, GM has $30.5 billion in cash and securities on hand, and less than $5 billion in automotive debt.

One of the reasons that we mention this fact is that it was only 2 years ago that the doomsayers were warning about the bankruptcy of the federal Pension Benefits Guaranty Agency, when in fact the last two years have seen a sharp drop in the pension liability of corporate America.

(5/26/11)- What happens when an employee receives a summary of his/her pension plan that differs from the terms of the actual formal plan document to his/her and erroneously relies on that summary to his/herdetriment? This was what happened to 25,000 Cigna Corp. employees in 1998, when the company changed from a defined-benefits plan to a cash-balance plan.

Janice Amara, who was a lawyer in Cigna's compliance department became the plaintiff who brought the action against the company that resulted in the recent decision of the U.S. Supreme Court in the matter of Amara v.Cigna.

A lower court in New Haven, Ct. concluded that the company in 19998 had deliberately provided misleading information to its employees in the plan summary description information and statement of valuation of the individual's worth under the new computation.

Cigna did not disclose that the opening balance of many long-tenured employees weren't worth 100% of their old pension, but could be worth as little as 50% to 70%.

In a 6-2 decision, the Supreme Court ruled that a lower court could award employees the benefit that the company had led them to believe they had in the summary that they were given.

Cigna had misled the employees when it told them in handouts and meetings that the new plan was " an overall improvement in retirement benefits," when in fact it froze the pensions of older, longer-tenured employees.

The Supreme Court stated that if an employer had breached its fiduciary duty to the employees, a court could order the trustee to amend the terms of the plan to conform to the terms of the summary.

The court handed Cigna a victory when it stated that if there is a conflict between documents given to employees containing the summary of the plan rules and the plan document, employees couldn't sue to enforce the terms of the summary.

The court sent the case back to the lower court to reconsider its ruling.

(5/20/11)- The question is often asked as to where an employee can go to if he/she feels that the pension benefit statement that he/she receives is incorrect?

You can start with The American Academy of Actuaries' Pension Assistance List, which will provide four hours of free help to individuals interested in checking their plans' calculation. The Pension Rights Center ( www.pensionrights.org) can be of help to you in these matters also.

The U.S. Labor Department's Employees Benefits Security Administration at aske-bas.dol.gov/SecInit or phone 1-866-444-3272 may also be able to assist you in this matter.

Residents of 29 states can look to the U.S. Administration on Aging's 6 regional pension-counseling projects for free legal advice on retirement plans.

PensionHelp America, an online referral service at pension-help.org is another site that may be of assistance to you.

(3/19/11)- Corporate America is changing the way it accounts for pension gains and losses on a yearly basis and can federal, state and municipal accounting soon follow? Up to now, gain or losses in pension funds have been "smoothed" over a number of years, rather then being taken in the year they occurr.

AT&T, Verizon Communications Inc. and Honeywell International Inc. are but three of the large corporations that have announced the switch. From now on, these companies will count all such gains and losses in the same year they are incurred.

With interest rates in general being at all time lows, pension funds will look better as interest rates begin to climb. In making adjustments to prior year earnings, most investors won't even take it into consideration, since Wall Street rarely looks back on past events.

These "mark-to-market" adjustments will be made starting with the fourth-quarter earnings reports from these companies. According to The Analyst's Accounting Observer, 74 companies in the S&P 500-stock index had both underfunded pension plans and unrecognized losses equal to at least half their pension assets at the end of 2009.

(12/18/10)- Over 66,000 GM workers have accepted buy-outs from the company since 2006. Just when you may have thought that these buy-outs were a thing of the past, since the company is now operating in the black, it has offered up to 3,000 of its skilled workers buy-outs and other early-retirement incentives.

GM is offering a $60,000 payment to skilled workers at 14 of its factories to either retire or cut ties with the company by March 2011. They have until December 23 to accept the offer.

As we look back now, the incentives that the company first offered its employees in 2006 to take early retirement were much greater than what the later retirees were offered. Much of corporate America followed in GM's footsteps in offering their employees early retirement payouts. Does this action by GM portend that more corporations will be making the same types of offers to their employees?

(11/22/10)- The recent initial public offering of common and preferred stock by GM has brought into the limelight the United Automobile Workers Union's trust that sold 89 million shares as part of the offering, yielding the fund about $2.9 billion. The shares that the UAW sold came from its Voluntary Employees Beneficiary Association plan (VEBA) that we at therubins first discussed in our item dated 2/11/07 in Part I of these articles on Corporate Health Care.

Here is a quote from our item dated 2/3/07:

"(2/3/07)- An agreement that was reached between Goodyear Tire & Rubber Co. and its largest union, the United Steelworkers Union may have a profound effect on all pension and health-care plans of companies in the U.S. As a matter of fact the auto companies and the U.A.W. are presently discussing the settlement to see if they can work out a similar arrangement.

Under the Goodyear deal, the company agreed to transfer its $1.2 billion health-care liability to a fund managed by the steelworkers union. The company is going to put $1 billion in cash and equity into the fund. Under the terms of the deal future benefits to union retirees would be administered by a trust, with its assets legally separate from the company. Three of the trustee who administer the fund would be designated by the union and four independent members would be jointly selected by Goodyear and the union.

The committee would manage the trust's assets and maintain the benefits programs. The union and the company would no longer bargain over retiree health benefits.

If Goodyear runs into financial difficulty, or files for bankruptcy, the money in the trust would be available for the exclusive benefit of the retirees. Goodyear initially has contributed $700 million in cash, and $300 million in Goodyear stock. The company would also provide for cost-of-living allowances and profit-sharing contributions that the union estimated could cost the company an additional $135 million.

As far as the auto workers and the UAW goes however one of the big stumbling blocks to a similar type of plan would be where GM and Ford would get the assets to contribute into the fund that would deal with future retirees' health benefits.

A J.P.Morgan analysis estimated that GM has about $55 billion in future union and current health-care liabilities. In the case of Ford that liability is estimated to be about $22 billion."

VEBAs are also prominently mentioned in our items date 2/11/07; 7/19/07; 10/25/07; and 8/27/08. VEBAs have been around since the 1920s, but they first came into prominence when the steel workers union began to utilize this vehiclein 2007, when the steel companies such as Bethlehem Steel, LTV etc. were going bankrupt.

Please keep in mind that there is a federal agency, the Pension Benefits Corporation that protects workers pensions, when as and if a company goes bankrupt, but there is no federal agency that guarantees employees, retirees or their families' health benefit if a company goes bankrupt.

The sale by the UAW of the 89 million shares represented about 34% of its stake in GM. The U.S. Treasury reduced it GM stake to 37% from 66%, and it could go as low as 26% if the over-allotment shares and warrants are exercised.

Canada and the province of Ontario had received an 11.7% GM stake, along with about 16 million in preferred shares in exchange for the 9.75 billion Canadian dollars (US $9.75 billion) they contributed to the GM bailout. Those two governments sold up to 20% of their combined 175 million GM common shares, yielding about $1.1 billion.

In addition to $45 billion in earlier cash payments from GM, Ford and Chrysler, the trust took on 17.5% of GM's common stock plus warrants for an additional 2.5% in lieu of some future cash payments.

It still holds 68% of Chrysler common stock, but the stake will decline to 55% as Fiat SpA, Chrysler's partner hits certain milestones.

The VEBA pays the health care costs for about 800,000 retirees and spouses, and it feels through moderninzation and computerization of health-care costs, that it will be able to turn a profit on the venture.

(11/21/10)- Honeywell International Inc. said it would be the first major U.S. corporation to adopt "mark-to-market" pension accounting. The company previously "smoothed" asset returns over three years rather than 5 years, with gains and losses amortized over 6 years, compared with a 10 to 12 year period of time that is used by most of corporate America.

The company plans to contribute $600 million in cash to its plan this quarter, bringing the total up to $1 billion for the year. It will contribute another billion in cash to its pension plans next year. It intends to have its pension plans fully funded by 2015, with the plans being 77% funded by the end of this year.

We at therubins expect many of the U.S. large corporations to use their excess cash to fund their pension funds, instead of using the excess cash available to be reinvested in corporate business expansion.

(11/1/10)- The Dow Jones Industrial Average is up about 69%, since hitting a low in March 2009. Some of the nation's largest industrial companies have been making both cash and stock contributions to their employees pension funds, even in cases where the pension fund is well funded.

These contributions are tax-deductible, so they also serve the purpose of improving the corporate bottom line when it comes to earnings report season. With interest rates being as low as they are, even cash rich companies such as Microsoft and Goldman Sachs have issued large bond placements even though the corporate treasury has more than enough cash to meet its immediate needs.

The latest example of this phenomenon was Honeywell International Inc., which made a $600 million cash contribution to its pension fund, on top of a $400 million stock contribution that it made earlier in the year. Lockheed Martin Corp, Boeing Co., and Parker Hannifin Corp. are examples of other corporations making substantial contributions to their pension plans.

Accounting rules are fairly liberal in allowing companies to estimate the earnings that will occur in the future for a companies pension plan. Although it is considered being quite liberal if a company uses an 8.5% estimate for its earnings for the funds in the plan, will the rise in the stock market result in many plans being over-funded instead of being under-funded as is the case right now?

Please see our item dated 1/2/10 below when the pension plans were running into shortfall because of the stock market drop in 2008.

(10/7/10)- MMM Co., informed its retirees and workers that it would stop offering a group health-insurance plan to retirees not old enough for Medicare by 2015. It is, we believe a precursor of what many more corporations will be doing in the coming months, while blaming the new health-care law for making the decision.

The company also stated it would replace its current medical benefit plan with a new health-reimbursement arrangement for retirees old enough to qualify to for Medicare by 2013.

Starting in 2015, MMM retirees too young to qualify for Medicare will receive financial support through what the company called a "health-reimbursement arrangement" instead of the group insurance plan. "The health-reimbursement" arrangement would be an account that retirees can use to purchase individual insurance through exchanges that the health reform act creates in 2014.

For those old enough to qualify for Medicare in 2013, the company will replace its current retiree-medical plan with a health-reimbursement account that can be used to buy an individual Medicare plan.

Please keep in mind that corporate America receives a subsidy for keeping its retirees on the company health-plan for drug coverage, but that the "double dip" subsidy has been eliminated.

"There are about 1400 American corporations that have been receiving federal tax subsidies since 2003 to offset their costs for prescription drugs for their retirees who are covered under their health-care and benefits plans. This subsidy, which amounts to about $600 per eligible retiree was granted so that the corporations would continue to cover retirees' drug benefit costs, and not shift them onto Medicare." This paragraph was extracted from our article about the new health care legislation entitled: "The Health Reform Act of 2010".

Under the new health care legislation that was recently enacted, this subsidy will end, and not be available again until 2013.

(6/23/10)- The United Auto Worker's Voluntary Employees' Beneficiaries Association (VEBA) has about $45 billion in assets. For some background information on the VEBA please see our item dated 12/15/09 et.al below.

The VEBA relieved GM, Ford and Chrysler of their 800,000retirees and their families health fund obligations. There are 11 trustees of the plan, 5 of whom are appointed by the UAW. Eric Henry, the former executive director and chief investment officer of the $15.6 billion Texas Municipal Retirement System recently became the chief investment officer for the UAW VEBA.

In March of this year, the UAW VEBA sold, at auction, its 362.4 million warrants of Ford, which brought in $1.78 billion to the fund. In creating the fund GM contributed $23.6 billion, Ford contributed $15 billion and Chrysler tossed in $6.8 billion. It also received common stock and warrants from each of the companies. Please keep in mind that Ford stock is up over five fold from its 2008 stock market lows, and GM will become a publicly traded company before the end of the year.

The fund still owns 68% of Chrysler common stock and 17.5% of GM stock plus warrants for an additional 2.5%

The UAW contended at the time of the transactions that by operating the health care needs of the retirees and their families more efficiently than the auto companies were handling them, that it would be able to make a profit on the deal. The VEBA also felt it could bring down the administrative costs of the health care plans substantially. It will be interesting to see if this turns out to be the case.

(4/7/10)- As per our item dated 12/8/08, federal legislation enacted in 2006 requires private pension funds to be 96% fully funded by April 15^th of this year, and 100% fully funded by 2011. Mainly because of the recession, many private pension funds will be unable to meet these requirements.

Corporate pension funds were on average 85% funded at the end of 2009, according to Goldman Sachs Global Markets Institute, compared with an average of 65% for public-pension funds according to Wilshire Consulting.

There are several bills pending before Congress to help alleviate this situation. One of the bills would enable employers to only have to pay interest on the shortfall for a two-year period of time; they would have another 7 years to meet the full funding targets. The bill would also provide a choice of amortizing that shortfall over 15 years.

Companies that have shortfalls in their pension funding have seven years to meet the target, although plans that fall below a 60% funding level must be frozen.

(1/2/10)- David Zion an analyst at Credit Suisse Group, estimated in a recent report that he wrote that about $400 billion in pension assets held by Standard & Poor's 500-stock index companies were lost in last year's market crash. That represented about 27% of their assets. The S&P 500-stock index is up about 23% so far this year, but that still leaves a gaping hole for many companies to fill in the next 7 years.

Recent legislation increased the amount of allotted time before pension liabilities have to be fully funded for most corporations.

In his report, Mr. Zion now estimates that about $270 billion in pension deficits, down from about $298 billion in deficits at the start of the year, must have to be filled in this period of time.

(12/27/09)- The Ford Motor Company has offered buyout or retirement incentive packages to all of its 41,000 hourly workers. A company spokesman, Mark Truby stated that the company still has too many workers in light of present car and truck sales. Ford is down to about one-third the work force that it had several years ago.

Under a new contract with the UAW, the employees get most of their pay for a year before they are removed from the payroll. In the past, laid-off workers went into the "jobs bank" and were paid indefinitely even if their factory had been shut down.

The buyout package, offered to workers with at least a year of service, includes $50,000 cash and the choice of a $25,000 voucher to buy a car, or $20,000 more in cash.

The deal also includes basic health care coverage for six months. Retirement eligible workers can take the buyout but must wait up to 18 months before retiring.

The retirement package includes $40,000 for skilled workers and $20,000 for non-skilled workers. To be eligible, workers must have at least 30 years of service, be age 55 or older with 10 or more years of work, or be 65 years of age, with at least a year of service.

Earlier this year, only about 1,000 workers took similar packages.

Ford started 2009 with 89,000 workers in North America but has reduced that number to 80,200 as of September 30^th, through attrition buyouts and layoffs.

(12/22/09)- The sharp stock market decline in 2008 caused a sharp reduction in the value of pension assets for the vast majority of pension plans. This in turn meant that many corporations either froze or cut the benefits in their plans.

Hewitt Associates, a human resources consulting firm recently released the results of its annual Global Pension Risk survey, which found that most of the 153 large U.S. employers have adopted funding policies meant to keep their funded level at or above the 80% mark.

The number of firms considering closing or freezing their plans has nearly tripled from a year and a half ago, and they are five times more likely to consider delegating their investment policy entirely to professional advisors than last year.

Almost 40% of companies surveyed have reduced their equity exposure. When this occurs it is usually a pretty good sign that the market has reached a bottom.

(12/15/09)- On May 4^th we wrote the following item below: "Please see our items dated 4/10/09 below, and our items dated 8/27/08; 10/25/07 7/9/07; 2/11/07; and 2/3/07 in Part I of this series of articles wherein we discuss the establishment of the Voluntary Employees' Beneficiaries Association (VEBA)."

The Labor Department's Employee Benefits Security Administration said that it had proposed granting Ford an exemption to federal pension law. Ford needed the exemption so that it could substitute stock for up to half of its obligations to a union-managed fund.

Health care coverage for about 285,000 Ford retirees and their dependents, along with some active workers will shift on January 1 from Ford to the fund, as per its contract with the UAW in 2007. Both GM and Chrysler have similar arrangements with the UAW, which will also take effect next month.

Ford owes an initial payment of $1.9 billion to the retiree fund at the end of the month, with up to $600 million of that amount payable in stock.

The proposed exemption would allow Ford to transfer securities to the fund, allow Ford and its health plans to reimburse each other for payments paid by the wrong entity as benefits are transferred to the fund, and let Ford recover deposits mistakenly made to the plan.

(11/9/09)- A bill has been introduced in the U.S. House of Representatives that would allow companies to spread out required contributions to retirement plans over nine years, rather than the seven years as required now. Under the proposal, companies would make only token payments for the first two years.

The proposal would also give employers up to 15 years to fully fund their plans if they agreed not to freeze benefits. At last count, the Pension Benefit Guaranty Corporation had a $33.5 billion deficit.

The bill was introduced by Representative Earl Pomeroy, a North Dakota Democrat, and Representative Pat Tibert, an Ohio Republican.

(6/10/09)- Under the pre-packaged bankruptcy filing for GM, the "good" parts of the company would be sold to the "new" GM. Under the terms of that sale, the workers for GM would have their pension and health care benefits covered by the "new" company, and they would remain in force.

A company has the right, under bankruptcy law, to request that the bankruptcy judge terminate its pension plans. If the pensions were terminated, employees would then receive their payments through the Pension Benefits Guaranty Corporation (PBGC), as we note in our item dated 6/3/09 below.

The PBGC will pay a maximum of $4,500 a month ($54,000 a year) for a retiree who started getting payments at age 65. The maximum would be lower for those collecting payments at a younger age or for those who include benefits for a survivor or a beneficiary.

A company can also eliminate retiree health care benefits for nonunion employees, even though it had previously stated, in writing that it would not do so. Workers over 65 could apply for coverage under Medicare without having to pay a penalty for late application, provided t they could show that the company's health care plan was "as good as" the coverage under Medicare

(6/3/09)- As is all too evident from the news on Monday, June 1, much to my chagrin , GM did file a bankruptcy petition in the federal court in New York city. I was wrong in predicting that they would not do so, and do hereby admit my mistake.

The GM bankruptcy will cost the Pension Benefit Guaranty Corporation (PBGC) at least $6 billion and the Chrysler bankruptcy will cost the agency at least $2 billion. According to the most recent numbers, the PBGC was running a deficit of $33.5 billion, and thus these latest bankruptcies will mean the deficit for the agency will continue to grow. Please see our article The Pension Benefits Guaranty Corporation (PBGC) and Corporate Bankruptcies for more information on this topic.

As that article points out, increasing the premiums paid by the corporations covered by the PBGC in case of failure might in turn mean more of corporate America would have to go the bankruptcy route.

Whether or not the Obama administration has chosen the right route to go in allowing GM to go into bankruptcy is a decision that only time will be able to tell if that was the right choice. It certainly is interesting times that we are living through right now.

(5/26/09)- Chysler LLC, which filed for bankruptcy protection on April 30^th, will offer workers who have 30 years of pension-credited service, are age 65 or older with at least one year of pension credited service, or are 60 or older who meet other requirements a $50,000 lump-sum payment plus a $25,000 vehicle voucher.

Employees who are aged 50 to 62 with 10 years of pension-credited services won't see retirement benefits reduced by early retirement. Employees taking a voluntary termination who have at least one year of seniority will get a lump-sum payment and a vehicle voucher, depending on how long they have worked for the company.

Employees at the company's St. Louis North and South plants who are not eligible for retirement or early retirement but who take pre-retirement leave will be put on a leave of absence at 85% of their base wage until their earliest possible retirement date.

(5/23/09)- Under changes being phased in through 2011 as required by the Pension Protection Act of 2006, companies will have to close any funding gaps on certain pension plans by 2018. Because of the increased number of bankruptcies caused by the recession the Pension Benefits Guaranty Corp.'s (PBGC)deficit continues to grow.

The latest estimates for the deficit of the PBGC now stand at over $20 billion. If the fee being charged to corporations to be covered by the agency are increased that in turn will mean many of the weaker companies will be unable to afford the coverage. Will the U.S. Treasury be forced to make up the difference?

(5/4/09)- Please see our items dated 4/10/09 below, and our items dated 8/27/08; 10/25/07 7/9/07; 2/11/07; and 2/3/07 in Part I of this series of articles wherein we discuss the establishment of the Voluntary Employees' Beneficiaries Association (VEBA). As we pointed out in those items, VEBAs have been around since the early 1920s, but we have copied below for your convenience the item from 2/3/07 because of its particular relevance today.

If everything goes according to the Obama administration's, plan the VEBA will own about 55% of the new Chrysler. The VEBA will administer the health plan for the company's workers and retirees and their families. It is critically important for the VEBA to contain the health care costs of its members, or it too will go bankrupt down the road.

(2/3/07)- An agreement that was reached between Goodyear Tire & Rubber Co. and its largest union, the United Steelworkers Union may have a profound effect on all pension and health-care plans of companies in the U.S. As a matter of fact the auto companies and the U.A.W. are presently discussing the settlement to see if they can work out a similar arrangement.

The committee would manage the trust's assets and maintain the benefits programs. The union and the company would no longer bargain over retiree health benefits.

(5/3/09)- According to the latest figures available, Chrysler Corp, which applied for bankruptcy court Chapter 11 protection in the federal court in New York City, has a pension liability of about $9.2 billion. Daimler Corp., the German auto company that formerly owned a 19.9% stake in Chrysler will pay in about $600 million to the company's pension funds to settle its guaranty obligation to the Pension Benefits Guarantee Corp.

Companies have the right to terminate their pension plans under bankruptcy law. If a company does make such a request to the bankruptcy judge, who in this case is Arthur J. Gonzales, the same judge who presided over the Enron and Worldcom bankruptcy proceedings, would convene a brief trial on the subject and hear both sides. Under the agreement reached between the U.S. government, the UAW and the company's bondholders, the pensions plans will not be terminated.

If the pension plans were to be terminated, the pensioners would then receive their payments, up to the maximum allowed under the law from the Pension Benefits Guaranty Corp. For further information on this agency please see our article on the Pension Benefits Guaranty Corp

Chrysler's pension liability would shift from the defunct company to the new company that would be under the direction of Fiat. All key parties to this arrangement have agreed to the matter so that the PBGC would not be liable for the pension benefits to be made to Chrysler retirees.

In the matter of the health care benefits, they will be assumed by the Voluntary Employees' Beneficiaries Association (VEBA) to which the U.S. Treasury is giving a $4.6 billion note, payable over 13 years, at a 9% interest rate, with the VEBA receiving about $5 billion in Chrysler stock that it will be able to sell in the market place as it needs additional funding. .

If the new Chrysler goes under, the PBGC would assume responsibility for the pensions at that time.

The VEBA can begin adjusting workers' health care benefits in 2010, two years sooner than under the previous contract.

(4/10/09)- GM and Chrysler have been headline news stories for the last couple of weeks and the matter is now coming to a head. The president's auto task force has given Chrysler a month to agree to a merger with Fiat and GM has until June 1 to renegotiate a favorable deal with its bondholders and extract more give- backs from the UAW.

Please see our items dated 8/27/08; 8/15/08; 7/9/07; 2/11/07; and 2/3/07 in Part I of this series of articles wherein we discuss the establishment of the Voluntary Employees' Beneficiaries Association (VEBA). When GM and the UAW came to an agreement about the VEBA, it was agreed that GM would contribute $20 billion in cash to the UAW to set up the health care program under the union's auspices. Chrysler's agreement with the UAW called for the company to contribute about $10 billion to the fund.

According to the latest news reports both GM and Chrysler want to contribute only about half those amounts in cash, with the other half being paid in the form of common stock of the respective companies.

Many have called the standoff between the bondholders and the president as a game of "chicken". Many on the bondholders committee now negotiating with GM say that they doubt the president will allow the company to go into bankruptcy, so they have been holding out for better terms for the approximately $29 billion in bonds that are outstanding.

It may come down to the wire on June 1, but we at therubins expect that all sides will bend and that an agreement will be reached between the bondholders and GM. The UAW and GM will also come to an agreement re additional givebacks, including changes in the VEBA funding, so as to avoid bankruptcy by the company. In all likelihood, the agreements wou't be finalized until shortly before the June 1 deadline.

(3/29/09)- GM announced that over 7,500 members of the United Automobile Workers union who work in its factories had accepted the buyout offer that we discussed in out item dated 2/11/09 below. This buyout package was worth up to $45,000 which was sharply lower than the earlier buyout offers the company made to its workers. Most of the workers will leave by April 1.

According to press reports, President Obama on Monday March 30, will announce some sort of additional loans to GM conditioned on additional concessions from its bondholders and agreement between the union and the company on payments to be made to the newly created union health plan. GM wants to substitute stock for the up to $20 billion cash that it originally agreed to pay into the health plan.

The UAW has agreed with Ford to allow it to pay in up to half of its payments into the health fund with Ford stock instead of the all cash $6.5 billion that was originally agreed to.

GM has borrowed $13.4 billion from the federal government since December, and is asking for $16.6 billion more. The auto task force that was checking into the viability of GM plan to continue as a profitable business down the road will continue to oversee the situation, with bankruptcy remaining a possibility.

(3/7/09)- A bankruptcy court judge in New York agreed to let GM's former parts division, the Delphi Corporation, eliminate health care benefits for 15,000 of its salaried retirees. Delphi was spun off from GM in 1999.

More than 1,600 Delphi retirees wrote to the judge last month asking that he not let the company terminate the benefits. Lenders to the company had demanded the elimination of the benefits, which will save the company $70 million a year.

(2/11/09)- Nearly all of the remaining 62,000 GM and 28,600 Chyrsler hourly workers are being offered buyout packages, as the companies and the United Automobile Workers continue to negotiate revised contract terms that they must present to Congress by February 17^th as part of the deal to get federal money to be able to stave off bankruptcy.

The buyouts being offered this group of workers is much less than what had been previously offered to the employees in the last few years.

Qualified Chrysler workers are being offered $50,000 and a voucher worth $25,000 towards the purchase of a new vehicle. If the worker is willing to give up the company-paid health care benefits the offer increases to $75,000. Almost 5,000 Chrysler workers accepted a slightly higher offer from the company in October and voluntarily left the company. The Chrysler workers have until February 25^th to accept the offer. The vehicle voucher is good for 18 months.

GM said that it hoped to cut about 31,000 hourly and salaried workers through this latest buyout offer.

The UAW and the auto companies have agreed to give up the jobs-bank program, wherein idled workers could receive up to 95% of their pay until the company rehired them.

Please keep in mind also that under the new auto contract, newly hired workers start at about 1/2 the hourly earnings rate of older employees, and the new hires are receive lower pension and health care benefits.

GM workers are being offered $20,000 in cash and a $25,000 new vehicle voucher. To compare these amounts with previous offers that these companies made to their employees who were willing to leave the company please go back to Part I of this article to see what those terms were.

(1/6/09)- Now you can add the name of Sears Holdings Corporation, the department-store holding company, to the growing list of corporations that will stop matching contributions to its workers' retirement plans, in this case effective January 31^st.

The company said it would resume its 401(k) matching program when its "financial performance improves to a level adequate to support it".

Sears recorded a $91 million expense for retirement savings plans in 2007, according to its annual report filed on March 26, 2008. A spokeswoman declined to comment on how much the company would save by not matching employee contributions.

(12/23/08)- Add the name Motorola Inc. to the growing list of U.S. companies that announce that they are suspending payments to the company's employees' retirement savings plans, just weeks after announcing broad cost reductions and layoffs. As corporate America tightens its belt, as the effects of the recession are being more widely felt, you will see more and more of this type of announcement.

FedEx Corp. also recently announced that it would stop contributing to employee retirement plans for at least a year.

Motorola will permanently freeze it U. S. pension plans starting March 1. It will continue to provide funding to meet benefits already vested or earned by employees and retirees, which it had previously had estimated cost $290 million next year. A spokeswoman said the freeze would apply to executive pensions also.

The company closed it pension plan to new employees in January 2005, instead offering new hires a slightly higher match on contributions to their 401(k) retirement savings plans. Motorola said it would suspend those matches, which last year cost $116 million, starting in January.

(12/18/08)- Congress has passed a bill that awaits President George W. Bush's that rolls back parts of the Pension Protection Act of 2006 that will ease requirements on corporations to fund their pensions. This measure was passed in light of the financial difficulties that many corporations are facing because of the recession that the country is now faced with.

The measure would also suspend the minimum-distribution requirement from IRA 401(k) and other retirement plans for 2009 for people over the age of 70 1/2. The sharp drop in the value of these types of plans, caused by the bear market of 2008 is the reason behind this change in the law.

The new relief measure would lower the target levels needed within the 7-year time frame on the path to be fully funded at the end of the 7-year period of time. The following is extracted from our item dated 11/27/08 that contained the requirements that are now being amended:

"This is the first year that private businesses will need to meet the law's more stringent requirement, which include pension-funding levels of 92% in 2008 and 94% in 2009. The pension funds must be fully funded within 7 years, with certain exceptions mainly in the airline industry. Once a company falls behind the designated percentage for a given year, it must go up to the 100% funding the next year."

This is the first year that private businesses will need to meet the law's more stringent requirement, which include pension-funding levels of 92% in 2008 and 94% in 2009. The pension funds must be fully funded within 7 years, with certain exceptions mainly in the airline industry. Once a company falls behind the designated percentage for a given year, it must go up to the 100% funding the next year.

(12/3/08)- GM has more than 400,000 retirees covered under the company's pension fund to which it will be paying about $7 billion a year for the next 10 years. The fund's assets were worth $104 billion at the end of 2007. It will be several months before the exact drop in its value will be known, but since it only holds about 26% of its assets in equities, it may not have suffered as great a loss as most other pension funds have suffered.

The company said it does not plan to add any money to the fund for the next several years. If the company does go into bankruptcy, its liability to continue to contribute to its pension fund is in doubt. Charles E. F. Millard, director of the Pension Benefit Guaranty Corporation asserted that the bankrupt company might still have to contribute to the pension fund.

It is estimated that the total cost of GM's health care benefits to its retirees was about $60 billion at the end of 2007, and the company has set aside only about $16 billion to cover that cost. Please see our items dated 8/27/08; 8/15/08; 7/9/07; 2/11/07; and 2/3/07 in Part I of this series of articles wherein we discuss the establishment of the Voluntary Employees' Beneficiaries Association.

Right now the fact that the GM pension plan had only 26% of its assets in equities looks like a very wise decision, but this may not be true for the future. Historically stocks outperform bonds.

(11/27/08)- The news is full of items about the federal, state and city budget deficits. If you need a reminder, which most of us don't, just take a look at the value of your IRA, Roth IRA and/or your 401(k) plan compared to its value at the end of 2007.

Just as we are suffering so are the nation's largest corporate pension plans which had record loses in October, and it does not look like November will be any better for them. Even Calpers, the nation's largest municipal pension fund is suffering from record loses to the value of its assets.

Because of the recently enacted Pension Plan Act of 2006, which was enacted to safeguard employees pensions, corporate America will not be able to meet federal funding requirements under the act without a massive infusion of cash, which many of them are critically short of right now, or a change in the law.

In October, the 100 largest corporate pensions lost $120 billion, their largest one-month loss in assets since consulting firm Millman Inc. began tracking the numbers eight years ago.

"There will definitely be companies in this group which, without relief or massive contributions, will have to freeze their plans, probably by Oct.1 next year," said John Ehrhardt, principal and consulting actuary at Millman in New York.

He estimated that 100 companies in the index would have to contribute $92 billion in 2009 as opposed to $32 billion in 2008, to meet the minimum funding requirements under the act.

When a plan drops to below the 80% funding level, the plan can not make amendment to increase benefits. Additionally, the workers can only get up to 50% of the lump-sum distribution when they leave. They would receive the remainder of their pension benefit in an annuity.

FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home"

By Allan Rubin
updated January 25, 2022

http://www.therubins.com

To e-mail: harold.rubin255@gmail.com or allanrubin4@gmail.com

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