Introduction

The purpose of this web site is to provide a comprehensive source of information regarding issues concerning the IBM Pension Plan. Ideally it should contain statements from all those involved so a clear picture of the situation can be formed.

With this in mind I offered both IBM and the Trustees a page on this website in which they could place their own unedited statement of the facts and interpretation of the situation. Both have declined this offer with the following reasons:

"They (the Trustees) believe it is important that all communications from the Trustee are sent and, to the extent possible, received by all members simultaneously. To utilise the C-Planners website would seem inconsistent with this approach".
(David Newman - Pensions Trust Manager)

".. our policy is that any communication needs to be received by all members at the same time, as far as is possible".
Paul Rodgers - Director of Human Resources

"Fair enough", you might say, but when did you last receive a communication from IBM or the Trustees describing issues affecting the pension situation?

On March 13th David Newman and Kevin Waller addressed members of the Hursley Retirees Club at their AGM. Approximately 1% of the Defined Benefit scheme members heard his remarks.

At the request of its Committee, Martin Hughes offered a summary of the pensions issue. David Newman, who was aware of the committee's request, said in his response that the Martin Hughes's speech was correct in parts but also contained inaccuracies. As Martin had used some material from this website to prepare his speech, I was concerned that there might be erroneous information on the website. I wrote asking David Newman to inform me of any errors of fact or incorrect interpretation on the website.

His reply states:

The inaccuracies relate to a number of areas including, but not limited to; the structure of the Main Plan; the funding of the M Plan; the reasons for & the nature of the Trust Deed amendment in February 2000; pension increases; the roles, duties & obligations of the Trustee Directors; the implementation of Limited Price Indexation; and others.

The Trustee, myself and my staff have answered many individual queries, covering the above points and others, from a number of people, over the past months. Kevin Waller and myself have attended a number of Retiree AGMs and answered many questions. Several of the individuals with whom I have been in communication seem to be actively associated with the website and do not seem to accept my, or the Trustee's, views. Accordingly, I see little value in going through the website and notifying you of any errors, as I will merely be repeating comments and observations that I have made previously.

However, I am still none the wiser about what what these inaccuracies are. Can anyone help?

David Newman also states in his letter:

I can assure you that I will be working in a positive, constructive manner with the Ombudsman, who no doubt in due course will deliver his opinion.

We look forward to hearing about the Trustees communications with the Ombudsman.

The Trustee, so far, seems to have failed to communicate with the fund beneficiaries about this matter. Most replies we receive appear to contain only bland assurances that all is well with the pension fund and we should not worry.

What do you think? The full texts of Martin's speech and of David Newman's reply are reproduced below.

Alan Murphy (Webmaster)


Text of Martin Hughes's speech (given 13th March)

It distresses me somewhat even to have to stand here to explain the situation, as I see it, regarding our pension fund. But, last year, Kevin Waller as an employee of the Trustee, rather than a trustee himself, felt unable to comment onissues and I respect that. For that reason, though your Committee invited a representative of the Trustee to come along, I'm here as a very poor alternative voice.

I'll try to summarise in a few minutes. No doubt, there are others here who know more about this than I do, so when I'm done, I'll hand back to the Chairman for others to comment.

My apologies for going back to some basics. I'll make generalisations. So, please would the experts bear with me.

First, the Trustee - The Trustee is the legal entity which looks after our pension fund. There are twelve individual trustees. Eight are appointed by IBM and four elected by the Fund's beneficiaries. Though the IBM nominees are appointedand, in some instances if not all, paid by IBM, they are required by law and the Trust Deed to put that out of their minds and consider only the interests of the Fund's beneficiaries - that includes you and me - when they decide matters oragree to the IBM company's proposals.

That's the Trustee - separate, in theory, at least, from the Company. I say, "in theory", since my understanding is that IBM UK Pensions Trust Ltd (ie the Trustee) is a 100% owned subsidiary of IBM UK (the Employer). So, I'm not convincedof the independence of the company-nominated trustees. Nor can the employee representatives be wholly unaware of who it is who pays their salaries.

Next - types of pension. We'll only consider two. The main one, which we're almost all in I suspect, is known as a Defined Benefit Scheme. That means exactly what it says on the tin! The benefits eg two-thirds of final salary based on thenumber of years employment, widow's pension of 50% etc are defined as part of the Plan and have been funded over the years by employee contributions and by IBM as part of the terms of employment and as calculated by the Fund'sActuary who works out how much money should be in the Fund to be sure that pensions can continue to be paid. In our situation, IBM, as long as the corporation exists, is the "back-stop" if the Fund can no longer meet its obligations.

The other type of pension is a Defined Contributions Scheme. It is a reflection of today's pattern of employment where people move between employers and need "portable" pensions that are not dependent upon a lifetime employer. Inthis case, the employer and the employee both contribute to an individual fund the management of which can be transferred to one's current employer's pensions managers but, and here's the big difference, which is used when one retires to BUY an annuity. The performance of the individual fund is what dictates the amount of the pension. There is no further liability on any employer. As part of the 1995 Pensions Act, this type of pension is required to provide what is calledLimited Price Indexation (LPI) each year of 5% or RPI whichever is lower. So providing to some extent the protection of Law against the ravages of inflation. IBM's Defined Contribution Plan is the M Plan.

Everybody got that! So, two Plans. Right, now for the current situation.

Some time ago, I believe that one of the member-elected trustees resigned because he felt that the Trustee was not fulfilling its obligations towards members. That sounded warning bells in some people's minds and, following collection ofinformation and analysis of the various Deeds through which the Fund is managed, a number of retirees decided to go through the formal complaints process.

The complaints are complex and are being refined through correspondence with a body, called the Occupational Pensions Advisory Service (OPAS), which was set up to assist in the resolution of complaints between beneficiaries andTrustees and/or employers.

A number of IBMers, who retired from Hursley and other locations, are complaining to the Pensions Ombudsman -- that's a legal office set up by Act of Parliament to protect employees and retirees from being "ripped off" by unscrupulousemployers. These formal complaints are first going through the IBM Internal Disputes Resolution Procedure as required by the 1995 Pensions Act. Somewhere in the region of fifty separate complaints are being considered at this time.

There are two main issues that OPAS and the Ombudsman are attempting to resolve. One concerns the legality of changes the Trustee has made to the Deed which governs the operation of the Pension Fund. The other relates to theextent to which IBM created a reasonable expectation that C Plan pension increases would continue to be made in line with statements made to employees at the time they were considering early retirement.

The first complaint, which is recognised by OPAS as requiring an answer from the Trustee and from the IBM company, is that IBM has used its control of the Trustee to change the Trust Deed to the disadvantage of the beneficiaries.

One change that is the principal subject of these complaints is that the Trustee, through various amending deeds that have been executed since 1995, has sought to "redefine" the Pension Fund so that the fund set up to support the DefinedBenefit Plans, mainly our C Plan, is now, without any increase in contributions by IBM, also deemed to support any Defined Contribution Plans, mainly the M Plan.

Why is that important?

At the end of 1996, the Pension Fund's assets exceeded its liabilities by many hundreds of millions of pounds. That surplus, in effect, provided a buffer against variations in the performance of the world economy and the stock market, sothat the Fund remains well resourced, whatever happens to IBM.

By seeking to merge the C Plan and the M Plan funds, IBM has to date claimed that the contributions due from it as the employer of, at the last count, some 10,000 M Plan members, should not be paid by IBM but transferred from the C Plansurplus to the credit of each individual M Plan member's account. To achieve this, the complaint is that various "weasel words" were placed into the amended Trust Deed so that the Trustee (ie the IBM Company operating through its majority control of the Trustee) could claim to have "legalised" the transfers. An example of this clever word-smithing is a change from "the employer shall make contributions" to "each member shall have his retirement account credited". When IBM brought in the Trust Deed amendments in 1997 and 2000, IBM claimed that it has the right to use the surplus and not to make greater contributions in the future and also managed to have the M Plan funded at little cost. It appears to some that it was really only the RETIREES IN RECEIPT OF DEFINED BENEFIT PENSIONS who missed out.

That's the principal legal complaint and the one which is likely to go through the High Court, Court of Appeal and, if unresolved, to the House of Lords. It is in both Parties interest that this happens since there can then be no further appeal.

Now for the other aspect of the complaints, concerning the extent to which the Trustee increases C Plan pensions in line with inflation or, at least, some proportion of inflation.

IBM claims that it has no commitment to increases pensions in line with inflation. That may be true, in a strictly legal sense. However, the complainants propose that statements by IBM over the years have created an expectation and, innatural justice a commitment, that increases will be made in line with general UK company behaviour. Indeed, IBM UK proclaimed its intention to remain among the leaders of pension provision. These statements feature in many IBMpublications and M-I-L's throughout the eighties and nineties. However, a recent survey that has been brought to my attention shows IBM's performance having fallen from being in the top ten to the bottom two percent of 156 pension funds surveyed. (To draw a parallel, that means that in the UK tables with Manchester United at the top we have fallen out of all divisions of the League, out of the Conference, and are somewhere below Walton & Hersham who are bottom of theRyman league).

Now, both types of complaint are significant. Changes to the Trust Deed appear designed to enable IBM to avoid making M plan contributions. As the Fund's surplus is eroded, the likelihood of IBM continuing to make even token increasesrelated to inflation is severely diminished. And that brings into play the other issue, namely the extent to which IBM will in the future meet the commitments which it made to us when we were considering retirement.

That is my understanding of the background.

Where are we at now?

The Ombudsman's report is expected in the next few months but there is no "official" date for its release. However, when this Determination, as I believe it's called, is issued, the Parties can appeal to the High Court. It is customary for oneor other Party to appeal, so whatever happens, the IBM case is likely to go to Appeal, unless the parties accept the Ombudsman's Determination or come to some agreement.

My guess is that, as part of the Determination, some communication with Fund members will be initiated by the Trustee, though to my knowledge, the Trustee has not yet formally told us what is happening.

Which is why I was asked to give you my perception. I do not know if those who have complained to the Ombudsman are here. If there are others who can add, or indeed, correct what I have said, I'd be interested to learn now or at the endof the evening.

Let me add one comment.

It is important that we see what is happening as an attempt between the parties involved to clarify the situation. It may seem adversarial but the reality is that IBM, the Trustee and the Fund's beneficiaries are seeking whatever resolutionenables us to get on with our lives, whether individual or corporate.


The full text of David Newman's reply (dated 27th March)

Ref: C-Planners website

Thank you for your letter of March 16th on the above subject.

I did indeed mention that there were various inaccuracies in Martin Hughes's opening remarks, when I spoke at the Hursley Retirees Club AGM earlier this month. I also understand and accept that he used material from the website in order to prepare his speech.

I standby my comments.

The inaccuracies relate to a number of areas including, but not limited to; the structure of the Main Plan; the funding of the M Plan; the reasons for & the nature of the Trust Deed amendment in February 2000; pension increases; the roles, duties & obligations of the Trustee Directors; the implementation of Limited Price Indexation; and others.

The Trustee, myself and my staff have answered many individual queries, covering the above points and others, from a number of people, over the past months. Kevin Waller and myself have attended a number of Retiree AGMs and answered many questions. Several of the individuals with whom I have been in communication seem to be actively associated with the website and do not seem to accept my, or the Trustee's, views. Accordingly, I see little value in going through the website and notifying you of any errors, as I will merely be repeating comments and observations that I have made previously.

It seems to be common knowledge that there is an investigations ongoing from the Office of the Pensions Ombudsman into some of the matters of concern to a section of the IBM Pension Plan membership. I can assure you that I will be working in a positive, constructive manner with the Ombudsman, who no doubt in due course will deliver his opinion.

I am not qualified to answer your question about IBM copyright and therefore have no comments on this specific matter.

Yours sincerely,

David Newman
Pensions Trust Manager


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