In Reply to: Speculation re. compulsory transfer by IBM US of employees to cash balance plan posted by Spiggott on 06 March 2003 at 14:30:05:
This is the US version of the cheapening of schemes discussed a few messages back. The links from there give more of the background.
The UK view might (or might not) be illuminated by this extract from a (humourous?) article in the the Financial Times:
"Dear colleague (or should I say long-serving sucker?),
I am writing to you with exciting news (for the board, anyway!)
about changes to Acme's defined benefits pension scheme, which we
plan to shift to a new-style "shared risk" basis. (In other
words, we dump a lot of our risk on to you.)
As you are no doubt aware, under the old scheme you could expect
to retire in seven years' time, at the age of 62, on a pension
equivalent to two-thirds of your final salary. But this
expectation now lacks economic viability. (In other words, our
pension obligations are weighing heavily on our share price.)
You may recall that three years ago we closed the defined
benefits scheme to new members. (We foolishly thought that would
solve the problem, but now Mercer, the consulting group, points
out that the costs for a typical final salary scheme are expected
to rise 30 per cent over the next five years, and that closure to
new entrants only cuts that by 5 per cent.)
Now we intend to close the scheme to existing members,
essentially freezing our obligations. This is due to
circumstances entirely outside our control. First, we are all
living longer:. That is obviously wonderful news, and we on the
Acme board are delighted to think of the swelling band at our
annual pensioners' reunion (if any of you are still speaking to
us by then). But it also pushes up the cost of the scheme.
Second, you will be aware of the dreadful bear market in
equities, which has savaged the scheme's assets. This, again, is
entirely outside our control. (OK, Acme has taken a pensions
holiday for the past 15 years, which a pernickety person might
view as the equivalent of a loan from the scheme that needs
repaying, but we are not interested in going down that particular
route, thank you very much. And if you want to blame anyone,
blame the crazy consulting actuaries who told us a holiday was
just fine and a 75 per cent fund weighting in equities was
rational behaviour.)
I want to stress that under our exciting new "shared risk" scheme
you will still get a guaranteed pension (OK, far less than what
you were expecting) and you will have the opportunity to top that
up by putting money into the company's stakeholder scheme (but
you will not get much benefit in the mere seven years you've got
left here!).
We realise that you may need time to appreciate the full benefits
of our new plan. (Yes, its a betrayal of 35 years' loyal service
and a clear promise from Acme. But lots of companies are starting
to think this way, we believe the law is on our side, and we are
confident we can ride out any bad publicity.)
Your directors are convinced this is a "win-win" solution, and we
commend it to you. (The company wins, and so do we on the board,
since our huge pay packages are stuffed with options that will
rocket in value when we've got the pensions monkey off our backs.
And that, sucker, means you.)"