Unions and Works Councils.  The government has plans for a "requirement on employers to consult before making changes to pension schemes to ensure changes are developed in partnership".   (What happened with us in 1996 could not have happened under this requirement - there was no consultation.)   Unions and Works Councils might, or might not, be the medium for such consultation.

If you feel that companies will provide better pension schemes when employees demonstrate how much they value them, you will be disappointed by recent Department of Work and Pensions research which shows, amongst other things, that only 13% of people of working age think they have a good knowledge of pensions issues.

Paul Rogers decided to leave IBM.  He was Director of Human Resources, UK & Ireland and one of our pension scheme trustees.  It has been the practice for IBM to appoint the HR Director to the trustee board so we can expect Paul Rogers' replacement, David Heath, to be appointed to the board.

The international news is that scheme members in the US have won a pensions class action against IBM.  Washington Post report. and  (Reaction, Aug 2nd)   The IBM US pension scheme and the UK scheme are separated, and the legal system is different - UK scheme members cannot bring a class action.   So this is relevant to us only insofar as the employer contributions to both schemes eventually merge on the same balance sheet, and the decisions about both countries are controlled from Armonk.   The Gerstner era operated to provide scheme members with pensions largely reduced as far as it seemed the law would allow, rather than maintained as ethics would suggest.  The result of this class action demonstrates that they over-stepped the mark, on this occasion.  They understood the effects of the reductions, even if they were advised that the lawyers could defend them.

The rest of this newsletter attempts to explain the US position.  If it is significantly wrong, would our US readers please let us know via the message board.

Final Salary (aka Defined Benefit, DB) schemes like our C-Plan exist in the States but there is a trend for them to be replaced by "Cash-Balance" plans and for employees to use "401(k)"s.   The latter are akin to our M-Plan, in that the employee takes the risk about the growth of the invested money, although what is accumulated does not have to be used to buy an annuity.  (It can be rolled-over to another form of savings, the Individual Retirement Account.  IRAs are intended more for people who are not in an employer sponsored pension scheme - but even simplified accounts of the IRA rules are very complex.)   The 401(k)'s are like the M-Plan in that there are both employer and employee contributions; the employee control over what investments are made is more detailed than for the M-Plan.

401(k)s are popular with employees.  Converting Final Salary plans to Cash-Balance plans is popular with employers but not with employees because the terms of conversion tend to leave employees with less to look forward to than they had without conversion.  Cash-Balance plans involve an individual purchasing a pot of money using employer and employee contributions,  but they are defined as DB schemes because the employer defines, and guarantees, the rate of return that you will get on the investments.

The conversion to Cash-Balance that IBM US originally proposed was so obviously unfair that IBM was persuaded to give many more employees the choice of not converting.   Even after that change, many employees were dissatisfied, particularly the older ones, since the conversion rules gave them the worst deal.  Some of these employees started a class action.  In a class action some people start the legal proceedings going and a judge decides on a whole class of people who are to be regarded as involved.

The employees recently won their action, although IBM will  appeal against that.

Reaction can be found from the links above.   Here is a link to a lengthy academic analysis of cash-balance plans.

You may be interested in what IBM's Vice-President for Human Resources told employees.  The full text can be found from the (Reaction, Aug 2nd)  link but here is a key sentence: "IBM has been defending this lawsuit to preserve our pension plan".   This apparently frightened some uninformed employees who thought they would get no pension as the result of the judge's ruling, and outraged informed employees because they knew that IBM could not just do away with the plan but would have to put a legal pension plan in its place.  The more cynical saw it as a threat - "if we can't do this we will do something worse".

He also wrote "to suggest that our pension plan is age discriminatory is an affront to this company and every employee".  It is not clear who comprises "this company", but the executives could hardly be surprised since it was their policy to operate at the margins of the law.  And why should the employees be affronted? Most of them disapproved of the change to cash-balance in the first place.

There is a variation of the motorist's "if I was speeding so was everybody else" defence: "This ruling threatens not only IBM's pension plan, but also the plans of hundreds of other companies who have adopted similar formulas".  Of course it is not that simple because every pension plan has to be looked at on its own merits.  (And can a plan be "threatened" by a requirement to remove ageism?)