8 March 2005

A request:  If you are an "E-mail Buddy", please print this newsletter and give it to your buddy.

As we explained In Newsletter 24 and elsewhere,  the Ombudsman's determination on complaints against IBM UK and the Trust is not now reversible without significant new evidence.   AMIPP has written to MPs about the inevitable bias in an individual making legal decisions which can be challenged if they have mistakes that favour the complainants but cannot be challenged if they have mistakes that favour the respondents (because the potential costs of High Court actions have that effect in practice).

Our experience endorses a concern of a senior pensions judge.  In a lecture to the Association of Pensions Lawyers, Mr Justice Lightman has suggested that "the existing judicial jurisdiction of the Ombudsman raises serious questions regarding compliance with the Human Rights Act and (for this and other reasons) should be transferred to a tribunal". (A tribunal would have the merit of providing relevant legal expertise).  Mr Justice Lightman noted an anxiety about "whether the Ombudsman (who prior to his appointment will ordinarily have no previous experience or expertise in the field of pensions) is particularly well equipped to assume the role of an expert in the field".

Through letters by MPs and their responses we have established that the investigation of the IBM complaints, which have a high legal content, was eventually allocated to the current Pensions Ombudsman, David Laverick, on his own.  David Laverick has not suggested that he had any personal expertise in Pensions Law when he was appointed, having spent the previous 6 years as Chief Executive of the Family Health Services Appeals Authority.   AMIPP has described this situation by analogy - the managing director of a car plant is responsible for the quality of the cars produced but if the managing director interpreted that as reason to assemble cars himself that would not enhance quality.

Responses from Ministers and the Department of Work and Pensions have emphasised the hypothetical possibility of appeal to the High Court.  One has to question the motives of those who imply the lack of an appeal is an endorsement of the determination. Do they live in an unreal world where money is irrelevant, or are they deliberately disingenuous?   The DWP says that in most cases the system is working well.  We don't know of any evidence to support that.  Even if it was true, it would not excuse failure on a few major cases.

MP's have suggested we ask the Parliamentary Ombudsman to investigate.  She is currently investigating some pension catastrophes but those do not involve the Pensions Ombudsman.  She cannot investigate whether the determination outcome was affected by maladministration, because of the quasi-judicial nature of the Pensions Ombudsman's role, but she can look at other maladministration.  We are trying to find out if some of the flaws we experienced fall in her territory.  (Exceptional delay, lost documents, informing complainants that their complaints were not being investigated when they actually were, ... )

Meanwhile it is important to remember that the Ombudsman did not contradict the complainants central criticisms.  He says he does not need to decide whether the chute from C-Plan to M-Plan was legal when it first introduced. (We said it was not).  He says he does not need to examine the gap between what IBM said it would aim for and what it actually aimed for because whatever those facts there would be no legally enforceable remedy. (We said there was a legal duty to honour the bargain).  He says the communications to members about M-Plan funding were unclear.  (We rate them misleading).   So the questions for now are whether the mechanisms of Trust Law and the Ombudsman's Office can protect scheme members.

The documents added to the website since Newsletter 24 are:

An AMIPP letter to MPs, with MP responses to the earlier letter.

A page about deferral long ago and uplifts during deferment.  This is not directly relevant to most scheme members but those who think IBM would have qualms about allowing the full effects of inflation to degrade pensions might want to reflect on the scenario described.

Comments on the Actuarial Report for December 2003.   This describes the risks to members, particularly employees, implicit in the £900M deficit, and the better things that have happened since.  The Actuarial Report indicates that the deficit was IBM's choice. (So no need to think about possible so-called "insider trustees" on the trustee board.)

Also the message archive has been enhanced with a simple search facility and the starting page of the South African section updated.

The design changes in the final salary schemes which made them less expensive for IBM's shareholders and more expensive for employees will be in play from April 5th 2005.   Employees have been asked to confirm that they want to stay in the scheme under the more expensive arrangements.  Since one can leave at any time, everybody could be expected to say they wanted in, when confronted with the need for a quick decision.   However, if our scheme continues to get degraded then there will be point when staying in is not the best choice for some individuals.  (That point may have been reached already for some).  The problem is worse for our scheme because of its uniquely poor discretionary increases; the difference between these and the regulated minimum increases for pensions (earned on recent years of service) will be greater than is the case for other companies' schemes.

It is not clear that employees are making adequately informed choices.  Here are two matters that they might have been told about but have not (yet) been:

- Whether or not a year of service for financial year 2005/2006 will be treated in the same way as a year of service for financial year 2004/2005.  Changes of regulations allow the former to be made worth some few percent less than the latter, but neither the regulations nor the trust deeds require that reduction.  (See more within the Actuarial Report comments) 

- Whether the "C-Plan Maximum" will be retained after April 2006.  This maximum constrains what pension you can receive as a proportion of final salary, irrespective of years of service.  (So that if you have pensionable service for too long there is no benefit from the final part.)  This constraint was introduced when it was an Inland Revenue limit.  It is expected that the Inland Revenue's simplification plans, due to be in force April 2006, will do away with the Inland Revenue limit but it is not automatic that the "C-Plan Maximum" will go also.  Pension planning for employees has to take a long term view so an early warning about post April 2006 would be beneficial.

There have been a couple of events relating to Watson Wyatt, the firm which provides our actuary and some investment advice.  The UK component of an alliance was sold to the US component, and will now be subject to US control instead of being independent.  For unconnected reasons, Watson Wyatt is being sued by a firm that says they are paying out pensions that are too big because Watson Wyatt led them to believe the pension fund was in better shape than it actually was.  Prevailing opinion reported in the media is that the firm has little chance of defeating Watson Wyatt in court, but may be angling for some settlement.  There have been cases of companies suing their advisers and getting a substantial settlement.   This situation is another example of the power that those who can afford to go to court have.   In the hypothetical reverse of this situation, where the pensions were too little because of incorrect advice, the scheme members would have had no chance of suing the advisers. 

Tony Marchak (Vice President Human Resources, IBM Europe, Middle East and Africa) has replaced Charlie Morrison on our trustee-director board.  This brings to three the number of trustee-directors on this board of a UK pensions trust who are not embedded in UK attitudes to pensions and the UK culture of "fair play".

On the UK front, pension legislation development continues.   As we have explained before, there are three levels to consider - the primary legislation  (for which there is already a 2004 Pensions Act passed by Parliament), secondary legislation known as Statutory Instruments (of which there are about 100 pieces to fill out the meaning of the Act), and Codes of Practice (produced by the Pensions Regulator, not legally binding, but requiring yes/no approval from Parliament.).    
 

There are timetables for when the pieces get consulted on, decided on in Parliament, and put into force, but they are just Department of Work and Pension plans, subject to change.   One detail that has emerged is a figure for £15 per person per year to support the Pensions Protection Fund.   Since we have not been told otherwise, it is reasonable to suppose that this money (which provides us some partial insurance against the consequences of IBM disaster) will be paid by our Trust funds rather than by us.

An occupational pensions Employer Task Force, set up by the government but independent, has reported with some straightforward conclusions like "Increasing employee demand is key - employers will not provide benefits that employees don't appreciate."  Also the Pensions Committee has produced a well-received report on future possibilities for pensions.  After the expected general election it will give its opinion on the contentious matters of whether particular levels of employer/employee contributions to schemes should be made compulsory, and also perhaps its opinion on the "Citizens Pension" we described in Newsletter 23.  (Support for that idea has broadened.)

On the world front, there is a report on how final salary schemes affect your view of life.  If the results apply internationally it is good news for C-Planners, bad news for M-Planners.

There is little change of status in the IBM US appeal against part of the finding that it was guilty of age discrimination.  (It has agreed to pay the compensation for the un-appealed part).

IBM US employees still have "off-shoring" of jobs as their big concern, and IBM US retirees have health costs as theirs.  This story should make you proud that the UK has a universal NHS.

IBM US is considering taking advantage of a transient tax concession to repatriate $8 billion of its subsidiaries' profits to the US.   

IBM US has issued figures on overall pensions costs: "IBM said the soaring costs from employee retirement benefits will be $US200 million higher than expected this year, due to the currency impact on overseas retirement plans and a change in actuarial assumptions. For 2005, pension and retirement benefits are now expected to cost about $US2.1 billion, up $US1 billion compared with 2004 and $US1.75 billion higher than in 2003. But despite the higher costs, IBM issued a positive outlook for the year ahead, standing by Wall Street's current profit forecasts. While retirement expenses were expected to rise by another half billion in 2006, the company said those costs should level off in 2007. "

More detailed information has emerged on IBM's manipulation of its apparent profits through changes to actuarial assumptions for its pension schemes.

A new class action has started.   ITO II - REAP Lawsuit. Excerpt: Louisiana's First Circuit Court of Appeal in Baton Rouge, Louisiana upheld, in a brief memorandum opinion issued on Tuesday (February 15, 2005) the certification of a nationwide class of former IBM employees who left IBM after availing themselves of an early termination package called ITO II, in 1992. Shortly after the employees' departure, IBM "suspended" one of the benefits in the ITO-II package, the REAP benefit, that provided for a reimbursement of education expenses up to $2500 per person. The benefit was never reinstated. The suit was filed under state law contending, in effect, that the ITO-II benefits were part of the consideration for releases signed by class members releasing IBM from liability to the class members for age discrimination in connection with the down-sizing.

Over a period, AMIPP has lost contact with a number of people, listed in Lost Members.  They might have changed their email address and not told us, or they might have lost their jobs and no longer have an email address. If you can help by reminding them of the need to re-register, or by being an "e-mail buddy" for them, please do.

AMIPP, the Association of Members of IBM UK Pension Plans       www.amipp.org.uk