August 14, 2009

Newsletter 39 had just one topic - IBM UK proposals for a radical downgrade of its pension provision. That newsletter aimed to outline the proposals and their context. This newsletter has just one topic, the same topic. This newsletter explains how low IBM has sunk and the appalling impacts that the implementation of the proposals would have on many employees' lives.

1997 to 2003

The 1997 to 2003 period was a stable one for the Main Plan pension scheme. Staff were steadily accumulating years of pensionable service, leading to pensions computed as a proportion of their final pensionable salary, and final pensionable salary was not much less than final salary. Early retirements were common, and sometimes encouraged by "packages" which improved the pension. Although increases to pensions in payment were the worst amongst comparable schemes, the scheme overall came close to what would be expected for a major company. The employee's contribution of 4% of salary was money well spent.

2004

Actuaries nationwide had begun to catch up with the evidence that we were tending to live longer. The commitment made, to provide pensions for life, was proving more expensive for companies than expected. The commitment for benefits already earned could not be changed and many companies were reluctant to change the ongoing benefits. So the common choice was to make employees contribute more. IBM UK chose to raise the rate from 4% to 6%. While this was effectively a 2% pay cut, employees accepted it as the price of a sturdy final salary scheme.

IBM agreed to pay most of the debt it owed at the time to the Pensions Trust.

It was at this time an agreement was made (initially with IBM World Trade, later with the IBM Corporation) about funding. It was introduced as "the IBM Corporation has agreed in principle to guarantee company contributions to the fund". That was far less than the whole truth. IBM UK Holdings was already required, by law, to fund the contributions if it was solvent. The "guarantee" part of the agreement only functioned if a solvent IBM World Trade allowed IBM UK to go bankrupt. Another part of the agreement constrained how the Pensions Trust should set the assumptions it used in forecasting costs every three years. Scheme members have never seen the agreement - IBM regards it as a commercial secret.

David Heath, who headed Human Resources at the time wrote: "I believe that this series of initiatives demonstrates IBM's commitment to underpin the sustainability of the defined benefit plans in the UK."

Employees looked forward to a sustained period of stability for the plans.

2006

Stability lasted until early 2006, when Armonk demanded more cost cuts. IBM did not claim that the existing plans were unaffordable, it simply wanted (like any other company) its plans to cost it less. The IBM methods were a brutal use of power. The employees were offered the choice of working to new terms and conditions of employment or not accepting the terms and hence being unable to work for IBM. The Pensions Trust was told that since the employee was agreeing with the employer on the degraded benefits, the Pensions Trust would have to implement them.

[Whether the Pensions Trust were right to take that subservient view in the manner they did is questionable, and the question is with the Pensions Ombudsman now, but it would be surprising if the 2006 arrangements were to be undone.]

The employees were (mostly) offered a choice of degradations - deferment from the final salary schemes and inclusion in a new "Enhanced" money purchase scheme, or continuation in the final salary schemes with less of their salary deemed pensionable.

IBM achieved its cost cutting - several hundred millions pounds of gain show in the IBM UK accounts.

The employees largely resigned themselves to their fate. Those who chose the money purchase scheme could console themselves that they were in a better scheme than new recruits to IBM. Those who chose final salary had the satisfaction that the final salary plan had not been lost - although the tie to final salary had been diminished, they were still earning pension insulated from the vagaries of the markets and annuity prices.

It is apparent now that most of those choosing the final salary scheme understood it was safe until 2014.  [ Those who follow AMIPP Newsletters closely would have understood the guarantee differently.]

A statement from the Pensions Trust said "Although IBM is unwilling to give a commitment to the Trustee that there will be no further changes to pension benefits it has told the Trustee that it views these changes as long term and has no plans for further change."

2009-2010

Four years is certainly not long term in pensions timescales. Yet the proposal is not merely to adjust the final salary schemes but to close them. It is practical to assess the proposed changes in terms of who would be unaffected (the majority of scheme members), who would marginally gain at first (the majority of employees), who might lose now (those aiming to retire early but not just now), those who will certainly lose now (those refused early retirement), those who will lose steadily (forced from final salary to M-Plan), and those who will lose if this approach to employee relations heralds the future (everyone).

However, such a view misses this point:

When big cuts are made, and they fall on a minority, the minority is devastated.

When the proposals were announced, use of AMIPP's Forum went through the roof - literally since we had to raise the bandwidth our host had allocated for us manyfold. There were 1500 contributions in a month. These were not minor grumbles about some additional irritant at work - they were messages from people who could see their deep and careful life plans being shattered. Here is an unabridged quote. It is more poignant than most, but not out of step with the prevailing views:

"Let me try and explain to you all my true inner feelings. I am one of those fools who gave up their life to IBM. Worked myself to the bone, missed half my life. Kids grew up and I dedicated more to IBM than them. I put up with the promotions without pay-rise, the lack of any real reward despite constantly being a 1 performer. Watching billions ploughed into share buy-back rather than investing in IBM as a business. The small petty minded cost saving. The scorched earth policy of savings. I truly believed in IBM.

My constant thought is that at least I could get out at 50 maybe a few years later and do something with my life. Then thanks to Gordon it became 55. Well, I thought, that's not so bad at least I will have a decent pension and can balance my life out. Maybe catch up on some of those things I missed. Salvage that which I pushed to the back.

I remained misguided right up until last week. I really believed in IBM despite the warning and my inner alarm bells. This proposal has turned my life upside down.

I feel incandescent, depressed cannot work and cannot sleep. Near to tears most of the time. Thinking very bad thoughts. In fact I feel absolute hatred. I just hope it passes and I can break out of this depression. I have posted a lot on this forum to hopefully let off steam - but it is not working. I know many of you reading this will see me as a fool - I don't like sharing emotions - but have to do something to lighten the load I feel. I am sure IBM will never know the hatred I have suddenly felt for the Corporation. I hope it goes. I am hoping I can plan positively - but it seems so hard."

There has been a tipping point in employer/employee relations.

A stream of "I have joined the union" notes appeared on the forum. The message with them was universal - "I hoped never to see the day when it was necessary". A meeting organised by Unite drew 200 attendees (when Unite had felt ambitious in expecting 50).  Meetings in different parts of the country are taking place.

A stream of warnings showed that it has become less unthinkable that employees might be punished for dissent. "The atmosphere of fear and intimidation now prevalent has to be experienced to be believed."

Other concerns folded on to the tide of dismay and distrust. Many of them were careful analysis without rhetoric. The policy of "managing people out" by forcing managers to give a quota of poor ratings, and then dismissing those lowest rated for failing to master some unachievable "Performance Improvement Programme", is harshly criticised. Because the proposals mean that many people would need to work several years longer to achieve the same pension as under current arrangements, that prospect of completing the several years is insecure because of the automated dismissals.

Employees regard the change from 2006 as duplicitous.

IBM has plenty of cash and profit, as it did in 2006. IBM is no less competitive than in 2006. The employees knew in 2006 of the government plans to generally raise retirement age to a minimum of 55. What has changed is attitude - from the 2006 determination to provide a long term scheme to the 2009 determination to get a quick extra profit to show on the books. Employees note that the men who vouched for the 2006 arrangements are no longer in post. David Heath, who headed Human Resources, and Stephen Wilson who directed the finances, are now ex-IBMers. Larry Hirst, the CEO most associated with the 2006 arrangements has moved to another area of IBM. The replacements for Larry Hirst and Stephen Wilson are an Australian and an American - backgrounds not likely to lead to a good appreciation of the British sense of fair play.

Some UK companies have been forced to close their pension schemes because they cannot afford to do otherwise. Despite knowing that IBM is very different, IBM portrays itself as going with the flow.  IBM knows that the government forewarned, long ago, about disallowing most retirements below age 55.  It knows that employees have fitted their plans around that, and if the IBM early retirement policies of 2006 and decades before are retained , then employees will be satisfied and not suddenly leave.  Yet it hopes to cloak a sudden surge of job losses by reference to the government's regulations, as if those regulations were a surprise.

The most glaring reversal of promises is felt by those who chose to stay in the final salary schemes. It turns out that the deal for those who did not choose to stay in the schemes was contractual, and cannot be degraded in this proposed 2010 move. Under the proposals, the choice to stay will be wrong, with hindsight. But nobody told the choosers of that aspect when they were choosing. Those who stayed in the final salary scheme, as well as quoting their trust in the leaders who sold them on staying, point to the guarantee of funding.  If the money supporting the arrangements was in place until 2014, why should they have expected the arrangements not to be?

There is further story to come.

The people who work for IBM are not stupid or spineless. They will make the case that these proposals are bad for the company and its staff. However, there is little mechanism to give clout to their views:

- The Law does require some standard of behaviour from a company in its relations with its staff. But financial issues dictate that there is no level playing field for an individual or organisation wanting to take a multi-national corporation to Court.

- Regulations provide that there should be consultations. But there is no requirement for the employer to take any notice of what it learns from consultation. IBM has already shown its determination that the employee representatives in consultation meetings should be under-informed, by refusing to pay for them to have independent legal and actuarial advice about the merits of the proposals. [Unlike Fujitsu, for example]

- The union Unite will provide the individual help and protection which many IBM employees now regard as essential insurance, but offers little in the present emergency other than the chance that the threat of a unionised workforce will cause a rethink of the proposals.

- The Pensions Trust, where "the interests of the scheme members are paramount", has yet to say anything to suggest it will do more than it did in 2006 - agree to implement anything the company can persuade its staff to sign up for.

- The Pensions Ombudsman provides a slow mechanism, and suffers from one-sided accountability; if an Ombudsman decision goes against IBM then IBM will appeal in the High Court. If an Ombudsman decision goes for IBM, the complainant cannot afford to appeal.

- MPs. You be the judge.

- The Pensions Regulator. The Regulator is most concerned about companies being unable to fund their pension schemes, so that the Pension Protection Fund has to take the strain. IBM degrading their benefits lessens the chance of IBM going down that route.

Many who have left IBM have taken the view that "IBM now is not the company I worked for". The news in this newsletter is worse. The news is that the race to the bottom, in treating employees as resource units rather than people, has reached the stage where even the employees are saying "I no longer trust the company; it will never be the same again".

Note that you can contribute to the Forum under a pseudonym. Or you can communicate with others who have registered at the Forum, without the need for you or they to use email addresses or real names and without anything appearing on the Forum. You might think it wise to use the Internet from home rather than work for such purposes. Those who want to catch up on the five weeks since 07/07/09 when the proposals were released should find the topic "weekly summaries".

You might want to see the answer our polling question on this issue, or see the developing results.

A look on our home page and the link through "actives" will show the material since the last newsletter covering Pensions Consultative Active, Trade Union activity, and a letter to MPs.

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