Newsletter 8.

If you registered on the website before 8 November and HAVE NOT received this newsletter as an email, please send a note to Mike Eacott. Also check the Lost Members page to see if we have lost contact with you.

As you may know, there has been a 1.2% increase in the C-plan retirees' pensions, paid since Oct 6th. There are some messages about this on the website, around that date. Essentially, this increase perpetuates a trend, over more than a decade, for us to fall behind the average comparable UK retiree, by about 30% of the RPI change per year.

The Actuarial Report for December 2000 has just been published and there is an account of it at http://www.gpsu.co.uk/cplan/actuarial00.html. In summary, the good economic conditions in 1997 to 2000 would have made the reserves about a billion pounds but for the fact that the actuaries have assumed that future costs will be higher, reducing the reserves to about half a billion. There is some expectation that the reserves will not be used for IBM's benefit at the fastest rate possible.

We can relay some information on when the trustees proposed to improve our pension payments. We only know the years, not the months. In 1999 "A request was made of IBM to consider guaranteeing increases at the level of 70% RPI". In 2000 "the Trustee requested that IBM guarantee increases of 70% of RPI at 12 month intervals". In 2001 "The Trustee requested guaranteed annual increases of LPI, or a guaranteed increase of 70% of RPI capped at 5%, or the reasons why IBM was unwilling to agree to such proposals". There were no similar proposals in the previous decade. IBM still does not guarantee anything.

There is a match between the dates above, the complaints against IBM and the trust, and the emergence of our website. IBM appointed all the people on one side of the exchanges above and the majority on the other side. It would be cynical to suggest that the exchanges were a charade for the benefit of the Ombudsman. A more charitable view is that the trustees were encouraged to action by the reasoning in the complaints and the support for the website by those who have registered and contributed.

In MIL 785, IBM told us what to expect about their attitude to maintaining the value of pensions: "As with all compensation and benefit matters, we aim to compete favourably with the practice of other leading companies.", see http://www.gpsu.co.uk/cplan/mr2000.html Part of the reason the reality is different may be that only US companies are being compared with. Tom Heneghan, reporting on the South Hants members meeting, about a question on whether MIL 785 was still operational, writes "As I remember the reply was that Mr Gerstner no longer compares IBM Pension strategy with that of the leading UK companies referred to in that MIL. They went further to state that he compares IBM strategy with companies such as Microsoft, Sun and Compaq whose employees are more interested in salary and share options rather than pensions. ( I wonder if they are as keen on share options today) The speed of the reply that I received would indicate that the trustees had already raised this issue with their US counterparts and had been given short shrift." (If you were at that meeting, the Webmaster would welcome any further reporting you can offer.)

The recent "stimulus" Bill in the US gave an immediate 1.4 billion dollar tax rebate to IBM. What chances are there of this causing a softening in the IBM attitude to proposals from trustees?

We can provide no hard news on when the Ombudsman will produce some conclusions (his "determination"), but what non-confidential information we have suggests there will be a determination for the Mike Cawley complaint, and one for the Dave Mitchell complaint, around the end of the year.

The rest of this newsletter will be of interest only to those of you concerned about legal matters or analysing the determinations.

There has been a relevant determination in a non-IBM case, Watts-Morgan v Laporte Group. The best way to explain it is to compare two hypothetical scenarios.

In Scenario A, a company is paid money from the funds of a final salary pension scheme. The final salary scheme members are not guaranteed LPI increases on all their pension. The company also has a money purchase scheme. In Scenario B, the company's contributions to a money purchase pension scheme come from the funds of a final salary pension scheme. The final salary scheme members are not guaranteed LPI increases on all their pension.

Some retirees have argued that both these scenarios amount to paying the company because in Scenario B the company avoids a cost it would otherwise have. (See FAQs 10 for an analogy with the Inland Revenue taxing you on money you never had.) The law does not, in general, accept that view and the Ombudsman has determined according. So the IBM retirees cannot use the argument that because IBM has adopted Scenario B, the regulations for Scenario A must apply. The Ombudsman might criticise Scenario B for special reasons (eg because of particular wording of the deeds, or because of the trustees' actions) but he will not criticise it because IBM was "paid". That is what the recent determination says, and it confirms our previous understanding.

As the letter from Sandra Gidley MP says, "The Ombudsman has to make his decisions on the basis of current law". MPs consider future laws. Current law says that scenario A is illegal. The practical effects of scenario A and scenario B are the same: the final salary scheme members have lost something, the money purchase scheme members have unaltered benefits and prospects, and the company has gained something. If the effects are the same, does it make sense as a matter of social policy that scenario A should be illegal and scenario B may be legal? MPs are showing an interest in this and other areas where good practice and the law may not be aligned.

When the Ombudsman has made a determination, the obvious question will be "Who won?". For various reasons that may not be clear. It will be clear whether each complaint is upheld or not but there will be more to come. Firstly, there will the possibilities of appeals, and there will be more complaints to investigate. Secondly, any "winning" has to be judged in real life terms. If the retiree "wins" but IBM can counter by making an amendment to the deeds, will that be winning? If IBM "wins" but improves what the retirees get paid, will anyone have lost? Grey is a more likely outcome than black or white.

Some of you might want to look beyond "who won" to "what happened". The difficulty with that is that the Ombudsman investigation is what engineers call a "Black Box". You can look at the inputs (the complaints and other material our website provides) and you can look at the outputs (the determination and your subsequent payslips), but you have to deduce what went on inside the box. Those who know more cannot tell you for confidentiality reasons. When some determinations are known we will try to explain them to you, but there will be little more in that than you could have deduced for yourself.

One apparent problem is probably not a real risk. The website has noted once or twice that the Ombudsman has no powers of enforcement. This raises the spectre of the Ombudsman being ignored by IBM. This is unlikely since the reason the Ombudsman does not have enforcement powers is that he does not need them. When it was proposed that "The Ombudsman should be given the power to enforce his decisions directly", the government of the time said "Current enforcement arrangements are simple and straightforward. Enforcement by the Ombudsman would be incompatible with the neutrality of his adjudicatory function".

Yours sincerely

Mike Eacott (Membership secretary for the C-Planners' Group)