The Trust Viewpoint

with commentary by Brian Marks

I was invited by the owners of this website to put this here because it has some relevant facts amongst the opinions. Because it is 500 lines and I have also posted some messages there is a risk to the balance of the views on the site. If you think that there is unbalance then there is an obvious remedy - submit some views of your own.

(Encourage the bandwagon - the web gets 7 million new pages per day :-)

(You don't need to use telephone connected time to compose a message. Your browser almost certainly supports "cut-and-paste" so you can compose at leisure off-line and paste into the message when you are on-line.)

I learned about the scandal later than some people and have chosen to look at it in the way that you or I would have looked at a nasty surprise in some project when we were in our prime - with some plan like

(a) find out how bad the damage is and why it happened,

(b) find out how far things can get worse,

(c) try some remedies,

(d) try for some structural changes so that a similar thing will not happen again.

In doing this I have had a helpful talk to somebody at North Harbour and they volunteered to check my take on what they said so that I would not accidentally misrepresent them. The checked parts appear within 'truston:' and 'trustoff:' tags. It would be wrong to say that the trust has approved of putting the text on the web, but they were explicitly aware of the prospect.

Anything outside the tags is my unchecked commentary added later. This sentence is not ego-output but rather some facts about me to help you put context to the opinions: doctorate in statistics, career at Hursley (their youngest Senior Programmer ever, I think), never a member of any political party or trade union.

About the mechanism of managing retiree pensions:


From the point of view of the IBM UK Pensions Trust this is described in each Members' Report. From the point of IBM UK it is described in the Handbook for Retirees. One bit that could be counter-intuitive is that "The Trustee" is not a person - it represents all the directors (as listed on the back of each Report). The Pensions Department in North Harbour runs the trust side of the mechanism and as part of that interfaces with IBM UK. There is a the procedure for dealing with "problems or misunderstandings". If retired you can get a copy of this from the Pensions Department, if not you will find it on the intranet. This procedure has a Preliminary Stage (informal and not mandatory) which involves discussion. These agreed notes (those bracketed by truston-trustoff tags) represent the view of the trustee, in discussion with a retiree. If further resolution is needed, the formal Internal Disputes Resolution Procedure comes into play. The Internal Disputes Resolution Procedure only relates to complaints with the Trustee. It does not cover any complaints against the company.


The thing to note here is that I was hearing the view of the trust, not the IBM company. The company has the first word in the mechanism, because it chooses the majority of the board members and provides the management and admin staff. The company has the last word, in normal circumstances, because it can disapprove pay increases. The professional staff at North Harbour operate in the middle of that sandwich.


Documents sent to all members contain everything retirees need to know. Retirees who want to understand anything further may contact the pensions department.


The trust does not see understanding as flowing in both directions. (Even though this particular single discussion picked up two cases where trust output was incorrect.) You may find this paternalistic or patronising but it is not surprising. Any person who works full time in the pension world doing what she/he thinks best is pretty well bound to believe that the result is the best of all possible worlds. So, to them, any amateur doubts must be ill-founded. The calibre of the people I know to have called this affair 'scandalous' or worse does not impress the trust, although it impresses me.

Analogy can be drawn with the product manager who doesn't want to hear what the customer thinks because it interferes with telling the customer how perfect the product is. Or the government that sees agitation in the electorate only as a failure to get the government message across.


There are documents (eg the trust deeds, government regulations) which limit what the trustee can do. Legal advice is taken. "Taken" means "asked for" rather than "adopted" but in practice the advice has been adopted. The trustee has never been advised that any of the actions taken could be illegal.

The trustee and IBM UK use different advisers.


Our protection by the trust deed is weak because the trust can change the deed, within the broad scope of its purpose in providing pensions.


The trustee has regard to everything that employees were told about pensions by IBM UK or the trustee.


The point to note here is that the trust doesn't argue that it has to behave like a computer and just propose a 70% RPI increase automatically. There are other factors in play.


   DATE      INTERVAL    %INC     %RPI
   Jul 75       -         17       25
   Aug 76       13        20       16
   Oct 77       14        12       18
   Jul 79       21        12       22
   Jun 80       11        15       16
   Jul 81       13        11       12
   Nov 82       16         8       10
   Dec 83       13         4        5
   Apr 85       16         5        6
   Jun 86       14         4.8      6
   Jan 88       19         4.5      6.5
   Jun 89       17         6.4      9.1
   Jun 90       12         5.7      8.1
   Apr 91       10         5.0      7.2
   Apr 92       12         2.9      4.1
   Apr 93       12         1.2      1.7
   Aug 94       16         3.5      5.0
   Oct 95       14         2.6      3.6
   Jan 97       15         2.1      3.0
   Apr 98       15         3.0      4.2
   Oct 99       18         2.4      3.4
   Oct 00       12         2.3      3.3

The RPI increases are calculated from 3 months prior to the beginning of the interval to 3 months prior to the end of the interval.

Summary: In practice such increases have been awarded at the level of approximately 70% of the rise in the Retail Price Index, with such increases being granted between 12 and 18 months apart.

(The Trust has given the summary in the paragraph above but would agree now that 10 months to 21 months is correct.)


I bet there are dozens of people who have tried to work out this table for themselves and got slightly varying figures, perhaps because they didn't know about the three month lag. The table that has been on this site has had slightly different figures. We are not the only ones to have different figures; IBM UK quoted something different in a letter to an MP. I wonder why the full table was not well known before - could I be the first person to ask for it?


The purpose of the presentations made to Havant potential retirees was to help them judge what they could expect to receive. The presentation addressed entitlements, commutation options (but not financial advice), and future increases. In this context a history table was used, with clear indication that increases were ex-gratia (aka discretionary).


This is a similar point about 70% not being mandated. When I retired from Havant only the table up to June 90 inclusive was in the presentation. The Oct 77 figure was wrongly shown as 20% instead of 12%. I calculated that the geometric yearly average over those 15 years was 86% RPI. (With 12 instead of 20, I make it 80%) I inferred not only that the trust can recommend other than 70% but that since it had done so before it could be expected to do so again when the circumstances were favourable.


There is no such thing as an abnormal contributions holiday. There is a technical term Normal Contribution. The term "normal contributions holiday" refers to a "holiday" from making a Normal Contribution.


This is a minor point but I have put it here so that you see all of the discussion notes. I was looking at a Members' Report and wondered why the word 'normal' was used. If the behaviour of the trust had been 'normal', in the sense of 'similar to other trusts' when it came to topping up then the holiday might/would not have been possible. It turns out that the word was used as a technical term (but the cynical will think it was intended to lull members).


The 70% RPI assumption is specified to the actuary. Predictions about inflation, the market, and mortality are not given to the actuary, the actuary makes these.


The significant point here is that the actuary is making a well-informed guess about the future, just like most speculators on the market. If the guesstimate of what is needed to meet the assumptions is correct and the C-plan funds equal it then the assumed future will not have financial difficulties. If the guesstimate proves optimistic money will be needed from the reserves (excess of C-plan funds over the guesstimate) or from the company, if the assumed future is to be financially possible. What happened to the Equitable is an example of uncertainty. (And that was brought about by paucity of reserves.)

I forgot to discuss what the actuary is told to assume about the intervals between increases.


In earlier days there were only plans (aka schemes). Some plans were contained in a plan. For example, in 1991, C-Plan and N-Plan were plans which had funds and were contained in the IBM plan which had funds because it had the C-Plan and N-Plan funds. Sections were introduced later and retirees should have been aware of them and their implications from (a) changes in the headings of the investment report in the Members' Reports and (b) a document from Ann Grinstead in January 1997.


It would take a lot of room to comment on the significance of everything IBM or the trust said and when they said it - I defer to people who have made a much closer study of that


In principle the trustee proposes an increase and the company approves or disapproves. In practice there have not been two sets of figures, one for what was proposed and one for what was approved because those numbers have been the same. Making the 70% RPI assumption into a commitment has been proposed by the trustee but not approved by the company. Increases, once they are being paid, cannot legally be retracted. In view of the expectations that have been raised amongst retirees, in the event that increases were not at the level of 70% the Trustee would wish to understand the company's reasons for this and would, therefore, need to consider what options the Trustee, itself, might take.


Several points here. You can hardly directly criticise IBM about increases you consider stingy since it did not turn down any proposed increase; criticism has to be directed at the trust or IBM's influence on the trust.

IBM has made an active choice to retain approval rights on increases.

It is recognised that history can give retirees a consideration beyond (or extending) their "entitlement". So after 25 years of increases at and above the the 70% level the trust would go to bat for us if they became less.

We had 22 years when the use of Cplan funds to benefit the IBM balance sheet was limited to contribution holidays. When a new and rapid way of moving Cplan reserves to benefit the IBM balance sheet appeared on the scene, the trust chose not to bat for us.

One key question is: what could they conceivably have been thinking when they made that choice?


Being seen to be fair is relevant to the trustee. Board members disclose any relevant financial interests they have. If a Trustee Director has a conflict of interest and declares this at a meeting a formal record of this would be noted within the Minutes.


I did not get around to asking what access the retirees have to the minutes.


The only connection between the Trustee and IBM US that does not go via IBM UK is the presence of two IBM US employees on the Board.



The trust does compare its behaviour and outcomes with other company pension schemes. Some elements of the comparison compare favourably for the retiree, for example the pension on retirement in relation to length of service etc., and some do not. A survey in "Occupational Pensions" shows that out of 156 surveyed companies in the UK, IBM(UK) comes in the worst 2% when it comes to topping up of pensions. The level of benefits of any pension plan are a matter of company policy. In the area of pension increases the Trustee does take the opportunity to provide data to the company on the practice of pension plans in the UK generally, in support of any pension in payment increase proposal.


Note that what is quoted as good about our pensions comes from the past and what is acknowledged as less favourable to us is current.

That completes the material on the trustee views. I forgot to discuss some things, and failed to discuss others because the discussion ran out of time. I would have liked to discuss how disclosures of interest lead to board members not voting. I would have liked to learn whether anything (other than their choice) could have led to the elected members who resigned not telling us why. I would have liked to learn more about the support given to elected members in assembling data to support their point of view.

If you think I discussed the wrong things then, as a retiree or employee, you can ask for a Preliminary Stage discussion yourself. (Obviously, you should be prepared to wait - the professionals at North Harbour have a lot more to do than discussions.)

Returning to the a,b,c,d at the top of this note:

a) Once upon a time IBM UK was required to hold a vote about whether employees wanted union recognition. If you voted then the odds are very high that, like me, you voted against, since the overall vote against was somewhere up above ninety percent. No doubt we felt we already had a good implicit agreement with IBM upper management - they behaved as a corporation in a way we could be proud of, they rewarded us well, we made huge efforts and remained loyal. We didn't want that replaced by outcomes decided at picket lines and court rooms. This classic IBM culture came under threat during the bad patch IBM had around the late 80s.

IBM took a beating over the OS/2 operating system when it hoped to co-operate with Microsoft on the basis of gentlemenly agreements. That and other circumstances led those in power to believe that it was a competitive necessity to adopt a Microsoft approach - operating brutally near the limits of what was legal. (And beyond the limits in Microsoft's case).

The serious periodical 'Wired' says they even wanted Bill Gates to run IBM. In practice we got Mr Gerstner, who had no experience of the IBM culture or of IBM's area of expertise.

Whether the change of direction was a good judgement or not is another topic - it was certainly likely to be a commercial advantage during the period when the employees and the rest of the world continued to believe that the classic IBM culture was still in place. Also it was certainly a bonus to those making the change. The standards about executives selling their shares were relaxed. According to the Vickers Insider Trading Reports, 17 IBM executives made a total $76 million pretax gain on selling IBM shares between Oct 1997 and Oct 1998. ("Insiders" are people with a knowledge of major company plans, plans such as companies buying their own shares to bolster the share price.) One of these 17 was J D Serkes who was one of directors IBM appointed to our Trust.

Anyway, the change happened. The classic IBM culture has been replaced. The new IBM made IBM's first hostile takeover. The new IBM believes pensions are an "old-fashioned" idea. The new IBM has settled in a case where it was alleged to have knowingly sold defective chips. The new IBM will pay to settle charges of bribery in Argentina. I don't know it for a fact but I'd be prepared to wager that UK union membership is rising and I would be surprised if the staff voluntary resignation rate is not at an all time high.

You can find out more about all this by following links from the messages and news items of this site. The weaselly efforts by IBM lawyers to keep something out of a shareholder meeting are almost funny. (See "Response to IBM letter to the SEC..."). Of course, the users of this site are not necessarily representative. (More aware than most, right? :-)

Not all employees will have embraced the new culture - some feel they have not changed their attitudes at all. However, very senior executives in the US company, such as those that have been on our trust board, can be expected to be enthusiasts about the way the company is now run.

So the cause of the damage is a change in the IBM culture. The immediate extent of the damage (unless corrected) is 24M out of the reserves that would otherwise have helped protect payments to us from future uncertainties.

b) Unless the situation is corrected, the first way the damage could increase is with further loss of the reserves, up to all of them. (Several hundred million). The second way is if IBM exercised its power to disapprove pension increases. The motivation for the new IBM to do that is clear - it would produce more reserves that could be whisked away for the benefit of IBM's balance sheet. Instead of the value of your pension decreasing by roughly 30% of the RPI change each year, as it does now, it could decrease by 100% of the RPI.

The theoretical possibility of increases not being approved was also there under the classic IBM culture. At that time most people probably thought the reason for keeping the 70% rule informal was so that increases could be more when times were good and less when they were bad. We now know that was not the case since times have been good but increases have not responded. So the obvious question is why IBM wants to retain this power now. The obvious answer (can you think of another?) is that they are contemplating using it to lower increases.

(If you think this is bad spare a thought for our American colleagues who are still employees - those with 10-20 years in the company face an immediate drop of 30%-50% in the value of the pension benefit they have earned.)

(If you can't feel sympathy for those employees, who are amongst the best paid in the world, consider the Filipino women paid six dollars a day to assemble the CD-ROM drives that IBM sells. This does not conflict with the new-IBM culture, [doing what the lawyers can defend], because these are not IBM employees.)

c) If you were really smart enough to have seen this coming you would have taken some remedial action when you retired - by taking a lower pension and a higher lump sum you would have enjoyed all the appreciation of the lump sum with no risk of it being whisked away. I suspect that many people chose not to do this - the classical IBM culture provided more of an argument for letting the trust look after the money.

Remedial action now via the Ombudsman is a possibility, either on a technical basis (that the documents involved don't allow the trust to do what it did) or based on the trust behaviour. Although any complaint does not have to be in legal terminology it has to be good in law because the law can be used to overturn an Ombudsman ruling.

The legal route is weak, for us, because the trust has much more protection than the retiree in law. When you were in work and needed a decision from your boss, you expected the decision to be that of a reasonable person. It is not that simple with the law.

The test of whether the trust has done wrong is not "what a reasonable person would think", it is a higher hurdle than that. The test is not "what a jury would think beyond reasonable doubt", it is higher than that. One judge put the test as "The Judge may disagree with the manner in which the Trustees have exercised their discretion but, unless they can be seen to have taken into account irrelevant, improper or irrational factors, or unless their decision can be said to be one that no reasonable body of Trustees, properly directing themselves could have reached, the Judge cannot interfere."

My paraphrase of that is "The trust has not done wrong if there is a conceivable way they could have thought they were doing right".

This is an unusually high hurdle. For example, in "insider trading" cases the tests used take into account all the circumstances - regulations do not say "No insider trade is using insider information if the trader could conceivably have had a different reason for making it".

Those of you who play tournament bridge will know that the regulations of that game operate the inverse of the trustee rule - if you hesitate in the bidding your opponents are awarded a verdict as if you passed information by the hesitation; whether your side's actions were actually or conceivably innocent is no help to you.

Despite the high hurdle, it is right to exercise the Ombudsman route since there is a moderate chance the hurdle can be overcome, and because active concern can have good side-effects arising from the "squeaky wheel" factor.

d) The following structural change bit has the tone of a potted (potty?) lecture so if that sounds bad, quit reading now.

The circle whereby corporations own media and fund campaigns that empower the politicians that produce the rules to channel the money flow whereby corporations own media and fund campaigns that ..... has produced the situation where a company selects the majority of those who vote on a trustee board and any victims of that have to show, with poor access to records of what really happened, that the board could not conceivably have thought it was doing right. This is corporate power in action.

One upon a time the monarchy had more power than was good for the rest of the population. People changed that.

Some of us lived when government power was excessive and millions could be sent to their death in faraway places with the government controlling what the populace was told about it. With the advent of better communications people knew more about what happened to both sides in a war and that particular government power was reined in.

Most of us in the UK lived through a period when union power was excessive. That was reined in when union activity became so prevalent that even those in sympathy with union power recognised they that were in the same community as those suffering from it.

Nowadays corporate power is excessive. Individuals, communities, and weaker countries struggle to achieve a minimimum of self-determination in their affairs under the yoke of work, debt, and corporate decisions that they cannot get near to. The trends in corporate consumption that threaten to make more of the world uninhabitable are accelerating. Governments must kotow to the media corporations or risk being isolated from their electorate. Ombudsmen and regulators often roll over or are rolled over.

The tide of affairs will turn when those who are part of the apparatus of corporate power recognise that overall they are as much the victims as anyone else. It will happen - extreme weather touches everybody, skewness between haves and havenots cannot be ratcheted up forever, the spread of facts across the web cannot be legislated away. The concern should be about how much worse things may get before they turn for the better.

You might wonder, if excessive corporate power is the cause of our little problems, and the cycle described above is the cause of excessive corporate power, what is the cause of the cycle above? There is a much praised book, ("The Rise and Decline of Nations", Mancur Olson, 1982) which is relevant. It isn't light reading because it is written as economic theory but it argues that history shows that things we regard as fostering orderliness (like the caste system, the class system, perhaps the legal and political systems) are the framework whereby the powerful reinforce their power, and the resulting skewness is eventually so inefficient that a nation can fail even when its external enemies are weak. Not an encouraging thought if you substitute "the world" for "a nation".

Meanwhile, most of the retirees this site aims to represent will not know what is done to their pension fund. Those that do will sensibly plan to be a little less well off, and maybe (selfishly?) seek to optimise their own finances by voting the way they think will minimize inflation and the means-testing of state pensions. Perhaps just a few will react more to what is happening.

They might borrow a book from the library, like one of George Monbiot's carefully researched tracts or the Naomi Klein empathetic effort ("No Logo"). They might change their newspaper as an experiment. Perhaps just one or two will see this affair as a cue for more activity, remembering chaos theory and probability theory - the butterfly can precipitate a storm, people do win lotteries.

Not a structural change in itself but a molecular level component of that change - just as this slim website represents a molecular level of the undisputed power of the web.

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