We know the basis of IBM's belief that the movement of the funds into the M-plan was an OK way of funding it. The trust deeds require that an "appropriate" and "acceptable alternative method" should be used to pay for the M-plan. IBM claims that IBM decides on that:

"It is the Principle Employer which, having considered the advice of the actuary, determines whether an "acceptable alternative method" is "appropriate".

It seems a bit strange to me that trust deeds presumably intended to protect the members actually only say "IBM can decide as it likes" but perhaps that is the way it is.

So IBM started the idea, and was its own judge on whether the transfer was an "appropriate" way of funding the M-plan, but it also needed a stamp of approval from the trust.

That was no problem because IBM appoints the majority of the trustees and in recent times they have always acted in the interests of the IBM balance sheet. It is not wrong for trustees to consider the IBM balance sheet

"... the Trustee may take into account the reasonable interests of IBM where appropriate."

It is wrong for the Trustee to make all its decisions, on principle, in favour of what IBM wants.

How the transfers came to happen - IBM, the members, and the law.

Although IBM felt it could get what it wanted from the Trustee, there were further hurdles - the members and the law. Their strategy for muzzling the members was to present them with a fait accompli. This was easy enough to do, since only IBM and the Trust knew what was going to happen. Any individual trustee who wanted to tell the members would need permission from the majority before doing so. In order to rationalise not telling us, the trust had to decide that we had no interest in the matter. The letter from Jim Lamb (on this site) implies we were not told because we had no right to take an interest in what happened to the reserves provided our "entitlement" (the pension with zero increases that is guaranteed) was maintained. This argument is repeated in the February material, with "defined benefits" replacing "entitlement" Apparently IBM has convinced itself that reducing our reserves by about a billion dollars has no bearing on the amount of pension erosion we can expect in the future.

Of course the employees and retirees were bound to notice eventually. But their routes for redress are the Ombudsman and MPs (who will normally suggest using the Ombudsman). Since the Ombudsman is part of the legal system, it just remained for IBM to ensure it could persuade judges to go along.

The problem IBM faced with the law was that when we contributed to our pensions, and when we retired, we knew that we were pooling money with retirees in a similar situation to ourselves, and did not find it conceivable that we would end up funding a group of retirees operating under a dissimilar "money purchase" scheme with far less pension erosion than we are experiencing.

The only thing the trust has said about what we know/believe is that the documentary evidence (from IBM and the trust) which reinforces our view "may be confusing".

What we knew/believed, about reserves not being at risk in this manner, has been endorsed by at least one judge, Mr Justice Rimer (see News->Old Messages->Legal [359]) and by the Ombudsman in his Barclays' ruling. Perhaps they were as confused as IBM thinks the thousands of members of the C-plan were. However, the IBM lawyers reckoned, correctly as it turns out, that Mr Justice Neuberger would overrule the Ombudsman if it could be shown that the dissimilar schemes were technically components of some encompassing fund.

It did not matter whether or not the existing documents that describe the trust (the trust deeds) said there was an encompassing fund, because the trustees would change the deeds if IBM wanted that. (There was a change - the trust calls it a "clarification")

This happened in 1997, and some new terminology was needed for the new setup. "Sections" and "Main Plan" were chosen. This website warned in FAQ 26#26 that this terminology would be used retrospectively to give the impression sections always existed and sure enough:

"....clarification of these terms by the addition of the word "section", which is what they are, and always have been."

Watch out also for terms which presume the legality of the transfer. For example IBM not paying anything into the M-plan can rightly be called a "contribution holiday" if the transfer is legal, but not otherwise. (And we should not call the transfers a "raid" until they are confirmed as illegal)

All this fiddling with the wording was aimed at judges, not at us. So the term "section" was slipped into a heading in the Members' Report. It was not flagged in any way. Those of us who do not do a word by word comparison of each Members' Report with the previous year's will have missed it. (Part of the price of trusting New IBM)

It is a judgement whether an extra word "section" is enough to say to C-plan members "you are going to lose a billion dollars from your reserves"; the trust thought so. The previous claim from the trust that a letter from Ann Grinstead had something to do with it has been dropped.

The trust policy since has been to avoid explaining anything to members in general but to keep repeating the mantra that there is only one fund at every other opportunity, presumably on the basis that repetition adds credibility. It is asserted, one way or another, seventeen times in one eight page response.

We can never know what legal advice IBM has had about the transfers, since that is "privileged". It is reasonable to assume what it was from IBM's actions - that IBM were directly entitled to do some things, that others were OK if the trustees did them, and the Ombudsman was irrelevant to transfers if judges could be persuaded there was just one fund.

Trustees in general

In everyday commerce it is never questioned that when a company hires and fires the majority of the directors of another company at will then it controls that company. However, when the subject directors are called directors of the trustee, and given some training in what that means, the control is nominally lost.

"All the directors of the Trustee are aware of their duties as fiduciaries and are able to distinguish their roles as directors of IBM and as directors of the Trustee when exercising their powers. "

(A "fiduciary" is general term for a "trustee" and not all the directors of the Trustee have a role as directors of IBM so this sentence doesn't quite make sense, but you get the gist. Note the use of IBM here to mean two different companies, IBM(UK) and IBM(US), since the trustees include directors of both.)

This skill in preventing thoughts from one part of the mind inter-acting with thoughts from another part when making decisions is not a natural skill. Judges train for decades to do it and then not everybody is confident they do it. You will recall the judge in the Pinochet case who was deemed (after he had judged) to be unsuitable because of doubts that he could distinguish his support for Amnesty International from his role in judging Pinochet.

However, trustees steeped in decades of single minded profit making for the company are assumed to acquire this skill when they become trustees. They are assumed to be able to turn it on and off for the duration of the trust board meetings.

Things that make it more difficult for somebody to exercise this skill successfully are known as conflicts of interest.

Trustees in particular

It is extremely difficult for members to find out what trustees have done individually. Voting patterns and positions taken are not available to us. Public records tell us who the trustees were at any time. The trust has not clearly said which meeting agreed to IBM's proposed tactic for transfers.

"The introduction in 1997 of the M Plan within the existing trust was discussed and agreed by the Trustee at its meeting of 12 December 1996 and at its meeting of 24th April 1997, when..."

However the trustees were almost the same at both meetings and no doubt the die was cast at the first meeting. I am still trying to piece together the context of this meeting, so there will be more on this another time.

What the trustees were thinking.

The trust never says anything as clear as "the trustees did this because of that" but they use phrases like "consented ... in the context of" or "was also aware that" Despite this woolliness, these phrases are meant to show reasons: "The Trustee agreed to this proposal for the reasons set out above"

So we can now move on, to some extent, from simply observing that all decisions were made for the benefit of the IBM balance sheet to knowing why all the decisions were made that way. The trustees were operating the principle that they should agree to what IBM suggested if IBM suggested the possibility of doing something worse, or even if they thought that IBM was able to do something worse.

Thus in theory, IBM was able to scrap our whole pension scheme and introduce another. I am not sure why the trustees thought this was a threat but they consented to the transfers "in the context that IBM was able" to do it. Note that they don't say IBM told them it would do that if they did not agree the transfers, only that the trust thought they could.

This principle seems totally wrong to me. If the trust proposed an increase to the pension and IBM said to make it half that, then on this principle the trustees would have to agree because IBM might have said make it a quarter!

The trust "was also aware that IBM had previously considered the possibility" of making employees pay more into pensions or get worse pensions. Note, again, that they do not say IBM threatened this. The mere knowledge that IBM could try to do it was enough to make them do as IBM suggested.

Anyway, this doesn't seem much of a threat. Employees are smart enough to know that if they have to pay more contributions then they need more pay to compensate. The benefits package for employees is determined by what the employees can command in the marketplace - they hardly want the trust negotiating on their behalf, unknown to them.

What the trust says about guaranteeing increases is vague. It did ask a question: "the Trustee asked IBM to consider guaranteeing pension increases" (at one of the Dec 96 or April 97 meetings). Another response says this was "at the rate of 70% RPI".

Making the C-plan consistent with the M-plan, by having the same Limited Price Indexation, was apparently not proposed.

Anyway, IBM said no to a guarantee but

"While such a guarantee was not forthcoming, confirmation was obtained from IBM that it did not intend to change its discretionary practice regarding increases to pensions in payment"

Presumably this means that IBM confirmed that it was going to continue with its practice of becoming one of the worst companies in the UK for pensions in payment. It is hard to understand how the trust thought this could be something good for the members, to offset the billion to be taken from their reserves. But we can see they were not doing such a balancing exercise, they were following their principle of doing what IBM wanted, improving the IBM balance sheet.

Did the trustees ask the obvious question - "If you are not going to change it, what do you gain from not guaranteeing it?" The obvious answer is that IBM is keeping the power to increase pension erosion when the current reserves have been reduced, so as to make more reserves to move out.