At the bargaining table on Tuesday – day 6 of negotiations – UE and GE went to war over pensions. The company brought in pension administrator Mike Gorman and a team of five others to present GE’s view of the status of the GE Pension Plan (GEPP) and sing the praises of the Retirement Savings Plan (RSP), the 401(k)-type plan which is the only retirement program GE is offering to new employees hired on or after January 1, 2012.
UE countered with a very different analysis of the Pension Plan, RSP and retiree health insurance, presented by UE’s chief negotiator Gene Elk, supplemented by remarks by Ron Flowers, president of the Erie Retirees Association of General Electric (RAGE) and other members of the UE committee.
Gorman painted a bleak picture of what he called “the pension environment.” He claimed GEPP has a $16 billion unfunded liability, even though elsewhere (including in its annual proxy statement), GE acknowledges that the pension plan is overfunded at 103 percent. Elk took issue with this discrepancy and noted that GEPP is audited by the same people who audit GE’s corporate books and that is a conflict of interest. One of Gorman’s slides featured the words “Pension plans under siege” and included pie charts showing that a majority of Fortune 100 companies have switched from offering defined benefit pension plans (like our plan) to defined contribution plans (such as RSP).
Gorman then summarized some of the key pension plan provisions and improvements negotiated in 2011. This was another of GE’s “you’ve-got-it-so-good” pitches, with one slide declaring “GE Programs well-positioned for replacement income… no improvements needed.”
The company’s projections about retirement income assume a 35-year career at GE. But as workers in Erie know, the company has for some time, hired workers who are often in their 40s and 50s. Working 35 years to earn a good retirement would mean, for these workers, staying on the job to age 75, 80 or older. GE’s chief negotiator Mike Luvisi said the typical worker in Erie is 50 years old with 10 years of service. When the union questioned the company’s assumptions about 35-year careers for such workers, Luvisi said he presumes these people have already accumulated pensions from their previous employers. “Those places already got rid of their defined benefit pensions,” responded UE General President Bruce Klipple, “and the workers probably spent their 401(k) money after they lost their jobs.”
When pressed about his presumption that GE’s newer employees arrived at the plant in possession of vested pensions or significant retirement savings from prior jobs, Luvisi admitted that he had no facts to back that up. Elk told the company its assumptions are too rosy. When Gorman said these people will just have to work longer, Klipple reminded him that production employees perform hard work and don’t last as long in the workplace as people do in administrative jobs.
“SERO is prohibitively expensive,” said Gorman and one of his slides, laying the groundwork for a likely GE effort to kill the Special Early Retirement Option. Gorman claimed that “rising healthcare costs” were a factor driving up the cost of SERO, but Elk responded, “GE’s health costs are up only 2 percent since 2011.” The company also claimed that hiring to replace SERO retirees has been a major cost, but Elk countered that GE replaced only 37 of the 98 SERO retirements in 2011. Elk asked the company for a “line-item calculation of your alleged SERO costs.”
Another GE slide titled “Economics force tough decisions” tried to falsely portray that the GE pension trust fund is in financial trouble, tracking liabilities and assets from 2010 to 2014 and graphically portraying what Gorman called “the worst deficit ever.” Gorman made this claim even though the company’s own proxy statements and other GE documents report that the pension is in good shape and is overfunded - under the IRS’s strict standards.
Gorman’s final slide bore the ominous title, “The New Reality” and said most companies don’t offer defined benefit pensions to new hires and GE does not want to “go back now.” Gorman declared, “Companies are getting out of pensions, it’s the new reality, in order to compete.” His slide show ended with a threat to GE’s popular early retirement programs: “SERO, PCPO and SERO window are non-competitive and still prohibitively expensive.”
Elk responded that GE had also painted a bleak picture of the pension plan in 2011, and the reality over the past four years ”wasn’t nearly as bad as GE projected.” And he reminded the company negotiators that, over the past 28 years, GE has made only one small contribution to the pension plan, $433 million in 2012. “That sounds like a lot of money to us poor people, but to GE it’s negligible.”
Following a short break, the company resumed with a presentation on Retirement Savings Plan (RSP) by Denise Fagella. She extolled the virtues of the plan formerly known as the Savings and Security Program (S&SP), a plan allowing workers to save and invest additional cash to supplement their retirement or for other purposes. GE has renamed the program to indicate that for new hires, now barred by the company from participation in the regular pension, that this is the only retirement plan offered to them. RSP remains available as a supplementary savings plan for those workers who have regular pension benefits.
Ron Flowers commented that for retirees who left the workforce many years ago, GE’s penchant for changing the names of benefits programs causes unnecessary confusion. “They don’t know the new nomenclature.”
Fagella talked about the array of investment options, tools and resources available to participants. RSP includes the Company Retirement Contribution, an automatic company contribution of 3 percent of pay to accounts of new employees excluded from the regular pension, plus a 50 percent company match on employee contributions of up to 8 percent of earnings. The participation rate, she said, has risen in all segments of the GE workforce since 2010, except for union hourly employees. At the beginning of 2014 the company imposed automatic enrollment at 8 percent employee contributions on its non-union hourly employees, including those who are paid very low “competitive wages.” Much of Fagella’s presentation telegraphed an anticipated company proposal to impose automatic enrollment on union-represented employees as well.
In response to a question by Elk, Fagella acknowledged that participants are charged investment management fees. “That’s another negative on this plan,” said Elk.
Elk also noted that with the elimination of the defined benefit pension for new hires, “we’re down to two legs of the proverbial ‘three-legged stool’” long promoted by retirement advisors, which are: pensions, personal savings and Social Security. Mel O’Dell, president of Local 332, commented, “You’ve had significant savings with this plan compared to the plan we’re in. A 50 percent match is a lot less” than what workers have received through the GE Pension Plan.
Despite the wide and growing income gap between GE executives and workers struggling to survive on the “competitive wage,” Fagella defended the fairness of RSP. “It’s fair because it’s based on pay.”
“You have to look at a full career,” by which she meant 35 years of working at GE. She said in that span of years, a worker can achieve the replacement income target of 70 to 80 percent needed for comfortable retirement. On the slide offering this retirement readiness analysis, the fine print stipulated that this was based on assumptions of 3 percent annual pay increases and 6 percent investment earnings.
Ron Flowers noted, “Of course you’re also assuming that the worker will never be laid off during 35 years. So you’re talking about a perfect world.” Elk added, “You paint a very, very rosy picture based on wages the average employee covered only by the defined contribution plan could only dream of achieving. Thank God we never agreed to the ‘competitive wage!’”
When Luvisi repeated his “presumption” that new employees carry 401(k) savings when they come to GE, Local 506 Business Agent Frank Fusco responded that many of them came from plants that closed, and Elk asked for the ages of the 28 new employees to determine the realism of GE’s assumption that these workers have a 35-year GE career ahead of them.
“Most of our members are not financial wizards,” said Local 506 President Scott Slawson, and may not make the optimal investment choices. He also raised another factor ignored in GE’s rosy projections: financial crises like the Crash of 2008. He gave the example of a member of his extended family who "lost three-quarters of his retirement when the market collapsed. When that happens to one of our workers who is close to retirement age but has no defined benefit pension, that person has just worked his whole life for nothing.” Slawson added that his own RSP account went into the toilet in 2008, “and hasn’t recovered.”
Workers covered by the GE pension don’t face the danger of losing their retirement in case of a Wall Street crash because their pension benefits are defined and guaranteed by the company and insured by the U.S. government. No such protections exist in 401(k)s. “You have shifted the volatility of the stock market and risk onto us, onto the workers,” said Elk.
“That’s what they get,” replied Gorman. And if an employee’s investments go bust, he said, “you’ll suffer the consequences.”
“With RSP, the risk is all ours,” said Klipple. “There are no protections at all. There is only so much we have to put in and only so much time we have to manage investments. You can paint all the rosy pictures you want, but it’s a gamble. It’s a casino.”
“I don’t have to go to the casino, but for your new hires it’s not elective. You’re forcing them into the casino with no choice.” Elk noted other shortcomings of 401(k)s as a primary retirement account: they offer no disability pension no surviving spouse option, no SERO and no supplements.
Mike Luvisi put the blame for inadequate retirement income and losses in 401(k) accounts on the employees themselves. “They make choices,” he said, as if many ordinary investors could have made “choices” that would have enabled them to dodge the impact of the 2008 Crash. “Over time, averaged over 100 years, the market pays 8 percent,” he said. It’s unclear how such comments would have helped a 60 year old with only a 401(k) who lost his or her life savings in 2008.
Klipple said, “People whack up their 401(k)s when they lose their job. That’s from Towers Watson,” a consulting firm GE often cites. Flowers added, “You put everyone in a situation where they won’t have a solid pension to rely on.
Clearly not grasping the realities of working class life or the economic uncertainties of the 21st Century that the UE committee was trying to explain, Fagella restated her view that workers can achieve retirement security through 401(k)s if they’ll just spend more time managing their investments for “risk mitigation.” Elk replied that people don’t have much time to spend on managing their investments because of the time-consuming demands of managing their health insurance under GEHB. “Maybe we need more paid personal days to deal with ‘risk mitigation’ and administering our healthcare.”
Following a short break, Elk launched into UE’s extensive presentation entitled “GE Pension and Retiree Insurance.” UE’s research, based largely on financial information obtained through information requests to the company, shows that the GE Pension Plan is remarkably healthy and well-funded. The plan’s assets and earnings rebounded after 2008, and the plan is again overfunded at a robust 103 percent funding.
Noting again that GE made only a single contribution to the fund in 28 years ($433 million in 2012), Elk showed that GE’s average cost per pension participant over that period was only $31!
GE has spent much more on its “Supplemental Pension Plan” for highly-paid executives – a benefit program GE never talks about publicly. Benefits to these high-rollers have increased 26 percent since 2011. While the regular pension is overfunded, this supplemental plan for well-to-do executives is completely unfunded – it’s a pay-as-you-go plan that GE pays directly out of company coffers. Yet the company never complains that the costs of this unfunded liability threatens to make GE “uncompetitive.”
GE has some 40 “other” pension plans, many the result of GE acquiring other companies that had underfunded pensions. The total underfunding of these other pensions, which are completely separate from the regular GE pension, is $3.2 billion. Elk said, “Jeff Immelt bought these companies even though their pensions were under water and now the company falsely claims that our well-funded plan threatens investment in new products.”
Not only is the regular GE Pension extremely well-funded and positioned to provide improvements, but as Elk noted, GE’s costs for retiree health insurance have dropped. The company’s cost for pre-65 healthcare have dropped 13.7 percent in four years, while the cost of post-65 healthcare is down 3.1 percent over the same period.
Elk also presented slides demonstrating the inadequacy and gross inequality of 401(k)s, which were never designed to serve as primary pensions. Rather, the 401(k) section of the tax code was added in 1978 to facilitate supplementary retirement savings accounts and tax shelters for highly-paid executives. A Towers Watson study shows that defined benefit pensions have higher rates of return than 401(k)s. “What individual employee can really know if they’re making sound investment decisions?” Elk asked. “The GE Pension Plan averages a 9 percent return on investments and is managed by professionals, and we know they do a hell of a job keeping our retirement secure.”
Elk also demonstrated that, for older GE retirees especially, their pensions are losing value to inflation. “This is why we’re looking for a real increase for the retirees,” said Frank Fusco. Flowers added that many GE retirees own GE stock and also lost income when GE cut the dividend. “There’s no way to increase your income when you’re 85 years old. What do you do, get a job? Some of our people are getting to the point where they’re in real trouble.”
Flowers also talked about the impact on retirees when GE insurance refuses to pay for their prescribed drugs, and instructs them to try an “alternative generic.” They’re told even if the alternative doesn’t work or causes serious side effects, they must still try yet another alternative and experience problems with a second drug, before they’re allowed to go back to the medicine their doctor prescribed. “You should not make people sick to make money, or to save money.”
Flowers said retirees need a structural increase in their pensions to keep up with rising living costs.
Elk said post-65 retirees are now spending 159 percent more on their premiums than GE provides. “The changes you’re trying to make to retiree healthcare are a huge sea change for retirees.” However, GE does contribute slightly more than $1,360 on healthcare per year for each post-65 retiree and the same amount for the spouse. Elk added, “if GE stops providing meaningful contributions to present or future retirees, the result could be devastating to members who gave their working lives to the company.
GE’s pension representatives had to attend another meeting and the bargaining recessed until Wednesday morning, when UE will resume its presentation on pensions and retirement.
UE was represented in Tuesday’s session by President Bruce Klipple, International Rep. Gene Elk, Local 506 Business Agent Frank Fusco, President Scott Slawson, and Chief Plant Steward Leo Grzegorzewski; Local 332 President Melvin O’Dell and Business Agent Sherice Stark; Local 618 Business Agent Karleen Torrance; Northeast Region President Peter Knowlton; Retirees Association of General Electric (RAGE) President Ron Flowers; Field Organizer Chad McGinnis; and UE News Managing Editor Al Hart. Field Organizer Omar el-Malah represented UE at the IUE-CWA bargaining table. Other CBC unions joining UE at the bargaining table were the UAW, IAM, IBEW and USW.