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DOE’s Disinformation Regarding Oak Ridge Contractor Pensions - July 2007
Introduction
The Coalition of Oak Ridge Retired Employees (CORRE)
believes that the Department of Energy (DOE), either directly or indirectly
through its Contractors, has disseminated inaccurate information to the public
and elected officials about the pensions of retirees from DOE Contractors in
Oak Ridge. This serves to misinform and confuse.
The purpose of this paper is to document and rebut the
inaccuracies in DOE statements. CORRE uses only reliable public information and
data from DOE and its Contractors.
CORRE is a 501(c)5 approved under
the U.S. IRS code, with By-Laws chartered by the State of
·
When the
Contractors and DOE tried in 2000 to transfer surplus pension benefits out of
the MEPP Trust Fund to build buildings, CORRE was formed to protect the pension
benefits of current and future retirees.
·
Retirees
from the Department of Energy’s (DOE) Contractors in Oak Ridge have
historically had the poorest defined-benefit pension benefits in the entire DOE
system of national laboratories across the country. The California laboratories
historically offered pensions that were double those in Oak Ridge, and in
addition they gave annual cost-of-living increases.
·
When Sandia National Laboratories improved the spousal option
retirement benefit for employees, they immediately extended the same benefit to
retirees. Later, Oak Ridge improved their spousal option benefit, but denied
this benefit to retirees.
·
Until
Congressman Zach Wamp helped CORRE secure a “minimum
pension” from DOE Contractors in 2004, some surviving spouses were on food
stamps, and some had to send a check to the Contractors each month to pay for
their medical premiums, because their pensions were less than their
company-sponsored medical premiums.
·
DOE
Contractors in Oak Ridge have historically offered pension adjustments to
retirees to partially offset inflation, but DOE now says that this practice can
not be continued.
·
The
retirees simply want some protection of their pensions from inflationary
losses. All CORRE asks for are pension benefits for older retirees that are
comparable to those being offered to those retiring after July 2004. No new
funding would be required, since the Multi-Employer Pension Plan (MEPP) Trust
Fund has more than sufficient surplus to fund these requests.
·
How did
this surplus come to be? Simply good investments and the fact that DOE has
recently been so stingy in benefiting retirees. DOE has made no contribution to
the MEPP since 1984 – meaning that every new Contractor employee hired after
1984 who retires will receive generous pension benefits paid for out of the
surplus MEPP Trust Fund assets. Monies which have accumulated, in part, by
denying retirees fair benefits.
·
The
Tennessee State Assembly and 9 regional county and city bodies have signed
resolutions supporting retirees in the struggle for pension equity. Treating
retirees fairly helps everybody. A pension adjustment for the over 12,000
retirees in the 6 counties of East Tennessee would have an annual economic
impact of $65M. Extending the 2% spousal option awarded to retirees after July
2004 to older retirees would inject another $13.4 M into the local economies.
All these benefits can be derived without any new monies – the existing Trust
Fund surplus is more than sufficient.
References:
“Retirees
Will Gather to Press DOE for Improved Benefits,” by
Frank Munger in The
“DOE Retiree, OR Contractor Pensions,” by Joanne Gailar, The Oak Ridger,
Social Security COLA: http://www.ssa.gov/
Economic Impact in E. TN: CORRE web site: http://www.corre.info/
Sandia National
Laboratories benefit plan changes in 2002:
http://www.sandia.gov/LabNews/LN02-22-02/LN02-22-02pension_stories.html/
Pension
statistics, citizen petitions and county resolutions at the CORRE web site:
BWXT Online Q&A (NMS12447), submitted 1 Jan. 2006,
answer posted 26 Jan. 2006.
Pension
Disinformation
1. The DOE
Contractors say that they have given the retirees all the pension benefits that
were promised to them.
·
Reported
to CORRE representatives by Senator Corker in their meeting on June 4, 2007,
Doubletree Inn,
·
“
·
Information
provided by UT-Battelle to Senator Lamar Alexander and included by the latter
in letters to his constituents in September 2005.
·
UT-Battelle
President Jeff Wadsworth, as quoted in The
Oak Ridge Observer, by Paul Parson, Issue 4, Vol. 1
CORRE Response: This statement is in
response to retiree requests for an adjustment to help offset the impacts of
inflation on their pension (over a 23% decrease in value for an April 1998
retiree who has never received an adjustment).
·
The DOE
Contractors in Oak Ridge have had a long history of periodic pension
adjustments (increases) for retirees to partially offset the impacts of
inflationary losses in buying power. Retirees considered this part of the
pension benefit and want this practice continued.
·
But no
one promised the current employees a 17% increase in their pension benefit
either (multiple change from 1.2 to 1.4 in 2001), or a reduction in their
spousal option pension reduction from ~ 8% average to a flat rate 2% in 2004 ─
effectively increasing their pension benefits by another 6%.
·
So if
they didn’t promise anybody anything, why did the companies increase worker’s
pension benefits in 2001 and 2004 – because it was the right thing to do! Why
has there been a history of periodic retiree pension benefit adjustments in the
past – because it has been the right thing to do!
·
Retirees
since 1998 have lost a minimum of 23% in pension value due to inflation (many
have lost 50% or more) and have also been denied another 23% increase (17% +
6%) granted to active employees without extending this benefit to retirees.
That’s a total of at least a 46% loss -- a huge loss of potential income that
could have been granted to retirees.
·
There
are approximately 12,000 retirees from DOE Contractors, most living in East
Tennessee. Oak Ridge has the largest community of retired citizen in Tennessee.
The economic impact of pensions on these individuals and communities is huge.
References:
CORRE web site,
http://www.corre.info/
“CORRE Sets the
Record Straight”, The Oak Ridger,
The
2. Retirees
from DOE Contractors in Oak Ridge retire with an equivalent of over 99% of
their working salary as retirement income.
·
DOE web
site, http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Briefing.6-22-06.pdf
·
Ingrid Kolb
presentation of DOE data to Tennessee retirees at Pellissippi State Technical
College, Knoxville, TN, June 2006.
·
Donald
R. Erbschole, Acting Chief Operating Officer, Office
of Science, DOE. Letter dated Dec. 23, 2005 to CORRE President, David E. Reichle.
CORRE Response: This is a sophistic
argument. DOE used faulty assumptions and selectively misrepresented data to
create the impression that retiree’s retirement incomes are much larger than
they actually are. In public information disseminated by DOE, Ingrid Kolb states that BJC hourly retirees
receive 99.2% of their final salary as pension, BWXT at Y-12 hourly retirees
receive 100%, and ORNL hourly retirees receive 99.9%.
She further stated that salaried retirees at the three facilities receive 94.4%,
93.5%, and 93.4% respectively.
DOE’s assumptions of salary base, retirement age, 401(k) participation, and pension multiplier were all wrong. The
truth is that, after 35 years of employment, a pre-2001 retiree receives a
pension equivalent to 42% of their highest average 3-year salary.
·
First of
all, the issue is the DOE Contractor pensions – not the
social security nor 401(k) plans to which the workers themselves
contributed.
The fine print of her slide makes
several assumptions. Her slide uses the year 2004 as her reference point. She
assumes that the retiree retires with 35 years of company service. It appears
that she assumes that the current multiplier is 1.4% in her calculations. This
multiplier only applies to those who retired after 2001. Prior to that time the
multiplier was 1.2%.
When the multiplier was increased,
it was applied only to the first 30 years of company service, with all years
over 30 receiving a multiplier of 0.5%. This meant that the pension of a person
retiring in 2001 with 35 years of company service could receive an increase of 5.95% over the old formula.
In 2004 (the year Kolb uses in her
presentation), the 30 year cap was removed, and all company service received
the 1.4% multiplier. This means that a person retiring in 2004 with 35 years of
company service received 16.67% more
than the person retiring in prior to 2001.
Although there was an adjustment
given to retirees in 2001, it was graduated based on year of retirement, and no
adjustment was given to any retiree who retired after April of 1998. The higher
multiplier did not apply to earlier retirees.
The fine print of the DOE chart
(page 14) assumes that the retiree retires at age 65 and gets Social Security
benefits for that age. According to the Social Security
Administration, 60 percent of U.S. workers elect to begin Social Security
retirement benefits at age 62, the youngest eligible age to begin benefits. (In
2005, 85% of the U.S. workforce retired at age 62.) The additional 3 years adds
approximately 25% to the Social Security benefit.
DOE assumes the current multiplier
(1.4%) in their calculations. This pension multiplier only applies to those who
retired after July 2001. Prior to that time the multiplier was 1.2%. The
increase in the multiplier resulted in another 16.67% increase for those
retirees. This increase was not given to those who retired prior to that date.
DOE included benefits from the retirees 401(k) plan, adding additional confusion. It should
be remembered that the 401(k) provision did not come in to existence until 1984
and initially had minimal company matching funds
(30% by Union
Carbide). The initial plans also
provided minimum investment options (fixed income, US government bonds, Union
Carbide stock, and one mutual fund). Many pensioners retired long before there
was a
401(k) or before
the enhancement of company matching funds or before the enhancement of
investment options in the 1990s. DOE
indicates that all retirees are getting maximum 401(k) benefits when they did
not exist for some when they were in the workplace.
DOE also assumed 100% employee
participated with maximum contribution from the inception of eligibility for
their 401(k) plan – when national statistical data suggest this figure to be
around 10%, with only about 68-72%
of the eligible workforce participating (only 23% of
participants max out) in their 401(k) plans in any one year. While DOE cannot
be blamed for individuals 401(k) saving rates, DOE can be faulted for assuming
excessive
rates above national norms so as to artificially inflate the
apparent retirement incomes of retirees.
References:
DOE Oak Ridge Pension Info web
site:
http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Briefing.6-22-06.pdf
Social
Security web site, http://www.ssa.gov/
Early SS retirement:
401(k) plan participation 2003: http://www.mutualfunds.about.com/b/a/006138.htm/
401(k) plan participation 2004: http://www.cfo.com/article.cfm/3856394/
3. DOE’s
Benefits Programs for Contractor Retirees are $11.6 B under-funded, and with
such liabilities, DOE cannot afford any pension adjustments in Oak Ridge.
·
DOE web
site, http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Briefing.6-22-06.pdf
·
Ingrid
Kolb presentation to
·
DOE
Secretary Bodman to TN Congressman Zach Wamp at the
2007 House Appropriations Subcommittee hearings on Energy & Water.
CORRE’s Response: That the pension
plans at DOE contractors across the country are under- funded by
billions of dollars is inaccurate. This
is slight of hand and sophistry by DOE to obscure the real issues. The
Multi-Employer Pension Plan (MEPP) Trust Fund in
·
Firstly,
the $11.6 billion figure for 2006 comes from a GAO Audit report in 2004 that
lumped health and pension benefits of DOE contractors together. DOE’s pension
plans and health benefits are funded differently.
DOE’s $11.6 billion unfunded liability dollar figure for
2006 shows the total under-funded liabilities of the defned-benefit
and defined-contribution pension plans of 33 contractor organizations to be
only $784 million (only 7%) of this total. The payments to Contractors by DOE
for defined-benefit pension plans are deposited into Pension Trust Funds. In
the Oak Ridge case, the MEPP Pension Fund has been “self-sufficient” without any
DOE payments since 1984. The MEPP is not an unfunded liability.
Medical benefit premiums are paid annually for employees
and retirees by the Contractors out of DOE-reimbursed overhead accounts. At the
beginning of the fiscal year they are a “liability” until paid, but to describe
them as an “unfunded liability” is to say that any other overhead expenses,
e.g., facility maintenance, executive salaries, etc., are also unfunded
liabilities.
It makes it appear as if the Contractor’s pension plans are
fiscally out of control when they are not. It obscures the point that the Oak
Ridge MEPP is financially healthy, but the benefits paid to retirees are
amongst the poorest in the DOE system.
·
DOE
historically has contributed about 10% of employees’ salaries to retirement
benefits at some sites. This is most clearly evident at the laboratories with
defined-contribution plans, where the D-C plan contribution and the 401(k)
match approximately equal 10% of salaries (e.g., Argonne and Brookhaven). In
Oak Ridge, the only pension contributions for 23 years have been the 401(k)
match, current at 4% of salary. DOE can afford to contribute more at the other
laboratories, but not in Oak Ridge?
·
The
pension current multipliers for the defined-benefit pension plans at the CA and
NM labs are 2.5, Sandia’s is 2.0, and PNNL’s is 1.6 ─ compared to l.4 for BWXT,
UT-Battelle, and grandfathered Bechtel-Jacobs employees, and 1.2 for
grandfathered Wackenhut employees. Former retirees from Lockheed-Martin in Oak
Ridge have only a 1.2 multiplier. So, pensions for DOE contractor retirees in
Oak Ridge are only 48% to 75% of those pensions at other DOE National
Laboratories after comparable years of service. Don’t say, “well, that’s
because the cost of living is higher in
·
Since
Tennesseans are behind from the beginning, CORRE has asked DOE why can we not at least have more regular adjustments in our
pensions to make up for the loss in pension value due to inflation. This was
the practice which all employees and retirees came to expect. Four adjustments
since 1978 is not very frequent, and no one retiring
after April 1998 has ever received an adjustment. DOE retirees in Oak Ridge
receive an annual cost-of-living adjustment in their pensions? Why does DOE
refuse equitable treatment for contractors?
References:
GAO Report, http://www.gao.gov/cgi-bin/getrept?GAO-04-539/
GAO
Report, http://www.gao.gov/ (search on: GAO-04-539)
DOE Oak
Ridge Pension Info web site: http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Briefing.6-22-06.pdf
Ingrid Kolb, DOE personal communication to Charlie
Kuykendall, CORRE, June 22, 2006.
CORRE web site, http://www.corre.info/
4.
The Contractor’s Pensions are better
than Those of the Department of Energy and Other
Federal Employees.
·
DOE
Secretary Bodman at the 2007 House Appropriations Subcommittee hearings on
Energy & Water.
·
Ingrid
Kolb presentation to Tennessee retirees at Pellissippi State, June 2006.
CORRE’s Response: DOE again engages in
sophistry.
·
Kolb’s
last bullet compares the Oak Ridge pension plans with that of Federal
Employees. She based the comparison on the pension received from the Civil
Service Retirement System (CSRS). According to the US Office of Personnel
Management, the Civil Service Retirement System was replaced in 1987 by the
Federal Employees Retirement System.
·
Many
retirees from the Federal Government are still under the CSRS, just as many of
Oak Ridge retirees are under the old multiplier and service caps, but for DOE
to use the latest benefits of the Oak Ridge Pension System and compare them to
the old CSRS is both misleading and unfair.
·
It
should be noted that the old pension system of DOE (CSRS) and the current
Federal Employees Retirement System both have annual cost-of-living increases
(COLA) indexed to the annual COLA adjustment of Social Security benefits.
Retirees from Oak Ridge Contractors have no COLA, and DOE has discouraged even
periodic inflationary adjustments in pensions. Inconsistent? Unfair?
·
It is not
true that DOE Contractor’s retirees in Oak Ridge have better pensions than
those of DOE and other federal employees. The defined-benefit pension of
federal employees is, after 20 years employment, 1.1 x years of service with
a COLA. Oak Ridge retirees prior to July 2001 have 1.2 x years of
service with no COLA. After 3 years retirement, the 1.1 with
COLA is a better pension. At current inflation rates, in 20 years the
pension of retirees from DOE contractors in Oak Ridge decreases twofold!
The government employees maintain the values of their pensions. This decline in
pension value and the unquestioned fact that until recently adjustments have
been a practice for Oak Ridge contractor retirees are the primary reasons why
CORRE has been asking for periodic pension adjustments.
References:
Ingrid Kolb presentation (page 14) of DOE statistics at
Pellissippi State Technical College,
Knoxville, TN meeting with Oak Ridge retirees, June 2006,
DOE web site:
http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Briefing.6-22-06.pdf
Civil Service Retirement System, U.S. Office of Personnel
Management web site:
http://www.opm.gov/retire/html/retirement/csrs.html/
Stephen Barr, Washington
Post:
5.
The Multi-Employer Pension Fund in Oak
Ridge can not afford adjustments to retiree’s pension and remain healthy.
·
Letters
to TN Congressional Representatives, Senators, and of President of CORRE by
Jeff Wadsworth, Director of ORNL, managed by UT-Battelle, DOE Oak Ridge
contractor,
·
ORNL
Public Relations press release, reported in the The Oak Ridger, by Paul Parson, Oct. 21,2004, pg. 1-A.
CORRE’s Response: If they can not
afford to use the MEPP Trust Fund surplus to help retirees, how can they
justify using those same funds for other purposes? While the Contractors, on
behalf of DOE, have not made a contribution to the MEPP Trust Fund in 23 years,
they continue to increase liabilities by bringing on new participants (all new
hires since 1984). In addition, the Contractors have increased liabilities by
improving pension benefits for those currently working while denying
improvements for retirees. The most glaring lapses in fiduciary responsibility
were two 420 transfer attempts in 2000-2001 to remove Trust Fund assets to
build buildings – initially approved by DOE but stopped by TN Congressional
action.
·
In Oak
Ridge, Union Carbide established a defined benefit pension program. The
administrative responsibilities and the Trust Fund have been transferred to
each subsequent contractor under the oversight of DOE. Since 1984, neither BWXT
nor UT-Battelle, nor their predecessors, have made contributions to the Trust
Fund, because the market returns on investments have been good and because very
few pension adjustments to compensate for inflationary deterioration of pension
values have been made to retirees. The contracts in Oak Ridge were split up,
but employees transferred from Lockheed-Martin to either Bechtel-Jacobs or
Wackenhut received “grandfathered” status under the Pension Trust Fund jointly
administered by BWXT and UT-Battelle. Let us examine the joint Pension Trust
Fund of BWXT & UT-Battelle:
-----------------------------------------------------------------------------------------------------------------
The MEPP
Pension Trust Fund for BWXT and UT-Battelle Employees & Retirees
Item Subtotal
($Millions) Total ($Millions)
Fund Assets (1) 3,180
Liabilities (2) 2,369
Retirees 1,198
Employees 1,171
Surplus before adjustments 811
Proposed adjustments (3)
Recovery of 75%
lost buying power 95
2% Spousal
Reduction 51
Liabilities after adjustments 2,515
Fund Surplus (after proposed adjustments) 665
(1) These
estimates by CORRE are made upon the best available data from the companies and
the pension fund reports, estimated June 12, 2007.
(2)
Jan.1, 2006 Towers Perrin valuation of liabilities, BWXT to CORRE on June 2007.
(3 ) Reference DOE letter dated
·
Misinformation
abounds. In the past, some at ORNL have stated that if the total assets drop to
less than 120% of liabilities, contributions would need to begin again. In
fact, contributions would not have to begin unless the fund balance drops to
90% of the total liabilities. The 120% figure is the current upper limit above
which the IRS will not allow further company contributions (to avoid companies taking tax
advantage by stashing profits in pension plans). So the BWXT and UT-Battelle
Pension Trust Fund continues to grow through market investment without any
contributions, even when the liabilities for current employees continue to
increase due to rising employee salaries. The net assets of the Pension Fund
(assets – liabilities = net assets or surplus) are at 124% of liabilities. How
can this be? As long as assets exceed liabilities, and as long as you continue
to short-change retirees, you can avoid contributions. If you are willing to
forget retirees and let inflation ravage retiree pensions, you may be able to
avoid making any future Trust Fund contributions. Is this DOE’s and the
companies’ commitment to the workforce, retirees, and the community?
·
The
spousal option is a very nice provision for spouses of former DOE contractor
employees. For a pre-agreed reduction in one’s pension benefit, which
originally was actuarially sound and depended upon the respective ages of the
retiree and spouse, they could ensure that if the retiree predeceased their
spouse, the spouse would receive 50% of the initial value after the spousal
reduction. Selecting the spousal option, on average, cost the retiree an 8% reduction
in their pension benefit. In July 2004, BWXT and UT-Battelle accessed their
Pension Trust Fund, which at the time had a surplus of $550 million, and
offered current employees a new deal on the spousal option. Henceforth, the
“cost” would only be a flat rate 2% reduction in their pension benefit. This
cost the Fund about $66 Million in additional liabilities. In effect, everyone
got an average 6% “raise” over the former cost of the spousal option. Even
after the increase in liabilities of $114 million incurred with the 2% flat
rate for the spousal option and the removal of the 30-year cap on pensions for
employees (the estimate is this would only result in a one-time cost to the
Fund of $48 million), the surplus has continued to grow from investment earnings.
When Sandia National Laboratories reduced their
spousal option cost in 2002 for employees, they immediately extended the
benefit to their retirees. And they can’t afford to do it in Oak Ridge?
·
In
October 2004, Oak Ridge National Laboratory’s press release to The Oak Ridger announced that ORNL’s MEPP Trust Fund would be $17 million under-funded by
2006, and used this as justification why retiree pension adjustments were not
feasible. Yet, in June 2007 the MEPP had a surplus of $811 million. This is a
striking example of misinformation to the public.
References
CORRE Web Site: http://www.corre.info/
Sandia National
Laboratories benefit plan changes:
http://www.sandia.gov/LabNews/LN02-22-02/LN02-22-02pension_stories.html/
ORNL Public Relations press release, reported in The Oak Ridger, by Paul Parson, Oct. 21, 2004, pg 1-A
Letter
to the Editor, The Oak Ridger,
CORRE was formed in 2000 to obtain fair and equitable pension treatment for approximately 12,000 retirees and surviving spouses, who have retired from DOE Contractor-managed facilities in Oak Ridge, Tennessee ─ Oak Ridge National Laboratory managed by UT-Battelle, Y-12 managed by BWXT, former employees of the K-25 Gaseous Diffusion Plant, and grandfathered employees under the same pension plan at Bechtel-Jacobs Corp. and Wackenhut.
For further information, see: http://www.CORRE.info/, and the DVD “Failure of the DOE Pension System for Oak Ridge Contractor Retirees,” available, with a $5 contribution to offset production and mailing costs, from CORRE, P. O. Box 4266, Oak Ridge, TN 37831-4266.