The
Bob Henderson, Al Brooks, Etal. – 2/23/06
Understanding the history of the "Oak Ridge Pension
Plan" is essential to the understanding its current characteristics, its
problems and the roles of the major players. The history of the Pension Plan is
displayed as a time-line documenting the more important events. The comments form
a critique of the pension plan tracing its characteristics back to their
inception in
Authors' Note: This summary represents the best
information available to us at the time. It is our intension to update the
document as more information becomes available or errors are found. Notice
of errors or omissions will be appreciated.
Due to the use of different sources,
there may be minor differences in
dates and data presented.
|
Year |
Event |
Comment |
|
1942 |
Start of |
The four sites were operated by: K25, Union Carbide; Y-12,
Tennessee Eastman; X-10, |
|
1948 |
Site reorganization Start of Cold War efforts |
Carbide & Carbon Chemicals Company, Union Carbide Corporation (later Union Carbide Nuclear Division) became the sole operator of the three remaining sites. The Benefit Plans initiated at this time (or shortly thereafter) were patterned after those of Union Carbide Corporation (the parent company) and comprised a voluntary participation plan. The plan comprised: Years of service, Averaged recent wages, Multiplier factor, NO automatic COLAs but frequent ad hoc COLAs initiated by the Contractor, Union Carbide, Nuclear Division. |
|
1948-1968 |
|
Low level of retirement activities during these years. No information on ad hoc adjustments is available to us. |
|
1969 |
Adjustment: $10-$25/mo |
CAP = $25/mo on adjustment |
|
1970-1975 |
Pension Plan Conversion |
Sometime in the early seventies the voluntary plan was changed to the current defined benefits plan. |
|
1973 |
Adjustment: $10-$25/mo |
CAP = $25/mo on adjustment |
|
1975 |
a) Social Security Change b) Adjustment: 4 to 7% |
a) The Congress adopted automatic Cost-of-Living-Adjustments (COLAs) based on the BLS Consumer Price Index (Urban). Automatic COLAs are now common. b) Recent Retirement Exclusion (RRE) = 24 months |
|
1977 |
Adjustment: 8 to 12% |
RRE = 18 months |
|
1980 |
Adjustment: 1 to 12% |
RRE = 2 months |
|
1984 |
a) Union Carbide departs b) Last DOE funding c) Performance awards start |
a) Its pension plan remains; over funded, its use continues. b) No DOE Contributions to the pension fund since this year; c) Contractors profit by saving DOE money |
|
1987 |
Adjustment: 2 to 12% |
Adjustment prompted by Union Carbide; RRE = 66 months; |
|
1991 |
Adjustment: 3 to 18% |
RRE = 36 months, CAP = first $15,000/yr |
|
1992 |
Pop-up for Employees |
Pop-up Clause initiated for then Current Employees |
|
1999 |
|
$548 million transferred to USEC retirement fund at $2.5 billion remained in |
|
2000 |
CORRE is formed |
a) CORRE issues: goals, principles, and annual positions b) Holds press conference and rally at DOE |
|
2001 |
a)Adjustment: 4 to 23% b) DOE tries a 420 Transfer c) CORRE "popup" request granted |
a) RRE = 36 months, CAP = $40,000/yr, both set by DOE;
Adjustment for vested retirees or spouse with 20 yrs b) CORRE successfully opposes the 420 Fund Transfer c) Restores full pension to retiree on death of spouse. d) Retirees should receive pension improvements granted to |
|
2002 |
a) Requests increase in low pensions to $600($400)/mo b) Requests a 15% average general COLA |
|
|
2003 |
|
a) CORRE pushes minimum pensions and a general COLA (15% average) b) Numerous contacts and meetings with congressional delegation, DOE & contractors c) Coverage extended to Wackenhut and Bechtel-Jacobs |
|
2004 |
a) Minimum pension: $600 for employees ($400 for surviving spouses) b) Plan changes for CURRENT EMPLOYEES d) CORRE representative on ORNL advisory board e) Petition (5684 signatures) to DOE & Contractors |
a) CAP by DOE: $600/mo ($400/mo for surviving spouses) and only with at least twenty years of service. Vested retirees received no adjustments. b) The multiplier factor was changed from 1.2 to 1.4 and the spousal option reduction was reduced to 2% for CURRENT EMPLOYEES ONLY not retirees. c) No action on requested COLA |
|
2005 |
a) DOE & Contractor Statements d) Wackenhut & B-J send representatives e) Discussions with DOE/ORO Manager |
a) These statements reveal a bias toward current employees and near retirees with little regard for past retirees other than meeting the minimum legal requirements of a 30 year-old contract. b) Needed adjustments and spousal option change to be applied to retirees. e) To be forwarded to DOE/HQ |
|
2006 |
Trust Fund Status |
Plan is still over funded by about $600,000,000 |
|
2007 |
a) DOE/Contractor disinformation rebutted b) TN House Joint Resolution |
a) CORRE rebuts DOE/Contractor disinformation (draft), Brooks/Henderson supplement CORRE's rebuttal b) HJR 1006 supports CORRE's position |
|
2008 |
a) CORRE News Letter b) Not yet over |
a) CORRE electronic Newsletter came out b) Promises, promises; |
Terminology:
Recent Retirement Exclusion (RRE) – This limitation does not allow an increase to those who retired within the specified time period. If the adjustment in any way is an allowance for inflation, the recent retiree loses out. This practice (RREs from 2 to 66 months) ensures that all recent retirees fall behind inflation immediately.
Cap (CAP) – This limitation does not allow an increase to retirees whose pension is above the stated limit. A cap may be also applied to the adjustment received as in 1969/1973. A cap can be partially or wholly exclusionary, i.e., applied to the first portion of a limit or totally prohibiting an increase if the cap is exceeded. This practice penalizes the retirees with the higher pensions and one must ask why wages and pensions are treated differently regarding inflation.
COLA Adjustment – COLA adjustments are usually applied on a sliding scale based on pension, length of service, etc. COLAs which are given to counteract multiple years of inflation are usually based on years-of-retirement. COLAs can be automatic and based on a specified Consumer Price Index or ad hoc, being arbitrarily determined. Not all adjustments are COLAs. We have classed all increases which resemble COLAs as COLAS. DOE's claim that they do not use automatic COLAs to restore inflation losses is belied by the COLAs authorized in the LANL benefit plan (see page 18) and by the acceptance of their own COLAs under the federal retirement plans.
Over funding – This occurs when the funding exceeds the level legally required to cover the actuarial estimate of future commitments. Over funding can continue for a long time if the annual investment income exceeds the liabilities. There have been no contributions to the pension fund required by the contractor since 1984 because the return of pension fund investment in the equity market exceeded the pension liabilities. A surplus of greater than $600 million exists even after the adjustment of 2001, the 2004 minimum pension adjustment, and the multiplier factor adjustment for active employees was funded. The pension adjustment requested for retirees in the 2005 position paper can be funded from the pension fund surplus with no cost to the taxpayers. The pension fund surplus will still exceed 250 million.
420 Fund Transfer – This is the procedure in the DOE budget process by which funds designated for a specific purpose can be re-designated for and used for another purpose. Federal legislators intervened to stop this transfer.
Pop-up – A pop-up is the practice of restoring the full benefits (any spousal option penalty) to a retiree upon the death of a spouse.
Vested Retiree – A person with 10 years of service but not yet eligible for retirement. At retirement their vested interests are payable.
ERISA - Employment Retirement Income Security Act – Federal regulation of pension trust funds.
Conclusions:
Setting aside questions of equity between DOE peer sites and the establishment of years of service, the "Carbide" plan provided a reasonable pension at the time of retirement but it could remain equitable with time only if the ad hoc COLAs were reasonably frequent, reasonably related to the inflating cost-of-living and reasonably applied to all pensions without constraints.
Inspection of the above table will reveal that most of the "adjustments" were capped (CAP) or otherwise limited (RRE) in a manner that did not permit the higher pensions and more recent retirees to keep pace with inflation. It is noteworthy that the Social Security Administration via Congressional legislation in 1975 set the norm for COLAs to be automatic leaving the "Carbide plan" out of date and still out of date almost another 30 years later.
The nature of the plan's model is that, under the pressures for competitive employee's wages, the pension is kept reasonable on the retirement date but it immediately starts to lose its buying power especially if RREs or other limits are applied to any COLA. The change in the spouse's option also favored the about-to-be-retirees but not the current retirees. The minimum pension adjustment was very badly needed by the recipients but it cannot be considered a general COLA. In the matter of a bias toward current employees and against current retires, it is informative to read the Munger article in the News Sentinel and the correspondence from DOE to CORRE and CORRE members.
It is interesting to note the following subtle change: In the early 1970s, AEC (later DOE) approved the adoption of the pension plan of the parent company, Union Carbide Corporation, as the pension model for the operating company, Union Carbide, Nuclear Division. However, in 1984, the existing pension plan was transferred to the new operator without any serious consideration of the new parent company's pension plan. Subsequent operators have inherited the then existing plan now commonly referred to as the "Carbide plan". The same plan has been kept through Carbide, through Martin-Marietta, Lockheed Martin, and thus far with BWXT-Y-12 and UT-Battelle and is no longer modeled after any parent company. There are discussions of changing the UT-Battelle plan (yes, we now have two plans) to a 401k defined contribution retirement plan for new hires.
Note: The answer to the question
of one or two plans is a bit vague; there is some mention of two Boards of
Advisors and two Plans, and single contractor plans with different names, but
no clear-cut statement of the ground truth or future intensions.
Lest there be a misunderstanding of responsibilities, Union Carbide Corporation actively pursued ad hoc adjustments; even after leaving (see 1987 increase) they sought a pension increase from DOE to match the one they recently gave to the Union Carbide Corporation retirees on the basis it was fair DOE agreed. From 1980 to 2001 there were only two adjustments; one prompted by UCC after leaving and one under the new contractors. Subsequent contractors seem willing to tacitly accept DOE's lead in the no COLA policy.
The basic philosophy of the current plan was set about 35 years ago but a basic element has apparently been lost with changing administrators and performance award contracts: To remain equitable, it requires frequent COLAs for all retirees. With the departure of Union Carbide we seem to have lost the pension plan's advocate and the administrators who knew what it needed to make it work equitably. Since the performance contract awards the contractor for cost savings it is not clear whether they have a conflict of interest or not. To avoid the difficulties and provide uniform pension benefits for all contractor employees, DOE should place its pension plans under a uniform policy that recognizes the need for long term equity and provides annual COLAs in keeping with other federal plans.
It is not difficult to also conclude that the pension fund has a surplus at the continuing expense of the old retirees (aka The Cold War Warriors). Ironically, the cessation of the war saved an estimated $30,000,000,000 in war contracts cancelled during the next month and an estimated 100,000 American lives and 1,000,000 Japanese lives by averting a Japanese invasion. By successfully opposing EPA's determination to remediate the entire Lower East Fork Poplar Creek in the 1990's to 10 ppm of mercury when DOE could not publicly oppose EPA, existing retirees saved a DOE estimated $1,600,000,000. We will stack the retiree's performance record against the current operator's performance record at anytime. It is hard to understand why DOE would choose to alienate or de-motivate these long-term friends.