The DOE Oak Ridge Contractors' Pension Plan Problem – A Synopsis

Alfred A. Brooks – 10/5/07

The DOE Oak Ridge Contractor's Pension Plan was formed in 1948 by the adoption of the Union Carbide (UC) private sector plan. UC Nuclear Division administered the plan keeping it roughly equivalent to the private sector plan. In 1962, the plan was changed to the current 'defined contribution' plan which was touted by UCND and DOE as being superior to the prior contributory plan. This synopsis is a brief summary of the current plan's most important shortfalls without the encumbrances of the supporting data and other reference material. The following are the most important issues with brief explanatory comments:

1) The failure of the Pension Plan to adjust for inflation.

Oak Ridge has had one general cost-of-living adjustment since Union Carbide left in 1984 (The 1987 COLA was initiated by UCND). This wreaks a severe hardship on the unprotected, aging retirees. DOE Notice 351.1 institutionalized the injustice. Contrary to the DOE claims, Union Carbide, while they did not embrace automatic COLAs, did recommend and implement several ad hoc inflation adjustments. Many federal plans, including DOE and SSA have automatic COLAs.

2) The bias in the model DOE uses to analyze the 'generosity' of the Pension Plan.

The DOE estimation of the 'generosity' of a Pension Plan uses the ratio of the pension payment to the wages just prior to retirement. This makes a plan without COLAs appear as good as a plan with COLAs even though 20 to 30 years of inflation destroys the unadjusted pension. Furthermore, unadjusted Pension Plans based on low wages appear as 'generous' as plans based on high wages with adjustments. The DOE description of 'generosities' states that Oak Ridge is about 10-th in 30 but fails to mention this is very close to the average. Clearly these are biases of a dubious origin..

3) The low value of the multiplier factor used to determine the size pf the pension payment.

The low value of the multiplier factor used for many years in Oak Ridge (was 1.2, now 1.4 for current retirees only) compared to the high factors such as 2.5 (UCal Labs; LANL, LLNL, LBNL) starts the Oak Ridge retiree at a distinct disadvantage. The wage levels in Oak Ridge are not high enough to justify this disparity in multiplier factors.

4) The inequity inherent in the actions concerning broad classes of retirees, past and future.

In the recent past many improvements have been made for current and future retirees but not past retirees, such as, a) in 2004,a reduction of the spousal penalty from about 8% to 2%, b) increase of the multiplier from 1.2 to 1.4, c) the use of caps and exclusions to limit several adjustments, and d) in 1999, non-competitive salary adjustments of up to 30% over 3 years for selected current employees but not retirees.

5) The management of the Pension Plan relative to the trust fund surplus and the lack of contributions.

A trust fund is generally considered to be assets committed to some stated purpose; yet, the OR Pension Plan Trust Fund can be diverted to unspecified, ongoing DOE operations and two such attempts have been recently made. DOE has not contributed to the trust fund since 1984, the year of UCND's departure. Much has been made by DOE that the pension trust fund (which has a $800 million surplus) may not be sufficient to fund all of the future DOE liabilities and thus it cannot support any new adjustments for past retirees. It appears that DOE is using inflation to down-size the benefits to past retirees in order to allow the current surplus to meet increasing commitments to its new employees at no new cost to itself; this is not realistic.

6) The failure of DOE to share the Medicare Part D subsidy with the retirees.

Congress provided a 28% subsidy to corporations to continue to supply supplemental health coverage. Since retirees pay 50% of this cost, it seems reasonable that subsidy should be shared and be used to defray the cost of this insurance. DOE has refused the contractor's request for the funds.

All considered there appears to be an air of personae non grata toward retirees. The current disparities appear to result partly from DOE's misconceptions about the plan and the transfer of plan management initiative from the administrating Contractor to DOE Headquarters. By adopting DOE Notice 351.1 as an order, some of these disparities were institutionalized and perpetuated. It is the combination of N351.1 and the lack of any wage agreements or other legal protections that made the adoption of N351.1 so Draconian for the unprotected. The notice specifically prohibits any improvement of the 'defined benefits' plan without DOE HQ approval. Under Congressional pressure, the notice has been rescinded but the same restrictions are being implemented in each new DOE contract. Under these conditions, it is doubtful if the administering contractor will propose a cost increase inimical to their interests as an award fee contractor. The problem involves about 12,000 retirees and $56 million local economic impact per year.

Supporting data, computations and details can be found in Pension Plan Index, items 10, 14, 27, 30, 31, etc. at http://home.comcast.net/~brooks50/InformerIndex.htm or http://corre.info or http://blog.corre.info