AUSWR
The Association of U S West Retirees
 

 

 

Verizon's wake-up call for pensions
The profitable telecom says it froze 50,500 managers' benefit plans to match competitors, not to avoid a bankruptcy.
By Adam Geller, AP Business Writer
Denver Post
Monday, December 12, 2005

The memo to workers made the changes sound almost upbeat: "Your Work, Your Rewards, Your Verizon," it read.

But to some workers at Verizon Communications Inc., the company's announcement last week that it will freeze the pensions of 50,500 managers is nothing but an employer breaking a decades-old promise to its own people.

"We're all good people here," said Maureen Aeckerle, a 25-year Verizon veteran in Maryland, her voice breaking.  "And to be treated this way is just unacceptable."

Aeckerle and her co-workers are hardly alone.  More large companies are moving to freeze or terminate their pension plans.

While most companies that have done so up to now have been struggling financially, a growing number resemble Verizon -- healthy, profitable companies looking for another way to cut costs and reduce risks.

Last year, 71 of the nation's 1,000 largest companies froze or terminated pension plans, up from 45 in 2003, according to consulting firm Watson Wyatt Worldwide.  Nearly all were freezes, in which workers do not earn any new pension benefits, but retain the right to eventually retire with benefits already earned.

Verizon's move drew attention partly for its scope.  Many companies have capped pensions incrementally, grandfathering older workers or current employees, while cutting off pension benefits for new hires or younger members of the ranks.

Verizon said it would freeze pensions for all U.S. managers who now receive them, while boosting contributions to workers' 401(k) plans.  The pensions will be frozen on June 30, 2006, but bolstered so that each worker will be left with the benefits they would have accrued through 2008.

The move, together with cuts in retiree health-care benefits, will save about $3 billion over the next decade, Verizon said.

The company earned nearly $1.9 billion in the most recent completed quarter, and $7.8 billion in all of last year.

The pension freeze has left many Verizon workers "mad, angry, outraged," said Janice Winston, a former Verizon engineer who was an outspoken critic of the company's effort a decade ago to cut pension benefits.

"The people I've talked to are afraid.  They don't know what's going to happen next."

A Verizon spokesman, Bob Varettoni, said the cuts will reduce benefits so they are on par with competitors.

Asked to respond to workers who say Verizon has broken its word, he said the company could not afford to maintain the status quo when everything about its business is rapidly changing.

"Frankly, yes, there has been some of that feedback" from workers angered by the cuts, Varrettoni said.  "Our response is that we are keeping the promise to our employees for what they have already earned, but we are changing the future relationship with managers in parts of our business in line with the way our industry has changed."

Nearly all companies offering traditional pensions -- not just those in financial difficulty -- are rethinking the costs, risks and reasoning behind their retirement plans, said Alan Glickstein, a pension consultant.

The process is being driven by concerns about measures before Congress that would tighten restrictions on companies that don't fully fund their pension plans and increase premiums companies must pay to the federal government to insure their plans, he said.  Accounting regulators are looking at rule changes that would force companies to report their pension liabilities on their balance sheets.

Until recently, "there was a very strong correlation between the freezes and terminations we looked at and companies under severe financial pressure," Glickstein said.  "I think it's a good possibility we will be seeing more examination of plans and I suspect coming out of that will be some of those (healthy companies) saying we want to go in a new direction."

For some companies, that direction could well mean freezing pension plans.  In the past year or so, employers including Sears Holding Corp., NCR Corp. and Circuit City Stores Inc. have frozen pension plans for all or some of their employees.

When Abbott Laboratories spun off its hospital products business last year, workers at the newly dubbed Hospira Inc. -- many who had spent their entire careers with Abbott -- saw their pensions frozen and their retiree health-care benefits eliminated.

In one of the most recent moves before Verizon's, computer maker Hewlett-Packard Co. said in July that it would freeze pensions for all workers except those whose age and years of service added up to at least 62.  The company would not disclose how many of its workers the move will affect.

"What we're trying to do is ensure future success for HP, for our shareholders and for our employees and to do that, we have to create an industry-competitive cost structure," said Ryan Donovan, a spokesman for Hewlett-Packard.

Pension advocates say such changes amount to a compensation cut for experienced workers who devoted years to companies knowing that a pension was part of the deal.

"Companies and workers have a very different understanding of what a pension promise is.  From a company point of view, it's 'just because we said we're going to give this to you doesn't mean we can't change our minds,"' said Karen Friedman, policy director for the Pension Rights Center, an advocacy group.

Employees of Verizon affected by the freeze said the move will have a devastating impact on their future retirements.

Aeckerle, who started as an operator and went back to school for undergraduate and masters' degrees to climb to her current job, said she had been thinking about early retirement, less than five years away.  But her pension will be frozen just as she is reaching the point in her career when benefits are sweetened, she said.

"I was crying for two days because I just felt so betrayed," said the 49-year-old Aeckerle.  "I just felt they look at us as being so worthless."

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