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
By Adam Geller,
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
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
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,
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
"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
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
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
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
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."