We got the briefing today. The Chairman briefed everyone who was a supervisor. I got to attend because I was DOA [Delgation of Authority] for my boss, who was out of town.
They did a very good job. It turns out that we are 800 million underfunded in the retirement plan. This is based on the actuarial table and expected investment returns. The company is kicking in 240 million to keep the plan solvent. They decided to keep the plan in place through September 2006. Good. That will let me retire in April 2003. In 2006. They will stop additional "earnings" for the defined benefit plan and start making additional payments to thee 401K plan.
This has two effects: 1) all of the investment risk shifts to the employees, and 2) so does the opportunity. The employees retirement funding will depend on how well the employee picks investments. Since I assume the retirement plan trustees have a fiduciary duty to protect assets, they have to invest in high grade (read low margin) investments. The employees can decide to take higher risks for greater returns.
Overall, they did a good job.
Friday, August 08, 2003
Monday, August 04, 2003
The Warning Letter
Over the past several years, there has been a real decline in the amount of medical coverage for both active and retired employees. We no longer have an effective medical plan.
Employees accrue 1/12th of their annual vacation earnings each month. The company expenses this vacation when earned and reverses the accrual when the vacation is taken. Unused vacation is thus a liability on the books. Until this spring, we could hold up to two years of vacation before accruals stop. The company suddenly changed this to 1.5 years and announced they would go to 1.0 years next spring. They originally gave 3 days notice, meaning most employees would be hit immediately. They relented and gave employees a month. Now they are asking, "Where are all the deadbeat employees?'' They are all taking their earned vacation before it is stolen.
On Thursday, the Chairman sent an email to all employees, telling them that the retirement plan was suddenly a half-billion dollar underfunded and that the company could no longer afford to meet its obligations. There will be a change to the retirement plan and to the entire benefit package. This underfunding occured because of the looting of the fund mentioned in the previous post and because they had been using 11% as the projected investment return for purposes of determining the level of funding.
Warren Buffet said that a 11% investment rate was legal, improper, a flagrant deception, and a misrepresentation. He was right.
On Thursday, we will find out the details of the changes. This will determine when I retire.
Employees accrue 1/12th of their annual vacation earnings each month. The company expenses this vacation when earned and reverses the accrual when the vacation is taken. Unused vacation is thus a liability on the books. Until this spring, we could hold up to two years of vacation before accruals stop. The company suddenly changed this to 1.5 years and announced they would go to 1.0 years next spring. They originally gave 3 days notice, meaning most employees would be hit immediately. They relented and gave employees a month. Now they are asking, "Where are all the deadbeat employees?'' They are all taking their earned vacation before it is stolen.
On Thursday, the Chairman sent an email to all employees, telling them that the retirement plan was suddenly a half-billion dollar underfunded and that the company could no longer afford to meet its obligations. There will be a change to the retirement plan and to the entire benefit package. This underfunding occured because of the looting of the fund mentioned in the previous post and because they had been using 11% as the projected investment return for purposes of determining the level of funding.
Warren Buffet said that a 11% investment rate was legal, improper, a flagrant deception, and a misrepresentation. He was right.
On Thursday, we will find out the details of the changes. This will determine when I retire.
Background
I have worked for a major aerospace company since 1977. When I started, the company offered an 85-point retirement. That means that I can get full retirement benefits [about 50% of current pay] when I reach 85 points. Points are defined as age plus years of service (rounded up). Benefits are considered "earned" starting at about 5 years of service. No one can collect benefits before age 55.
The effect is that earned retirement doubles overnight as you reach 85 points.
In the 1980's, the company decided that this was too lucrative, so they changed the deal to some other plan. Having some morals [and trying to avoid lawsuits], they grandfathered the old plan for current employees [me] and applied the new plan to new employees.
Around this time the retirement fund was doing really well. Large government contracts were funding big bucks for the plan, interest rates were high and any fool could get a good return on investments. The board of directors decided that they could take "excess' money out of the plan, since they put it in, and record it as profit [paying tax on it.] This was quasi-legal at the time. Shortly thereafter, Congress figured out that this practice greatly increased the risk of future bankruptcy of retirement plans, which the public coffers would have to pay for. Congress passed legislation to make this practice illegal. While this law did not stop companies from looting the retirement plans, it did make it much, much harder. Now, they must generally terminate a plan to get the money out.
As time went on, the company was split up. Parts were sold to other companies, most parts were spun off into new stand alone companies. The retirement plans were split up by some arcane formula. Retirees and potential retirees were assigned to companies. [My wife, who used to work for the company, will draw a small retirement from Boeing when she reaches age 55. She has never worked for Boeing, who bought part of the company, a day in her life.]
Over the years, the company has made several changes to the retirement plans. They used to offer full medical benefits to retirees. Now the premiums to be paid by the company have been capped. They have slowed the rate of retirement "earnings". They have always been careful to state that the plan can be changed at any time. When they did the final spin off of the current company, they stated that they would only protect the current plan through FY2003, which ends with September.
The effect is that earned retirement doubles overnight as you reach 85 points.
In the 1980's, the company decided that this was too lucrative, so they changed the deal to some other plan. Having some morals [and trying to avoid lawsuits], they grandfathered the old plan for current employees [me] and applied the new plan to new employees.
Around this time the retirement fund was doing really well. Large government contracts were funding big bucks for the plan, interest rates were high and any fool could get a good return on investments. The board of directors decided that they could take "excess' money out of the plan, since they put it in, and record it as profit [paying tax on it.] This was quasi-legal at the time. Shortly thereafter, Congress figured out that this practice greatly increased the risk of future bankruptcy of retirement plans, which the public coffers would have to pay for. Congress passed legislation to make this practice illegal. While this law did not stop companies from looting the retirement plans, it did make it much, much harder. Now, they must generally terminate a plan to get the money out.
As time went on, the company was split up. Parts were sold to other companies, most parts were spun off into new stand alone companies. The retirement plans were split up by some arcane formula. Retirees and potential retirees were assigned to companies. [My wife, who used to work for the company, will draw a small retirement from Boeing when she reaches age 55. She has never worked for Boeing, who bought part of the company, a day in her life.]
Over the years, the company has made several changes to the retirement plans. They used to offer full medical benefits to retirees. Now the premiums to be paid by the company have been capped. They have slowed the rate of retirement "earnings". They have always been careful to state that the plan can be changed at any time. When they did the final spin off of the current company, they stated that they would only protect the current plan through FY2003, which ends with September.
New Blog
I have had many transitions in my life and I have always regretted not having kept a journal. What happened? What did I say and do? How did I feel?
I am about to transition from the world of work to the world of retirement. That is, from a wage slave to something else. This blog will document that journey.
I am about to transition from the world of work to the world of retirement. That is, from a wage slave to something else. This blog will document that journey.
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