Originally created 11/10/99

Pension disclosures debated

Ray Lillie opted for a promising IBM early retirement package. Then he found out he'd unwittingly cut himself out of an even better pension offer -- announced just weeks after he'd retired.

What you know may be as important as your worth in the intricate world of pension planning. And now, amid contested changes to many pension plans, workers are demanding much more information from their employers.

Mr. Lillie and 350 former IBM employees sued the company, saying they should have been told about the coming pension changes. This fall, IBM agreed to pay more than $15.5 million to settle the case.

President Clinton has joined the growing debate over disclosure, backing proposed legislation requiring companies to tell workers 45 days before a pension change if some people's benefits are hurt. Current law requires 15 days notice.

"Not every company is getting high marks from employees in the job of communicating meaningful information far enough in advance," said Leslie Kramerich, deputy assistant secretary for policy at the Department of Labor's Pension and Welfare Benefits Administration.

Employees need not only earlier notice, but "notice you can understand," she added.

That's why Mr. Lillie went to court. In 1990, with 33 years at IBM, the then-52-year-old Mr. Lillie accepted an early retirement plan that expired at the end of that year. In doing so, the quality engineer got a pension worth 75 percent of his income.


IBM eliminated some early retirement penalties for workers retiring on or after Jan. 31, 1991. If Mr. Lillie and others working at an IBM plant in Lexington, Ky., had retired later, they could have gained pensions worth 100 percent of their salaries.

In their 1992 lawsuit, the employees charged that IBM should have told them earlier that the change was coming. In the last ruling before the settlement, a U.S. appeals court ruled that IBM had a responsibility under the Employee Retirement Income Security Act of 1974 to inform employees of the changes.

"Companies need to be honest and up-front with their employees," Mr. Lillie said. "Whenever they're making plans, plans that change things, people need to be informed of those."

IBM said it settled the case because it had gone on so long -- seven years. "We decided it was a prudent move," said spokeswoman Jana Weatherbee.

The Kentucky case involved changes to a defined benefit plan, a traditional program that gives a monthly fixed income to retirees based on length of service. Under such plans, employees earn the bulk of their pensions in their final years of service.


debate these days involves disclosure as companies change to a new, controversial type of pension plan.

The new cash balance accounts are based on a set percentage of pay for all participants, a system proponents argue is more equitable. As with 401(k) plans, employees may take their account with them if they change jobs -- an attractive feature to younger employees who aren't likely to stay with one company their entire career.

At the moment, companies aren't legally obliged to give employees a great deal of information if they're making changes to a pension plan.

If a change involves reductions in benefits for any employees, employees must be given a copy of the change 15 days in advance.

Otherwise, even if a significant change is being made to a plan, employers don't have to tell employees in advance. They must give notice of the change within seven months after the end of the year in which the change was made.

The bipartisan legislation pushed by Mr. Clinton would force most companies to give easily understood explanations of changes 45 days before they take place, and further oblige them to answer requests for individual benefits statements 90 days after changes are made.

Another bill, spearheaded by U.S. Rep. Bernie Sanders, a Vermont independent, and U.S. Sen. Paul Wellstone, D-Minn., requires most companies to issue detailed, individual benefit statements to employees 45 days in advance of a change.

Employers worry that such regulations would prove too cumbersome and expensive, or even ultimately turn off some companies from offering pensions, since they don't legally have to.


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