Companies Underfund Pensions*

May 20, 2002

Lawmaker Lists Firms Cited

For Underpaying Pensions

By KATHY CHEN, KELLY K. SPORS and STEPHENIE STEITZER

Staff Reporters of THE WALL STREET JOURNAL

WASHINGTON -- A member of Congress named 13 companies the Labor Department found had sharply underpaid pensions to workers after converting defined-benefit pension plans into cash-balance programs.

The list, ranging from a multinational industrial company to a North Carolina medical center, was made public by Rep. Bernie Sanders, a Vermont Independent who requested the names from the Labor Department's Inspector General. The office in March released a report reviewing 60 converted plans and the plans' payments to workers who had left their jobs before retirement age.

The report said 13 of the companies together had underpaid such retirees by an estimated total of $17 million each year, by making errors in their pension calculations such as using incorrect interest-rate figures. The report didn't identify the 13 companies; it found the remaining 47 to be in compliance with pension regulations.

PENSION PROBE

Companies identified as illegally cutting pension benefits after shifting to cash-balance plans:

BOC Group, Murray Hill, N.J.

Markem, Keene, N.H.

Steel Heddle Manufacturing,ÊGreenville, S.C.

ABB, Norwalk, Conn.

Wake Medical Center, Raleigh, N.C.

Accuride, Evansville, Ind.

Formosa Plastics, Livingston, N.J.

Chesapeake Directory Sales,ÊGreenbelt, Md.

Amoco Fabrics & Fibers, Atlanta, Ga.

Robbins & Myers, Dayton, Ohio

Burns and Roe Enterprises,

Oradell, N.J.

General Atomics, San Diego, Calif.

First Allmerica Financial Life Insurance, Worcester, Mass.

Source: Rep. Bernie Sanders, (I., Vt.)

Cash-balance plan conversions are an increasingly common practice as employers try to adapt their pension plans to the needs of a more mobile work force. A defined benefit pension plan usually is based on a worker's pay in the last few years before retirement. Cash-value plans, which generally save employers money, use a formula that reflects a worker's pay throughout his or her career.

The report estimated 300 to 700 defined-benefit plans that have been converted to cash-balance plans in the U.S. may be underpaying retirees by between $85 million and $199 million annually.

International Business Machines Corp. drew criticism from its workers in 1999 when it switched to a cash-balance pension plan that benefited younger workers at the expense of older ones; IBM later said anyone 40 or older with at least 10 years of service could remain in the old plan. Workers at several other companies subsequently complained to the government about their employer's plans to switch to cash-balance plans.

Mr. Sanders has introduced legislation with backing from members of both parties that would require the Labor Department to enforce existing rules on cash-balance plans and to take enforcement action against the 13 plans. The Labor Department had said in response to the Inspector General's report it doesn't have jurisdiction covering cash-balance plans, and it passed along data on the 13 plans to the Internal Revenue Service and Treasury Department.

According to Mr. Sanders's office, the "most egregious" cases listed in the report include BOC Group Inc., a United Kingdom industrial-gases company with a U.S. headquarters in Murray Hill, N.J., which allegedly underpaid workers by as much as $59,242 each. Others were Markem Corp. of Keene, N.H., which allegedly underpaid workers by as much as $55,629 each, and Steel Heddle Inc. of Greenville, S.C., which allegedly underpaid workers by as much as $42,266 each, the office said. The three companies had no comment.

A spokesman for Mr. Sanders's office said it doesn't have details on any of the other companies listed. The Inspector General's office declined to comment on the list or to provide additional details.

A number of the companies listed said they are looking into the issue or denied violating pension rules. "I'd like to reserve comment until all the facts are in," said Ron Kurtz, a spokesman for ABB Inc., Zurich, which employs 14,000 in the U.S.

Wake Medical Center in Raleigh, N.C., which has 5,000 employees and switched to a cash-balance plan in 1990, said it received a list of questions from the Labor Department last fall pertaining to its cash-balance plan and how it calculates its lump-sum payments.

The hospital responded to the questions, but never heard back from the agency, said Mike DeVaughn, the hospital's finance chief. "We are confident that we are in compliance with these regulations," he said.

First Allmerica Financial Life Insurance Co., a subsidiary of Allmerica Financial Corp., a group of insurance and financial-services companies that employs 5,600 employees, converted its pension plan to a cash-balance plan in 1995. Michael Buckley, a First Allmerica spokesman, said the company is "confident that we have been calculating benefits in accordance with the terms of the plan and in accordance with the law and applicable regulations." He said the IRS concluded its plan was in compliance with the rules as recently as February.

An official at Accuride Corp., an Evansville, Ind. heavy-wheel manufacturer that employs 1,800, said he wasn't aware of any pension violations. "If there's some illegal issue here, we sure don't know about it," said Dave Armstrong, Accuride's senior vice president and general counsel.

A spokesman for Formosa Plastics Corp. U.S.A. Livingston, N.J., a unit of Formosa Plastics Corp., said the company was unaware of any violations. "We cannot comment until we can see a copy of this report," he said.

Robbins & Myers Inc., a Dayton, Ohio, equipment supplier that has 3,200 workers and is on the list, said it acquired a business that had a cash-balance plan.

"There was a dispute over how the former owner calculated pensions" and the Labor Department was investigating the case, said Hugh Becker, the company's vice president of human resources.

Write to Kathy Chen at kathy.chen@wsj.com1, Kelly K. Spors at kelly.spors@wsj.com2 and Stephenie Steitzer at stephenie.steitzer@wsj.com3

URL for this article:

http://online.wsj.com/article/0,,SB1021928857364516760.djm,00.html

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