Personal Finance

James Chamblee · Guest

Via NY Transfer News Collective * All the News that Doesn't Fit

sent by Andy Pollack

....by the Wall Street Journal!

This tale of terminated pensions, healthcare benefits, life insurance, etc.
paints an unbelievably hostile picture of the companies doing so, and makes
very clear: a) the tradeoff made decades ago between wages and benefits in
favor of the latter, and b) how companies are reneging on that tradeoff to
boost the short-term bottom line -- even knowing it means misery or even
death for retirees.-AP

The Wall Street Journal - June 29, 2005
http://online.wsj.com/article/0,,SB112000236709572252,00.html

Widows' Lament

As Companies Cut Spousal, Death Benefits for Retirees,
Survivors Suffer More Loss

By ELLEN E. SCHULTZ
Staff Reporter of THE WALL STREET JOURNAL

Margaret Jelly's husband, William, was dying of cancer in January 2003 when
the couple received a letter telling them that the death benefit an employer
promised him decades ago would be canceled -- in one month. "I guess I'm
going to have to die before then," Mr. Jelly, 79, told his wife of 50 years.

He wasn't joking. Both of them knew that Mrs. Jelly would need the money
when her husband's leukemia overtook him. His pension would be cut in half
upon his death, and six months later, Mrs. Jelly's spousal retiree health
coverage would end. The Middletown, N.J., couple planned to use the death
benefit of $39,000 for medical and burial costs.

Margaret Jelly lost a $39,000 death benefit for her husband because his
employer eliminated it three weeks before he died.

It's no secret that companies have been cutting benefits for retirees. But
the hardships are magnified for their widows because of various practices
adopted by large employers over the past two decades. The surprising result
is that many women -- the last generation of stay-at-home wives, married to
men with generous retirement benefits -- are ending up with little or no
benefits other than Social Security.

Nowhere is this more clearly illustrated than among telephone industry
retirees, who enjoyed some of the best benefits packages in the country.

Mrs. Jelly should have had a secure retirement. Mr. Jelly had fought in
Italy in World War II, and then began a career as an electrician at Western
Electric, then a unit of AT&T Corp. There were millions like him:
ex-servicemen and others swelling the post-war workforce. Although companies
were growing rapidly and competing for workers, they couldn't afford high
wages, so employers offered deferred compensation in the form of pensions,
and health care in retirement.

Pay was low but so were living costs. He and Margaret married in 1950, and
by 1954, when the first of their three children was born, Mr. Jelly was
making just $64 a week, but building up retirement benefits.

Connie Sharpe, 80, with her dog Keno, lives mainly on Social Security.

When Mr. Jelly retired in 1980, he had a pension from Western Electric and
options about how he wanted to receive it: he could elect a pension in
monthly payments over his lifetime only, or he could elect a "survivor's
option" -- a smaller monthly pension, which would drop by half when he died,
but last over his widow's lifetime. Mr. Jelly chose the survivor's option.

But as the millions of people who entered the workforce after WWII began
moving into retirement and drawing on the trillion dollars of deferred
benefits, companies began looking for ways to cut benefits and hang onto the
money. Meanwhile, by the early 1990s, changes in accounting rules gave
employers an additional incentive to cut retiree benefits: doing so reduced
liabilities they had recorded, which generated gains that boosted income.

Many employers began cutting pensions for future retirees. AT&T, for
example, converted traditional pensions to a type called a "cash-balance"
plan in 1998. By calculating pensions in a different way, with the result
that the pensions its employees earned in their last years didn't mount as
fast as before, AT&T was able to reduce future pension payouts to retirees
and their widows by more than $1 billion.

Employers also began to cut retiree medical and death benefits for current
or future retirees. These typically provide a surviving spouse a payment
equal to one-times the retiree's annual salary at the time of retirement.
And they began cutting retiree group life insurance, which may also provide
an amount equal to a year's salary, but often expires when the retiree
reaches age 65.

Companies that have eliminated life insurance for certain retirees in recent
years include Qwest Communications International Inc., Pathmark Stores Inc.,
St. Paul Travelers Cos Inc., and Solutia Inc. This year, CNA Financial Corp.
reduced the benefit to a maximum of $10,000 per retiree. Phelps Dodge Corp.
has announced it will eliminate coverage for people who don't retire by the
end of this year.

Cutting retiree life insurance and death benefits also boosts income. In
2003, when NCR Corp. eliminated retiree life insurance for future retirees,
the move added $12 million in gains to income in the third quarter that
year.

The Jellys weren't affected by AT&T's pension move. (Federal law doesn't
permit a company to alter a pension once a person has retired.) But the
couple's other benefits weren't as secure.

In 1996, AT&T spun off certain operations, including what remained of
Western Electric, into a new company, Lucent Technologies Inc. Lucent, of
Murray Hill, N.J., imposed a series of changes. First, it told management
employees that if they retired on or after Jan. 1, 1998, they wouldn't get a
death benefit. Then in 2003 it told existing retirees who had been managers,
including Mr. Jelly, that their death benefits were no more. By eliminating
the death benefit, Lucent was able to keep more than $464 million that would
have been paid out in the future to tens of thousands of widows (and
widowers). Last year, the company made more cuts in retiree health benefits.

Thanks in large part to benefit cuts, Lucent's retiree benefits plans have
added a net total of $1.1 billion to income since the company started,
including $868 million in the fiscal year ended Sept. 30, according to its
annual report filed in December.

In a statement, Lucent said, "Eliminating the death benefit was one of the
very difficult decisions we had to make over the past few years," and added
that "It is also important to note that the death benefit was a benefit
provided at Lucent's discretion, and funded from Lucent's pension plan, but
it was not an accrued, vested or protected benefit."

Recently retired workers are finding themselves grappling with the benefits
reductions -- especially those whose pensions were reduced by the pension
conversion. But retirees who made irrevocable pension decisions decades ago
-- and then found their other retirement benefits cut -- have been slammed
the hardest.

George Sharpe worked for Bell Laboratories for 34 years, setting up missile
programs in places like Cape Canaveral, Fla. and White Sands, N.M. When he
retired in 1975 at age 59, he elected a single-life pension, which was
$34,080 a year.

When Mr. Sharpe, who suffered from Alzheimer's disease, died in December of
2003, his pension check ended. Although his widow, Connie, could have kept
her health coverage if she paid 100% of the costs, she can't afford what
Lucent was charging -- $280 a month, as of Jan 1, 2005; so she pays $133 a
month for a plan from AARP.

Mrs. Sharpe, who is 80 and lives in Las Cruces, N.M., is cashing in CDs and
living on Social Security of $915 a month. "If I don't live too long, I
won't have to go on welfare," she says. Late last year, Mrs. Sharpe, who has
no children, adopted a six-year old Australian shepherd, Keno, despite her
worries about paying for his food and veterinary care. "I have nobody," she
says.

The benefits cuts have led many retirees to regret the decisions they made
about their pensions long ago. When Lew Coppes, 66, retired from AT&T in
1989 after 33 years, he and his wife, Joanne, elected to get a pension over
his life only (rather than a reduced pension over both their lives), because
they had ample savings in his company savings plan, invested in AT&T stock,
group life insurance and a death benefit of $60,000.

After the spinoff, however, his AT&T shares converted automatically to
Lucent shares, and their value plummeted to $20,000 from $250,000, though he
says he has no one but himself to blame for not diversifying the money. His
health premiums have risen, he's lost dental benefits, and his death benefit
is gone. He had a serious heart attack in 2001, and in October last year he
had a cardiac defibrillator implanted, "and couldn't afford life insurance
even if I could get it," he says.

Mr. Coppes, who lives in Tucson, is working six days a week from his home
buying and selling electronic equipment. "I figure I'm good for another
three to four years," he says. "I'm trying to build up a nest egg for my
wife, because my pension dies when I do."

In early January 2003, when Mr. Jelly, the Western Electric retiree with
leukemia, got Lucent's letter informing him the death benefit would be paid
only if the retirees died before Feb. 3, he figured the odds were good that
he'd make the cut. After five years of fighting cancer, he was failing, and
he went back into the hospital Jan. 14 for what he and his wife knew would
be the last time. He told her sardonically, "I have a deadline."

He didn't make it. He celebrated his 80th birthday in the hospital on Feb.
14, which was also his and Margaret's 50th Valentine's Day together. The
nurses had a small party for him. He died on Feb. 24, 2003. Lucent saved
$39,000.

Write to Ellen E. Schultz at ellen.schultz@wsj.com6

URL for this article:
http://online.wsj.com/article/0,,SB112000219628172245,00.html

June 29, 2005

Lump-Sum Pensions Make Retirement Even Riskier By ELLEN E. SCHULTZ Staff
Reporter of THE WALL STREET JOURNAL June 29, 2005; Page B3

Another trend that is exposing widows to greater financial risk is the
practice of cashing out pensions.

Over the past two decades, employers have increasingly offered retirees the
choice of either receiving their pension the old-fashioned way -- as a
monthly check in retirement -- or taking a one-time chunk of cash. About
half of workers with pensions now have the one-time option, and 95% of them
choose it.

Many retirees believe they can invest the sum and get a better return than a
professional money manager, but few do. Many retirees also spend the money
-- paying down debt, starting a business, making big purchases -- and leave
too little money for a surviving spouse to live on.

Early retirees may face another significant downside: The lump sum can be
worth tens of thousands of dollars less than the monthly pension in
retirement. That's because many employers that offer lump sums may strip out
"early retirement subsidies," which are offered as incentives and bulk up
the pension between 55 and 65. Taking away the subsidy can cause the pension
value to fall 20% or more, with the greatest reductions beginning for
retirees in their early 50s.

Because many employers don't provide apples-to-apples comparisons of the
actual values of the monthly pension and the lump sum, employees often don't
know the lump sum is worth less. After complaints from retiree advocates,
the Internal Revenue Service last fall began requiring employers to tell
people if the value of the lump sum isn't equal to the monthly pension.

Employers have many reasons to encourage retirees to take lump sums.
Commonly, they offer cash payouts as a carrot to get older employees to
retire early. And when lump sums cut pensions, the decline in the pension
liability generates accounting gains that boost income. Companies also save
on administrative costs, and they don't have to pay premiums to Pension
Benefit Guaranty Corp. for the departed employees.

Financial advisers, eager to invest the pension assets in insurance,
annuities and other high-commission products, also commonly urge retirees to
take lump sums. These days, many are using scare tactics, telling people
that pensions are in peril, so they're better off taking the cash now.

But most large-company pensions are well-funded, and retirees face little
risk taking a traditional stream of payments. Robert O'Dell, an asset
manager who doesn't sell investments, says that unless a client works for a
company heading into bankruptcy, the monthly pension is usually a better
idea.

Mr. O'Dell is currently advising a 55-year-old client to take her pension in
monthly payments, rather than in a lump sum. The woman worked for a large
utility, which has an overfunded pension plan. What's more, the lump sum
wouldn't include the value of her early retirement subsidy, a move that
could have reduced her pension by more than 20%. Mr. O'Dell, of LVM Capital
Management, based in Kalamazoo, Mich., also calculated that his client would
need to earn a 9% return on the money annually to equal the value of what
the pension would provide. "We've seen what markets can do," he said.
"Taking a monthly pension will give her peace of mind."

Copyright 2005 Dow Jones & Company, Inc. All Rights Reserved

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