DOE’s Disinformation Regarding Oak Ridge Contractor Pensions
Dave Reichle, CORRE President
The Coalition of Oak Ridge Retired Employees (CORRE) believes that the Department of Energy (DOE), either directly or indirectly through its Contractors, has disseminated inaccurate information to the public and elected officials about the pensions of retirees from DOE Contractors in Oak Ridge. This serves to misinform and confuse.
The purpose of this paper is to document and rebut the inaccuracies in DOE statements. CORRE uses only reliable public information and data from DOE and its Contractors.
CORRE is a 501(c)5 approved under the U.S. IRS code, with By-Laws chartered by the State of Tennessee. CORRE represents nearly 12,000 retirees from DOE Oak Ridge Contractors, and has 2,800 dues-paying members. All board members and officers are volunteers. CORRE’s objectives are to obtain fair and equitable pension treatment for retirees from DOE contractors in Oak Ridge. These persons are retirees of contractors that are operating or have operated ORNL, Y-12, K-25, and other offices in Oak Ridge under operating contracts with DOE. Thus, presently included are contractors UT-Battelle, BWXT, Bechtel-Jacobs, and Wackenhut.
When the Contractors and DOE tried in 2000 to transfer surplus pension benefits out of the MEPP Trust Fund to build buildings, CORRE was formed to protect the pension benefits of current and future retirees.
Retirees from the Department of Energy’s (DOE) Contractors in Oak Ridge have historically had the poorest defined-benefit pension benefits in the entire DOE system of national laboratories across the country. The California laboratories historically offered pensions that were double those in Oak Ridge, and in addition they gave annual cost-of-living increases. When Sandia National Laboratories improved the spousal option retirement benefit for employees, they immediately extended the same benefit to retirees. Later, Oak Ridge improved their spousal option benefit, but denied this benefit to retirees.
Until Congressman Zach Wamp helped CORRE secure a “minimum pension” from DOE Contractors in 2004, some surviving spouses were on food stamps, and some had to send a check to the Contractors each month to pay for their medical premiums, because their pensions were less than their company-sponsored medical premiums.
DOE Contractors in Oak Ridge have historically offered pension adjustments to retirees to partially offset inflation, but DOE now says that this practice cannot be continued.
The retirees simply want some protection of their pensions from inflationary losses. All CORRE asks for are pension benefits for older retirees that are comparable to those being offered to those retiring after July 2004. No new funding would be required, since the Multi-Employer Pension Plan (MEPP) Trust Fund has more than sufficient surplus to fund these requests.
How did this surplus come to be? Simply good investments and the fact that DOE has recently been so stingy in benefiting retirees. DOE has made no contribution to the MEPP since 1984-—meaning that every new Contractor employee hired after 1984 who retires will receive generous pension benefits paid for out of the surplus MEPP Trust Fund asset—monies which have accumulated, in part, by denying retirees fair benefits.
The Tennessee State Assembly and 9 regional county and city bodies have signed resolutions supporting retirees in the struggle for pension equity. Treating retirees fairly helps everybody. A pension adjustment for the over 12,000 retirees in the 6 counties of East Tennessee would have an annual economic impact of $65M. Extending the 2% spousal option awarded to retirees after July 2004 to older retirees would inject another $13.4M into the local economies. All these benefits can be derived without any new monies—the existing Trust Fund surplus is more than sufficient.
“Retirees Will Gather to Press DOE for Improved Benefits,” by Frank Munger in The Knoxville News Sentinel, October 25, 2000.
“DOE Retiree, OR Contractor Pensions,” by Joanne Gailar, The Oak Ridger, Nov. 14, 2006
Social Security COLA: http://www.ssa.gov/
Economic Impact in E. TN: CORRE web site: www.corre.info/
Sandia National Laboratories benefit plan changes in 2002: http://www.sandia.gov/LabNews/LN02-22-02/LN02-22-02pension_stories.html/
Pension statistics, citizen petitions, and county resolutions at the CORRE web site: www.corre.info/
BWXT Online Q&A (NMS12447), submitted January 1, 2006, answer posted 26 Jan. 2006.
1. The DOE Contractors say that they have given the retirees all the pension benefits that were promised to them.
Reported to CORRE representatives by Senator Corker in their meeting on June 4, 2007, Doubletree Inn, Oak Ridge, TN.
“Oak Ridge Retirees Push for Pension Increase,” by Frank Munger in The Knoxville News Sentinel, Jan. 16, 2006.
Information provided by UT-Battelle to Senator Lamar Alexander and included by the latter in letters to his constituents in September 2005.
UT-Battelle President Jeff Wadsworth, as quoted in The Oak Ridge Observer, by Paul Parson, Issue 4, Vol. 1
CORRE Response: This statement is in response to retiree requests for an adjustment to help offset the impacts of inflation on their pension (over a 23% decrease in value for an April 1998 retiree who has never received an adjustment).
The DOE Contractors in Oak Ridge have had a long history of periodic pension adjustments (increases) for retirees to partially offset the impacts of inflationary losses in buying power. Retirees considered this part of the pension benefit and want this practice continued.
But no one promised the current employees a 17% increase in their pension benefit either (multiple change from 1.2 to 1.4 in 2001), or a reduction in their spousal option pension reduction from ~8% average to a flat rate 2% in 2004—effectively increasing their pension benefits by another 6%.
So if they didn’t promise anybody anything, why did the companies increase worker’s pension benefits in 2001 and 2004—because it was the right thing to do! Why has there been a history of periodic retiree pension benefit adjustments in the past—because it has been the right thing to do!
Retirees since 1998 have lost a minimum of 23% in pension value due to inflation (many have lost 50% or more) and have also been denied another 23% increase (17% + 6%) granted to active employees without extending this benefit to retirees. That’s a total of at least a 46% loss—a huge loss of potential income that could have been granted to retirees.
There are approximately 12,000 retirees from DOE Contractors, most living in East Tennessee. Oak Ridge has the largest community of retired citizen in Tennessee. The economic impact of pensions on these individuals and communities is huge.
CORRE web site: www.corre.info.
“CORRE Sets the Record Straight,” The Oak Ridger, October 21, 2005; The Knoxville News Sentinel, October 23, 2005; The Oak Ridge Observer, October 20, 2005.
2. Retirees from DOE Contractors in Oak Ridge retire with an equivalent of over 99% of their working salary as retirement income.
DOE web site: http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Briefing.6-22-06.pdf/
Ingrid Kolb presentation of DOE data to Tennessee retirees at Pellissippi State Technical College, Knoxville, TN, June 2006.
Donald R. Erbschole, Acting Chief Operating Officer, Office of Science, DOE. Letter dated December 23, 2005, to CORRE President, David E. Reichle.
CORRE Response: This is a sophistic argument. DOE used faulty assumptions and selectively misrepresented data to create the impression that retiree’s retirement incomes are much larger than they actually are. In public information disseminated by DOE, Ingrid Kolb states that BJC hourly retirees receive 99.2% of their final salary as pension, BWXT at Y-12 hourly retirees receive 100%, and ORNL hourly retirees receive 99.9%. She further stated that salaried retirees at the three facilities receive 94.4%, 93.5%, and 93.4% respectively.
DOE’s assumptions of salary base, retirement age, 401(k) participation, and pension multiplier were all wrong. The truth is that, after 35 years of employment, a pre-2001 retiree receives a pension equivalent to 42% of their highest average 3-year salary.
First of all, the issue is the DOE Contractor pensions—not the social security nor 401(k) plans to which the workers themselves contributed.
The fine print of her slide makes several assumptions. Her slide uses the year 2004 as her reference point. She assumes that the retiree retires with 35 years of company service. It appears that she assumes that the current multiplier is 1.4% in her calculations. This multiplier only applies to those who retired after 2001. Prior to that time, the multiplier was 1.2%.
When the multiplier was increased, it was applied only to the first 30 years of company service, with all years over 30 receiving a multiplier of 0.5%. This meant that the pension of a person retiring in 2001 with 35 years of company service could receive an increase of 5.95% over the old formula.
In 2004 (the year Kolb uses in her presentation), the 30-year cap was removed, and all company service received the 1.4% multiplier. This means that a person retiring in 2004 with 35 years of company service received 16.67% more than the person retiring prior to 2001.
Although there was an adjustment given to retirees in 2001, it was graduated based on year of retirement, and no adjustment was given to any retiree who retired after April of 1998. The higher multiplier did not apply to earlier retirees.
The fine print of the DOE chart (page 14) assumes that the retiree retires at age 65 and gets Social Security benefits for that age. According to the Social Security Administration, 60 percent of U.S. workers elect to begin Social Security retirement benefits at age 62, the youngest eligible age to begin benefits. (In 2005, 85% of the U.S. workforce retired at age 62.) The additional 3 years adds approximately 25% to the Social Security benefit.
DOE assumes the current multiplier (1.4%) in their calculations. This pension multiplier only applies to those who retired after July 2001. Prior to that time, the multiplier was 1.2%. The increase in the multiplier resulted in another 16.67% increase for those retirees. This increase was not given to those who retired prior to that date.
DOE included benefits from the retirees 401(k) plan, adding additional confusion. It should be remembered that the 401(k) provision did not come into existence until 1984 and initially had minimal company matching funds (30% by Union Carbide). The initial plans also provided minimum investment options (fixed income, US government bonds, Union Carbide stock, and one mutual fund). Many pensioners retired long before there was a 401(k) or before the enhancement of company matching funds or before the enhancement of investment options in the 1990s. DOE indicates that all retirees are getting maximum 401(k) benefits when they did not exist for some when they were in the workplace.
DOE also assumed 100% employee participation with maximum contribution from the inception of eligibility for their 401(k) plan—when national statistical data suggest this figure to be around 10%, with only about 68–72% of the eligible workforce participating (only 23% of participants max out) in their 401(k) plans in any one year. While DOE cannot be blamed for individuals’ 401(k) saving rates, DOE can be faulted for assuming excessive rates above national norms so as to artificially inflate the apparent retirement incomes of retirees.
DOE Oak Ridge Pension Info web site: http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Br iefing.6-22-06.pdf/
Social Security web site: http://www.ssa.gov/
Early SS retirement: http://money.cnn.com/2007/06/06/pf/retirement/social_security_early/inde x.htm?postversion=2007060611/
401(k) plan participation 2003: http://www.mutualfunds.about.com/b/a/006138.htm/
401(k) plan participation 2004: http://www.cfo.com/article.cfm/3856394/
3. DOE’s Benefits Programs for Contractor Retirees are $11.6 B underfunded, and with such liabilities, DOE cannot afford any pension adjustments in Oak Ridge.
DOE web site: http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Briefing.6-22-06.pdf/
Ingrid Kolb presentation to Tennessee retirees at Pellissippi State Technical College, Knoxville, TN, June 2006.
DOE Secretary Bodman to TN Congressman Zach Wamp at the 2007 House Appropriations Subcommittee hearings on Energy & Water.
CORRE’s Response: That the pension plans at DOE contractors across the country are underfunded by billions of dollars is inaccurate. This is sleight of hand and sophistry by DOE to obscure the real issues. The Multi-Employer Pension Plan (MEPP) Trust Fund in Oak Ridge is overfunded with an ~$811M surplus as of June 12, 2007. No DOE contributions have been made since 1984, and every employee hired since that time will receive pension benefits when they retire from pension fund surplus accumulated, in part, by denying adjustments to retirees.
Firstly, the $11.6 billion figure for 2006 comes from a GAO Audit report in 2004 that lumped health and pension benefits of DOE contractors together. DOE’s pension plans and health benefits are funded differently.
DOE’s $11.6 billion unfunded liability dollar figure for 2006 shows the total underfunded liabilities of the defned-benefit and defined-contribution pension plans of 33 contractor organizations to be only $784 million (only 7%) of this total. The payments to Contractors by DOE for defined-benefit pension plans are deposited into Pension Trust Funds. In the Oak Ridge case, the MEPP Pension Fund has been “self-sufficient” without any DOE payments since 1984. The MEPP is not an unfunded liability.
Medical benefit premiums are paid annually for employees and retirees by the Contractors out of DOE-reimbursed overhead accounts. At the beginning of the fiscal year, they are a “liability” until paid, but to describe them as an “unfunded liability” is to say that any other overhead expenses, e.g., facility maintenance, executive salaries, etc., are also unfunded liabilities.
It makes it appear as if the Contractor’s pension plans are fiscally out of control when they are not. It obscures the point that the Oak Ridge MEPP is financially healthy, but the benefits paid to retirees are amongst the poorest in the DOE system.
DOE historically has contributed about 10% of employees’ salaries to retirement benefits at some sites. This is most clearly evident at the laboratories with defined-contribution plans, where the D–C plan contribution and the 401(k) match approximately equal 10% of salaries (e.g., Argonne and Brookhaven). In Oak Ridge, the only pension contributions for 23 years have been the 401(k) match, current at 4% of salary. DOE can afford to contribute more at the other laboratories, but not in Oak Ridge?
The pension current multipliers for the defined-benefit pension plans at the CA and NM labs are 2.5, Sandia’s is 2.0, and PNNL’s is 1.6—compared to l.4 for BWXT, UT-Battelle, and grandfathered Bechtel-Jacobs employees, and 1.2 for grandfathered Wackenhut employees. Former retirees from Lockheed-Martin in Oak Ridge have only a 1.2 multiplier. So, pensions for DOE contractor retirees in Oak Ridge are only 48% to 75% of those pensions at other DOE National Laboratories after comparable years of service. Don’t say, “well, that’s because the cost of living is higher in California,” because that is why DOE has already approved higher salary rates for employees at those western labs. So, the geographic differences in economic costs have already been accounted for. Can this be fair?
Because Tennesseans are behind from the beginning, CORRE has asked DOE why can we not at least have more regular adjustments in our pensions to make up for the loss in pension value due to inflation. This was the practice which all employees and retirees came to expect. Four adjustments since 1978 are not very frequent, and no one retiring after April 1998 has ever received an adjustment. DOE retirees in Oak Ridge receive an annual cost-of-living adjustment in their pensions? Why does DOE refuse equitable treatment for contractors?
GAO Report: www.gao.gov/cgi-bin/getrept?GAO-04-539/
DOE Oak Ridge Pension Info web site: http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Br iefing.6-22-06.pdf/
Ingrid Kolb, DOE personal communication to Charlie Kuykendall, CORRE, June 22, 2006. CORRE web site: www.corre.info/
4. The Contractor’s Pensions are better than Those of the Department of Energy and Other Federal Employees.
DOE Secretary Bodman at the 2007 House Appropriations Subcommittee hearings on Energy & Water.
Ingrid Kolb presentation to Tennessee retirees at Pellissippi State, June 2006.
CORRE’s Response: DOE again engages in sophistry.
Kolb’s last bullet compares the Oak Ridge pension plans with that of Federal Employees. She based the comparison on the pension received from the Civil Service Retirement System (CSRS). According to the U.S. Office of Personnel Management, the Civil Service Retirement System was replaced in 1987 by the Federal Employees Retirement System.
Many retirees from the Federal Government are still under the CSRS, just as many of Oak Ridge retirees are under the old multiplier and service caps, but for DOE to use the latest benefits of the Oak Ridge Pension System and compare them to the old CSRS is both misleading and unfair.
It should be noted that the old pension system of DOE (CSRS) and the current Federal Employees Retirement System both have annual cost-of-living increases (COLA) indexed to the annual COLA adjustment of Social Security benefits. Retirees from Oak Ridge Contractors have no COLA, and DOE has discouraged even periodic inflationary adjustments in pensions. Inconsistent? Unfair?
It is not true that DOE Contractor’s retirees in Oak Ridge have better pensions than those of DOE and other federal employees. The defined-benefit pension of federal employees is, after 20 years employment, The defined-benefit pension of federal employees is, after 20 years employment, 1.1x years of service with a COLA. Oak Ridge retirees prior to July 2001 have 1.2x years of service with no COLA. Oak Ridge retirees prior to July 2001 have 1.2x years of service with no COLA. After 3 years retirement, the 1.1 with COLA is a better pension. At current inflation rates, in 20 years the pension of retirees from DOE contractors in Oak Ridge decreases twofold! The government employees maintain the values of their pensions. This decline in pension value and the unquestioned fact that until recently adjustments have been a practice for Oak Ridge contractor retirees are the primary reasons why CORRE has been asking for periodic pension adjustments.
Ingrid Kolb presentation (page 14) of DOE statistics at Pellissippi State Technical College, Knoxville, TN meeting with Oak Ridge retirees, June 2006, DOE web site: http://www.oakridge.doe.gov/External/Portals/0/PAO/DOE_Pension_Brie fing.6-22-06.pdf/
Civil Service Retirement System, U.S. Office of Personnel Management web site: http://www.opm.gov/retire/html/retirement/csrs.html/
Stephen Barr, Washington Post: http://www.washingtonpost.com/wp- dyn/content/article/2007/03/21/AR2007032101978.html?referrer=emailart icle/
5. The Multi-Employer Pension Fund in Oak Ridge cannot afford adjustments to retiree’s pension and remain healthy.
Letters to TN Congressional Representatives, Senators, and of President of CORRE by Jeff Wadsworth, Director of ORNL, managed by UT-Battelle, DOE Oak Ridge contractor, May 11, 2005
ORNL Public Relations press release, reported in The Oak Ridger, by Paul Parson, October 21,2004, pg. 1-A.
CORRE’s Response: If they cannot afford to use the MEPP Trust Fund surplus to help retirees, how can they justify using those same funds for other purposes? While the Contractors, on behalf of DOE, have not made a contribution to the MEPP Trust Fund in 23 years, they continue to increase liabilities by bringing on new participants (all new hires since 1984). In addition, the Contractors have increased liabilities by improving pension benefits for those currently working while denying improvements for retirees. The most glaring lapses in fiduciary responsibility were two 420 transfer attempts in 2000–2001 to remove Trust Fund assets to build buildings—initially approved by DOE but stopped by TN Congressional action.
In Oak Ridge, Union Carbide established a defined benefit pension program. The administrative responsibilities and the Trust Fund have been transferred to each subsequent contractor under the oversight of DOE. Since 1984, neither BWXT nor UT-Battelle, nor their predecessors, have made contributions to the Trust Fund, because the market returns on investments have been good and because very few pension adjustments to compensate for inflationary deterioration of pension values have been made to retirees. The contracts in Oak Ridge were split up, but employees transferred from Lockheed-Martin to either Bechtel-Jacobs or Wackenhut received “grandfathered” status under the Pension Trust Fund jointly administered by BWXT and UT-Battelle. Let us examine the joint Pension Trust Fund, i.e., the MEPP Pension Trust Fund for BWXT and UT-Battelle Employees and Retirees.
Status as of July 2007:
Fund Assets: $3,180M
Fund Liabilities: $2,360M
Fund Surplus: $811M
Cost of Proposed Adjustments:
Pension Adjustment: $95M
Surviving Spouse Adjustment: $51M
Surplus Remaining After Adjustments: $665M
1These estimates by CORRE are made upon the best available data from the companies and the pension fund reports, estimated June 12, 2007.
2January 1, 2006, Tower Perrin Valuation of Liabilities, BWXT to CORRE in June 2007.
3Reference DOE letter dated December 23, 2005, Donald R. Erbschloe, Acting Chief Operating Officer, Office of Science, to Dave Reichle, President of CORRE. CORRE believes that this estimate may be too conservative to restore 75% of lost buying power and that the figure is likely to be on the order of $200M.
Conclusion: Misinformation abounds.
In the past, some at ORNL have stated that if the total assets drop to less than 120% of liabilities, contributions would need to begin again. In fact, contributions would not have to begin unless the fund balance drops to 90% of the total liabilities. The 120% figure is the current upper limit above which the IRS will not allow further company contributions (to avoid companies taking tax advantage by stashing profits in pension plans). So the BWXT and UT-Battelle Pension Trust Fund continues to grow through market investment without any contributions, even when the liabilities for current employees continue to increase due to rising employee salaries. The net assets of the Pension Fund (assets – liabilities = net assets or surplus) are at 124% of liabilities. How can this be? As long as assets exceed liabilities, and as long as you continue to short-change retirees, you can avoid contributions. If you are willing to forget retirees and let inflation ravage retiree pensions, you may be able to avoid making any future Trust Fund contributions. Is this DOE’s and the companies’ commitment to the workforce, retirees, and the community?
The spousal option is a very nice provision for spouses of former DOE contractor employees. For a pre-agreed reduction in one’s pension benefit, which originally was actuarially sound and depended upon the respective ages of the retiree and spouse, they could ensure that if the retiree predeceased their spouse, the spouse would receive 50% of the initial value after the spousal reduction. Selecting the spousal option, on average, cost the retiree an 8% reduction in their pension benefit. In July 2004, BWXT and UT-Battelle accessed their Pension Trust Fund, which at the time had a surplus of $550 million, and offered current employees a new deal on the spousal option. Henceforth, the “cost” would only be a flat rate 2% reduction in their pension benefit. This cost the Fund about $66 Million in additional liabilities. In effect, everyone got an average 6% “raise” over the former cost of the spousal option. Even after the increase in liabilities of $114 million incurred with the 2% flat rate for the spousal option and the removal of the 30-year cap on pensions for employees (the estimate is this would only result in a one-time cost to the Fund of $48 million), the surplus has continued to grow from investment earnings. When Sandia National Laboratories reduced their spousal option cost in 2002 for employees, they immediately extended the benefit to their retirees. And they can’t afford to do it in Oak Ridge?
In October 2004, Oak Ridge National National Laboratory’s press release to The Oak Ridger announced that ORNL’s MEPP Trust Fund would be $17 million underfunded by 2006, and used this as justification why retiree pension adjustments were not feasible. Yet, in June 2007, the MEPP had a surplus of $811 million. This is a striking example of misinformation to the public.
CORRE Web Site: www.corre.info/.
Sandia National Laboratories benefit plan changes: http://www.sandia.gov/LabNews/LNO2-22-02/LNO2-02-02pension¬stories.html
“Benefits Summary Annual Report,” BWXTymes, Nov. 2005.
ORNL Public Relations press release, reported in The Oak Ridger, by Paul Parson, Oct. 21, 2004, pg 1-A.
Letter to the Editor, The Oak Ridger, Oct. 29, 2004.
CORRE was formed in 2000 to obtain fair and equitable pension treatment for approximately 12,000 retirees and surviving spouses, who have retired from DOE Contractor-managed facilities in Oak Ridge, Tennessee—Oak Ridge National Laboratory managed by UT-Battelle, Y-12 managed by BWXT, former employees of the K-25 Gaseous Diffusion Plant, and grandfathered employees under the same pension plan at Bechtel-Jacobs Corp. and Wackenhut. (See CORRE History).
For further information, see: www.CORRE.info/, and the DVD “Failure of the DOE Pension System for Oak Ridge Contractor Retirees,” available through the Contact Us page.