Q:How does the new Pension legislation affect us?
A: The new Pension Bill is mainly prospective. It does not reinstate what we had, restrict our right to sue in the future, or eliminate the basis for our current lawsuit. But our objective, given the current political climate, was to prevent the business lobbyists from getting their way and closing the door on us forever. They were seeking to retroactively legalize cash balance plans. We were successful in:
- Preventing the legalization of previous cash balance conversions which would have made one part of our lawsuit worthless.
- Getting Congress to condemn "wear-away" and making it illegal for any future conversion. This adds support to our case that this was not a proper method of pension transfer in the past.
Q: How will the IBM decision affect our case?
A: The IBM decision is very poorly reasoned. For example, it states that "Nothing depends on age" and then gives an example where an age 65 employee has to wait until age 105 to retire and receive the same retirement benefit as a younger worker.
Our case is also different from IBM's because in AT&T's cash balance conversion, the majority of older AT&T employees suffered a "wear-away" for the rest of their careers where they received no additional retirement benefits, while younger employees did.
All IBM employees received an additional actual contribution to their pensions each year, and the appeals court viewed IBM's plan as "almost, but not quite" a defined-contribution plan. It is difficult to reach the same conclusion about AT&T's plan. The practice of "wear-away" is also specifically outlawed in the new Pension Reform legislation.
As we learn more information, it will be available on the website.
Q: Will the SBC/AT&T merger hurt
the cash balance class action lawsuit?
A: The SBC/AT&T merger should not affect the cash balance
class action lawsuit adversely in any way. The merged company will
retain all of AT&T's existing responsibilities and liabilities.
SBC recently discontinued its cash balance formula and returned exclusively
to a traditional pension formula (unlike AT&T , SBC never completely abandoned
the traditional pension formula; it continued to exist as an alternative to
the cash balance formula). Some people have speculated that this has favorable
implications for how AT&T employees who are still active after the acquisition
may be treated. But neither SBC nor AT&T has made any announcements about
this to date.
There has also been some discussion about the impact of the Mandatory Portability
Agreement on AT&T employees who are still active after the acquisition. SBC
has previously bought some former Bell system companies whose employees were
subject to the Mandatory Portability Agreement (e.g., Pacific Telesis). But
no announcements have been made to date about how still-active AT&T employees
will be treated as a result of the Mandatory Portability Agreement.
Q. If you have been FMP’d , will drawing my pension
now affect the settlement?
A. It will not affect your eligibility to receive benefits from
the cash balance class action lawsuit. But you should be very careful
in selecting a benefit option because the cash payment option and the
joint and 100% survivor's option are sometimes less valuable than the
single life and joint and 50% survivor's annuity options. If you are
not age 55, it may also be preferable to wait until 55 to commence
the annuity benefit because the 6% reduction that AT&T takes
for retirements before age 55 is a steep discount.
Q. People have said the Cash Balance plan is terrible. What is
behind all of this talk?
A. It is a terrible plan for people with 15+ years of service
and who had invested many years with the company on the promise of
a pension benefit. One of the issues is that AT&T has claimed that
people were getting too much pension between the age of 55 and 60 and
that the plan had to be adjusted to make higher payout dates and come
in line with the rest of the industry. It now appears that making Cash
Balance pay off a better return means waiting until you reach 65 and
beyond. Most of us realize that through mergers, layoffs, and other
factors, we may never reach the point where Cash Balance pays this "fair
return".
Q. I understand the difference between the plans, but it still
seems that I would rather have cash in hand than a monthly annuity.
A. It seems that way until you calculate the amount of a penalty
you take between the age of 50 and 60 as compared to the old plan.
This penalty can be over 50%, when compared to the benefit under the
old plan. It does not improve until you approach the age of 65. The
amounts you receive in the years between 50 and 60 are simply too small
to support a decent retirement.
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