>> usually explaining has it's good for retirement security, that they have this, you know, flexibility, but it continues to have an effect on retirees and

employees. to continue to protect their ability to take these assets out, companies have been very aggressive in the court system with finding ways to fighting retirees that try to fight back. so you've seen many cases in the court, both over pension cuts which have been challenged by many retirees. and retiree health care cuts. you know, company have been extraordinarily aggressive with techniques such as suing retirees especially if they're union retirees because they have a contract and if you have a contract, it's a little tougher for the company to just say we're going to discontinue your savings. they'll get a retiree before a court before a judge that has had some probusiness rulings in the past. and try and argue to the judge that you really need to cut the

benefits because they're very expensive and, you know, a company can't survive without it. and in some cases they have used arguments like, yes, we promised lifetime benefits. we didn't mean your lifetime. we meant the life of the contract. so this actually worked with some judges and people lost their benefits. so if you feel somewhat beleaguered it's -- this gives you a backdrop as to what's been going on. and with that, i invite your questions because i suspect you might have some thoughts about some of this. anybody? yes, marta. >> i'm wondering -- you know, you mentioned this is contrary to the intent of congress. this is not what they meant when they passed erisa and had this move forward. they were trying to protect the

plan participant, why -- do you have any sense as to why congress hasn't acted to clarify either in the law or close loopholes that would prevent these kinds of practices? >> i think that there's been such a strong argument make to congress by employers and the retirement industry that these loopholes need to exist. and mind you they don't call them loopholes. but these practices need to exist in order for the companies to maintain flexibility. this always seems to resonate if you go to congress and say, look, don't tie our hands with this. don't have burdensome regulations because if you don't let us pull money out when we need it or put more money in than we need to, when we want to, then we just won't have these plans at all. and that usually is a very effective argument to congress even though it's not actually true. i hope that helps.

>> it doesn't feel good. i understand what you're saying, but it doesn't feel good. >> yes, ed? >> can you tell them a little bit about what kind of research went into your book as far as what documents did you look at and, you know, are those same documents available to retiree groups to dig into? >> yes. the only way you can do into this is through documents because it's not something employers are going to be discussing if you call them up on the phone. and i was initially stymied myself and i couldn't understand why companies were cutting retirement when they had billions of dollars in surplus. it doesn't make sense. and what led me to try to figure it out when ibm cut its plan and was telling people. it's a better plan. we got a better plan for you but they were telling shareholders oh, it's going to save us 200 million. and i didn't understand what they meant by that.

because like most people i assumed they were talking about cash savings, which they weren't. they were talking about this accounting effect, you know -- they were reducing their liability by 200 million and when you do that, that's 200 million that's going to go into your profits either immediately or over time. so the only way to see this happening is if you go into the annual reports of the 10k's which have these pension footnotes which include a lot of these numbers which show the size of the liability and the different assumptions they're using to calculate it. so that can give you some idea. that's really you can only go for this. yes. >> i'm from at&t and we just had our case get to the appeals court in philadelphia and we lost -- it was just like you described. you know, the engineers of -- i was an engineer and they said this is the greatest thing since sliced bread. >> what company?

>> at&t. and it was just like that. i was complaining or voicing my distress at a company meeting, or a couple years later or three years later somebody came back to me and i got to apologize back when you talked at that town meeting and said, you know, don't do this, this is bad i was looking at my lump sum and i thought it was a lot of money. and he's like, it hasn't grown. and i guess i wanted -- do you have a comment on -- among all the other things the judge dismissed in our case, they said -- they let at&t off because they said, well, you didn't need to tell them there was a cut in benefit, which they

clearly didn't tell us because that would have been confusing. that's what the judge said. did you have any comments on the at&t case and thank you very much. >> i've seen a lot of examples like this where companies have resisted making clear disclosures on the grounds that they've given too much information and there's pension law 204h which says that a significant cut in benefits must be disclosed. but as we've seen with companies like cigna, there are ways around that, like just ignore that, for example, or giving people a piece of paper that says your plan is changing these ways. by the way, 204h applies. a company said that it compliance of the requirements of disclosure but it actually doesn't. and in my book, i talk about

section where is actuaries would discuss where you could avoid disclosure. you could say things are changing. and you can refer to a 204h but you don't have to use the minimal words your benefits are being cut. just don't use those magic words. so the disclosure issue was clearly at play in a lot of the pension conversions and yet another one you raised as well was the lump sum payouts because a lot of companies at this time began offering lump sums to people saying, well, with these new plans we can give you a lump sum. it's more modern. now it's portable. that's why these pensions are better for a portable workforce. the problem with that, of course, is the workforce wasn't more mobile -- the population they were trying to get rid of was not mobile. it was people in their 50s when their pension was building to an adequate level. so one of the techniques to get people to agree to leave was to

say, you know what? if you leave, you know, during this retirement window we'll give you a little extra pension and we'll give it to you in a lump sum so you can take it with you and invest it. buy a taco bell franchise, whatever. so people very often were dazzled that looked like a very large sum of money. the problem if you give people a lump sum, you can give them more pension than they earned. if you give someone less pension than they have earned you have violated the anticutback rule. that's clear. but here's where lump sums make it possible. if you give someone a lump sum, say a 300,000, and the person has actually earned a benefit 400,000, well, if they choose to take that lump sum, not knowing that they should have been given 400,000, then they're essentially cutting their own

budget. they're choosing to cut their benefit. legally, that's sort of how it works. so you had a lot of people seeing the lump sum dollars. not usually the engineers. they would figure it out. they would see this big pot of money and they would take and run, not realizing they were cutting 20% or as much as, you know, another 30% off of their pension. that also was a disclosure issue. now, as to the case you're referring to, that's happened with a lot of the suits over the pension changes brought under alleging age discrimination and usually there were two reasons for that. one was under pension law, you cannot have a declining rate of accrual. that's a complicated phrase. nobody understands it but in a nutshell it says that you can't have a pension get smaller over time by a certain way. and these changes actually did

that. when this got to federal court, some judges said, yeah, this is clearly a violation of that. other judges said, well, you know, why should the pension law apply to these plans? they look like 401ks so why should pension law apply? and actually that succeeded in some circuits. the other element, though, that always bothered me more than that even is that this practice of freezing older workers pensions also in a deceptive way because people didn't know their pensions were being frozen and if you had a plan, you have a pension and it multiply it is it by 500,000 and let's say it represents your 20,000 a month for life, okay, starting at age

65. that's a finite amount, 500. what they did for some people, a lot of people, actually, is instead of giving them that 500,000 as their opening balance, they would low ball it. they would give them maybe 400,000. now, since the person getting that balance didn't know the difference, they didn't know that their pension was worth actually 5 would see their opening balance be 400 and they'd say, okay, well, that's what my pension is worth. but the trick is this, because you're starting out under water, your pension is not going to grow until you have enough years of these new pay credits going in, to bring it back up to the level it was when they changed the plan. and companies like at&t, as you know, for some people that would take as long as 13 years. and i talked to a woman who was at cigna. she actually was in the pension

area so this made it a little more ironic, janice amara and her pension was cut like that and she had no idea until she ran into a fellow executive at a going away party for someone and he said, janice, if you knew how much your pension had been cut, you'd be sick. and she's like, frankly, i was sick when i figured it out because for her, it would have meant a pension cut for the rest of her career. so people didn't pick up on that, definitely. they didn't understand that just the older people were being frozen. you may ask yourself how can it be legal that you can only have older people be affected by a cut and not younger people? well, that's the magic of pension law. this whole concept called where-way has been band now under congress so it can't happen anymore going forward. but everything that took place up to the time the law changed a

few years ago is deemed legal. so congress finally caught up by the and said, we're not going to let you do that. but, sorry for you at&t folks and cigna folks, it's kind of too late. >> the thing that also really got me when they first did this that didn't get much publicity and i think it's legal but it's morally wrong -- when we had our traditional pension, you multiplied a percent times your years of services for anybody, somebody making 40,000, somebody make 100,000, somebody making, you know, 200,000, when they -- when at&t changed it, they put a knee in the curve and they said, okay, you're going to get half the rate up to the social security rate base and double the rate over the social security, same amount of money in the pot, didn't put more

money in there. and i just wanted to say that. so it's doing what you're saying. they got a pot of money and they're skewing it. >> yes. ellen, i think you're saying many people didn't know they were unaware of this change and, you know, i think that says something in terms of retirees of the past were more trusting, et cetera, and i think that's the message going forth, you know, i don't think we can have trust anymore with companies and i think as retirees, we've got to be very proactive in this area to promote our earned benefits. your comment? >> i think that when you're looking at a trillion dollars there's always going to be a number of people and groups who are interested in participating in that trillion dollars. so for people to just assume that they don't have to pay

attention to what's happening to their benefits is naive, there are so many forces at work that would like to manage that money, take a bit of that money. i forgot to mention the other way the assets were paid out of the plan, they could use the assets to also pay the actuaries and the lawyers who helped them cut the benefits. there's no way to measure that but it's probably fairly significant. yes. >> ellen, two things. number 1, i read recently a survey of employers done by one of the major compensation and benefits consulting firms to show the trends of companies dropping health care for retirees, we've also seen people from the pbgc about the dramatic drop in the number of defined benefit plans that exist anymore. given those two scenarios and what you found, what are the implications going forward for

baby boomers and their pensions and their health care and their post-retirement life? >> you'll see that it's not completely true. you'll find that companies are dropping it for salaried employees but it's hard to drop it for collectively bargained toys. there's contracts you have to get around. the pattern we've seen are the first people to go are salaried. and it happened with a number of companies where the salary folks were first lured out the door with promises of retiree health care the retirees have been

seeing their premiums have been going up incredibly steeply. and one reason they're going up so steeply isn't because the actual costs are going up because that's the other thing that companies are not really concerned about. their costs been spiraling. years ago the companies put caps and they knew they would never spend x dollars for a population and so people can get as old and sick as they possibly can and the company's protected for that. what happens once the cap is reached all the costs get opposed so in the salaried groups they have people who hit that and then the costs go up. people who can afford it or who have a spouse with coverage, they drop out of the plan because they can't spend $1,000 a month so what remains are older sicker people. who have no other options. so this creates a classic death spiral where you have

increasingly costly group. this benefits companies because the more people who drop out, well, they don't have to pay for them. and another factor increasing these costs is that companies can charge salaried people more and subsidize what they have to pay for the collectively bargained. don't blame the unions for this. this is the company saying well, we can't get out of paying the union guys, we're going to charge the salaried guys more and we'll use that excess amount so we don't to have pay. it will have a finite life so i'll have to drop out and we'll enjoy it while it lasts. it is unlikely that we're going to see the same kind of program exist for people now. >> i'm a retiree from kodak and we're not in a union and we're

getting treated this way. there's nothing like erisa to protect retirees from losses of health care. so we know we're at risk at the whim of the company and if its poor performance it could drop and cut its health care cost. it has done we will no longer have cost coverage after 2018, any portion in a company. we'll have a cost but we'll have 100% of the cost and secondly, the company's contribution is capped for the retirees themselves. so we're starting to see some of that already. >> you mentioned something that is actually quite important. initially, pension law was supposed to cover retiree benefits. including health care. but in the courts during various court fights employers had succeeded in making the argument that health coverage wasn't a vested benefit like pensions so they are allowed to change it. and even if they had promised it, as many did in writing, they

prevailed in court because they put a little sentence in tiny print somewhere in the document called a reservation of rights clause that says we reserve the right to change our minds some day. so people had no idea this existed and they didn't know that was all that mattered was whether there was this little clause in the document that they were unlikely to have see. instead, they believed the handouts the companies gave them. they believed the h.r. people they talked to who said you're going to have this and not realizing how flimsy that price was. >> i appreciate your comments and even though it does raise my blood pressure listening to you. my group was included in your latter example there. the company promises for 170 years and then lo and behold, that little clause buried about 300 pages in the tiniest print of the whole booklet is what the

federal judge had. >> what company are you with? >> john deere. >> oh, yes, yes. >> so as far as organized labor, they have the larger voice speaking for them than any salaried group except for salaried unions which are a rarity. >> they do. but what's actually been interesting is seeing how beleaguered as well. whether it's steelworkers groups, any number of them in manufacturing are constantly fighting these brush wars with the companies because companies use a variety of tactics which i mention in my book, ways to get around those contracts they've made with unions. the strongest example i saw was this midwestern company that made trackters and so forth. and back in the early '90s, they actually, you know, all got together to really think hard about how they got get out of paying these benefits. so they came up with a variety

of tactics. one was to exaggerate the cost and tell people it was really, really costly. and maybe the union would agree to give them some concessions. the other way was to create a unit and spin it off and have it go bankrupt. and then, of course, the retiree health care would be wiped out. the other was what they called creeping take-aways. and it works like this. you know, you make a little tiny cut one year, you know, maybe you raise dental by $5 a month, something like that, you do a couple of these and then a few years later, you cut everything or you make a big cut and if they fight back in court, you then say, well, look, there's a precedent here. you obviously accepted these cuts we made so that's, you know, tacitly you've agreed to this and that worked in a number of venues. and this particular company, verity, it did every one of these things, every single

tactic over the years. the retirees lost bit by bit although because of the steelworkers union trying to fight to protect it, many were actually able to hold on but other companies -- the retirees lost in many cases. >> for the loyalty people felt toward their companies that the companies took advantage of it. >> yep. >> by doing it bit by bit and then using it in the long run against the retiree group when they tried to fight it. >> well, they also -- one of the tactics i failed to mention was drag out the litigation as long as possible because they'll give up or die. and, in fact, they do. and in the book i mention a group of retirees with gen corp. -- the predecessor was general tire. and this group of retirees saw their pension -- retiree health care cut and they got together

and hired a lawyer and sued, but it took so long, you know, they'd have to go to court and another year would pass and they'd go to court again and the would say get a broader group of people, one by one they were just dropping off until there was a few of the group left. so that has been a successful technique. yes. >> i know that over the years we've all seen problems with our pensions and specifically like here the nrln and we lobbied the 2007 protection act which kind of nullified many of the other issues that went on. shortly after that, the following year, there was a ruling that was done that more or less said well, you know, the law wasn't necessarily -- i mean, it made it very gray so that again the corporations have that leeway. also now that we know what to

look for and we can become aware of it, we've also, you know, tried to face it through litigation. it's very difficult for the average retiree to do anything about all the things that you're talking about. so is your sequel planned on telling us how to -- >> you're right. people are pretty helpless. the only way they have any leverage at all really is to come together with an issue. as i've seen your group do with the bankruptcy issue. the horrible situations that we've seen where companies stop contributing to their pension plans, airlines, u.s. air, and the plans become less and less well funded, and then the companies only too thrilled in bankruptcy to dump it on the pbgs which is the federal pension insurer. the problem, of course, is when the plan is very underfunded and there aren't enough assets to pay out full benefits, then

people can lose some of their benefits, people in the higher incomed areas. for example, pilots, they would lose up to 80% of their pension because of some rather odd quirks in the law. they would lose all their supplemental savings so i saw pilots -- i mentioned pilots in the book who went from having retirement income 8,000 a month now living on $95 a month. that's pretty perverse. and this temptation continues to exist, you know, with private equity firms buying companies. it's no different than the raiders of the '80s. it's just a different way to do it. you go in and you buy a company. the plan is overfunded, great, you kill it. or meanwhile, milk it, use the surplus. and then later you can kill it. or if it's really unhealthy, you just stopped contributing to it, let it sink, go to bankruptcy court and say, gosh, judge, we

can't possibly emerge from bankruptcy with this horrible thing and judges are swayed by it retirees are not first in line. the creditors get paid before the retirees. so the pension gets dumped. the retirees are left with, you know, a fraction of their pension. and the shoulders a-- shareholders and the creditors are before on. the gao came out with a report in which they looked at 10 of the largest company bankruptcies in the past five years. and they found that of these companies, airlines, polaroid, the company spent 350 million paying their executives in the run-up to the bankruptcy so just in the few short years before the bankruptcy when they're not putting money in the pension plan, 350 million was going to out no these executives at these

companies. it would be probably a good idea if there were something that halted this process or made it tougher for companies to dump the pensions. yes. >> i'm not going to be around break, on our hospitality breaks, if you have any questions, just catch her -- >> it's very inflammatory what you're saying. what do you think the next step are going to be? are you hiring personal protection? and what -- you know, what are you expecting in terms of company and retiree response? >> one last question and catch ellen at the hospitality, okay? >> none of this is a surprise to employers. i've been reporting on aspects of this over the past decade. and everything i've reported on has been run by them and they've all had opportunity to correct me or to challenge. there have been no corrections. and they can't challenge it. it's the numbers out of the filings. it's the