- Letter to David Newman, Pensions Trust Manager - 28th July
- Reply - 7th September
Ed.Note: Click just after list item label to see question/reply to each point.
Letter to David Newman
28th July 2000
Dear Mr Newman,
I am writing to you as I am becoming increasingly concerned that the Pension fund is no
longer in the hands of the beneficiaries and their trustees but now seems to be a fund that
IBM can use for its own purposes. I would therefore be very grateful if you would kindly
answer the following questions, in order that I may better understand the 'fund' and perhaps
remove at least some of my concerns. My records go back to 1989, so I have studied these to
get a better understanding. From this I have the following points.
- :
For the years 1989 - 1991 Retiree lump sums do not appear in the reports. However, starting in
1992 we see a line item of lump sums, which amount to £21.3m. This is additional to
'augmentation'. Would you please explain this line item for me in detail? Why was it introduced
in 1992 and how is it that I have not been informed? What impact does this have on the fund and
surpluses?
- :
In 1997 IBM introduced an 'M' Plan. However it seems that it did not have the courtesy to inform
retired members of the 'C' Plan what it was doing. I do not have information on the benefits of
this plan so I would appreciate you supplying me with this. Information that I do have from other
sources is stating that the benefits of the 'M' Plan are better than those of the 'C' plan in the
area of % to RPI.
I would appreciate you responding to the following queries.
- :
Was the establishment of the 'M' plan in any way funded from the 'C' plan or any surpluses
that the 'C' Plan may have had at that time?
- :
In the latest handbook for retirees it states that the pension increase for 'M' plan members
will be the lower of RPI or 5% given annually. Please explain if the fund that I personally
contributed to and also consisted of part of my salary, has been used to fund a plan that
exceeds benefits that I receive. Namely 70% RPI ex gratia.
- :
Why were members of the 'C' Plan not informed of what was happening and of any
implications that may arise from this change.
- :
I would appreciate the voting position of the Trustee's on the use of the funds accumulated
to cover the 'C' Plan with respect to establishing the 'M' plan.
- :
It would seem that to achieve this, a change of trust fund deeds needs to have been made.
Please inform me if this is so and if it is, why as a member of the 'C' Plan I was not
informed?
- :
Since there are now two plans in existence, would you please tell me when I voted for
trustees last year I was not informed of this position? Also, some explanation of how two
funds can be run by one set of trustees seems appropriate.
- :
Information that I have received states that you have sought legal advice on Pensions and that
this has been paid for out of Members funds. Please confirm that this is the case and under
which rule this can be done.
- :
The statement in the Pension report that 'IBM' has to act as the risk bearer I feel needs some
more information, and is very misleading in the further statement of continued 'poor
performance'. In order that I may better understand this issue, would you please be so kind
as to answer the following questions.
- :
How many pension holidays has IBM had in the last 20 years.
- :
How many years and to what level has the company had to contribute to the Plan over the
last twenty years.
- :
Would you please state how much (£) has been saved from IBM contributions by better than
required performance of the Plan, over the same twenty years.
- :
When IBM doesn't contribute (Holiday in the last 5 years) Would you please tell me what
happens to the money that was assigned in the yearly Plan of the company to cover it's
possible contribution, in the event of poor investment performance.
- :
The latest membership report and that of last year show that two members of the trustees are
from the US Company. I was under the illusion that the Fund was isolated from the US and
UK parent companies. For what reasons do these members participate and what benefit does
the fund receive from their participation?
Who pays travel and hotel whilst they are here?
I look forward to your early and comprehensive reply.
Yours
J. M. Howell.
Reply
7 September 2000
Dear Mr Howell
Thank you for your letter of 28th July. Firstly I must apologise for the delay in sending you a reply.
I have been out of the office for the majority of the last 4 weeks, so I hope you will understand
and accept the reason.
Let me start by assuring you that the Trustee of the your pension plan continues to fulfil it duties
in all respects with regards to managing the pension fund on behalf of the members and in
accordance with the Trust Deed and Rules.
Now let me address the individual questions that you have raised:
- :
In 1992 we completely redesigned the members report and the changes that you refer to here were a
result of this. There were no benefits structure changes. The lump sums are the tax free
commutations that all members are allowed to take on retirement with a corresponding reduction in
the pension they then receive. In previous members reports these payments had been included in
the pensions number. Augmentations are additional contributions paid in by the Company as a
result of their decision to enhance the benefits to certain members.
This was usually where they offered special deals to employees to retire early, these involved
some improvement to their pension benefits and the Company agreed to pay the additional cost
in exchange for the Trustee agreeing the augmentation to the benefits.
- :
In 1997 when the M plan was announced Ms Ann Grinstead, Human Resources Director at the time, wrote
to all retirees telling them about the changes. I have put a copy of this letter in the external
mail to you. The M Plan is not a different plan, just a a different section of the Main
IBM Pension Plan. This is analogous to the situation in 1983 when the C plan was created to
supercede the N Plan.
As you will see from Ann's letter, the M Plan is a money purchase plan. This means that it consists
of individual "pots" of money for each member, these "pots" are made up of the Company contribution,
the member contribution, any AVC's the member wishes to pay and finally the investment return on
these contributions. When the member reaches retirement the money is used to buy an annuity on the
open market which will then pay them a pension in retirement. You are correct in saying that this
pension will have LPI on it as that is the legal requirement now. The key difference from the
Defined Benefits type arrangement that you are in is that there is no guarantee as to how much
the pension will be at retirement. The level of pension will depend on the investment returns
that have been achieved during the members working life and annuity rates at conversion.
In your defined benefit plan you were guaranteed a certain percentage of your final salary
as a pension.
- :
The independent scheme actuary assesses the level of Company contribution required to the total
plan on an annual basis. Therefore because there has been a Company contribution holiday since
the start of 1997, the company contribution to the M Plan members has been allocated from
the surplus in the total scheme.
- :
As above. Yes M Plan members will have LPI on their pensions as this is a legal requirement
for all pensions in relation to service post April 1997. However they do not have a guarantee on
the level of initial pension the same as a defined benefits plan member has.
- :
It was communicated and from Ann's letter, there was no impact on your pension entitlement
as a result of these changes.
- :
The Trustee considered a set of proposals from the Company at the time of the introduction
of the M Plan. Having taken external advice, they agreed that they could accept them.
- :
Yes the Trust Deed and rules were amended with the agreement of the Trustee at the time.
Individual members do not have to approve these changes.
- :
As above there is one Plan with several sections, therefore there only has to be one Trustee.
- :
In assessing the Company contribution required to the Plan the Scheme Actuary makes an allowance
for the costs of running the plan. The Trustee is required by the Trust Deed and Rules to take
expert advice, such as Legal Advice or Investment Advice, where necessary and this is a legitimate
expense to charge to the fund.
- :
As above your pension is a guaranteed percentage of your final salary, for this your paid a
contribution of 5 or 4% of salary while you were working and IBM paid the balance. In assessing
the amount that IBM should contribute, the Actuary assumes a rate of investment growth. If the
fund under performs this then the Company must put in more money. However as there have been
exceptional returns in recent years this has enabled the Company to take a contribution holiday.
- :
&
- :
IBM has taken a contribution holiday in 1997, 1998, 1999 and is doing so in 2000. In all previous
years it has paid in normal contributions. I have not calculated the total Company contribution
during this period, but it will run into several hundred million pounds.
- :
This is impossible to quantify. When doing the annual assessment the Actuary looks at a complete
set of long term assumptions and how actual experience is comparing with these. The recent
investment performance has been above the assumption giving a saving however other factors
like Mortality have gone the other way giving extra cost.
- :
This is a matter for the Company rather than the Pension Fund Trustee, so I cannot answer this
question for you.
- :
The company has the right to appoint 8 of the 12 Trustee directors and this has always included some representatives of the Corporation. There is nothing unusual in this. The Company pays the US Directors travel & hotel costs.
If you still have queries, please let me know. Maybe we can talk on the phone, and I will try to allay whatever concerns you may still have.
Yours sincerely,
D M Newman
Pensions Trust Manager
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