After Corporate Merger, Scrutinize Pension Plans
Question: I worked for RCA Service Co. as a television technician for 33 years. RCA had an optional pension plan. You could take the pension in a lump sum or on a monthly basis. I had planned to take the lump sum upon retiring at the age of 65. When GE took over RCA in 1986, the plans changed. In December, 1987, I received a statement from RCA saying that if I did retire on Jan. 1, 1989, the lump sum was guaranteed at $135,150. If I wanted the lump sum, I would have had to retire in January, 1989.
Then I received a letter saying the lump sum from RCA would be frozen and that I could continue to work. Knowing that my pension would be frozen, I kept working.
More recently, according to a GE statement, my lump sum has shrunk to $123,190, and every month I work, it will be depleted more and more. If my money is “frozen,” it should be gaining interest instead of decreasing. Where has that money gone? Because I don’t want to lose any more, I decided to retire in June this year. This is not just true in my case. All of the RCA employees are in jeopardy of losing their pension. I hope someone will be able to help me.--T.P.
Answer: Pension plans, with all of the strange actuarial calculations that go into them, are difficult enough for the layman to understand under the best of circumstances. And when two large companies like RCA and GE merge, as they did in the summer of 1986, the business of trying to dovetail two employee-benefit packages with differing features can range all the way from a major headache to something bordering on chaos.
I know, from our telephone conversation, that someone locally representing GE has tried to explain this to you personally, and that you still aren’t satisfied with the explanation. And, if I were in your shoes, I doubt if I would buy it either. Let’s see if I can pass along to you the explanation given to me by Charles Welch, a communications manager for GE’s employee relations operation in Fairfield, Conn., who specializes in the Wonder World of trying to make this sort of thing logical. Let’s see too if it worked.
When we get into pensions, we’re looking at an entitlement that can go one of two ways: as a monthly, guaranteed dollar figure that continues until you die (and which usually continues, in a reduced amount, after that to your surviving spouse) or, conversely, as a flat, one-time, lump-sum payment. Most of us, I think, are inclined to look at the lump-sum figure as being the key to it all and that the optional monthly annuity figure is some percentage of that lump sum.
Actually, Welch says, the opposite is true. The monthly payment is actuarially structured to provide a flat number of dollars every month for our probable life span. And all of the company’s planning for your future is based on that, not on the lump sum.
“Let’s say, theoretically,” Welch says, “that a worker retiring early, at age 60, has an assumed remaining life span of 20 years and that he’ll receive a monthly pension of $1,000. If he delays retiring for a year, though, then his probable life span has dropped to, say, 19 1/2 years, and while his monthly pension will be about the same, his lump sum, if he chooses to convert it, and if interest rates have remained stable, will be less.”
All of which means the lump sum will keep shifting, Welch adds, in according with (a) the retiree’s age and (b) prevailing interest rates.
In effect, then, the lump-sum conversion represents a dollar amount that you could, yourself, invest, to produce $1,000, $1,200 or $1,500, or whatever, a month.
Thus, at age 64, a year before normal retirement--and at a time when interest rates are about 10% --your lump-sum projection might be, say, $135,000. If, in the next year, however, interest rates fall to, say, 7%, then “his lump-sum conversion would be substantially higher,” because it will take that much more invested money to earn the same monthly return.
This is why there is, Welch admits, a slight gamble in taking the lump-sum conversion--you are at the mercy of interest-rate fluctuations.
And, sure enough, there were some differences between RCA’s and GE’s plans. RCA, for instance, Welch says, handled sick time more restrictively--as a credit toward pension benefits--than GE does.
Every retiree’s background was studied, however, to give him the best break regardless of whether it was computed as if he had stayed under RCA’s plan all the way, or as if he had always worked for GE rather than RCA, or if a meshing of the two plans was most advantageous.
No wonder you’re confused. Just to be sure that some sort of error hasn’t crept into your calculations, however (always a possibility), Welch has volunteered to look over the two print-outs you sent me and which (with your permission) I copied and dispatched to him.
He’ll be in touch.
Consumer Letter
Your recent column about telescams was an answer to a prayer for me, because the subject had been very much on my mind. Please note the attached “You Have Won a Fabulous Prize” gimmick notification I received from a Phoenix outfit. I had won either a Nissan pickup truck, a $5,000 “shopping spree,” $2,500 in cash or a 45-inch TV. Note too the little print at the bottom about the costs involved in “shipping and handling” of the prize and the remittance of a $59 “processing fee.”
I called the 800 number and found that the $59 fee had to be sent immediately although I did not have to buy their $398 “water filtration” product.
And, sure enough, just as you said in your article, the man I talked to asked me to have my picture taken with my prize “to use in our national advertising.”
But then, fortunately, your column came along Thanks.
Campbell, a former Times staff writer and syndicated columnist, cannot answer mail personally but will respond in this column to consumer questions of general interest. Write to Consumer Views, You section, The Times, Times Mirror Square, Los Angeles 90053.
