July/August 2001 - VOLUME 22 - NUMBER 7& 8
T h e C a s e A g a i n s t G E
By Vincent Lloyd
the Retirees at GE
Its a tragedy and its unjust, says Helen Quirini
of her $736 per month pension check from General Electric, People
that retired a long time ago are really being discriminated against.
The 81-year-old Quirini lives in Schenectady, New York where she worked
for GE for 39 years; she retired in 1980. Like all GE retirees, her pension
check will only increase if the company unilaterally and voluntarily decides
to increase it, regardless of gains in the value of GE Pension Plan assets
We were the ones who helped to develop the refrigerator and the
radio, says Quirini. But while we [employees] are nice people
and keep working hard, [GE management is] out all the time trying to figure
out how to screw us with accounting gimmicks.
Quirini and other pensioners are fighting for reforms to the GE pension
system, including increased benefits and an automatic cost of living adjustment.
They have mounted a major campaign at GE shareholder meetings, introducing
resolutions to improve the pension system that have received dramatically
high levels of support. But like almost all such resolutions, the shareholder
initiatives have not been able to garner a majority vote against the recommendations
The overfunded pension plan, built in large part by employee contributions,
can easily afford to pay more, say the retirees. Instead of benefiting
workers, they contend, pension fund revenues are artificially lifting
GEs reported profits and otherwise helping the company.
You are considered the guru of the industry, why dont you
show some moral leadership, Quirini asked GE CEO Jack Welch at a
The assets of the pension plan mainly invested in stock and real
estate have grown quickly in recent years. The plans assets
currently total $49.8 billion, an increase from just over $30 billion
in 1995. But liabilities the amount of money that the GE estimates
it will have to pay out to retirees have only gone from $22 billion
to $28.5 billion, meaning the plans surplus now exceeds $20 billion.
In fact, the pension plan is doing so well that GE stopped contributing
to it in 1988. The company would incur an excise tax if it made additional
But GE has not shared the wealth. GE still requires employees to contribute
out of their wages to the pension fund. Most upsetting to the workers,
the surge in the pension plan assets has not translated into increased
benefits for retirees.
These benefits are fixed from the day an employee retires, and are only
increased if GE decides to increase them. Because of depreciation,
Quirini says, the best day of your life when you retire is the day
For instance, a 1981 retiree who initially received a $350 monthly pension
today receives a monthly pension with a real value of $318 in 1981 dollars.
Some pensioners have experienced losses in purchasing power of as much
as 22 percent. GE provides automatic cost-of-living adjustments to the
wages of its current employees, but has refused such adjustment for retirees
who are most dramatically affected by the loss of purchasing power.
Despite repeated requests, GE declined to respond to requests for comments
on its pension fund.
Under current law, GE is able to report some pension plan income as corporate
profit, even though it cannot actually take the surplus funds. An accounting
rule permits companies to show the interest earned by their pension fund
as revenues on their corporate balance sheets, artificially boosting the
Tony Daley of the Communications Workers of America calls these earnings
vapor profits. Last year, these vapor profits
accounted for more than twice as much of GEs profits as did its
Its a perverted use of the [pension] fund, says Steve
Tormey of the United Electrical, Radio, and Machine Workers of America
(UE), its not just a benefits plan, its a GE profit
Reporting pension plan earnings as corporate profits enables GE, known
for its steady earnings growth, to smooth out its profits
and meet projections, according to retirees and union officials. What
they want is predictability, Tormey says, they want to hit
that target on the head.
The paper profits mean extra cash in company executives pockets.
Pension fund earnings inflate senior corporate officers bonuses
tied to company profits by as much as 9 percent.
The entire arrangement is unjust, given that GE no longer contributes
to the pension fund, as well as misleading to shareholders, says Tormey.
Most seriously, he argues, GEs interest lies in keeping the pension
plan overfunded, so it can continue reporting vapor profits and enhancing
executive bonuses. That sets GEs interests directly against improving
benefits to retirees.
In a recent letter, the Securities and Exchange Commission directed corporations
to more prominently explain that some reported profits might be coming
from pension plan income. Currently, GE only discloses this in a footnote
to the financials section of its annual report.
GE has also accrued real profits from the pension plan. GE earns millions
of dollars from managing this pension plan through General Electric Asset
Management (GEAM). The administrative costs have gone up nine or
ten fold in the past decade, says Tormey. GE receives fees
just like if [the plan] was externally managed.
The company has done so well at managing its own employees pension
money that it is now marketing its pension management products
outside of the company. GEAM currently manages more than $35 billion of
external assets, $6 billion of which were newly under management in 2000.
There are now more than 190 external clients of GEAM, ranging from DaimlerChrysler
to the Teachers Retirement System of the State of Illinois.
Although the pension plan is supposed to be run for the benefit of employees
and independently of General Electric, UE officials point out the appearance
of conflicts of interest between GE and the pension plan. All of the GE
pension plans trustees are employees of GEAM. GEAM and other divisions
of General Electric, notably GE Capital, have overlapping stock holdings
and other interests. However, in filings to the Securities and Exchange
Commission, GE (the parent company) disclaims the holdings
of its separate subsidiaries, formally stating that it has no interest
in their transactions.
With the pension fund burgeoning with assets, retirees fear that GE might
try to get hold of their money for corporate purposes: I wouldnt
be surprised, Quirini says, if GE eventually were to use the overfunded
pension plan for acquisitions or other non-pension purposes.
In the 1980s, hundreds of companies took advantage of a loophole
in the law that allowed them to simply terminate their pension plans and
then siphon off the surplus assets, explains Karen Friedman of the
Washington, D.C.-based Pension Rights Center. Corporate raiders including
Ronald Perelman and Charles Hurwitz exploited this rule to finance corporate
takeovers and acquisitions.
Congress finally closed the loophole in the law a decade ago. But both
the House and Senate passed legislation that would have re-opened the
loophole, and only a veto by President Clinton blocked its enactment.
Friedman is worried that new attempts at rolling back the law might be
more successful. The Bush regime, given their alliance with big
business, might be much more amenable to corporate theft of pension plans,
Why would GE or any company be so cheap and so fanatic about accumulating
a mountain of cash? asks Chris Townsend of UE. His answer: so
that some time they can foster a political environment where they can
recapture the [funds].
But GE pensioners have been doing what they can to put public pressure
on the company to reform its pension system. The GE Retirees Justice
Fund has been sponsoring trips of disgruntled pensioners to GE shareholders
meetings for the past five years. Pensioners, clad in t-shirts with the
slogan GE: Bring Good Things to Retirees, Please have distributed
leaflets featuring a General Electric Hall of Shame
pictures and descriptions of long-time GE employees and the sizes of their
pension checks. Their high-profile campaign has won some modest concessions
Theyve been a role model for retiree groups across the country,
says Friedman of the Pension Rights Center.
The retirees have noted with anger that at least one GE employee does
not have to worry about hardships in retirement: outgoing CEO Jack Welch
will be receiving annual pension benefits worth at least $3.9 million.
Until recently, members of the GE Board of Directors received pensions
of $6,250 per month (about six times the average amount received by a
30-year GE employee). Following a 33 percent vote in support of a shareholder
resolution seeking to end these pensions, the Board decided to reform
Whether the retirees can muster the power to win their primary goals
a higher pension check and an automatic cost of living adjustment
is uncertain, however.
I am always optimistic about fighting injustice, says Quirini.
Weve been effective, but not enough.
She muses that things might improve with the departure of the hard-driving Welch. Welch is leaving at the end of the year and [incoming CEO Jeffrey] Immelt who knows maybe he will have a heart.