With $28 billion invested in pensions plans covering 1 million employes, American Telephone & Telegraph Co. doesn't change the fine print easily.
But AT&T's new contract with the Communications Workers of America does make a sharp bbreak with customary corporate pension plans to deal with an unsolved problem that threatens the entire private pension systems -- inflation.
Inflation is riddling the purchasing power of the private pensions on which 7 million retired americans now rely and is rapidly eroding their future value to another 30 million employes with corporate pensions who are still at work.
The consequences of continuing inflation at near-double-digit rates are beginning to sink in to companies and their employes, and the implication s are sobering. with a 12 percent inflation rate, the purchasing power of a fixed pension drops by 66 percent in 10 years and by 90 percent in 20 years.
"A pension is a promise for the future, and the only thing you can promise is payment indollars," says Paul Jackson, a Washington pension consultant.
"At this point, the dollar has a half-life of five years," said Jackson, borrowing a term from science that describes the decay of radioactive particles.
In response, some large companies like AT&T are trying out alternatives to traditional pension plans to protect themselves against uncontrolled growth in corporate pension contributions and to give current and future retirees better protection against inflation.
A growing number of companies offer "thrift" savings accounts. And more of the larger companies voluntarily are increasing pensions for current retirees to close at least some of the inflation gap, says Frank Doyle, vice president of corporate employe relations for General Electric Co. Other companies, like TRW, are pressing for legislation and regulation that would permit employes to choose between getting increases in pension benefits or improvements in other benefits programs such as life insurance coverage.
"Pension plans were supposed to be designed for the average employe," says Ray N. Olsen, director of compensation for TRW. "Today, there is no "average' employe" because of changes in family size and work attitudes. Pensions should become more flexibile to reflect those changes, he says.
Companies are looking for flexibility for another reason, consultants say. "There is a growing determination among companies to resist committing themselves to higher fixed benefit levels because of the substatial liabilities they incur every time they do it," said Thomas Paine, a pension consultant with Hewitt Associates.The new interest in pension alternatives reflects that mood, he says.
AT&T,s old plan, typical for large U.S. corporations, paid benefits that were based on an annual average of an employe's highest five years of pay. Because inflation pushes company payrolls steadily upward, AT&T was facing steep, unpredictable increases in the payroll base on which pension benefits for future retirees would be determined.
The new plan was agreed to in August by negotiators for AT&T and the Communications Workers and is now the pattern for the entire company, said an AT&T official. Instead of tying benefit levels to an employe's peak pay period in the future, the plan's benefits are based on pay received in a set period, 1975 to 1979, plus each employe's years of service with the company.
Because the new plan is based on current rather than future pay, it will not increase automatically with inflation. It's fixed.
"For people nearing retirement, the new plan is an improvement," said an AT&T official. That's because the new plan deliberately raises benefits for those who will be retiring soon. But it promises smaller benefits for future retirees than they would have received under the old plan, assuming inflation continues to run high.
The appeal of the new plan to AT&T's workers, in addition to the higher payments in the near future, is the company's commitment to the CWA to review the formula every three years and increase benefits as necessary to keep pace with inflation.
"The gist of the federal pension reform legislation is 'Don't promise more than you can deliver,'" said Jackson.He says the AT&T-CWA agreement is a major step in that direction.
Another alternative is the thrift plan offered by many companies, in including 39 of the nation's top 50 companies, according to Jackson. Some companies agree to match all or part of an employe's contributions to the thrift savings plan -- typically, an employe might pay $30 a month and the earnings are not taxed until the employe closes the account and withdraws his or her funds.
Mobil corp., for instance, thinks somuch of the approach that it contributs 4 percent of an employe's pay to the employe's own thrift account, whether or not the employe makes a personal contribution. The employe is permitted to withdraw the entire fund before or after retirement.
A further step would be to offer a broad range of pensions and other benefit alternatives to employes, patterned after the "cafeteria" approach begun by TRW about six years ago. Olsen notes that changes in regulation and perhaps in tax law will be required before flexible pension options can be offered, and his company is urging Congress and the federal government to make the changes.
The TRW "cafeteria" plan, open to the 16,000 employes of the company's defense and space systems group, gives them a large shopping list of benefit choices. They can choose to reduce their company medical coverage, for instance, or trade reduced long-term benefits for more vacation time immediately. And if the employe elects to reduce company-paid benefits, the employe gets the difference in cash, Olsen said.
Paine says a few companies have concluded that they are short-changing current retirees if the pension plan assumes a 7 percent inflation rate, for instance, but the company actually is making 11 percent interest investing the pensioon funds. This "bonus" should be shared with retirees, some companies have decided, says Paine.
"High-visibility" companies and those whose pension benefits are determined by collective bargaining are making regualr increases in pension payments to retirees, notes GE's Doyle. The goal is to make up three-quarters of the increase in inflation measured by the government's consumer price index, counting improvements in private pension benefits and increases in Social Security payments, which rise automatically with inflation, Doyle said.
Closing three-quarters of the inflation gap should enable most retirees to maintain their standard of living, said Doyle, because when a worker retires, his expenses decline somewhat.