The New York Times - October 14, 2004

A Hard-to-Swallow Lesson on Pensions


OLEAN, N.Y. - Hundreds of people here in western New York, all closing in on retirement, have learned a bitter lesson about pensions and the law that guarantees them.

 Two years ago, their employer, the oil services giant  Halliburton, unexpectedly started urging them to take their pensions early, warning that they would otherwise lose their right to take their benefits in a single check. The workers signed up to receive their money right away, but the money was much less than they had earlier been told they had coming. Confused and angry, some have sought to win back the remainder of their pensions, or at least to get an explanation of how Halliburton could legally reduce their benefits.

 Today, what the workers find most distressing is that a law that is supposed to protect pensions has failed them.

 "On a professional basis, I became quite depressed about this whole thing," said Gene Moore, the former general counsel of the Halliburton unit that was affected, a joint venture known as Dresser-Rand. Mr. Moore, 56, resigned shortly before the pension controversy and was therefore not part of the group that lost benefits involuntarily. But he was concerned enough to spend months seeking possible legal remedies. Ultimately, he decided he was wasting his time.

 "Built into the statutes now are clearly wrongs for which there is no punishment," said Mr. Moore, who now practices law in Houston.

In an e-mail response to questions, Halliburton said, "Halliburton has honored its commitment to Dresser-Rand employees under the pension plan, followed the letter and spirit of the laws applicable to the plans, and made no profit related to the plan."

 The company further stated that if any company had let the workers down, it was its former partner in the joint venture, Ingersoll-Rand. An Ingersoll-Rand spokesman, however, disputed that assertion.

The case of the Olean workers is an illustration of a gaping hole in the nation's safety net. Tens of thousands of Americans are discovering, as they approach retirement, that money they were promised is not forthcoming. Some of the most prominent cases involve companies, like airlines, that are in severe financial distress and cannot keep their pension funds going. But others involve profitable companies, like Halliburton, that reduce anticipated benefits by tens of thousands of dollars even though their pension funds are healthy - and even though a 1974 federal law says pensions are guaranteed.

The law's protection, however, does not address a major feature of traditional pensions, the type known as defined-benefit pensions. Such pension plans allow workers to build up the biggest part of their benefit, by far, late in their careers. The rules require companies to pay into their pension plans years in advance on the assumption that older workers will stay and earn the big promised rewards. But if something then keeps workers from earning that part of their benefit, there will be extra money in the pension fund - a windfall, if a company can recover it, said Jeremy Gold, a New York-based independent consulting actuary.

 "This is a national problem," he said of the hidden risk such plans can pose to employees.

The type of benefit that the Olean workers lost is known as an early retirement subsidy. It gives employees the right to retire early with the same, or nearly the same, benefit as if they had worked straight through to age 65. Many companies have put such provisions into their pension plans as a way of easing workers out the door before they pass their prime.

 As workers reach early retirement age, the subsidy becomes very valuable, accounting for as much as 60 percent of their total pension benefit. To keep companies from denying workers their benefits at this point, Congress amended the pension law in 1984, making it illegal to amend a plan to revoke early retirement subsidies when employees are close to claiming them.

 But some companies have found a loophole in the law during mergers and spinoffs, pension advocates say.

"The company cannot amend a plan to eliminate an early retirement subsidy," said Karen Ferguson, director of the Pension Rights Center, a consumer group in Washington. But if the company sells a division, then an employee of that division is no longer protected when he or she reaches early retirement. The company has, in effect, "amended the work force," she said. "This is a glaring loophole in the law, and it is truly undercutting the retirement security of hundreds of thousands of people across the country."

 Norman Stein, a law professor at the University of Alabama who specializes in pension issues, said "hundreds and hundreds of companies" have taken advantage of divestitures to end their obligation to pay early retirement subsidies.

Halliburton said that the company that bought its stake in the Olean division, Ingersoll-Rand, should have established a new pension plan to provide similar benefits for the affected workers.

 "Because the Dresser-Rand employees were no longer employees of Halliburton, it would have been unheard-of for Halliburton to recognize service for the Dresser-Rand employees after the sale was completed," a spokeswoman said.

But the records for the Olean workers' pension fund, which have only recently become available, tell a different story. Far from being unheard of, Halliburton itself sent $55 million from the same pension fund to create a new pension plan for a second group of workers whose unit was shed in 2001.

Halliburton said that the two divestitures were different types of transactions and that conditions of the 2001 sale gave it far greater flexibility to negotiate terms. When Halliburton sold its stake in Dresser-Rand, a spokeswoman said, it was bound by a joint venture agreement that precluded any discussion of what to do about the pensions.

 An Ingersoll-Rand spokesman, Paul Dickert, argued that Halliburton was the one that was responsible for the pensions. "They didn't disappear when Halliburton sold its interest to us," he said. "We think it's pretty clear."

Halliburton acquired the Olean division when it acquired Dresser Industries in 1998 - a deal that Vice President Dick Cheney, then Halliburton's chief executive, called a "win-win" transaction. Halliburton eventually merged the Dresser pension fund into one of its own, much smaller pension funds.

On Feb. 28, 2000, Halliburton sold its stake in the Olean unit. For pension purposes, it deemed the workers to have "terminated employment," it told them in form letters. It did not say so in these letters, but by treating them as if they had resigned, it stopped their vesting service in the pension plan. That meant that unless they had already turned 55 by March 1, 2000, they would be denied their early retirement benefit. The workers say none of this was explained to them at the time. A May 2000 memo shows the employees were told only that they would "remain active participants" in the plan, and would not be eligible to take out their money until they retired or terminated employment.

In August of that year, Mr. Cheney left Halliburton to join the Republican ticket. In 2001, the Economic Growth and Tax Relief Reconciliation Act was signed into law, including an obscure provision allowing an employer to consider workers legally severed from service if it sold the division where they worked. In July 2001, David J. Lesar, the new chief executive, executed an amendment to the pension plan, deleting four words: "or any successor thereof" from more than 150 pages. Until the deletion, the document barred workers from cashing out of the pension fund until they stopped working for their division, or any successor thereof.

This amendment was not disclosed to the work force at the time. It had the effect of allowing Halliburton to start urging workers to take their money and leave the pension fund.

 The law became effective the last day of 2001. Halliburton began sending out form letters to the workers in 2002, telling them that "an important change was made to the plan, effective Jan. 1, 2002." In fact, Mr. Lesar had made the amendment effective as of May 1, 2001, but in any case, the letters said the workers would be able to take distributions from the pension fund, even though they were still employed.

 The same notice also confirmed that their pension plan had been "merged into the Halliburton retirement plan," but stated reassuringly that "this merger of plans did not change your pension benefits."

But when the workers called Halliburton to enroll for their payouts in the summer of 2002, hundreds of them were told that the benefits available in their names were significantly less than what they expected. Many of them can produce benefits statements from previous years, when Dresser Industries still ran their pension fund, showing they were due much larger amounts. They were also indignant to learn that they were being treated as if they had resigned. Most of them were sitting at the same desks, performing the same tasks, as they had before Halliburton bought and sold their company.

 Bill Chamberlin, a head draftsman at the division in Olean, said he was previously told he would receive about $60,000 but was offered just $28,000 by Halliburton.

Mr. Chamberlin, now 51, said that Halliburton also told him he could get an unreduced pension if he worked until age 65 - a Hobson's choice because by then, the value of his early retirement subsidy would be zero. And he would have to take his benefits as an annuity rather than a single check.

Mr. Chamberlin would have none of it. "If I stayed in there till I was 65, what would keep them from stealing more of it?" he asked. He took the money.

 Mr. Chamberlin and others expressed particular anger that when Mr. Cheney departed from Halliburton in 2000, he was too young to qualify for retirement benefits, but was granted a package worth millions of dollars anyway, through a special vote of the board.

Kathie Driscoll, a clerical worker, was 54 when she got her letter, urging her to take a benefit that was less than half what Dresser had earlier promised. She did, and a year later, she was laid off - just as she reached the age when she could have taken her early retirement subsidy, had it still been available. At about the same time, her mother suffered an incapacitating stroke. Ms. Driscoll lives with her mother and provides full-time care.

 "As long as I can stay at home with her, I'm living within my means," said Ms. Driscoll, who is running their household on her mother's Social Security benefits.

The people here in Olean are, for the most part, engineers and support staff who design and manufacture large compressors for the oil and chemical industry. They are not pension lawyers, and when they first started getting letters urging them to take their money out of the pension fund, they had no idea what was going on. Pension language is often opaque, and these notices were no exception. They invited people to call the Halliburton Benefits Center to request their pensions, but warned that whether they called or not, they would soon receive the paperwork to sign up for their money. Once they received the forms, the letters said, they had 90 days to sign up, or else lose forever their right to receive their money in a single check.

"The way it was worded was like a scare tactic," said Paula Vance, 52, who received three letters, each saying her pension was a different amount.

Diana Weimer, 59, a cost-estimating clerk, said she never signed up at all, but her check arrived anyway. "I refused it," she said. "I sent it back. They told me I had to take it." So when the check arrived the second time, she put it into an individual retirement account. A year later, she too was laid off.

 A few people who had retired earlier received letters saying that their pension payments had been too big and demanding they send thousands of dollars back to Halliburton.

 The workers got in touch with their Congressional representative, Amo Houghton, a Republican. His office arranged for them to pose questions about their case to the Internal Revenue Service, and to submit the facts of their case to a Labor Department official. The I.R.S. provided answers that only compounded their confusion, and suggested that they might also try the Pension Benefit  Guaranty Corporation, the third federal agency with authority for enforcing certain parts of the pension law.

 The pension agency seemed unpromising because it handles failed pension funds and Halliburton's fund had a surplus. At the Labor Department, the workers found an official who promised to review the employees' complaints and bring the matter to some sort of resolution. She warned them that it might take her a while.

 Ann L. Combs, assistant secretary of labor, said the department was "continuing to review the situation.''

 Kathy Joy-Kirkendall, an engineer in Olean who designs heavy equipment for the oil and chemical industry, said: "I never heard another word. It's been two years."

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