DuPont pension watchdog: 'An eye opener'
Craig Skaggs helps 5,000 DuPont pensioners make sense of threats and choices re: their retirement pay
Writes retired 28-year DuPont Co. lobbyist Lawrence Craig Skaggs, who I quoted here last month, in a memo last night to nearly 5,000 members of his DuPont Pensioners Facebook group, with added notes and links:
A year ago, after learning that an activist investor [Nelson Peltz/Trian Global] was making a bid to take over some aspect of DuPont, I, as a pensioner and investor, started paying attention to what was happening with my old employer. A friend suggested I read a book, "[Retirement] Heist", and it was an eye opener. I vowed to pay more attention to what DuPont was doing.
I watched as the CEO was summarily replaced by a virtual outsider [Edward Breen] who had a reputation as a "breakup artist." I watched with trepidation as the old chemical operations, including their legacy of environmental problems and liability, were bundled and sold off last July as "Chemours".
But I only became completely engaged when the DowDuPont merger was announced, 5000 job cuts were announced and a block of R&D and Legal Dept. employees were "excessed." The merged companies would become three companies, following a pattern established at previous companies headed by DuPont's new CEO.
My concern was: "where is my pension fund now; where will it end up?" It was like trying to keep up with the guy at the carnival with three walnut shell halves and a pea. Where is the pea after he rolls it from shell to shell..?
But the pea was my pension and my wife's survivor benefits. Where would they end up? And what of our insurance and medical benefits, which were a shadow of what they had been when I retired in 2001.
News media reports regarding pensions were vague. The company spokesman would not commit to benefits beyond this year. Other companies, such as GE, were bragging about reducing pensioner health costs to save stockholders $1billion per year. SEC filings by DuPont said the company reserved the legal right to modify or eliminate benefits and pensions.
So, the facebook group, "DuPont Pensioners", which today has 4,800 members, began via word of mouth. And I've learned a LOT from posts and comments, so far. I'm glad several letters have been sent to management asking for further clarification and commitments. No specific answers to questions have been forthcoming. Nothing meaningful has arrived in writing.
To date, here is what I believe, subject to your comments and corrections:
(1) Our pensions (but not our benefits) are currently given some protection by ERISA/[U.S. Department of Labor], and a portion of our pensions would be paid by PGBC if DuPont failed. The pension fund (now in State Street Bank and managed by DuPont Capital Management) appears to be funded about 67%, which is below the ERISA 80% standard.
The recent buyout offer may further exacerbate the fund shortage. Dow's fund may be a little better off. DuPont's own pensioner communication in April, 2016 shows DuPont's pension fund is not substantially funded and is under PBGC scrutiny.
(2) If the fund, which owes 140,000 DuPont pensioners/survivors money, is put under the responsibility of a single DowDuPont unit (we believe there are about 50,000 Dow pensioners, which begs several unanswered questions), the costs can become a major drag on earnings of that unit. If fund liabilities and assets are somehow split into 3 parts, and one of them is a "weak sister", that pension fund could be in trouble.
(3) And how will other (health) benefits, which are paid from cash flow, be divided into the three companies? Will all three companies retain benefits?
(4) Many large companies, at greater expense to them and costs to the pension funds, have increasingly "derisked" their pension funds by entering into contracts with (primarily) insurance companies, such as Prudential, AIG, MetLife, etc., to take over the funds and write annuity policies to pensioners, assuring lifetime pensions described in the contract.
This shedding of the guaranteed benefit pensions by the company comes with risks for pensioners: ERISA and PGBC protections go away; only the individual state of residence for pensioners might back up a failed insurance company holding annuities, and the limits are usually $250,000-$300,000 (much less than PGBC, in most cases).
To protect pensioners, some kind of "firewall" would be needed at the insurance firm. And the firm would need backup "reinsurance" from another very; highly solvent source (Lloyds of London?)
Also, insurance companies are exempt from antitrust regulations and only are regulated by state insurance commissions. And what happens to things such as the survivor benefits? And what happens to the "pensions" of "highly paid executives", which comes from cash flow, not the pension fund?
(5) Moreover, in DuPont's case, the pension fund is underfunded. To "derisk", the insurance company would require 100% funding of pension liabilities plus a large fee (usually 10-20% of fund size). So DuPont would have to shell out a chunk of money for moving its fund into an insurance company.
As of Sept. 30, DuPont had $14.3 billion in defined benefit plan assets and $10.1 billion in defined contribution plan assets, and Dow Chemical had $13.8 billion in defined benefit plan assets and $8.3 billion in defined contribution plan assets, according to Pensions & Investments data.
IRS [or U.S. Department of Labor/ERISA?] statements say the DuPont pension plan holds $17.5 billion in assets and $26.1 billion in pension obligations (67% funded).
(6) Now, DuPont has offered 18,000 of it's 140,000 pensioners a "buyout", erasing pensions in return for a projected sum. Only vested pensioners not now receiving pension payments have access to the offer.
The offer is unavailable to pensioners now receiving payments because in 2015 the IRS made such buyouts for active pensioners illegal. The IRS determined such buyouts were harming the elderly.
Several pensioner support agencies have pointed out such buyouts have been part of "derisking" programs at many large companies -(e.g., Clorox, GE, GM, Ford, Verizon) shifting the burden of risk from company pension funds directly to pensioners. The next step, they point out, is company transfer of active pensions to insurance companies (see #4, above).
Of course, federal [or European] antitrust authorities might just nix the merger, or modify it to some extent. That could change the whole game.
So, we pensioners are receiving few answers to our questions, and our lives and those of our loved ones are surviving under a dark cloud - wondering if lightning is about to strike. Will we lose our promised health and pension benefits?
But DuPont remains silent on the above questions, and more.
That's my (probably flawed) short take on the situation.
(1) What will DuPont do?
(2) What should pensioners do?
And this is an issue that will remain for pensioners for YEARS.