Equitable Retirement Benefits

Background Information
Positions of the Contractors and the Retirees
Proposed  Actions

Issued:  February 2013

The Coalition of Oak Ridge Retired Employees (CORRE) was formed in 2000 to represent the interests of approximately 13,000 retirees (and surviving spouses) of the contractor-managed facilities of the Department of Energy (DOE) in Oak Ridge, Tennessee.  These facilities include the Oak Ridge National Laboratory (ORNL), the former Gaseous Diffusion Plant (K-25), and the National Security Complex (Y‑12).  CORRE also represents former contractor employees who are now retirees of Wackenhut Services Incorporated (WSI) or its successor, National Strategic Protective Services (NSPS), and of URS/CH2M Oak Ridge (UCOR) and its subcontractors.  CORRE’s vision is that it is an organization that improves the welfare of its members and their surviving spouses.  Its focus is securing and protecting retirement benefits that are just, equitable, and consistent with practices established and implemented for many years under the originating contractor. 

Officers

Wilbur (Dub) Shults, President

David Mason, First Vice President

Garry Whitley, Second Vice President

Mary Helen Rose, Secretary/Treasurer

Judy Kibbe, Communications

David Reichle, Past President

Board Members

            Mike Bradshaw                 Jim Hackworth                Pete Peterson

Carl Burtis                         Bob Hightower                Larry Shappert

Steve Cates                        Ron Honeycutt                 Steve Stow

Charlene Edwards             Ken Moore                       Mike Willard

Phyllis Green                     Dwight Morrow               Bob Worrell

Advisors

Charlie Kuykendall                John Napier                Joe Setaro

    Background Information

 Union Carbide Corporation (UCC), through its subsidiaries, became the managing contractor for two major nuclear facilities in Oak Ridge—ORGDP and Y-12—on January 1, 1946, and assumed management responsibility for ORNL on March 1, 1947.  UCC continued as prime contractor through March 31, 1984.  In keeping with common practice within the chemical industry at the time, UCC established a defined-benefit pension plan for its employees.  The plan was financed through a trust, which accumulated funding via annual contributions by the contractor.  Adjustments were made to pensions on an ad hoc basis to counter increases in the cost of living.  The defined-benefit pension plans in existence among Oak Ridge contractors today are direct descendents of the UCC plan.

Martin Marietta Energy Systems replaced UCC as the operating contractor on April 1, 1984.  This change in contractor brought two major changes in policy relative to retirees—contributions to the pension trust ceased, and cost-of-living adjustments to pensions slowed markedly.  Whereas UCC granted five adjustments to retiree pensions prior to 1984, Martin Marietta granted only two between 1984 and 2000.  Babcock and Wilcox (B&W Y-12), which managed retirement benefits for both ORNL and Y-12 from 2000 until 2010, granted only one cost-of-living adjustment.  A minimum pension level for ORNL, Y-12, and K-25 retirees and surviving spouses was granted in 2004, benefiting approximately ten percent of the retiree/surviving-spouse population.  An important aspect of the general adjustments granted since 1984 was the imposition of caps on the amount of adjustment given and gaps in time between the implementation date and the effective date.  For example, the last pension adjustment carried a three-year gap:  it was implemented on April 1, 2001, but effective only for those who retired prior to April 1, 1998.  Thus, no one who retired after March 31, 1998, has received a pension adjustment to counter increased cost of living.

Beginning in 1998, the Martin Marietta contract was split among four separate operating contractors in Oak Ridge:   B&W Y-12 for the National Security Complex at Y-12, UT-Battelle for ORNL, Bechtel Jacobs for the former gaseous diffusion plant, and WSI for security services.  At that time, the retirement trust was proportioned into three funds—a Multiple Employer Pension Program (MEPP) for retirees from ORNL and Y-12, and separate trusts for retirees of Bechtel Jacobs and WSI.  On September 1, 2010, administration of the ORNL/Y-12 retirement plan was separated such that each organization could assume responsibility for its retiree population.  In 2011, UCOR replaced Bechtel Jacobs as contractor of decommissioning and cleanup programs in Oak Ridge.  Thus, the original pension plan morphed into four separate plans corresponding to the four prime operating contractors in Oak Ridge.  Finally, Y-12 assumed responsibility for its security services from WSI in late 2012, and shortly thereafter National Strategic Protective Services (NSPS) replaced WSI as contractor for security at other local sites.

It is important to note at this point that no additional funds were added to the ORNL/Y-12 pension trust during its 26-year existence, 1984-2010.   This was due primarily to two factors:  superior investment performance and minimal adjustments to retiree benefits.  The average funding level, assets divided by liabilities, during that 26-year time span was 116%.  In 2000 and again in 2001, attempts were made to divert surplus funds from the ORNL/Y-12 trust fund and use them for purposes other than retirement benefits.  Those attempts led to the formation of CORRE and, with the support of Congressman Zach Wamp, the attempted diversion of surplus pension funds was averted.

Major management changes occurred at Y-12 during 2012.  The National Nuclear Security Administration (NNSA) decided to merge Y-12 and Pantex operations under a single management

contract, with the option of incorporating tritium operations at Savannah River at a later date.  NNSA selected Consolidated Nuclear Security, LLC (CNS) to manage the two facilities under a consolidated contract.  Transition from B&W Y-12 and Pantex to CNS was scheduled for May 1, 2013 initially, but was postponed pending resolution of contract challenges.  As of February 2013, the transition is projected to occur in mid-summer 2013.

The Position of the Contractors

 The trust assets of Oak Ridge retirees were significantly diminished by the national recession of 2008/2009 and the weak economic conditions that followed.   Funding levels fell to the low 80% level, forcing the contractors to resume making contributions to their trusts.  In 2010, ORNL made its first contribution in 26 years;  Y-12 followed in 2011.  These two trusts service approximately 11,000 retirees and surviving spouses.  UCOR and its predecessor, Bechtel Jacobs, and WSI have contributed to their trusts regularly, on an “as-needed” basis.  The latter trusts serviced approximately 1,500 retirees and surviving spouses.  All four contractors express a commitment to maintain trust funding at levels that will avoid sanctions under the Pension Protection Act.   Their stated long-term goal is to restore funding to the 100% level.

At the time of this writing, the country is caught in the midst of a slowly improving economy, along with great uncertainty driven primarily by a debt crisis.  Economic growth and recent legislation have resulted in improvements in the funding levels of Oak Ridge retirees’ pension trusts;  they now hover around the 95% funding level.  The near-term outlook for Oak Ridge operations suggests a potential for shrinking budgets and declining programs, hence the contractor’s mode of operation is to reduce costs and conserve resources.  Their position is that retiree needs can be considered only after the trust funding level is restored to 100% and budgets are stable.  The long-term outlook for Oak Ridge operations remains good, however.  The question is, how will the national economy, and Oak Ridge programs, fare as the country attacks its debt crisis.

The Position of the Retirees

 All Oak Ridge contractor retirees have seen the purchasing power of their pension incomes erode as a result of inflation and the demise of the practice of periodic pension adjustments.  The extent of loss is reflected by the following data, as of December 31, 2012:

                           The Pensions of Those                           Have Lost this Much Purchasing

                          Retiring in this Year                                    Power During Retirement    

1970                                                                62%

1980                                                                47%

1990                                                                34%

2000                                                                25%

2010                                                                  4%

According to a recent study by the Bureau of Labor Statistics, senior citizens are hurt more by rising costs of living than are non-senior citizens.  This is due largely to the fact that the cost of essentials such as food, energy, and especially healthcare, increases faster than costs expressed by the composite Consumer Price Index.  The following table clearly reflects this point, for the time period April 1998 through December 2012.  (The last adjustment was given to those who retired prior to April 1998.)  It is telling to note that Social Security Benefits increased 40% during the same period.

Increase in CPI, %

(1998-2012)

                       Component of CPI                              Change in CPI,%

 Housing                                                       +39

  Food                                                             +45

Transportation                                                +54

Medical Care                                                  +71

Utilities, Fuel                                                 +73

 CPI-U                                                            +41

It is well known that retiree savings declined markedly during and after the economic downturn of 2008 and 2009.  For many retirees, the loss in savings has been magnified because they have had to draw upon their savings to meet living expenses.  Hence, retirees are trapped by losses in the amount of their savings as well as losses in the purchasing power of both those savings and their pension income.  Clearly, there is a real need for an across-the-board pension adjustment for Oak Ridge retirees.

Equity Issues

At retirement, retirees of ORNL, B&W Y-12, UCOR, and NSPS may elect a Surviving-Spouse Option which will provide a pension for a surviving spouse equal to one-half of the retiree’s pension.  The cost of this benefit is paid by a percentage reduction in the retiree’s pension.  Prior to July 1, 2004, the reduction factor ranged between 5 and 18%, depending on the ages of the retiree and the spouse.  The average was approximately 8%.  On July 1, 2004, the reduction factor for future retirees of ORNL and B&W Y-12 was decreased to a flat 2%.  This improvement in benefits was not extended to retirees of ORNL or B&W Y-12 who retired before July 1, 2004; nor was it extended to active employees or retirees of UCOR or WSI.  This inequity forces older retirees to pay a much higher cost than younger retirees, for the same benefit. 

The Assault on Retirement Benefits

Currently, there is a wide-spread assault on retirement benefit plans, with focus on eliminating defined-benefit pension plans and controlling the cost of supplemental health insurance.  The impact of this phenomenon extends to most if not all of the organizations within the DOE Complex, including the contractor organizations in Oak Ridge.  Indeed, significant changes in retirement benefits were announced late in 2011 by both ORNL and Y-12, for active and future employees.

In 2012, ORNL implemented a major change in its supplemental health insurance program for post-65 retirees.  The group-based approach for health insurance that had been in effect for many years was replaced with an individual-based approach.  The group approach was retained for prescription medicines.  Each retiree and spouse acquired a Health Reimbursement Account, a subsidy funded by ORNL and used to offset health insurance costs.  In this way, ORNL intends to control program costs while continuing its long-time policy of sharing health insurance cost with retirees on a 50:50 basis.  The impact on retirees and spouses, as measured by CORRE’s survey of its membership, was a significant increase in healthcare cost.  The size of the increase varied greatly, depending on the individual and the insurance plan that was selected.  Premium increases of as much as 50% were experienced by some retirees.  Even when allowance was made for decreased out-of-pocket costs, using cost estimates provided by EXTEND, our survey indicated an overall average cost increase of ~14% per participant.  Clearly, ORNL benefited from this change in benefits, at the expense of retirees and spouses.

Proposed Actions

 Given current levels of trust funding and stock market performance, we believe that it is completely reasonable to propose that the contractors take the following actions.  Indeed, we believe that approval of our proposal for improving the Surviving-Spouse Option would have minimal impact on the pension trust levels at ORNL or Y-12.  It is important to remember that funds for pension benefits are distributed from pension trusts.  These trusts may or may not necessitate a contractor contribution to maintain trust funding levels.

1.  Grant the same cost for the Surviving-Spouse Option, a 2% reduction in pension, to all retirees and surviving spouses, as was granted to those who retired in or after July 2004.

CORRE is well aware of the national economic situation and the uncertainties that it brings to DOE’s operations in Oak Ridge.  Accordingly, in 2012 CORRE set aside its primary request, an across-the-board increase in pensions, and requested a more affordable option, i.e., correction of the inequity in costing the Surviving-Spouse Option.  This action would provide maximum benefit for minimal cost, improve the lot of a large fraction of the retiree population, help the (older) retirees who need it most, and eliminate a long-term inequity in benefits administration.  This action would assure that all retirees incur the same cost for the same benefit.  CORRE believes that this proposal is affordable now.

2.  Grant a significant increase in pension to all retirees and surviving spouses, to counteract inflationary erosion of pension value experienced during retirement.

 Without question, the basic need of Oak Ridge retirees continues to be a pension increase that would restore a significant portion of the inflationary loss in pension value they have experienced during retirement.  Historically, pension adjustments were given on an ad hoc basis, triggered primarily by large increases in inflation.  Eight increases were given between 1969 and 2001, driven by increases in the  Consumer Price Index averaging 25.9%.   The Consumer Price Index has now increased 40.9% since April 1998.  Clearly, this amount of growth in Consumer Price Index calls for a pension increase, in accordance with prior practice.  It supports our contention that it is time for a pension adjustment for Oak Ridge retirees and surviving spouses.

Each of the eight pension adjustments cited above comprised a range of increases.  The last adjustment, for example, provided increases ranging between 4% and 23%, depending upon retirement date.  CORRE has consistently advocated for adjustments based on recovery of a fixed

percentage of inflationary loss in pension value.  We believe this straightforward approach to be imminently fair to all concerned.  To this end, CORRE has developed a simple method for computing adjustments needed for a given percentage of recovered inflationary loss, as a function of retirement year.   Regardless of approach, the basic need of retirees and surviving spouses remains a significant increase in pension.

3.   Minimize the negative impact of changes in retirement benefits upon retirees and surviving spouses; involve retirees in retiree issues.

 Oak Ridge contractors have expressed an intent to minimize the negative impact of changes in retirement benefits on retirees and spouses.  They state that they are well aware that retirees have planned their lives around retirement benefits that were granted many years ago and that retirees’

options are limited.  They are correct!  CORRE asks that the contractors continue to involve retirees in retiree matters, to assure full appreciation of retiree issues and retiree views.  CORRE welcomes such involvement.

Coalition of Oak Ridge Retired Employees (CORRE)