Actuaries Become Red-Faced Over Recorded Pension Talk
By ELLEN E. SCHULTZ Staff Reporter of THE WALL STREET JOURNAL
Tape recordings of indiscreet gabbing. Congressional sessions at which they are played. And subsequent red faces.
No, this isn't an issue of national security. We are talking actuaries. The tapes in question weren't recorded surreptitiously, but with the knowledge of the folks now embarrassed by them. And they are at the center of a controversy.
How so? On the tapes -- often in abstruse jargon but occasionally in comprehensible English, immortalized by firms that routinely tape conference sessions -- actuaries and lawyers candidly discuss things that perhaps they would rather the whole world not know. Matters such as how they help employers cut pension benefits and change retirement plans to reshape their work forces -- contradicting, at times, what they have been saying publicly about the reasons for the changes.
And the chatter has relevance to millions of workers because companies nationwide are converting pension plans to the style often touted on these tapes, so-called cash-balance plans. These new plans provide hypothetical employee "accounts" into which employers make annual contributions, and the accounts earn "interest."
Older, Longtime Employees
Conversion of an old-fashioned pension plan into the new style also often means that accrual of pension benefits can halt, for years, for older, longtime employees, and these workers' retirement benefits often are significantly smaller than they would be under a traditional pension. Employers often play down these effects when announcing their conversions. But critics of the new plans say it is precisely these cost-saving features that make them attractive to employers.
That is where the tapes come in, because they shed light on the thinking of those who are behind the pension shuffle.
The tapes came to light when Denver attorney William Carr, who was doing research on cash-balance plans, reviewed more than 40 hours of coma-inducing cassettes from conferences with titles such as "Cash Balance Plans: Current Issues" and "Nontraditional Plans After General Agreement on Tariffs and Trade." He recently played the tapes at a briefing for congressional staffers on disclosure issues in pensions.
A sample of the taped comments shows why they are finding their way into the Sony Walkmans of other attorneys, congressional staff, the Internal Revenue Service, the U.S. Treasury and the American Association of Retired Persons, sparking a stir in the seemingly low-profile actuarial world.
Public Utterances
Particularly embarrassing are the comments directly contradicting recent public utterances of cash-balance-plan promoters. For instance, at the Senate committee briefing on pension-disclosure issues, staffers passed around an information release that PricewaterhouseCoopers, a leading pension consultant to employers, sent to lawmakers and the news media. It noted that recent newspaper articles "leave readers with the unsubstantiated conclusion that corporate America uses cash-balance plans to mask significant reductions in pension benefits and costs."
It also noted: "It is unfair to imply that employers chose to switch to cash-balance plans in order to mask benefit reductions."
Now listen to the tapes: "... Converting to a cash-balance plan does have an "If you decide your plan's too rich, and you want to cut back, and you only want to do it for new hires, changing to a totally different type of plan will let you do that without being obvious about it," said Norman Clausen, a principal at consulting firm Kwasha Lipton, now a unit of PricewaterhouseCoopers, at a Society of Actuaries meeting in Colorado Springs, Colo., in June 1996.
Quotes Taken Out of Context
A spokesman for PricewaterhouseCoopers responds: "The quotes being circulated by lawyers and others are taken out of context and are relatively small elements of a much-larger presentation on the issues of cash-balance plans."
Elsewhere in the tapes, addressing the question of whether cash-balance plans reduce benefits, Amy Viener, an actuary at William M. Mercer Inc., noted at the October actuary society's meeting: "You switch to a cash-balance plan where the people are probably getting smaller benefits, at least the older-longer-service people; but they are really happy, and they think you are great for doing it." An actuary with Watson Wyatt Worldwide who spoke on a panel called "Introduction to Cash Balance/Pension Equity Plans" alongside Ms. Viener, is heard saying on a tape: "It is not until they are ready to retire that they understand how little they are actually getting." "Right, but they're happy while they're employed," responded Ms. Viener of Mercer during the panel discussion.
In a written statement Tuesday, Ms. Viener emphasizes that there are many benefits to cash-balance plans, including a "more-equitable approach" to different age groups, and that "most employees seem to prefer them." Among the pluses: Employees who change jobs "will fare much better under a cash-balance plan."
Other tapes capture actuaries wondering about their responsibility under current disclosure laws, which require employers to notify employees of significant cuts in retirement benefits. The law "doesn't require you to say, 'We're significantly lowering your benefit.' All it says is, 'Describe the amendment.' So you describe the amendment," noted Paul Strella, a lawyer with Mercer, at the same New York meetings.
A Mercer spokeswoman says Mr. Strella was traveling on client business and was unavailable for comment.
'Magic Words'
Kyle Brown, an actuary at Watson Wyatt, also noted on one of the tapes: "Since the [required notice] doesn't have to include the words that 'your rate of future-benefit accrual is being reduced,' you don't have to say those magic words. You just have to describe what is happening under the plan... . I wouldn't put in those magic words."
A spokesman for Watson Wyatt says, "The term 'magic words' was a lawyer's reference to the triggering words in the [disclosure] statute." He adds that Mr. Brown was advocating clear communication to plan participants.
Donald Grubbs, a consulting actuary for 40 years and former director of the actuarial division at the Internal Revenue Service in Washington, says actuaries are like anyone else: "There are those that are very conscientious and those that are maybe less so." Still, he adds, cash-balance plans have a tendency to reduce benefits for older people, and "I'd think anyone making that change should make that clear to employees."