The New York Times -
October 14, 2004
By MARY WILLIAMS WALSH
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
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
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
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
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
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."
Copyright 2004 The
New York Times Company