231 Pinetuck Lane    Winston-Salem, NC 27104   Phone: 336-765-9765

email: kraschke@triad.rr.com     LRO Website: www.lucentretirees.com   

11/9/2004

Ms. Barbara Rose

Chicago Tribune

Re: Your article dated 11/07/2004, Respecting Lucent Retirees

Dear Ms. Rose:

As you know, the Lucent Retirees Organization is a not-for-profit corporation that was formed to address the interests of 127,000 individuals covered under the Lucent Pension Plan as well as their dependents. As a young and all volunteer organization, we have learned how effective a well-organized and paid corporate staff can be in broadcasting their message. We cannot field the resources to do what Lucent does and we must rely on fair minded and insightful members of the press to make sure that what is printed presents a fair and balanced view of the facts.

Your referenced article stated:

Lucent, with $9 billion in 2004 sales, will spend $800 million this year on retiree health care, more than twice the $348 million in net income it reported for the quarter ended Sept. 30.

Lucent's 31,800 active employees are supporting 125,000 retirees plus tens of thousands of their spouses--a situation not unlike that facing the nation as aging Baby Boomers move into their retirement years.

 "We simply cannot afford to absorb U.S. retiree health-care costs at the level we had and remain competitive," said Mary Ward, a spokeswoman for the Murray Hill, N.J.-based company. "The numbers just don't work." 

The clear import of this language is that retirees are an unwarranted burden to Lucent. While this might be the case if Lucent were paying these retirees’ benefits from corporate earnings, the fact is that Lucent is not. The pension plan is funded from trusts set up by AT&T and Lucent has never contributed a penny to these trusts. In its latest quarterly results, the gross pension credit of $280 million was the main component in Lucent's pro forma operating profit of $273 million.  For fiscal year 2004 ended September 30, the pension plan had contributed $1.1 billion to income, which accounted for a significant portion of the company's $1.2 billion in operating profit for the year.  Therefore, retirees are not a burden but the source of Lucent's operating profit. 

As to health care, Lucent’s stated position is no less disingenuous. The $800m figure they often refer to, in fact comprises about $220m in cash for FY04 ($250m next year) and the remainder comes from VEBA trusts. 

The VEBA trusts were funded by AT&T when it spun off Lucent in 1996, and Lucent has never put a penny of its own cash into the VEBAs.  The accurate figure that Lucent spends from its cash for healthcare for retirees is $220 million--not $800 million. 

Finally, it is difficult to understand Lucent’s use of the term “support”. Are they implying that they are paying their employees lower wages because of the retiree “burden”. Has this “burden” prevented them paying excessive executive bonuses? We think not and we think your readership deserves a fair and balanced presentation. 

Thank you.

Ken Raschke