As if the Boeing 787 problems weren’t enough of a headache for the company, the second vote by its engineers will be counted tomorrow on a contract offer.
SPEEA members rejected the first contract offer from Boeing in October with a 96% vote. Boeing subsequently agreed to extend the current SPEEA contract provisions except for all issues related to the pension. The headline issue on this section is that Boeing wants to shift from a defined benefit retirement plan to a defined contribution plan. SPEEA says this results in a 40% reduction in benefits; Boeing says it’s less than that but still significant.
Boeing points out that all non-union employees are on a defined contribution plan and new hires for the unions should be, too. Current members would retain the defined benefit plan.
Boeing hopes this split approach will be enough to win approval for the new contract offer.
Also being voted on: whether members will grant SPEEA negotiations authorization to call a strike should the contract be rejected. Executive Director Ray Goforth has already said negotiators would not call an immediate strike, but they will seek a return to the bargaining table.[Reuters has this article profiling Goforth.]
The hazard is that Boeing could withdraw its “Best and Final Offer” on all the other issues it agreed to and seek to renegotiate the entire contract rather than just the pension issues. Of course, this would incense union members and make a settlement ultimately that much more difficult.
Boeing needs the engineers to resolve the issues surrounding the 787, and to return the plane to service–the number one priority of 2013, says CEO Jim McNerney. The development programs of the 787-10 and 777X can wait (and, according to our information, these have been pushed to the right as a result of the 787 issues). Management’s lead engineer, Mike Delaney, basically said SPEEA members aren’t needed–that Boeing can rely on other engineers to resolve the 787 problems, a statement that went over like the proverbial screen door in a submarine.
In a webcast for SPEEA, Ray Conner, CEO of Boeing Commercial Airplanes, played the patriotic card, according to those who listened to it, by saying a strike would hurt customers and aid Airbus. (Boeing traditionally doesn’t comment on internal employee communications.)
We think the vote will be close, though we don’t know how to define it other than we don’t expect margins to remotely reflect the 96% rejection last October or the 85% rejection by IAM 751 in 2006 (and a similar strike vote). As we’ve talked to people, the sentiment seemed fairly evenly split with a tilt toward rejection and a strike vote.
Unlike IAM 751, which needs a two-thirds vote to strike, SPEEA needs only 50% plus one.
Votes will be counted tomorrow, Feb. 19; results will be known tomorrow night.
I hope the employees realize that a strike would not be in their long-term interest. It would hurt the company and in line with rational risk management will give a bigger incentive to move operations to the East-Coast. Can’t they find a middle way??
The problem is that few realize the short and long term games being played with so called ‘ earnings” as they apply to pension costs. IF operating earnings are UP, then executives get big bonuses- some of which may be in restricted stock and other tax deferred schemes.
For years, a little publicized but legal means of increasing Operating Earnings has been thru the unusual accounting games allowed by ERISA. Such that so called ‘ surplus” in Pension funds via ERISA bean counting rules can be paper transferred ( no actual $$ ) into Operating earnings ( so called Vapor Profits ). This allows tax deferred or tax exempt $$ to show up as earnings, which then get doled out to execs first, and sometimes the grunts( depending )
So while Boeing is now enjoying great earnings due to program accounting methods, and is able to buy back a few billion of stock, and give major bonus to execs, they cry poor poor while using a larger whip on the grunts to reduce costs, pressure vendors and subs to do more with less, etc.
For but one simple to show example here is some data taken from a 10 year old annual report- and the game has not changed since then as BA has now said they are making discretionary inputs ($$$$$) to the pension plan(S) even though they are 100 percent funded under ERISA rules.
And then try to explain the boeing position re future employees ( new grunts ) anda 401K that at best might return 6 to 7 percent long term, with no real cushion for market drops or cheaper funds- being locked into Boeing funds with a fee such as ING.
From 2003 annual report (OCR)
We generated net periodic benefit income related to pensions of
$67 millon in 2003, $404 million In 2002 and $920 million in
2001. Not ail net periodic pension benefit income or expense is
recognized in net earnings in the year incurred because it is allocated
to production as product costs, and a portion remains in
inventory at the end of a reporting period. Accordingly, the operating
earnings for 2003, 2002, and 2001, included $147 millon,
$526 million and $802 million, respectively, of pension income.
Although our pension plan investment returns were 17 percent
for the plan year ended September 30, 2003, interest rates
continued to decline. Accordingly, we expect our pension investment
returns over the long term to decrease, as reflected in our
25 basis point reduction of the expected long-term asset return
rate (torn 9.00 percent in 2003 to 8.75 percent in 2004}. This is
expected to reduce pension Income reflected In operating earnings
from $147 million In 2003 to pension expense in the range
of $350 million to $400 million in 2004.
Easy to give advice when you don’t have a dog in the fight. Hmm… that just make you an armchair expert, don’t it?
Actually- you are partially right – but I’m not getting paid over a hundred K/year to give absurd advice, either.
BTW- since BA lumps all medical costs into one big bag – the SPEEAm insistence on paying less on medical premiums simply pushes MY costs ( Boeing medicare supplemental ) higher. Spouse and I now pay 6k/year for supplemental- taken OUT of my pension check.
And the SPEEA mensas signed on to a deal that allows ING to charge ALL previous/current bargaining unit members back to beginning of time who still have funds in VIP 50 cents/month for a program un-useable by anyone with less than a year BEFORE retirement. The ONLY union to make such an open ended agreement which allowed Boeing to do that.
AS to my comment re the video ‘ scrap the cap” and the over 100k comment for the person presenting
here are a a few facts
Base pay $ 123,167 Bonus and other 6,657 other reportable $21,481 retirement $22,881 Insurance- non taxable $15,768 total $189,864
Data from IRS 990 for fy 2011 ending in March 2012.
Also a CFP according to his profile on SPEEA site.
Wasn’t referring to you Don, as a retiree you have a dog in the fight. My response was intended for “Bob”.
expert is a little too much credit, but thank you anyway 😉
From a-far and a continent away this dispute does not seem very constructive. I’m just more used to a conflict where both parties give-in a little and then ending up with an agreement that everybody can partially support..
Unfortunately- SPEEA for years pretty much ignored the subtle takeaways in then pension plan- and when finally discovered, made some outrageous claims regarding effects of The social security wage caps on the BCERP alternate benefit formula with a very misleading video called scrap the cap. This leaving about a third of the probable retirees during the next ( 2012-2014-5 ) contract still getting hosed out of 2 to 5 months of pension gains EVERY year. ( depending on whom you believe- the Staff without credible backup for its analysis, or the Boeing company with a large back bench of experts and actuaries AND a few legal restrictions as to what they can say or do.
take a look at
Q: Why isn’t Boeing willing to promise that future changes to taxes, legislation and regulation won’t hurt employees?
A: We firmly believe that no company can prudently pledge to employees that there would be no future legislative- or regulatory-driven change to pay or benefits.
To take a specific example among many raised by SPEEA, we think it’s very unlikely that “scrap the cap” legislation, which would remove the limit on how much income would be subject to the Social Security tax, will be enacted. It is a proposal that has been raised in the past, but has never received broad support in the Legislature.
Boeing just cannot protect employees against external changes like tax increases – the company is not protected from such changes. What we can do, and have done, is promise to SPEEA that if there are external changes like this, we will sit down and discuss them.
and compare to the ‘scrap the cap- video” on the speea site
Not in the video presentation is mention of a minimum alternate benefit formula, which Matt claims only affects 1/3 of potential retirees- Boeing claims 2/3.
Meanwhile WAY back we have this ( see following post )
When SPEEA took no action in 1994 re the levelling, nor again in 2000 or again EVER, Boing was able to skate with the several months levelling as described. ALL but the 1995 special retirees have been hosed, and it is still going on !
Dont you think it is past time to insist on a minimum rate increase despite covered compensation and bonus drop off ?
It takes EXPERTISE TO DO IT RIGHT
FROM SPOTLITE NOV 2000
Retirement Saw-tooth – “Covered Compensation” & “1996 Lump Sum Bonus”
In the first few months of 2001, two changes will occur which may affect retirement benefits
for employees retiring under theAlternate Benefit formula. These changes will not apply to the
Standard benefit calculation.
Each year in January, “covered compensation” in our Alternate Benefit
formula is updated to reflect changes in nationwide wage data as determined by
the Bureau of Labor Statistics. For the year 2001, this will affect the Alternate
formula by reducing the February benefit, relative to the January benefit, by
about $18.75 per month for an employee with 25 years of credited service. This
has a “saw-tooth” effect on the Alternate Benefit, which otherwise increases
steadily as credited service and final average earnings (FAE) increase.
The second change involves the 5% lump sum bonus paid on January 26, 1996. That
bonus is applied to the Alternate benefit,after final average earnings are calculated. The bonus is
applied by adding one fifth of the bonus to the annual FAE (or one sixtieth of the bonus to the
monthly FAE). The bonus is added onto FAE for anyone who received the bonus in the five
years preceding their retirement date. For someone with $60,000 final average earnings, and
25 years experience, the bonus adds about $15-20 per month to their retirement benefit,
depending on their raise history, and age.
With our retirement plan, someone terminates, often on the last day of some month, and
begins retirement on the first day of the next month. For example, retirees terminating in
December 2000 would begin retirement on January 1, 2001. In that case,the year 2000
covered compensation value would apply to their Alternate benefit, and the “five years preceding
their retirement” would be January 1, 1996 through December 31, 2000. Thus, January 1,
2001 retirees would enjoy the effect of lower covered compensation, and the addition to final
average earnings from the 1996 bonus. Employees retiring in February2001 would see the
higher covered compensation and would NOT have one fifth of the 1996 bonus added to their final
In October 2000, we discussed these two items with Boeing Benefits representatives. We
understood that a review was underway which might result in lower benefits when covered
compensation increased. Past practice regarding lump sum payments has varied. We
received a large (10%) bonus in December 1989. Five years later,
retirees would have received reduced retirement benefits for several months
starting January 1995, but Boeing chose to apply theDecember 1994 benefit
level, until the saw-tooth effect was overcome. After other bonuses, no
adjustment was made.
Binding language in the Summary Plan Document clearly states that a retiree’s benefit
“will not be reduced” due to increasing covered compensation, and Federal law also discourages cut-backs in benefits already accrued. A few days after our meetings,we were notified that the
review had been completed, and that Boeing had decided to pay retirees in February 2001
That little levelling problem still exists- and no indication that SPEEA really understands it.
This allowed-allows the company to claim a major raise in pension via the basic formula which affects a smaller percentage of the to be retirement population every year>
theJanuary or February benefit level, whichever is higher. As a result, neither the bonus effect
nor the increase in covered compensation will reduce the Alternate Benefit calculation for
February retirees. We’d like to thank the Company for doing theright thing in this situation.
You do have a point however re give and take. From my outside perch- although I do know a few of the members/players- I’ve seen little evidence as to a Plan B on the SPEEA side, due to the Staff down and locked positions publicized and a proven lack of understanding of the existing pension issues let alone the 40iK mess.
Even IF BA says OK- stick with what you have for newbies, there is still a significant number who will continue to get hosed if they retire during the expected 3 or 4 year contract- although not as bad as depicted. But since that has been going on for nearly two decades, and does not directly involve me – I can only hope that the members might start NOW to push for some expertise being used on their behalf .