Special to Leeham News: A compromise on pension plan

With the IAM 751 membership vote scheduled for Wednesday this week, one of the biggest areas of controversy is Boeing’s plan to eliminate the defined pension benefit plan in place now and replace it with a 401(k) plan. IAM 751 is the last Boeing union with a defined plan, and Boeing has tried for years to do away with this.

IAM 751 members appear to be split over this issue.

We received a suggestion from a Boeing retiree, Donald Shuper, who is a regular contributor to our Reader Comments. A long-time shareholder activist of Boeing, he’s offered shareholder proposals (which management routinely rejected and shareholders voted down) throughout the years.

Here’s Shuper’s suggestion for a compromise on the pension plan. It will be irrelevant, of course, if IAM members approve the proposed contract but could be a basis for discussion if the contract is rejected.

A Suggested Compromise on the Pension Plan

By Don Shuper

1995 Boeing Retiree

A major sticking point for the IAM in the Boeing Proposal appears to be the freezing of the  defined benefit  plan   (BCERP) and conversion to a defined contribution plan generally known as a 401K plan.  This conversion puts all the risk  for  future growth or  loss  on the employee, while eliminating future liabilities for Boeing.

In the event the Boeing proposal is turned down by the IAM,  I  suggest a possible compromise on the Pension issue  that might  be considered. In simple terms, it would involve melding the existing Boeing PVP ( Pension Value Plan ) , also known as a Cash Balance plan  with the existing BCERP Plan ( Boeing Company Employee Retirement Plan )

The PVP  generally favors the younger employee, while the BCERP  makes more sense for the older longer serving  employee.  (This is a very simplified explanation.)

For 2012 the following data applies:

  • The PVP Plan had  201,343 total participants with 83,577 Active employees
  • The BCERP Plan had 151,086 total participants with 56,091 Active employees
  • Combined, both plans had about 6.5 Billion in carryover balances.

 Perhaps  it is time for both sides to have a significant discussion/review on a possible melding of the PVP, the BCERP and the current proposal regarding age changes and 401K contributions. The aim would be to provide a guaranteed floor based on vested benefits,  plus a risk component in 401k funds.


From 2001 to 2004, I  had a shareholder proposal on this issue which in the 2004 proxy  stated:

RESOLVED: Shareholders request the Board of Directors adopt the following policy:

 (1) Employees vested at time of conversion be given a choice between their old pension plans (the “Heritage Plans”) or the Pension Value cash-balance plan (the “PVP”) at time of their termination or retirement.

(2) The PVP to provide a monthly annuity at least equal to that expected under the Heritage Plans, or an actuarially equivalent lump sum.

 This proposal received about 12 percent (61 million shares ) approval. Shareholder proposals are precatory, and even if passed, need not be implemented.


There many reasons put forth by the company as to why they did not want to implement at that time. I suggest the Boeing comments against in the 2004 proxy be reviewed as to current times.

The unions were not in favor of a total conversion to the PVP due to the increase from age  60 to 65 to get unreduced benefits. 

Both sides have the capability to get expert actuarial help and analysis to make the necessary modifications to the proposal and plans.

I believe the following positives could result.

A) The BCERP plan need not be frozen since over time the general arrangement of the PVP plan when combined with the 401k plan could eventually provide better benefits for the employee compared to BCERP.

B) Boeing would retain the ability and option to use “surplus” funds ( as defined by ERISA ) in the BCERP and PVP  plans into Operating Earnings.  That option would not be available with the 401K plan  as currently proposed.

C) Employees could  have a ‘guaranteed floor’ of  vested defined benefits based on their BCERP/PVP  credited  service and a risk component  of 401K gains at least during the proposed time of the contract extension.  This would ‘share the risk’  instead of  ‘drop the risk’ proposed.

Suggested Links

2004 PROXY

http://www.boeing.com/assets/pdf/companyoffices/financial/finreports/annual/04proxy/2004proxy.pdf    PAGES 47 TO 49





Summary of Plan Finances




11 Comments on “Special to Leeham News: A compromise on pension plan

  1. Of course, the above is a simplified outline of what might be done. The devil IS in the details which take expert analysis. Boeing made some interesting comments in 2004 ( against my proposal ) which are well worth reading as a explanation of the pros of the PVP plan as it looked at that time.
    I’ve extracted what I believe are the significant points- explanation as to how the PVP plan worked at that time. Its on page 51 of the 2004 proxy.

    Under the PVP, employees earn a credit-based benefit or cash balance “account” that grows with benefit credits and
    interest credits each year. The PVP uses a progressive scale for benefit credits that increase with age, unlike some
    other cash balance plans that use a flat rate. Benefit credits equal a percentage of pay each year, ranging from 3% to
    11%, depending on age. Interest credits are based on the 30-year Treasury bond yield, with a low of 5.25% and a
    high of 10%. Any benefit transferred from a Heritage Plan continues to grow in proportion to the employee’s salary
    and is added to the credit-based benefit. Total benefits are converted into a monthly annuity. The PVP also provides
    a minimum benefit of $60/month times years of benefit service.
    The Board of Directors understands that the subject of cash balance pension plans is not without controversy.
    However, the Board believes that the PVP is not subject to some of the criticisms of other cash-balance plans
    because it includes important features that are different from most other cash-balance pension plans. In addition to
    the features noted above,
    • The PVP preserves all benefits earned under the Heritage Plans, and allows these benefits to continue
    growing in proportion to the employee’s salary.
    • Employees began earning new benefits under the PVP formula immediately upon the PVP’s
    implementation rather than having a “wear-away” transition period before they could accrue any new
    benefits under the cash-balance plan.
    • The PVP increases the percentage of pay that is credited to the employee’s cash-balance “account” as the
    employee’s age increases. Thus, notwithstanding the proponent’s assertion that “older, longer service high
    performance workers also do worse,” the PVP actually gives the Company’s oldest employees nearly four
    times more benefit credits each year than their youngest counterparts receive.
    What was missing was the 65 age to get 100 % benefits. And the $60 base was the same as the BCERP at that time. I can only assume that base has been increased at the same rate as the current BCERP.

    • Perhaps there can be a compromise….when there is something to compromise.

      I mean: Just how many firm orders for the 777x does Boeing have?


      Just when was it that the 777x Program was authorized?


      Just when were the Specs of this plane ever really defined?

      The success of the 777x Program has been taken for granted by a lot of people and a lot of the press – a plane with no firm specs, no firm orders, or program Authorization. A Paper Airplane.

      Now…at this time, why should the IAM trade real value for a Paper Airplane?

      And…what is the rush? [And this contract proposal is being rushed] Why not make the decsion next month when everybody has had time to carefully examine the situation?

      I’m getting very suspicious….and with good reason. I think if the 777x were a real winner, it wouldn’t have to be sold to the Union this way.

      • The 777x concept of an aluminum body with cfrp wings gained some traction this week. With the A350 drop in range while the engines are fine probably means the cfrp body is heavy. The -1000 stands to gain more weight with the triple axle gear. The 777x has the advantage with the wingspan and engine over the -1000. The -1000’s ace in the hole was low weight. If that gets eroded, the 777x prospects look pretty good.

  2. It is obvious to me that Being must compromise. It is not in the best interest of the company to “win” on this.
    There is no sustainable company without an happy, dependable and well paid workforce.

  3. There isn’t a plausible path/timeline forward for a compromise on this, imho. Any tentative deal with IAM751 would take 3-4 weeks to (theoretically) work out, and the company needs to have a firm plan in place for production shortly.

    The company simply doesn’t see it as plausible to keep adding future defined benefit pensioners. The union doesn’t see it as plausible to agree not to. The end.

    • Why would they need to have a production plan in place so soon? Any announcement in Dubai could be made without production plans announced.

      • Normally, when a big order for a ” new” plane is announced, a delivery date-time frame is also part of the deal. To do that, and not make a 7 late 7 replay, BA wants to avoid any work/schedule disruptions. That takes at least a basic design- production plan.

        Keep in mind- even if IAM agrees, but BA fouls up in the planning, early production missteps, etc such that major layoffs are required, nothing in the agreement forecloses such an action. its a tough choice.

  4. Compromise is only possible when both sides are willing to sacrifice golden calves. Neither are willing to. Boeing, either through hubris, incompetence, or unwillingness, thinks they can mandate their demands. The IAM seems to be caught in a time warp where infinite growth of revenue and benefits is possible, where corporate culture today is one of pure greed and infinite growth of revenue and lining their pockets.

    Noble effort, one that would work in another age. Not today.

  5. about the 401k and IAM- a bit of background

    Regarding the BA 401K claims that ‘ you control “- Its as usual only partly true

    Here is why

    1) VIP/401k curfrently uses only ING- limited choices and generally higher rates than fidelity or vanguard

    2) You will get access to planning, etc. Well, sort of. You will be charged a 50 cent/month fee for access to a computer program suggesting how to allocate your $$. but of course only with ING funds. And if you are within a year of retirement or retired, the program doesn’t work. YOu pay the 50 cent fee, use it or not.

    You also get access to a ING financial planner of sorts – cost a percentage of your total $$- reasonable rates. But if you had the same amount of $$ say over 100K, depending, and were outside the Boeing plan, you could do as well or better and have more choices

    3) This fee structure was offered to the IAM several years ago – and wisely, they declined. NOt so for SPEEA.

    4) And dont be surprised if Boeing then decides to apply those fees to ALL IAM current members, retirees, etc who were ever in the bargaining unit from day one and who still may have funds in the boeing system ( yep thats retroactive – and really a no no ) For those who say BA cannot do that – I have news for you- they can and did !!


    look on page 195 of 268 for SPEEA

    Feb 2011

    The change in this Update will apply to you if you are an employee, or former employee, of The Boeing Company represented, or formerly represented, by the Society of Professional Engineering Employees in Aerospace (“SPEEA”)—Professional, Technical, or Engineering Units.


    ING Advisor Service*

    Effective March 1, 2011, you can use the new ING Advisor Service if you are a participant in the VIP or FSP.

    ING Advisor Service offers personalized, objective investment advice two ways:

    n Use the Personal Online Advisor on Boeing Savings Plans Online through Boeing TotalAccess and/or speak

    with an ING Investment Advisor Representative by calling the Boeing Savings Service Center through Boeing

    TotalAccess, or

    n Enroll in the Professional Account Manager program and have a professional manage your account for you.**

    * Your account will be assessed a monthly fee of $0.50 per month (if you have both a VIP and FSP account, only one

    monthly fee applies). This fee applies to all participants eligible for ING Advisor Service.

    ** You will pay a monthly fee if you enroll in the Professional Account manager program. The fee is based on your

    total account balance. The annualized fee is 0.4% on the first $50,000 of your account balance, then 0.3% on the

    next $50,000, 0.2% on the next $50,000, and 0.1% on balances over $150,000.


    Now look at the choices of ING plans you will have…

    consider asking the company to open up the choices from ING and dealing with Fidelity,Vanguard or others who will give the participant a better deal !

    • and on the fee issue and also in annual reports

      St. Louis, Missouri (PRWEB) September 20, 2013

      On September 19, 2013, Chief Judge David R. Herndon of the United States District Court for the Southern District of Illinois granted class certification to participants in the Boeing 401(k) Plan, regarding claims that Boeing personnel responsible for managing the plan breached their fiduciary duties under the Employee Retirement Income Security Act (“ERISA”), by: (1) causing the Plan to pay unreasonable and excessive administrative fees to its recordkeeper, CitiStreet; (2) squandering the Plan’s massive bargaining power by including certain retail mutual funds in the Plan which charged excessive fees and paid revenue sharing “kickbacks” to CitiStreet, instead of superior, low-cost institutional investments that were available to the Plan; (3) including an undiversified and imprudent Technology Fund in the Plan; (4) selecting an imprudent Small Cap Fund, which Boeing included in the Plan in order to further its corporate relationship with the fund manager, State Street, by allowing it to collect grossly excessive fees from the fund; and (5) imprudently holding high levels of low-yielding cash and allowing State Street to collect multiple layers of fees for “managing” the Boeing Company Stock Fund. Spano v. Boeing, Case No. 06-743 (S.D.Ill.).
      According to the firm’s founding partner, who is handling the case, Jerome Schlichter,“the ruling is a victory for 401(k) investors concerned about having a meaningful retirement plan.” Mr. Schlichter also stated, “The case will now proceed for all the employees and retirees plan participants who allegedly suffered harm from Boeing’s behavior.”


      Case 3:06-cv-00743-DRH-DGW Document 2 Filed 09/28/06


      Cause No: 06-743-JLF

      seems that Boeing was hiding some of the fees.

      Point is that this case is still ongoing- and IAM ( and SPEEA ) should be aware

  6. A bit of Background missing from the discussion-arguments on the BA defined benefit pension plan AKA BCERP.

    1) The same basic plan was available to ALL BA employees until 1999.

    2) The plan currently covers the two biggest unions, IAM 751 and SPEEA plus about a half dozen other smaller BA unions.

    3) The funding status of BCERP and other Plans currently and for the past three years can be found at


    4) Note that BCERP and the PVP plan covers the majority of BA active workers
    BCERP covers 58,000 and PVP covers 83,000
    BCERP has had for the last three years 2 to 3 BILLION ” standard carryover”
    or in simplified terms ‘” surplus” to requirements. Which can be legally stuck into
    PVP has had for the last three years 4 to 5 BILLION in ” surplus ”

    5) A friend of mine Ms Kathy Cooper posted an interesting note she found on an employer consultant site which *may* explain why BA and other companies want to freeze DB plans. MS Cooper was the named Plaintiff in Cooper v IBM re Pension ripoffs, which eventually cost IBM about 30 Million payback for underhanded dealings.


    Starts …IRS issues testing relief for closed DB plans, By Hazel BradfordÂ

    Corporations that sponsor defined benefit plans closed to new employees got some good news Friday from the Internal Revenue Service, which granted relief from non-discrimination testing rules through 2015. . . .Washington lobbyists had hoped to get permanent relief from the rules, which were written to apply to ongoing plans. Closed plans came closer to violating the IRS non-discrimination rules as participants’ income grew, and some sponsors were freezing their plans as a precaution, to avoid running afoul of the rules.

    6) It is not clear why BA did not offer either the same as SPEEA agreed to- new hires under 401k but DB plan continues for current employees, OR a modified version of the PVP plan ( sort of a cash balance plan with 100 percent pension at age 65 ), but instead lowered the 100 percent retirement to age 58 and $95/month/year of credited service ending in October 2016.

    7) Some members of IAM will retire under the Alternate Formula in BCERP.
    It has sits own hidden gotchas. Full year of credited service for both Basic( standard ) benefit ends in October every year. AND an increase in covered compensation (SS ) on jan 1 every year can result in several months of NO increase in pension $$. See :



    More FACTS and DATA available on


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