Chump Changed

The pay was low, but working for Ma Bell meant a worry-free retirement. Now Qwest is sending out the pension checks, and local retirees say they're getting the wrong number.

Hauck, who's wearing a pendant shaped like an old rotary-dial phone, is hesitant to give her age and tenure with the company, saying only that she started as a secretary in the early 1960s and put in more than 30 years. But she's as angry as Shirley Zach about the lack of respect she and others have received. "We were like a family, and that's why we all still get together," she says. "Now, after all the mergers, we feel like we've lost our identity."

Albrecht started selling phones to businesses for Northwestern Bell in 1954. By 1967 he was working with the Federal Communications Commission and the Minnesota Public Utilities Commission as a member of the company's regulatory department, a position he held until his retirement in 1990. His job was to help figure out how to keep customers' costs low and the level of service high. After all, there was nowhere else people could turn if they wanted phone service.

"Our approach in the Sixties, Seventies, and Eighties was that we would go to the commission for rate increases, and when they gave us one, that would go into the pensions," Albrecht explains. "The ratepayers of the state paid that so we could attract good telephone workers." But now, he says ruefully, the money paid by Minnesota customers over the years is going to people who never served Minnesotans.

Albrecht became active in the retirees' association two years ago. "My motivation was ethical, when I found out the company was using the fund for purposes other than paying pensions," he says. "The question is, for successive takeovers, Who is getting our pensions?"

In 1983 the U.S. government decided that the phone company violated antitrust laws: AT&T controlled the nation's long-distance service, and its subsidiaries--regional companies like Mountain Bell, Bell Atlantic, and Pacific Bell--had a lock on local telephone markets. In 1984 a federal judge ordered AT&T to spin off the subsidiaries (known collectively as the "Baby Bells"), whereupon Northwestern Bell became a part of a new 14-state company called U S West. The Ma Bell breakup touched off a race for dominance in a newly deregulated long-distance market and, since then, in myriad new telecommunications venues, from local and cellular to the Internet, and even cable television. And whereas the Ma Bell monopoly had its rates set by the government agencies that represented its captive customers, the new companies were governed by shareholders, whose primary concern was--and continues to be--a profitable bottom line.

From the retirees' perspective, things began to change almost immediately. For starters, in 1986, the pension fund was healthy enough that U S West was no longer obligated to pay into it; the interest the fund was accruing was more than enough to keep it solvent. In fact, over the years, it began to generate a surplus, one that by 1999 had ballooned to $5.7 billion. The company was not obligated by law to maintain the surplus, and indeed, U S West officials had no intention of doing so. And in the meantime, with one small exception, U S West ceased granting cost-of-living increases to its retirees and stopped paying price hikes for health care.

The company also began dipping into the pension fund to pay for the plan's administrative costs. When a retirees' group complained to the company in 1994, U S West responded by editing the rules governing the plan and eliminating the restriction. Only after a subsequent class-action lawsuit was settled did the company back down; in the end U S West agreed to return $8 million to the fund. The company did not, however, rescind the rule changes.

In 1997 John L. Jarvis, a U S West retiree living in Mesa, Arizona, initiated a class-action suit charging that U S West had deleted provisions in the original pension-plan document and had improperly used pension fund assets to benefit employees who retired from a cable-television company U S West bought in 1996. In addition, the suit charged, U S West had "planned to use $60 million in Plan assets to pay retiree medical expenses"--money that had long come out of the company's operating expenses, not the pension fund.

The lead counsel on the Jarvis lawsuit, Denver-based attorney Curtis Kennedy, was no stranger to U S West. In all, Kennedy has been the attorney of record in 45 suits filed against the company. He won all of his cases, until he took on the Jarvis suit. In Denver in August 1999 U.S. District Court Judge Edward Nottingham ruled in favor of U S West. In Kennedy's view, the judge interpreted federal laws as allowing companies to change pension-plan policies on a whim. "Judge Nottingham ruled that U S West could modify the pension plan, [and] take out language prohibiting monies to be used on medical costs," Kennedy explained in a retirees' association newsletter in August 1999. "Last year the company took out $60 million to pay retiree medical costs. No doubt the company will take the same action in 1999 and future years....

"Considering how the company has ignored the needs of its retirees during the 1990s," the attorney continued, "I have long suspected that the U S West plan is to hoard the pension plan surplus--without regard to past practices of regular pension increases--and let the surplus build up to a massive amount that could be used by the company for non-pension purposes."

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