Timeline of a 401(k) Retirement Plan:
How Global Crossing Killed' the Retirement Dreams of Hundreds of Workers
The Communications Workers of America represent 1,115 former Global Crossing employees. They had been employed by Frontier Corporation when Global purchased that company in 1999. They are now employed by Citizens Corporation as a result of Global's sale of those units in 2001.
But their retirement savings plan is home to shares of Global stock. Their story highlights the flaws in a retirement program reliant on employer stock and the security of a defined benefit pension plan.
December 14: Contract negotiations begin between CWA Local 1170 and Frontier Telephone of Rochester. The company introduced a proposal to revamp compensation and benefit plans. In particular, the company proposed that effective 12/31/96, coverage under the defined benefit pension plan would be eliminated for new hires; benefits under the defined benefit pension plan would be frozen for current employees; and a 401(k) plan would replace the traditional pension plan. The union objected to the proposal. (The company also proposed freezing base wages and instead of wage increases, offer bonuses tied to company performance.)
January 31: Contract expires; negotiations continue; union members work without contract.
April 8: Rochester Telephone imposes contract which freezes defined benefit pension plan and implements 401(k) retirement savings plan. Arguments company used in support of its proposal:
"Under a defined benefit pension plan, the corporation assumes all risk."
"Defined contribution plans involve a partnership between the company and the plan participant."
"Employees are required to be more responsible for their own retirement~plans."
"... (the 401(k) plan) is the best approach for the kind of lean and competitive company we intend to be."
April - May: Union files NLRB charges: there was no impasse; company was surface bargaining.
June: Collective bargaining agreements covering more than 200 Frontier employees in Minnesota and about 66 Frontier employees in Iowa are signed and ratified. In Minnesota, the Retirement Income Plan for employees hired prior to January 1, 1995 is made part of the agreements by reference. In Iowa, the Retirement Income Plan and the Retirement Savings Plan are made part of the agreement by reference.
................ WHAT ARE THESE???????
October: Rochester bargaining resumes.
December: NLRB Office of Appeals rules with union on impasse, orders a hearing on impasse. Union and company arrive at tentative agreement.
January 23: Tentative agreement rejected by the membership 550 to 45.
April 29: Second tentative agreement reached.
May 6: Contract ratified 378 to 105. Terms of the new contract:
Employer-sponsored defined benefit pension plan is frozen effective 12/31/96.
Existing 401(k) savings plan is modified to become the Retirement Savings Plan, effective July 1, 1996. Its terms:
Regular CWA bargaining unit employees covered; full and part time.
Voluntary employee contributions up to legal maximum, not more than 16% of base compensation. Six investment accounts available, including company stock fund. Putnam is fund manager.
Baseline company contribution equal to 0.5% of eligible compensation. ( Not dependent on voluntary employee contribution, and no maximum on baseline company contribution.).
Company matching contribution up to the first 3% of compensation; Company matching contribution capped at $3,000 in 1996, uncapped thereafter.
Company profit sharing contribution: no profit sharing contribution in 1996. Thereafter, contributions based on company performance and percentage of eligible compensation.
All employer contributions (baseline, matching and profit sharing) are restricted to being invested in company stock for a five year holding period.
WHEN WAS THE FIRST CONTRIBUTION MADE?
WHEN IS THE FIRST TIME EMPLOYEES CAN MOVE EMPLOYER CONTRIBUTIONS TO OTHER INVESTMENT OPTIONS?
A Taft-Hartley defined benefit pension plan is introduced
for current and future employees. Initially company contributions are for bargaining unit workers hired after 12/31/1995 and equal 3 percent of new employee's payroll. Effective July, 1998, the Taft-Hartley fund is expanded to include all employees, past and future and the company would contribute 3 percent of total payroll.
As a result, Frontier-Rochester employees hired before December 31, 1995 receive retirement income from three company sources: the frozen pension plan, the 401(k) plan and the joint, labor management Taft-Hartley plan. Employees hired after that date receive retirement income from two sources: the frozen pension plan and the 401(k) plan.
August: Global Crossing goes public at $9.50 a share.
March: Global Crossing announces that it will a quire Frontier for
$11.2 billion. (Global stock is selling at $49 in the week ending 3/12/99)
September: Global Crossing purchases Frontier for $10.3 billion. (Global stock is selling at $25, 9/30/99)
WHEN DOES FRONTIER STOCK GET TRANSFORMED INTO GLOBAL STOCK?
February: Global Crossing stock reaches at $61 a share.
June: CWA's Minnesota and Iowa collective bargaining agreements are renegotiated and include the Frontier Group Bargaining Unit Employee Retirement Savings Plan (ERSP). Provisions of the 401(k) plan are similar to those negotiated in Rochester. That is, employer contributions are made in company stock and must be held in company stock for five years. Iowa and Minnesota contracts indicate only two kinds of employer contributions to the 401(k), matched and fixed. No profit sharing contributions are indicated.
July: Global Crossing announces that it will sell its local phone holdings to Citizens Communications for $3.65 billion in cash. (Global stock sells at $33, 7/14/00.)
October: Global Crossing removed from Standard & Poor's S&P 500-stock index.
May: Gary Winnick/Pacific Capital Group sell $123 million in stock at $12.38/share.
June: Global Crossing completes sale of Frontier's local exchange business to Citizens Communications for $3.5 billion. (Global stock sells for $8, 6/29/0l. The 401(k) along with other pension and benefit plans is transferred to Citizens.
Although employees were given the opportunity to sell their Global Crossing stock at the time of the transfer, most did not. The stock was priced far below its value when it had first been contributed to their accounts. Many of the employees, persuaded by hope, misinformation, loyalty, or media hype about Global Crossing CEO
Gary Winnick, held on to their stock.
January: Global Crossing files for chapter 11 bankruptcy protection. (Global stock sells for 30 cents per share, 1/31/02)
The moral of this story: for these former Global Crossing Workers, the only retirement security from their years of employment at Frontier, is the frozen defined benefit pension plan and, if they are among the Rochester workers, the Taft-Hartley pension negotiated by their local union.