Conference 7.286::digital

    Will this be in addition to the maximum contribution limit ($9k+) allowed
    by law ?                   

    "More details ... in early June."

    	I've wanted this to happen for a long time, this is good. I also
    realize that more detail will be forthcoming but...as a technical
    geekk, I'm trying to understand the 2% on 1/3 of 6% divided by the
    rotation of the sun minus shipping charges...
    
    	Could someone put some hypo numbers to the following:
    
    	"The company contribution, which can be as much as 2 percent of
    your salary..."
    
    Regards,
    Rick

>    Will this be in addition to the maximum contribution limit ($9k+) allowed
>    by law ?                   

I don't think so. From what I have heard from other companies that contribute 
to 401K plans, the legal limit doesn't care who contributed; it defines the 
maximum that can be contributed per year to the plan from whatever source.

    re: .3
    
    The way I interpreted the memo, it's 1-for-3 matching up to 6%, and
    zero matching beyond 6%.  So, if your SAVE contribution rate is 4%,
    Digital will kick in an additional amount equal to 1/3 of 4%, or
    1.33333%, if your gross salary.  If your SAVE contribution rate is 6%,
    Digital adds 2% of your salary.  So to take full advantage of this,
    you'll want to be contributing at least 6% to SAVE.
    
    	Steve

    Consider the possibility that this is leading to a 25% pay cut for all
    U.S. employees.

    When the company began heavily promoting the SAVE plan earlier this
    year, with videotapes and software sent to each U.S. employee's home,
    and exhorting all employees to take responsibility for their financial
    future, it smelled a lot like the "communications" that began in the
    couple of years before all employees were effectively forced out of the
    John Hancock Plans, and into the HMO's.  It's clear that back when all
    the Health Care communications began, the plan at that time was to
    transition everyone out of the indemnity plans and into the
    defined-contribution health plans.  It required a few years of
    "communications" and gradual jacking up of the Hancock plan prices to
    gradually force almost everyone out of the indemnity plans. 

    When all the SAVE communications began, I predicted that this
    matching contribution policy change would take place, followed within a
    year or 18 months by the announcement that the defined-benefit pension
    plan was being cancelled, with the existing fund sold or spun out to an
    external management agency for administration of the existing assets
    and liabilities. 

    Prediction 1 has come true;  now watch out for prediction 2.....

    The "25% cut" comes from a calculation I did, using the usual
    assumptions (4% inflation, 8% tax-free ROI, 20 years of retirement),
    and using the "vested benefit as of today" and the "projected benefit
    at age 65" numbers in the annual pension statement.  I determined that
    to get from the "vested benefit as of today" to the "project benefit at
    age 65" would require Digital to be contributing today and on an
    ongoing basis about 25% of my salary to the pension fund. 

    Thus, if those contributions stop, it amounts to a 25% salary cut.
    If you want to have the same retirement income from your own savings,
    you'll have to make up that 25% (or 22%, or 28%, or whatever the number
    really is based on actual ROI and inflation) out of your own pocket,
    minus any matching contributions.

    Don't be so sure about a pay cut. Digital is one of the very few
    Fortune 500 companies that does not match to some level employees
    401(k) contributions.  There has been quite a bit of conversation about
    making Digital's 401(k) program more competitive and in-line with other
    companies of our size.  It is an important employee benefit and perhaps
    it will help address in a small way some attrition- Don't get me
    wrong-I don't think people our leaving Digital because of SAVE, but in
    order to attract and keep qualified people, Digital has to offer
    competitive salary and compensation programs.
    
    cs

    There is some truth in .-1, but I would not be to sanguine about it.
    
    For example, we now have one of the worst health plans in the business
    (at least compared to companies that would be alternatives for good
    software people), so there does not appear to be an effort to use that
    benefit to attract and keep qualified people.
    
    Interestingly enough, the companies that I compare Digital with, which
    have great health plans, also do *NOT* have defined-benefit pensions
    plans.  So to be fair, Digital might be going with the trends if they
    cancelled the pension plan, and their ability to attract good people
    might not be damaged.  But it would still amount to a major
    compensation cut if the plan were to go away.
    
    I've actually wondered if it would be POSSIBLE for them to keep the
    pension plan going, given that an increasing number of retirees have
    hit the plan (from early retirement) and will be hitting the plan in
    the future, while the liquidity of the plan is squeezed by the
    much-smaller (and possibly declining) number of employees that we
    have now.

    re.6
    
    I think 25% of pay per
    year to fund pension is a bit high by perhaps a magnitude of 10
    
    By the way use 14 years as the actuarial standard for males to be paid
    from age 65 on.
     
    

    I was told by corporate pension people that the pension plan amounts
    to about 1.5% of your salary per year...

    
    RE .6 
    
    I would like to see this calculation. Also, as stated before, while
    I certainly hope you make it to 85, that is not the norm. Also a
    your real return of 4% is quite low. 
    
    Also, using the current vested amount may not represent what DEC has
    put in for you at this point. They may reduce this amount so as
    to keep you at the company.
    
    					Thanks,
    
    					Ed
    
    
    
    

    the company does not have to get out of the pension plan.  They just
    need to continue reducing it's value.
    
    tony

    I just re-calculated it, and I stand by the figures.
    
    Assuming 4% inflation, 8% tax-free ROI, and 20 years of retirement, it
    requires 25% of my current income to fund the difference between
    today's "accrued benefit" and the projected benefit at age 65 if I stay
    with Digital.  If you reduce it to 15 years retirement, it is still
    20%.  Realistic changes to real rate of return have correspondingly
    small impacts on the magnitude of the numbers.
    
    And, are you going to assume that all your money runs out after the
    standard actuarial 14 years?  I'm not....
    
    You're whistling past the graveyard, folks, if you assume the figures
    that you've been told and don't figure it out for yourself.  GO DO THE
    CALCULATIONS FOR YOUR OWN SITUATION.
    
    I did it tonite with with the Retirement Planner in Quicken, and with
    the T.Rowe Financial Planner (I also did it with straight formulas in
    Excel once, but that's too hard to do again).  I use two different
    programs so that they will cross-check each other.
    
    You can calculate this for yourself as follows:
    
    Take your 1995 pension statement.  Assuming that the "accrued monthly
    benefit" is already funded with past contributions and future return on
    those contributions, then the difference between the "Projected
    Retirement Benefit" and "Accrued Monthly Benefit" has to be funded with
    future contributions and the return on future contributions.
    
    For that difference between accrued and projected future, it is as
    though you are starting out fresh, with no savings towards that
    difference (since all the savings are already tied up with the accrued
    benefit that we already have).
    
    So,
    
    1. Subtract "Accrued Monthly Benefit" from "Projected Retirement
       Benefit".
    
    2. Multiple that difference by 12.  That is the annual retirement
       income that is funded by future contributions and growth on them.
    
    3. Crank up your favorite financial planning program (or two or three
       programs) and tell it your current age, age when you want all your
       money to run out, favorite inflation rate, favorite ROI, and start
       with zero savings.  Tell it that the tax rate on your retirement
       fund is 0%, and if it asks, tell it that your retirement tax rate
       is 0%.
    
    4. It'll tell you the annual contribution required.  Compare that to
       your salary......
                                  
    Now, someone's next point will be that Digital doesn't actually
    contribute that amount, because some retirees stop collecting their
    pension 1 year after retirement, or never get to collect it at all,
    and those contributions cover those who get to collect their pension
    for 20 or more years.
    
    This point is true, but it's not relevant;  it's abstract and has
    nothing at all to do with YOUR situation.  The point of all this is:
    what would YOU have to save to replace YOUR projected pension benefits
    should the defined-benefit pension plan go away?  This is the question
    that impacts YOU.  This is what the above calculations tell you.
    
    Go figure......

    
    I won't mind if they get rid of the pension plan as long as they pay
    us out a big chunk of rollover cash.   If you use the SAVE PC program
    you see that the pension plan doesn't come close to what we can get out
    of a 401K plan with a few percent per year added.
    
    Jon

    While I won't reveal my sources, Digital's pension is currently well
    over-funded. With that existing situation (and it being protected
    by federal regulations) I can't see a anything (in the short term)
    happening to our pension...
    
    Chip

    
    
    But if they do eliminate the pension (Keyword IF), they would still be
    under as far as what other comanies do.  The companies that I know of
    either do a 1-1 match or a .50-1 match.
    
    
    Mike

    
    Re: .1  re maximum contribution limit.
    
    Limit does *NOT* apply to company share. Employees can still contribute
    their $9K+ on top of upto 2% contributed by Digital. To reach $9K+
    limit one has to be making close to $120K/year and contrbuting at max
    level of 8%.

    re .15
    
    It only makes sense to close out the pension fund when it is over
    funded.  Basically the company is legally obligated to meet the
    committments to the pension fund.  If it closes it out, it only has to
    meet these committments any over funding can be taken as profit by the
    company.  
    
    Basically an over funded pension fund is a source of interest free
    cash.

    
    or $80,000 contributing the 12% max.
    
    Mark

Re: .19

You may have missed it in the anouncements, but if an employee makes over $65K,
they are limited to a max contribution of 8%.  Those making under $65K may
contribute up to 12%.

    I don't believe that Digital can touch the pension fund (any of it -
    over-funded or not) unless they want to risk significant penalties
    by the U.S. Gov't.
    
    Pension money is managed very separately from any controlled monies.
    Over-funded or not, the money remains pension money. 
    
    Chip

    During my pre-Digital days, I worked for Centronics (now defunct).
    After I was there about 4 years, they changed the pension program. To
    what, I don't remember. What they did with the old program was to vest
    all employees 100% regardless of years of service. Then they paid
    everybody off with what the employee had in the program at the time.
    This was also a company only contribution program. The kicker was that
    due to some gov't. regulation we had to wait 5 years for the payoff and
    then fill out some form and submit it to the personel department. Then
    a check was mailed to your house. Still the money was collecting
    interest for a number of years. My cost center manager here was my old
    supervisor at Centronics. He and his wife had about 35 years between
    them there. They made out pretty well. He left Digital and they moved
    to Florida. He works for Disney last I heard. I got about $1100 which
    was a nice little vacation payer.
    
    Bright Blessings,
    
    PJ(Who is not in SAVE and hopes they buy our old pensions out. I could
    use the money) 

    RE .13 - Chip,

    As you suggested, I did the calculations and got a number very different
    than yours. Using all your numbers (20 years of benefits, 8% return, and 
    25 years to contribute) and I got < 10% of my yearly pay.

    I believe the difference is that your calculation assumes that the
    pension payment will be adjusted for inflation after we retire.
    I don't believe this is the case. This seemingly minor difference
    in the formula has a huge difference in what needs to be contributed
    today. 

    Further, I believe a number of your other assumptions are questionable:

    .20 years is clearly incorrect. As others have pointed out, 14 years
     is the expected life expectancy once a male reaches retirement age.
     Sure you can plan for longer, I hope you live longer, but DEC does 
     not have to. We have enough employees that the 14 year figure 
     could be right.

    .8% return. This is low. For long range investments 10% is much
     closer. This is the return on the S & P 500 over the past 50 or so
     years. If you change to 10% return, and 14 years of benefits then
     the percent of annual salary to reach this level is about 5%

    .You assume that "Accrued Monthly Benefit" represents the amount
     of money DEC has invested today. I would expect this is not the
     case. I would expect that Digital has invested much more than is
     necessary to provide this amount of money. They simply want to
     penalize anyone who leaves before they reach retirement age. This
     is quite reasonable.


    So...I ran the numbers. They are different than yours by a factor 
    of five. This does not include the third point I raise. 


    Now...this does not mean we should take the company pension for
    granted. I share your concerns. I am most worried about the large
    number of employees who seem to be in their late thirties and early
    forties. When we all retire, there will be a big drain on the
    pension plan. Will Digital be able to pay us all. I hope so, but
    I'm not counting on it. I will say one thing, it's a lot more 
    certain than seeing anything from Social Security or Medicare.
    And we pay 15% of our pay to that each year.


    					Ed

    -1 sorry Ed, you must have me confused with another noter. i know
       a lot better than to put any of my personal math calculations
       in a note... :-)
    
       Chip 
    
                                                                     

.23 was addressed to a different Chip, Chip Nylander.

    re .18 & .21
    
    I believe .18 to be correct. My fathers company did that very thing
    in the mid 80's. They hit hard times and needed cash so they scooped 
    the over-funded part of the pension plan over into the corp. cash column
    on the balance sheet. All this was perfectly legal at the time as 
    .18 stated.  

    When companies buy out pension plans what do they do about pension
    benefits like medical insurance? I assume the cost of medical insurance
    for retirees somwhow comes out of the pension fund.

    I don't believe that medical insurance comes out of the pension fund. 
    At least I have seen medical coverage for retirees in other companies
    negotiated separately and long after people have retired.
    
    I think this note stream has shown that one of the benefits of having a
    pension plan is that the "risk" of your living to 100 in a pension plan
    is spread out over all of the employees, so the company only needs to
    kick in 10% of salary.  With the 401K plan each employee needs to
    assume the "risk" they will live to 100 and save 25%.  The benefit of
    the 401K is you can take it with you and you aren't tied to Digital
    being a healthy company till 2050.

    re: .27 & .28, In the US at least, companies accrue for medical and any
    other post-retirement benefits in a balance sheet account called
    something like "accrual for post-retirement benefits".  This is per
     FASB (Financial Accounting Standards Board) rule 106, I believe,
    effective within just the last few years.  If memory serves me, digital
    has a very large acrrual for these anticipated post-retirement medical
    benefits of something in the order of $1B+.  Check the most recent
    balance sheet in the Q3 results.  I think it's on there...

    
      Here's a hopefully simple question. If a person contributes the
    specified maximum for their income (either 8% or 12%), does Digital
    still contribute the additional 2% (making it 10% or 14%)? Seems like
    an obvious affirmative but I'd like to be sure before maxing out and
    losing the 2%!
    
    	Bill

    Base note says one third of the first 6% you contribute. That's the
    most the company will contribute. If you contribute 8% to save, the
    company will contribute "one third of the first 6%". That's how I read
    it. You don't add to, or subtract from the company contribution after
    you contribute 6%.
    Bruce
    

    If I set aside 6%, I get 2% from Digital.
    If I set aside 3%, do I get only 1% from Digital?

>>    If I set aside 6%, I get 2% from Digital.
>>    If I set aside 3%, do I get only 1% from Digital?

Yes.

    
    
    so what if you set aside 5%...does it get rounded up??
    
    :>
    
    

One third of 5% is 1 2/3%.  If you're asking if it gets rounded up to 2%,
I'm sure not.  It may get rounded up to the next penny, but I suspect it
gets rounded to the nearest penny.

    RE .13 (again),

    Just to follow up on my .23

    I have confirmed that Digital pensions are not adjusted for inflation.
    Therefore my assumption in .23 on this point was valid.

    During the past 70 years, the return on common stocks has been 10.2%.
    Therefore assumption of a 10% return was even a little conservative,
    and was better than your 8%

    The average inflation rate of that time period was 3.1%, smaller than
    the 4% that we both used.

    So...I re-ran the numbers, (using 27 years to retirement), and it
    will require Digital to contribute about 3.5% of my salary to meet
    the pension requirements even if we assume no penalty for leaving
    the company early.

    Do you still  stand by your 20% figure, or would you admit that 
    some of the assumptions you were using in your calculations were 
    not accurate?

    						Ed

Early June has come and gone, and I, for one, have not seen anything in the
mail on this topic...nor have I seen any other references to this benefit.

Is it real?

John

    Yep, got mine last week.  Whole booklet plus video tape.

    Another video tape?
    Damn, I was hoping to get another Windows diskette. I need another coaster.

  Got my booklet today.  What?! No video tape?!

    I got my book over the weekend. I'm happy--according to the book, I'll
    get another coaster sometime next year.