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Ron Chen, 54, is an 18-year veteran copy editor for the
Wall Street Journal. In that time, the company has been good to him with its retirement
benefits.
For years, Dow Jones & Co. Inc., publisher of the Wall
Street Journal, annually contributed an amount equal to 15% of Chen's salary to its
profit-sharing plan. Additionally, Chen was allowed to contribute money of his own, on an
after-tax basis, to the plan.
But, in the wake of weak financial results, Dow Jones
wanted to rescind the profit-sharing plan this year. In its place, the company was
offering a 401(k) plan with a 50% match on the first 6% of salary and a money purchase
plan with a 5% contribution. The company's maximum contribution to workers' retirement
would fall from 15% of salary to 8%.
That didn't make Chen happy. He worried about his financial
future and that of other Dow Jones employees. Chen, you see, is president of the
Independent Association of Publishers' Employees (IAPE), the union that represents Dow
Jones employees including reporters and administrative personnel in the U.S. and Canada.
A Case Study
What follows is a case study in how Chen, IAPE and Dow
Jones developed a new retirement plan as a part of contract negotiations. It shows how
employees can educate themselves in order to ask for an improved retirement plan. Further,
it shows how management and employees can work together to create a plan everyone will
like and use.
Dow Jones' new retirement plan is scheduled to start in
January 2000, says Dick Tofel, company spokesman.
The Old Plan
For years, Dow Jones' employees were enrolled in a
profit-sharing plan. Annually, the company contributed an amount equal to 15% of the
worker's salary to the plan. The company made a full contribution despite a plan rule
saying contributions were supposed to be based on the Dow Jones' financial performance. In
theory the rule said that when the company did well, the contributions would be generous.
When the company did poorly, the contributions would fall.
Two aspects of the plan were unique. Employees could choose
among 14 funds in which to invest their retirement money, and they could contribute
after-tax money to the plan.
During the go-go years of the 1980s, as Wall Street
prospered and boosted its advertising in the Wall Street Journal, Dow Jones was
easily able to make a full contribution. However, in the 1990s, Dow Jones ran into
financial trouble when ad revenues and newspaper circulation slipped and a major
investment soured.
Regardless, the company continued to make the full
contributions to the profit-sharing plan. But, it realized it couldn't continue.
"That plan was competitively out of whack. It was too
rich by competitive standards," Tofel said.
In 1999, IAPE's three-year contract with the company
expired. Dow Jones made it clear it wouldn't continue the 15% contributions.
The Negotiations
Dow Jones' offer
As contract talks opened earlier this year, Dow Jones
offered IAPE two choices. The first was to continue the profit-sharing plan with a maximum
15% annual contribution. However, contributions would truly be based on company
performance.
The second was to accept a new hybrid retirement plan
consisting of a money-purchase plan and a 401(k) plan. Dow Jones offered to contribute an
amount equal to 5% of a worker's pay to the money purchase plan, and a
50-cent-on-the-dollar match of up to 6% of a worker's pay in the 401(k) plan.
(A money purchase plan is a qualified retirement plan that
allows employers to make a mandatory tax-deductible contribution on behalf of their
employees. The amount of the contribution is usually a fixed percentage of compensation.
The contribution is allocated to each worker based on the ratio of his or her compensation
to the total compensation expense of the employer.)
Further, the company made it clear the benefit plan would
cover all employees, from management on down.
To sell the union on the plan, Dow Jones hired benefits
consultant Towers Perrin to compare its offering to those from other publishers. Towers
Perrin compared Dow Jones' offerings to four other companies, and concluded that Dow
Jones' offer was more generous than benefits at competing publishers.
IAPE's Reply
The first question the union had to address was whether it
wanted to fight for the old plan or consider accepting the new one.
Rather quickly, IAPE decided to take a pass on keeping the
old pension plan, Chen said. The union realized management was telling the truth; if Dow
Jones had followed the rules, profit-sharing contributions would have been significantly
lower during the 1990s.
"We turned down the possibility to defend the
profit-sharing because it wasn't secure," Chen said.
The union realized if it fought for the old plan, the
company's annual contribution would fluctuate. "The negotiators concluded that might
not be smart," he said.
The union's priority was to negotiate a secure retirement
plan, Chen added.
So, IAPE needed to figure out if the hybrid plan was a good
deal.
That's where it relied on the talents of its members. The
union tapped Wall Street Journal reporter Ellen Schultz, who covers the retirement
planning industry. Utilizing her reporter's skills, Schultz got the scoop on four other
publishers in addition to the original four examined by Towers Perrin.
She wrote a 19-page report showing how Dow Jones' plan
stacked up against other publishers. The report claimed Dow Jones' offer was not more
generous than other employers', but rather average. She claimed that Dow Jones' and Towers
Perrin's research wasn't thorough.
Towers Perrin's policy is not to discuss details of the
work performed for clients.
The Final Result
Armed with Schultz's report, the union sat down at the
negotiating table with Dow Jones to try and hammer out a new plan. One thing they didn't
negotiate was the choice and number of funds. Dow Jones' already offered employees 14 fund
choices with its fund provider, Fidelity Investments.
After a relatively short six-month negotiating period, the
union and company finally agreed on a new labor contract. In it was a new retirement plan
Dow Jones planned to roll out company wide, impacting 6,000 workers.
Ultimately, the company agreed to boost the money purchase
plan contribution to an amount equivalent to 7% of a worker's annual salary.
With the 401(k) plan, Dow Jones agreed to automatically
contribute an amount equal to 3% of a worker's salary, and offer a 100% match on employee
contributions of up to 2% of salary.
Why was the company willing to make the automatic
contribution?
"There is some experience … that suggests if
people have existing accounts with funding, they are more likely to make their own
contribution to the plan … which is in their interest," Tofel replied.
Those employer contributions are immediately vested, and
employees are eligible to participate in the plans as soon as they have reached the
half-year point following the six-month anniversary of their hiring date.
Indeed, the immediate vesting of employer contributions may
prove to be a big factor spurring increased employee participation in the 401(k) plan,
says Bernadette Pratl, vice president of IAPE.
Under the old profit-sharing plan, the company made its
contribution once a year. Now, employees will see their balance grow every time they get
their paycheck. "I think once people get comfortable (with the new plan) they'll be
happy with it," she said.
The company decided to stay with the fund company that
managed its profit-sharing plan, so employees still have 14 investment choices.
When all was said and done, Dow Jones agreed to contribute
an amount equivalent to 12% of an employee's salary toward retirement benefits. This is
slightly short of the 15% it contributed previously, but much higher than the 8%
originally proposed by management.
What was the employee response? IAPE tallied the contract
votes on Dec. 3 and the new contract was approved overwhelmingly, 865 to 123.
Note: The author is a former Dow Jones & Co. employee who was a steward with
the Independent Association of Publishing Employees.
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