Retired Andersen partners fear finances at risk

In the tight fraternity of Arthur Andersen LLP, Charles Anthony counts himself among a proud group forgotten amid the scandal that's brought down the once- venerable accounting firm.

Mr. Anthony is a retired Andersen partner - one of about 720. And his retirement income was entirely dependent on the performance of the firm.

His future income - and that of his spouse - is now in doubt as the company struggles to survive in the face of a federal indictment arising from Andersen's auditing of Enron Corp.

“I'm disappointed, very disappointed,” said Mr. Anthony, 85, who joined Andersen in 1944 and was head of the tax department in the Dallas office. He retired in 1979.

“I expected better treatment than we've received,” Mr. Anthony said. “I think everyone did what they thought was best for themselves, but they haven't thought much of other people. We used to have a lot more integrity in our relationships with each other.”

Andersen spokesman Patrick Dorton says that the company is “committed to treating our retired partners, their widows, as fairly as possible as we go forward.

“Past Andersen partners and their widows are part of this firm, and the Department of Justice has put their benefits at some level of uncertainty as one of the many negative impacts of their actions.”

Andersen was convicted in June of obstruction of justice in connection with its role as Enron's auditor.

Andersen's retirement plan for partners - which makes retired partners' income dependent on earnings and does not set aside money to fund a plan - is common among accounting firms.

Such unfunded “nonqualified plans” for top management are the norm at corporations and partnerships, some employee benefits experts say.

“It's too common,” said Arthur Bowman, editor of Bowman's Accounting Report in Atlanta, which follows the accounting industry. “They use current earnings of the firm for unfunded retirement plans.”

That puts the onus on a firm to keep growing and generating income, Mr. Bowman says.

“You can't get stagnant,” he said. “They have to plan for the firm to go from one generation to another to pay off this unfunded liability. If the firm were to stop, so would the payments to retired partners.”

That's unfortunate for retired partners from Andersen, who say the company's breakup has jeopardized their retirement and health care benefits.

So they've formed the U.S. Retired Partners Action Group in an attempt to negotiate with Andersen officials. Co-chairman of the group is Duane Kullberg, who was chief executive of Andersen from 1980 to 1989.

“It is reprehensible that the leaders to whom we have passed a proud legacy of stewardship and integrity would behave in such a dishonorable way,” Mr. Kullberg said. “The potential of loss for retirement benefits is significant to partners.”

Bob Kralovetz, a retired partner who lives in the Texas Hill Country, says the amount owed retired partners totals “several hundred million dollars.”

Some say the plans for active Andersen partners to defect to rival accounting firms also will decimate the money available to pay pension and other retiree benefits.

The retired partners lost an attempt to obtain a temporary restraining order to bar Andersen from letting its partners go to work for other firms and from selling off business units.

In the motion for a temporary restraining order, the retired partners said that releasing the current partners from their contracts without exacting payment basically takes money out of their pocket.

“We were concerned that by the time they were done selling off their units, there would be nothing left for the other Andersen retired partners to be paid their retirement benefits because they are only entitled to get paid out of the current net income of the firm,” said attorney Thomas Mulroy of Mulroy Scandaglia Marrinson Ryan in Chicago, which represents the retired partners. “Andersen had not set aside proceeds from the sale of the units to pay the retired partners.”

Basic retirement benefit - This was a flat $3,500 a month. That benefit kicked in when a retired partner turned 62, the official retirement age at Andersen.

When a retired partner dies, the surviving spouse is entitled to receive the basic retirement benefit for up to 10 years after the retiree's death and continuation of health benefits.

Early retirement benefit - This was similar to a deferred- compensation arrangement and was paid to partners who retired before age 62.

Partners could take the benefit amount in a lump sum or a deferred amount that would be paid out over a period of up to 10 years.

“The great majority of partners elected the deferred payout as part of their retirement financial and tax planning,” Mr. Kralovetz said.

The early- retirement plan was designed to encourage partners to take early retirement generally after age 56, says Mr. Kralovetz, 60, who's on the board of directors of the retired partners group.

Ninety- five percent of partners who retire, have done so between 56 and 62, says Mr. Kralovetz, who started with Andersen in 1964 in Milwaukee as an accountant and retired in 1998.

Health benefits - Retired partners had the right to participate in Andersen's health, dental, disability and life insurance programs at “greatly discounted rates than those available in the open market,” according to court documents filed by the partners.

“When you retired, depending on your age, the firm paid your health insurance up until you got the basic retirement benefit,” Mr. Kralovetz said. “Up until age 62, the firm covered the health insurance premiums just like you were an ongoing employee.”

“But you are getting a reduced premium because you're in this large diverse group of employees,” Mr. Kralovetz said.

Retired partners with health conditions fear that if they lose health benefits, the pre- existing conditions would make finding replacement coverage difficult, he says.

The situation has caused some retired Andersen partners to cut back on expenses.

“I don't know if I'm going to get a retirement check the 10th of this month or not,” said Mr. Anthony, adding that his income is supplemented only by Social Security. “We're going to have to live on a closer budget. Our savings will carry us for a few years but not as many as I'd like to live.”

For his wife, Kay, 83, the most difficult thing has been to see her husband worry that she wouldn't receive spouse benefits after his death.

“This is the only time he has broken down, and he said, 'I was counting on this for you,' “ she said. “We're just afraid. We don't know what's coming up and that's probably the hardest part right now - is not knowing.”

The retired partners say they're disappointed by a firm that up until recently held retired partners warmly in its corporate family - allowing them to come and go and make use of company equipment.

“We literally built it with our efforts, the commitment of our energy, the commitment of our family to that kind of life,” Mr. Kralovetz said.

“None of us was involved with any of the things with Enron, and we're not necessarily looking for sympathy. We're looking for understanding and fair treatment by the firm and its remaining management and partners.”

--- A single-company example of what's happening on a larger scale to retired investors. I wonder how many more of these situations we're going to see - unfunded pensions decimated by the fall of a corporation.

Not much sympathy here. You should never put all your eggs in one basket.

If these retired partners never saved substantial portions of their 6 and 7 figure incomes for retirement, they have no one but themselves to blame for their financial woes.

Agreed.

What struck me was the impact of dishonest business conduct in one generation on the survival of the retired prior generation(s).

I likewise have litttle sympathy for these bean counters who should know better. Maybe they should use one of their old calculators that they used when cooking the books.

THE OFFICIAL ARTHUR ANDERSON APPROVED CALCULATOR

...We're looking for understanding and fair treatment by the firm and its remaining management and partners.”

LAUGHABLE

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.