Economic Climate for AT

1
Economic Climate for ATT Bargaining

• Dallas, TX November 18,
  2008
• Bob Patrician
• CWA Research Department

2
Are We in a Recession Yet?

• Not Officially 2 straight qtrs of GDP decline
• GDP Fell 0.3, 3rd Qtr, after 2.8 growth in 2nd
• Exports down, trade deficit 5 of GDP
• Business investment down
• 71 yoy increase in foreclosures in 3rd Qtr
• Personal income fell 8.7, tax rebates had
  generated 11.9 increase in 2nd Qtr
• Bureau of Economic Analysis, 10/30/2008
• Business bankruptcies up 67 yoy in Sept
• EPI, 10/31/2008

3
Economic Indicators Employment

• 6.5 unemployment in October, highest since 1994
• Blacks 11.1 Hispanics 8.8 Whites 5.9
• Over 22 unemployed for 6 months or longer
• 1.4 million non-govt jobs lost since Nov 2007
• Underemployment reached 11.8
• (incl discouraged job seekers and involuntary
  part time)
• 2.9 unemployed workers for each opening
• - EPI, BLS, 11/7/2008
• 1 increase in unemployment 1.1 mill increase
  in uninsured, 3.4 mill increase in Medicaid
  SCHIP
• Kaiser Family Foundation estimate

4
Economic Indicators Cost of Living

• CPI-W, up 5.4 over last 12 mos (Sept)
• Median weekly earnings rose 2.9
• Food up 6.3
• Energy up 23.8
• Housing up 3.8
• Medical Care up 3.3
• All items less food and energy up 2.4
• - BLS, 10/16/2008

5
Economic Indicators Cost of Living

• Deflation would be worse
• Prices fell 25 from 1929 to 1933
• But consumers postponed purchases believing that
  prices would fall further and supply overpowered
  demand
• Manuafacturing output fell 39
• Unemployment hit 25
• GM sales down 45 in October
• Commodity prices falling oil, metals
• Too much inventory could lead to layoffs
• Old debts hard to repay with lower income

6
Economic Indicators Wages
- From BLS Survey, May 2007 Industry includes
cable companies
7
2008 ATT Wages Customer Service (Current Top
Wage)
8
2008 ATT Wages Technician (Current Top Wage)
9
Economic Indicators Health Care Benefits

• Virtually all large employers offer coverage
• 10 of large employers pay 100 of the cost of
  single coverage
• 4 of large employers pay 100 of the cost of
  family coverage
• 93 offer pre-65 retiree health coverage, 75
  offer supplemental coverage to Medicare
• In 2003, retirees averaged 39 of the cost of
  health coverage 166/mo pre-65, 83/mo post

Large Employer 200 or more employees
10
Economic Indicators Health Care Benefits

• 2008 Average Premium for Active Employees
• 4,704 single, 12,680 family
• Family coverage increased 27 from 04 and 119
  from 99
• Average Employee Contribution
• 720 (15.3 of premium), 3,360 (26.5)
• Average PPO Deductible 650/1,344
• Average Office Visit 19 primary/26 specialist
• Average Drug Co-Pays 10/26/46/75 (lifestyle)
• Kaiser Family Foundation, 2008

11
Consumer Directed Health Plans

• Conservative solution to health care crisis
• Lower upfront costs (low premiums, covers
  preventive care, physicals, etc)
• Shift responsibility cost to the individual
• Assumes patient has information to shop for the
  most cost effective treatment
• High deductible Out of Pocket Max
• May also offer Health Savings Accts to save for
  retiree health costs

12
Coverage for Cable Employees

• Comcast, Pittsburgh
• Annual Premium 627 single/1811 family
• 25 office visit co-pay, 10 of hospital costs
• Co contributes to retiree health costs, retiree
  pays balance
• Cablevision, New York State
• Annual premium 570/1517 for 40-60K wage
• Deductibles 300/900
• No retiree health coverage offered

13
Verizon Agreement, August 2008

• After comparing the cable company benefit plans,
  Verizon proposed major changes in health plans
  including
• Premium sharing for Actives and Retirees
• Deductibles
• Higher Co-pays for all services and drugs
• After weeks of bargaining, final agreement
  maintained all benefits
• Slightly higher co-pays for drugs and ER usage
• Changes to retiree health for new employees

14
Verizon Agreement, August 2008

• Verizon Retiree Health for New Hires
• No longer promised health coverage when they
  become eligible for retirement
• Instead, once eligible to retiree, they will
  receive an annual payment with which they may
  purchase coverage from the employer or elsewhere
• Annual payment will be renegotiated in future
  contracts to reflect changes in circumstances
• Based on the 2008-2011 rate 12,900 per yr after
  30 yrs
• Reduced long term liability and annual costs for
  new hires

15
Qwest Agreement, October 2008

• Company in difficult economic situation
• 5 the size of ATT, 6 the profit, 46x the debt
• Business model different from VZ or ATT
• No wireless business, Mostly rural geography
• 2005 contract enrollment fees for active h/c
• New Agreement PPO Monthly Premiums
• 2009 33/single 75/Family
• 2012 42/93
• Deductibles 2009 200/500 2012 300/600
• High Deductible Option with very low premiums

16
Agreement to Work for Health Care Reform

• VZ, Q agreement to work together on efforts to
  reform the health care system
• Similar to UAW and auto companies, USW and steel
  companies
• Agree to work together and in coalitions with
  other employers and unions
• No restriction on working with other
  organizations even if not undertaking joint
  activities

17
ATT Core (SBC) PPO Network

• No premiums, 40/mo for working spouse
• No deductibles or co-insurance
• No hospital admission co-pay, in network
• No out of pocket maximum
• Office visit co-pay 20
• Most preventive care without co-pay
• 75 ER co-pay (waived if admitted)
• Prescription drugs in 2009
• 10 Generic
• 20 Formulary
• 40 Non-Formulary

18
Legacy ATT Network

• Same as SBC 2004 Core except . . .
• No working spouse surcharge
• Out of Pocket Maximums
• 1000 indiv / 3000 family
• Some co-pays for preventive care
• 200 hospital admission co-pay (instead of ER
  co-pay, if admitted)
• Prescription drugs (whole agreement)
• 10 Generic
• 20 Formulary
• 40 Non-Formulary

19
ATT Internet Services

• 2 Consumer Driven Health Plans
• Preventive care 100 paid in network
• All other costs subject to deductible
• 10 co-insurance after deductible is met
• Over out-of-pocket max, plan pays 100
• 40 co-insurance after deductible out of network
• Limits on new hire eligibility for higher premium
  plan with better coverage

20
ATT Internet Services

• Medical Plan for Bargained Employees
• Monthly Premiums 0 sgl/43 1/86 family
• Deductibles must be met before plan pays except
  preventive care
• Out of Pocket Limits
• Can be reduced with higher monthly premiums
• Rx 7/20/39 retail, 16/40/78 mail order
• Medical Choice Alternative
• Premiums 0/60/120
• Rx 8/17/35 retail, 17/35/70 mail order

21
ATT Mobility Current Plan

• Premiums
• 15 employee / 30 spouse / 40 family
• No working spouse surcharge
• 15 office visit co-pay, incl preventive care
• 35 hospital admission co-pay
• 100 ER co-pay (waived if admitted)
• National plan awaiting arbitrators decision

22
ATT Mobility Last Best Final

• Increase cost sharing from 11 to 26 over
  contract term
• Require new hires to pay 26 after 6 mos, (100
  at date of hire)
• Co-Insurance 10 after deductible
• Rx 8/17/35 retail 17/35/70 mail order

23
Economic Indicators Retirement Benefits

• In 2006, 54 of workers had no employer sponsored
  pension
• 32 had only a 401k plan
• Less than 4 only a defined benefit plan
• 10 both
• 2007 saw the largest increase in 401k plan
  participation since 1998
• Retirement Plan Assets in 2007
• 38.6 in DB plans
• 61.4 in DC plans

24
Economic Indicators Retirement Benefits

• Both 401(k) and pension fund assets have followed
  the market
• so far in 2008, Dow down 37, Nasdaq 42
• Dow index at February 1996 levels (inflation
  adjusted)
• 10/9/07 -10/9/08, plans lost 3.8 trillion
• Evenly split between DC and DB plans
• DC plan losses fall directly on the worker
• Workers with DB plans protected from loss, but
  affect funding
• Increased contribution requirements
• Could lead to plan freezes, job losses or
  bankruptcies

1.
25
Economic Indicators Retirement Benefits

• Goodyear, GM and others have already stopped
  matching 401(k) contributions (USAToday, 10/28),
  more employers may do so
• Corporate pension funding levels have fallen from
  108 to 91 so far in 2008 (Time, 10/31)
• Businesses lobbying to delay the impact of PPA
  2006 on funding, estimated 92 billion in
  contributions required
• has AFL-CIO support
• GM will eliminate lifetime health coverage for
  salaried retirees (NYT,11/10)

26
Retirement Plans

• Pension Plan Comparisons
• Traditional Plans
• Cash Balance Plans
• Hybrid Plans
• Bargaining Goals
• Savings Plans
• Provisions
• Bargaining Goals

27
Types of Plans

• Traditional Defined Benefit Plans
• MidWest SouthWest
• West Southwest Mobility
• Cash Balance Plans
• East Mobility
• Hybrid Plans
• Legacy ATT BellSouth

28
Pensions

• Comparing Pension Benefits
• What benefits will be paid in retirement
• What choices does a retiree have in how to
  receive those benefits
• Will the benefits paid be enough to maintain the
  standard of living the retiring employee attained
  while working?
• ATT employees have several very different kinds
  of pension plans

29
Traditional Plans

• Pensions band dollar values vary depending on job
  title and wages
• Monthly benefit paid band amount x years of
  service
• Single life annuity, Joint and Survivor Options
• Lump sum distribution option based on single life
  annuity (amount varies with age and interest rate)

30
Cash Balance Plans

• Studies indicate that a quarter of defined
  benefit plan participants are in Cash Balance
  Plans
• Benefit expressed as a lump sum monthly annuity
  is a distribution option
• Cash balance is hypothetical not like 401k
• Balance grows with wage related credits and
  interest
• Once vested, benefit may be taken upon
  termination of employment
• Most valuable in early years, not as good a
  benefit for a long service employee

31
Hybrid Plans Legacy ATT

• Cash balance option available to everyone
• Traditional band plan available to anyone who
  had 15 or more years service on 7/1/1998 choose
  the better of the two
• Pay related credits vary by pension band and
  years of service
• Opening balance converted pension earned to date
  with factor based on age

32
Hybrid Plans SouthEast

• Traditional benefit through 12/31/1998
• Enhanced for those that wait to retire
• Everyone earns cash balance since 1999
• Pre-1999 employees had an opening balance from a
  prior benefit
• Both designs use pension bands
• Annual CBA credit 60 x pension band

33
Bargaining Goals Pensions

• Regular contributions to maintain healthy funding
• Annuity benefits at 40 of final pay
• Keep lump sum and GATT rate
• Improvements to pay related credits for cash
  balance plans
• Maintain 7 interest credit in CT, Improve
  interest credits in Legacy T, Southeast and
  Mobility

34
Bargaining Goals Savings Plans

• Company match diversification
• Over 50 catch-up provisions
• Rollover rights
• Investment options
• Roth IRA option
• Investment fees

35
Conclusions

• A rough economy for bargaining
• The recession has not hit telecom hard but credit
  market constrictions help no one
• Technological changes in the next few years will
  present difficulties
• Protecting wage and benefit advantages under our
  contracts not easily done
• Reform in health care and labor law would help
• Those victories wont come easily or quickly

36
Benefits Data Appendix

• Bob Patrician
• CWA Research Department

37
Comcast (Pittsburgh) Medical Benefits (2006)

• POS Annual Premiums 627 single/1811 family
• 25 office visit co-pay
• 90 hospitalization coverage
• Rx 10/20/25 retail, 2X mail order
• Lifetime maximum coverage 3,000,000
• Retiree Health
• Single limit of 288 x years of service (96
  post 65)
• Couple 432 x yos pre 65, 144 x yos post 65
• Retiree pays the balance

Data from Verizon presentation November 2007
38
Cablevision (NY State) Medical Benefits (2007)

• POS Annual Premium varies with pay
• 570/1517 for 40-60,000 wage
• Deductibles 300 single/900 family
• 15 office visit co-pay
• 350 co-pay per hospitalization then 100 paid
• Rx 7/15/25, 2X mail order
• Company provides no Health Care Coverage to
  retirees

39
Monthly Benefit after 30 yearsCore Wireline
Companies
40
Lump Sum Benefit after 30 years(Age 58, 4.5,
GATT 8/08)
41
Monthly Benefit after 30 yearsATT Mobility,
Southwest
42
Mobility Benefit after 6 years(Started in 2002
at Age 24)
Annuity Factor 19.75, same assumptions as those
used for lump sum calculations
43
East vs Legacy T Cash Balance after 10 years(Age
38, 9/08)
44
Legacy ATT Benefit Retiring at age 58 after 30
years
45
South East Benefit after 30 years(Age 58, 4.5,
GATT 8/08)