Indianapolis Power & Light could have been on the hook for more than $100 million in retirement benefits, but a ruling this month by the Indiana Utility Regulatory Commission allows IPL to keep the money.
IPL prevailed against a claim by retirees who wanted the utility to pay up to $115 million to back-fund a post-retirement benefit plan, plus $19 million a year thereafter.
The May 13 ruling by the IURC effectively means IPL isn’t obligated to resume funding the IPALCO Enterprises Voluntary Employee Beneficiary Association.
IPL stopped funding the trust following the 2001 acquisition of the utility by Virginia-based AES Corp.
Sixteen retirees and the International Brotherhood of Electrical Workers have argued since 2007 that IPL is still recovering the cost of the plan in its electric rates, despite no longer funding the trust.
The VEBA plan, which at last count had 1,600 members, has been struggling to meet medical, prescription drug and death-benefit obligations. Without annual IPL funding, it now relies primarily on investment income.
Current financials for the trust aren’t publicly available. It came under strain in 2005, in part as a result of a wave of early retirements from IPL following its purchase by AES. A year later, the trust’s administrators, in an effort to extend its long-term viability, eliminated benefits to dependent children, required that spouses begin paying for coverage, raised deductibles, and reduced death benefits.
An attorney representing IBEW 1395 said the union is considering an appeal of this month’s ruling. If so, it could take the form of either a rehearing before the IURC or pleading to the Indiana Court of Appeals.
"It’s fair to say at this point we are taking a little bit of time to review with care this decision," said John "Jack" Wickes, a veteran utility law attorney at Lewis & Kappes.
David Williams, business manager of Local 1395, declined to elaborate.
The union questioned whether IPL’s discontinuation of VEBA funding in 2001 amounted to violating a rate case approved by the IURC in 1995 that took into account IPL’s obligation to fund the VEBA.
A few years earlier, the Financial Accounting Standards Board had issued new accounting and financial reporting requirements for post-retirement benefits, known as SFAS 106.
IPL and other employers who’d previously recognized expenses in the year they were paid to retirees, under a "pay as you go" method, were required to report costs on an accrual basis under the new rules.
That meant putting in place an annual allocation of projected expenses to cover future benefits. The estimated amount for VEBA was $19 million a year.
Union officials argued that the 1995 rate case, which is still the basis of IPL rates and generated an additional $60 million a year for the utility, included the VEBA funding obligations.
"For 12 years, Marion County ratepayers have been paying to fund the VEBA Trust. Yet IPL failed to use any of the ratepayer funds to pay into the trust" since IPL was acquired by AES, Williams complained in 2007.
Workers were suspicious the money had been used instead to pay AES in the form of dividends. IPL paid total dividends to AES last year of nearly $72 million. In the first quarter of this year, it sent parent AES $55 million, according to filings with the Securities and Exchange Commission.
In response to the union’s 2007 complaint with the commission for renewed VEBA funding, IPL argued that the 1995 rate settlement merely authorized it to account for post-retirement benefits on an accrual basis.
IPL said the rate settlement did not define an agreed-upon level of expenses for VEBA contributions.
The commission agreed with IPL in its May 13 ruling.
"We cannot say that the  settlement agreement …. required some set amount of funding for post-retirement benefits," the IURC said.
"That no specific dollar amount was so specified supports the conclusion the language in the settlement agreement only referred to the accounting treatment of SFAS 106 costs."
IPL appears to have won the battle over the VEBA.
But the spinoff of the plan and the apparent redirection of money once intended to fund it still creates ill will among some current and former IPL employees.
They point to testimony a former IPALCO senior vice president gave in the 1995 rate case when asked by the Office of Utility Consumer Counselor whether IPL could withdraw the VEBA plan down the road.
"That would be very difficult for the company to do. What you described would be theoretically possible, but the company could only do that if it were to go back on a solemn promise to its employees," former Senior Vice President John Brehm said at the time.
IPL isn’t alone, however, in its quest to tamp down retirement expenses.
For example, Caterpillar and Detroit Diesel unloaded big portions of their retiree benefit obligations into VEBAs during the 1990s, only to see the trusts run short later and force cuts in retiree benefits.
Unions representing those companies have also engaged in legal wrangling to try to force companies to again put money into the VEBAs.
The latest publicly available information on the IPALCO VEBA, taken from its tax return, shows a net asset value of $92.6 million on Dec. 31, 2007. That year, it paid out nearly $7 million in benefits.
But this past February, the plan warned it would make further cuts in benefits to those who retire from IPL after Dec. 31 of this year. Those who retire after the end of the year will not be eligible for a $5,000 death benefit and would receive less-generous medical and prescription drug coverage, according to a letter sent to IPL workers approaching retirement age.
"Without these changes it is probable that the trust assets would not be sufficient to provide a meaningful level of benefits for future retirees," it stated.
The letter indicated the trust’s equity assets have declined in value over the last year but does not elaborate. "We want to assure you that the VEBA Trust, with the assistance of U.S. Trust and the National Bank of Indianapolis, has maintained a well-balanced portfolio of cash, tax-exempt bonds and equities."