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    Highlights for week ending August 18, 2001
  • Forbes: Lucent reveals severance deals for former CEO, CFO.

  • Morningstar: Optimists Make More Money. Excerpts: "By simply assuming a higher future rate of return on their pension assets, companies can reduce their pension costs, since they don't need to contribute as much to the pension fund. Just as in the example above, this simple change in the expected rate of return implicitly plumps up the company's bottom line by reducing the amount of money it has to set aside to pay future retirees." ...

    "IBM, for example, reduced its costs by about $1.2 billion in 2000 just because its pension plan was overfunded, and a billion dollars isn't chump change even for a firm as gargantuan as Big Blue. IBM's pretax income last year was about $11.5 billion, so the pension plan contributed meaningfully to the company's 2000 results. The real kicker is that about $200 million of the gain is attributable simply to IBM's decision to raise its expected future return on plan assets from 9.5% to 10%. That's it--an extra $200 million in profits simply by assuming that pension assets will appreciate at 10% per year in the future."

    "So what if these rosy predictions don’t come true? Well, if the returns on pension assets turn out to be appreciably worse than the approximately 9% that the average large company is expecting, all that juicy pension income will go away, and companies will have to start paying into their pension plans as well. Moreover, the absurdity of these high expected returns will become increasingly apparent, and when companies revise them downward, the funding status of their pension plans will look even worse."

    "The bottom line is that if you own shares of a company with a traditional pension plan, make sure you check to see how much of its profits are coming from pension assets rather than its core operations--not to mention the profits that flow simply by virtue of unfettered, unrealistic optimism." If link is broken, view Adobe Acrobat version [PDF—71 KB].

  • An on-going debate continues on the Yahoo! IBMFORIBMERS club ("An Alternative to the IBMPENSION site" populated largely by apologists for IBM). The following postings are interesting in that they describe IBM promises (written and verbal) made to employees regarding retiree medical and pension benefits:
  • IBM Employees reports on 2001 layoffs...

  • Age discrimination? View age statistics for recent layoffs in IBM's Server Group...

  • Washington Alert: Excerpts: "IBM and their allies are getting ready to resume their tricks in the capitol. So far, all the lawsuits against cash balance plans are leaning towards the employees, with a growing body of proof that these plans clearly violate the age discrimination rules that were put in place for defined benefit plans. IBM is feeling the heat. Cooper v. IBM will be class certified any day now, creating a liability against IBM of over a billion dollars..." "IBM doesn't want to fight fairly in the courts; they would rather spend several million dollars in Washington asking to have these plans RETROACTIVELY legalized!!!" Read more...
    • For more background on the state of current laws, check the recent report from the Bureau of National Affairs (BNA)... Excerpt: "Although employers have used cash balance pension plans since the mid-1980s, the potential inequities of such plans for older employees became a widespread concern only recently, when the efforts of IBM and some other large employers to convert their traditional defined benefit plans sparked media, congressional, and administrative scrutiny." ... "Critics of cash balance conversions, however, claim they are thinly veiled attempts by employers to reduce their pension costs on the backs of older, long-term employees who sometimes stand to lose 30 percent to 50 percent of their expected pension benefits"

  • More lawsuit information... Excerpt: "Several retirees have recently questioned what is happening relative to their loss of non-contributory medical benefits for themselves and their dependents for life. As I stated over a month ago, legal action is being actively considered relative to the medical changes for older retirees who were promised non-contributory health care when they left. We've engaged a legal team that specializes in these issues. They are actively looking through our records and building a case. Call me if you're interested in an off-line discussion of the status."

  • Jim Phillips, a Vermont IBM employee, reports on recent union information meetings in Burlington. He speculates that PBCs (Personal Business Commitments) may be the issue that unifies employees against IBM management. Excerpt: "I believe it is the root of all of these problems, be they shared or unique to our own work situations. I believe that all common sense and sound business sense got launched into space since it was introduced to us by our beloved leader. It is a system which, in order to achieve the same this year as last, one must commit to accomplishing MORE this year than last. It is the very glue that holds the IBM pyramid scheme together. It's called the PBC. And as long as it exists, so will the insanity that is fracturing the very stones that are supporting it."
"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
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