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    Highlights for week ending December 7, 2002
  • Business Week Readers Report: Just How Good Was Gerstner at IBM? Excerpt: "Louis V. Gerstner Jr., in his nine years at IBM, forced out thousands of loyal employees with layoffs and forced retirement in their late 40s and 50s. ("Lou takes the gloves off," Information Technology, Nov. 18). The object was not to "save the company." IBM has thousands of large corporations throughout the world using operating systems and hardware developed over many decades that is difficult or nearly impossible to replace, and IBM averages $14 billion in profits every year. Gerstner used $43 billion from profits to boost the share price at IBM with stock buybacks in his nine years at IBM, used the $17 billion in the 'old money' pension surplus to boost the annual profits by 20% with 'vapor profits' that boosted the share price of IBM stock. This same pension surplus is now less than $500 million today. Meanwhile, retirees received one cost-of-living adjustment in 10 years, the same year IBM did away with promised medical coverage for retirees. Rather than rescuing a company in trouble, how about an 'accounting illusion' to effect radical change? This is my opinion as an employee who worked at IBM for 32 years and fell victim to Gerstner's methods of wealth accumulation at the expense of a once most-admired company. Mike Saville, Riverton, Utah "


  • USA Today: Moratorium on cash-balance plans may end. Excerpt: "Cash-balance pension plans - which sparked a revolt at IBM, congressional hearings and class-action lawsuits - may be poised for a comeback. The number of companies adopting cash-balance plans, which provide portable benefits that accrue evenly over a working career, slowed to a trickle after worker advocates cried foul. They claimed that the plans shortchange workers and violate age discrimination laws. At the same time, the Internal Revenue Service stopped issuing approvals for new cash-balance plans while it studied the issue. But the IRS moratorium may be about to end. The Treasury Department is expected to issue guidance on the age discrimination issue as early as this week. Though Treasury officials are not commenting, many industry experts predict that the guidance will generally be favorable to cash-balance plans. That is likely to unleash a flurry of conversions from traditional pensions."

Call to Action from Janet Krueger:

The corporate consultants are doing their best to convince Congress and the Treasury that cash balance conversions should be legalized, regardless of how much they harm older workers -- after all, there will be a labor shortage in 10 years, and we'll need to keep all those baby boomers gainfully employed, right? (Flipping hamburgers at minimum wage, if not in the tech sector.)

So, if you are now represented by new Senators and/or Representatives, it is time to make sure they hear, and understand, the worker side of the story. Even if you have old ones, they need to reminded that we still care. Write a letter to each of them; go to www.senate.gov and www.house.gov for addresses, although you may have to wait a bit for the newly elected to be assigned office space. Remember, a personally written letter, followed up by a visit or phone call, has FAR more impact than a chain letter or an email.

For those of you covered by class action lawsuits, be sure to emphasize how angry you will be if any legislation attempts to retroactively derail lawsuits that are in progress.

If Congress does decide to legalize cash balance plans, they need to make a special effort to provide protection for older workers who often lose as much as half their projected pension earnings during the conversions -- since cash balance plans are supposedly put in place to attract and retain younger, mobile workers, companies could meet this objective while giving all existing employees the choice of remaining with the more traditional formula being replaced.

If you come up with a good letter, please share here so that others can pirate all or some of it.

  • "just_a_bean_counter" comments on the above Call to Action (full excerpt): "There are about 130,000 of us covered by Cooper v. IBM. If you are or were employed by IBM anytime from 1990 through today, you are most probably part of that class. If you want to protect what is legally yours, according to current pension law, PLEASE WRITE YOUR LEGISLATORS NOW! Tell them you want a pension that will NOT decrease as you get older. Tell them you want to receive your promised pension. Tell them you want your pension protected, not reduced. Tell them there are 80 million baby boomers out there that are retiring at unprecedented speed, and that you vote. Tell them your pension is the most important thing to you and your family's future. Tell them how angry you will be if there are any legislative attempts to retroactively derail lawsuits that are in progress (from Janet's note). Then sign it and email or snail mail or fax it to your two Senators and your congressperson.


  • IBM: IBM announces plans for pension funding. Excerpts: "IBM today announced that it plans to fund the company's U.S. pension plan fully through a contribution of cash and/or stock this year. IBM currently estimates a difference of $3.0 billion between the U.S. plan's assets and projections of benefit obligations on an accumulated benefit obligation or ABO basis. The amount and structure of the contribution will be determined by year-end 2002, with the final funding decision dependent upon several variables, primarily the performance of capital markets and interest rates." ... "IBM has not contributed to the U.S. pension plan since 1995. Mr. Joyce indicated that any contribution to the pension plan would not affect operating budgets or strategic initiatives."


  • Barron's: Pension Scheme. Contributions to underfunded plans will actually boost some companies' future profits. Excerpt: "When International Business Machines announced last week that it would double this year's planned contribution to its pension fund, to $3 billion, Chief Financial Officer John Joyce emphasized the move wouldn't hurt the computer giant's 2003 earnings. What he didn't mention was that this step to shore up IBM's under-funded pension plan will actually boost the computer giant's bottom line by over a quarter billion dollars next year."
  • ... "At IBM, the company plans to contribute $3 billion, split evenly between cash and common stock, by year-end. Based on IBM's assumed rate of return of 8.5% on its pension assets, that contribution would yield a $255 million ($3 billion multiplied by 8.5%) decrease in pension expense next year. That, in turn, would translate to an equal increase in operating income next year over what IBM would have earned without having made the contribution. More important, the entire benefit counts as a reduction of operating expense, creating the appearance of a fundamental improvement in the business's performance. The irony is that as resources are diverted from shareholders, creditors or reinvestment opportunities toward paying out future retiree benefits, the company gets to show improved earnings." If link is broken, view Adobe Acrobat version [PDF--82 KB].
    • Janet Krueger comments (full excerpt): The article ... from Barrons gives more credence to the notion that IBM's 'altruistic' decision to fully fund the pension fund this year, rather than averaging the contributions over the next 5 years as allowed by federal law, may stem from their need to once again boost annual income for 2002 with virtual profits. We wouldn't want the executives to have to forego any of their executive bonuses, would we?


  • From Mike Cericola: The Tampa harassment case will be going to trial this month. Excerpt: "I've posted two Microsoft Word files that lay out the allegations in the harrassment and discriminatory firing case in Tampa. The most recent one indicates that the Federal judge has dismissed all IBM's motions, and has docketed the case for hearing in December, 2002. IBM's attorneys have entered a motion for delaying of the trial until January. Probably to assure that the litigation won't be reported in IBM's 2002 annual report. I doubt that the Federal judge will grant that motion, as he has apparently found IBM to be in breach of its settlement agreement with Mark Kring, probably entered into under the supervision of that same judge." Following are links to the documents Mr. Cericola posted:


  • Dow Jones Business News: Complaints Spur FASB To Consider Pension Accounting. Excerpt: "Mr. Ciesielski likens pension accounting to the Shmoo, a character from the comic strip "Li'l Abner." He describes the Shmoo as "a chubby, cheerful little blob of an animal whose chief happiness derived from serving mankind -- to the point of hopping into a frying pan to please any person who cast a hungry glance his way." "There a similar animal in corporate finance: it's the defined benefit pension plan and the accounting for it," Mr. Ciesielski wrote. "These creatures serve the retirees who earned a pension, but they also serve CFOs a perennial accounting mechanism for smoothing earnings, to the point where such plans might actually produce income instead of expense in the income statement -- income not to be realized in future cash flows."


  • InfoWorld: Mobile workers unite. Excerpt: "McDowell told the audience that thanks to Microsoft and the high-tech industry, the dream of office automation was coming true. What was that dream, according to McDowell? Personal productivity. Excuse me, but I thought the dream of office automation was a shorter work week? You know, more time for the family? But of course, no one has ever left the office even five minutes early since the introduction of the PC." ... "McDowell extols the use of technology because, he says, '[I have] less and less time to do my work.' Not true. He has the same amount of time he's always had. He is just required to do more work. And that's the crux of the matter. Our corporate employers have somehow convinced us that we have less time, not more work."


  • "ibmmike2005" extracts reviews posted on www.amazon.com of Lou Gerstner's book Who Says Elephants Can't Dance? Inside IBM's Historic Turnaround. See extracts...
"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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