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    Highlights for week ending December 14, 2002
  • Reuters: Retirement Perks for Execs Under Scrutiny.
  • Excerpts: "Companies have gotten used to paying big bucks to keep their retired executives in lavish lifestyles, but the practice has become much harder to justify in the wake of public criticism over the cost of such perks." ... "International Business Machines Corp. said Louis Gerstner, its outgoing chairman and former CEO, will keep his access to the company's New York City apartment, along with company planes, cars, offices, and financial planning for 20 years. Use of the apartment and planes is subject to availability. But retirement may not be such a lavish affair for Gerstner's successor, Samuel Palmisano. A company spokeswoman said the current CEO does not have an employment contract, which is typical of IBM executives. Gerstner, who rarely talks to the press, has said little about his package. Asked if he thought it would be affected by the criticism of large CEO retirement packages that has followed disclosures about Welch, Gerstner replied, 'Not a bit. Not a bit.'"

  • From "hrcontractor 2001": IBM Executives...your enrollment deadline for the EDCP is Dec 16! Don't forget...Dec 16 is your last chance to enroll for the 2003 IBM Executive Deferred Compensation Plan! Here it is if you have lost your copy! Just released... (View 2003 EDCP plan document [PDF--569 KB]).


  • Wall Street Journal: Buried Treasure: Well - Hidden Perk Means Big Money For Top Executives [PDF--83 KB]. Excerpt: "Super-sized salaries, sweetheart loans and generous stock options have come under fire as corruption scandals have prompted heavy scrutiny of executive compensation. But lurking behind those benefits is another goody swelling the pay packages of top executives. With hefty infusions of cash from their employers, senior officials at many large companies are accumulating big sums in their deferred-compensation accounts. It adds up to a massive, ever-ballooning and in most cases unknowable corporate liability. All this means that the lawmakers and corporate compensation watchdogs who have railed against what they consider to be bloated executive pay in recent months have largely overlooked one of the biggest sources of executive compensation, worth a total of tens of millions of dollars to top officers."


Meanwhile, retirement benefits for "ordinary folk" are under attack by the U.S. Presidential administration and Congress, as described in the following articles. First, a letter written by Congressman Bernie Sanders in October 2002, and signed by 116 other members of Congress:
  • Letter to Commissioner of the IRS and National Taxpayer Advocate, from Congressman Sanders and 116 members of Congress, sent 10/24/2002 regarding Enforcement of Pension Laws on Books. Excerpts: "We are writing to urge the Internal Revenue Service (IRS) to take immediate action and issue guidance to enforce all of the pension laws, regulations and notices that are on the books to prevent companies from illegally slashing the pension benefits of American workers and retirees as a result of cash balance conversions." ... "The report found that a number of companies are illegally slashing the retirement benefits of their employees by between $85 million and $199 million each year by shifting to cash balance pension plans. Even worse, the OIG found that the federal government was not enforcing the pension laws and regulations that are on the books pertaining to cash balance pension conversions. It is our understanding that corporations are lobbying the IRS behind the scenes to gut or even eliminate altogether federal regulations designed to protect the pensions of workers. We urge you not to give in to these corporate lobbyists and stand up for workers and retirees who have seen their pensions slashed by as much as 50% as a result of cash balance conversions."
Unfortunately, Bernie's letter was ignored. With a single party firmly in control of both the executive and legislative branches of the U.S. government, it appears that it's "payback time" for corporate lobbyists and their greedy corporate clients:
  • New York Times: Administration Proposes Rules That Can Alter Pension Plans. Excerpts: "The Bush administration has proposed sweeping new pension rules that will encourage companies to adopt a type of retirement plan that has been under attack for three years for what critics call a tendency to strip benefits from older employees. The proposed rules, which are to be released by the Treasury Department on Tuesday, describe the steps for companies to avoid age-discrimination challenges when they convert their traditional pension plans into what are called cash-balance pension plans. Cash-balance plans tend to benefit younger workers, often at the expense of older workers, and are less costly for companies. Getting clearance for these pension plans was near the top of businesses' wish list, but the rules were being attacked by Democrats in Congress even before their release." ... "Cash-balance plans were popular until September 1999, when the Internal Revenue Service, facing criticism from workers at some companies, decided to halt approvals of the plans to study whether they unfairly discriminate against older workers. At some big companies, workers staged rallies to attack executives for making the switch, forcing some companies, most notably I.B.M., to back down or offer employees a choice of keeping their old pension benefits." ... "'This proposed change to pension rules will result in average employees losing ground in their pensions, while top company executives will continue to receive lavish treatment,' said Representative George Miller of California, the ranking Democrat on the House Education and Workforce Committee." If link is broken, view Adobe Acrobat version [PDF--18 KB].


  • Newsday: Proposals May Protect Employer Liability. Excerpts: "The Bush administration plans to propose new regulations Tuesday that would protect employers from age discrimination liability when a company converts its traditional retirement pension benefit to a different arrangement called a 'cash balance plan.' Such conversions typically mean less money for workers closer to retirement age. Currently there is a moratorium on government approval of conversions. But that would be lifted if the regulations are approved after a public comment period and an April meeting of the Internal Revenue Service." ... "'This is deregulation of pension plans and it is going to cost employees dearly, especially employees over 40 years of age,' said Rep. George Miller of California, ranking Democrat on the House Education and Workforce Committee."


  • USA Today: Treasury says cash-balance pensions are OK. Excerpts: "Worker advocates expect employees to complain loudly about new Bush administration proposals in support of a controversial type of pension plan. In a long-anticipated 75-page document, the Treasury Department on Tuesday said that so-called cash-balance pension plans do not discriminate against older workers." ... ""I think there will be a rekindling of the kind of protests that occurred two or three years ago," says Karen Friedman at the Pension Rights Center. IBM's conversion to a cash-balance plan was the focus of worker opposition in 1999 that resulted in congressional hearings and lawsuits. Near the same time, the IRS stopped issuing approvals for new cash-balance plans. Rep. Bernie Sanders, I-Vt., was swamped by calls from irate IBM workers in 1999. He calls the proposed rules an 'assault on workers.' But they are good news for employers. The move 'breaks a 14-year logjam that created legal uncertainty and misguided lawsuits for large employers,' said the ERISA Industry Committee, an industry group."
  • If link is broken, view Adobe Acrobat version [PDF--24.8 KB].

  • Newsday: Pension Plan Rules. Proposed Changes could affect older workers. Excerpts: "But even some younger workers are finding the new deal unpalatable. Jeffrey Zitz is 38-year-old senior engineer, and a 15-year company veteran, at IBM's East Fishkill facility who specializes in computer modeling. So when IBM announced plans in 1999 to convert to a cash-balance plan -- and said the average employee would lose 20 percent of their pension benefit -- Zitz made his own computer model. 'I was sure they were taking money off the table, but I didn't know how much,' he says.

    To Zitz's horror, he learned his loss would be closer to 65 percent. Using IBM's own numbers, he figured his monthly pension at age 65 would drop from $14,465 to just $4,542, and more recent changes have driven the figure even lower. IBM has since allowed workers as young as 40 to stick with the old plan, but that doesn't help Zitz. 'Honestly, there's not much I can do about getting that money back,' says Zitz, who says he would have to sock away $20,000 a year in after-tax income to make up the shortfall. Zitz says he's more skeptical about pension promises. 'None of this is guaranteed,' he says. 'It's something of a shell game.'

    Lynda French, a former IBM employee who runs Cashpensions.com, an advocacy Web site for employees affected by the switch, said she retired at age 55 two years ago, before IBM relented and lowered the age limit, because she would have lost 'about half' of her nest egg. Such conversions are 'taking away money that people already earned,' French said. 'You can't go back and replan your financial status.'" If link is broken, view Adobe Acrobat version [PDF--15 KB].

  • National Public Radio's All Things Considered segment: Pension Plan Conversions Could Hurt Older Workers. Excerpt: "The Bush administration prepares to lift a moratorium on a new, controversial type of pension, the cash-balance plan. The Treasury Department has released regulations indicating what companies must do when converting pensions to cash-balance. Companies with large numbers of older workers are especially interested. Critics say lifting the moratorium will lead to a flood of conversions that will hurt older workers. NPR's Jim Zarroli reports.' (Dec. 10, 2002). Listen to report. (Requires free RealOne Player--download now if audio fails to play).


  • San Francisco Chronicle Editorial: A torn pension check. Excerpts: "THE LONGER you work, the bigger your pension. That's the retirement math that workers use for sticking with one company. But a White House policy wants to shred this promise to let businesses save money on pension costs. It's a bad idea that should be stopped." ... "But the Treasury plan isn't about new workforce habits. It's designed to break pension promises to reward business. It's no accident that the idea surfaces after sweeping GOP victories last month emboldened the White House to push ahead."
  • If link is broken, view Adobe Acrobat version [PDF--12.0 KB].

  • Houston Chronicle: Don't let pension plan changes catch you by surprise. Excerpts: "Most people assume that when they retire, they'll get a monthly pension that, along with Social Security and other investments, will allow them to live out their golden years in comfort. More than most don't even try to figure out what they'll have for retirement until they celebrate their 55th or even 60th birthday. But inattention to something so vitally important is a mistake, especially now that the Bush administration announced this week it is planning to make it easier for companies to alter those old pension plans to 'cash-balance' plans." ... "And many times, employees don't even realize what they'll lose. Lynda French had to hire an actuary to find out how she'd fare when IBM converted to a cash-balance plan three years ago and discovered she'd lose 45 percent of her pension if she stayed with IBM. French, who was a software analyst, was just shy of 55. "It's too late in life -- especially now with the problems of 401(k) accounts -- to recover financially," said French, who is now the Webmaster of cashpensions.org, based in Austin.

    French was only one of many angry IBM employees who protested the conversion. When U.S. Rep. Bernie Sanders, I-Vt., held a town meeting to discuss employees' concerns about the new plan, nearly 1,000 IBM workers showed up. A few months after the workers began complaining and Sanders got involved, IBM relaxed its rules and allowed an additional 35,000 workers 40 and older to choose the option to stay on the previous defined-benefit pension plan. In the midst of the controversy, the Internal Revenue Service stopped certifying cash-balance plans as qualified retirement plans. But the Bush administration's proposal, which eases the age discrimination issue, has rekindled interest in the plans." If link is broken, view Adobe Acrobat version [PDF--34.3 KB].

Call to action: As you already know, the Treasury put out regulations this week that would legalize cash balance conversions, even if they don't provide a choice for older workers and trigger long periods of wear away. This is simply NOT acceptable.

We have until March 13 to make our voices heard in Washington -- if we lose, and the regulations go into effect as currently proposed, two bad things will happen:

  • Companies who still have good pensions in place will have a green light for reducing them -- millions of baby boomers will be forced to pare back their retirement plans substantially, and thousands of them won't figure it out until they retire and see how little the get.
  • Hundreds of open EEOC charges and pending lawsuits against companies that have already slashed pensions through cash balance conversions will most likely be closed out with no help for the employees who already saw their promised retirements slashed.

Write to the Treasury and tell them no! By law, the Treasury must accept public comments through March 13, 2003. 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.

Make 5 copies. Mail the original to:

Internal Revenue Service
POB 7604
CC:ITA:RU (REG-209500-86) Room 5226
Ben Franklin Station
Washington, DC 20044

Using your copies, send each to your two Senators and your Representative in Congress. Send the last one to your local paper as a letter to the editor.

(Editor's note: The easiest way to find your senators and representatives is to "search by ZIP Code" on this page. We highly recommend you write (using postal mail) or fax your senators and representative. Congress receives so much e-mail that it is largely ignored. Old fashioned "snail mail" receives more attention).

We don't need to be formal. We don't need lots of analysis, although analysis is happening, and will be posted on www.cashpensions.org when it is available. We don't need overkill. We don't have a minute to waste. We only need to get a couple of million baby boomers to write the Treasury and just say NO.

If you've got questions, give me a call.

Thanks,
Janet Krueger
507 289 9030

In other news this week:
  • CNET: U.S. Firms Move IT Overseas. Excerpts: "Under pressure from overseas rivals, U.S. companies selling information technology services have a new mantra: If you can't beat them, join them." ... "Last month, computer services giant Electronic Data Systems announced its 'Best Shore' program, promising a 40 percent increase in personnel and resources devoted to low-cost applications services centers around the world. EDS currently has 4,500 employees working out of 13 Best Shore facilities, which are located in cities such as Chennai, India; Sao Paulo, Brazil; and Wellington, New Zealand. In addition, IBM's services wing says that for more than a year it's had what it too calls a 'Best Shore' strategy. Big Blue has services centers in the low-cost countries of India, Mexico, Argentina, Brazil, Venezuela, Canada and China." ... "By 2015, a total of 3.3 million U.S. jobs and $136 billion in wages will transfer offshore to countries such as India, Russia, China and the Philippines, according to Forrester. Reasons for the shift start with lower wages. HP pegs the cost of a talented programmer in India at about $20,000 a year, a fraction of the cost of a top U.S. tech worker."
"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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