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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."
- In an interesting twist, "hrcontractor2001" points out that the
U.S. version of this article omitted two paragraphs pertaining to
IBM and its former CEO Louis Gerstner. These two paragraphs were in
the European WSJ, but not in the U.S. version:
"A footnote in International Business Machines Corp.'s
latest proxy discloses that last year Louis V. Gerstner Jr., now
60, the company's chairman, received $300,000 in contributions to
his 401(k) and the executive deferred-compensation plan. A shareholder
trying to tease out how that money was allocated would have to know
enough about tax law to realize that no more than $12,000 of this
payment could have gone into Mr. Gerstner's 401(k) account. And
only someone intimately familiar with SEC disclosure rules and the
details of IBM's top-hat plan would know that the figure leaves
out interest credited to his account."
posting of the entire European Wall Street Journal article [PDF--74
"An IBM spokeswoman confirms that the bulk of the $300,000
did indeed go into Mr. Gerstner's deferred-compensation account.
She says that the account's returns mirror those of the investments
in his regular 401(k) account, and therefore need not be disclosed.
The spokeswoman says thousands of its executives participate in
its deferred-compensation program, and that the average annual
deferral is $45,000."
(self described as "the friendly, happy, outsourced HR people at Fidelity")
comment on the disparity between the U.S. and European versions of
the Wall Street Journal article, on Mr. Gerstner's careers at RJ Reynolds,
IBM, and Carlyle. Excerpt: "Too bad for you Lou that you
can't get to every news editor in the world, you would exhaust the
money you have set aside for US payoffs & escorts." If link
is broken, view Adobe Acrobat
version [PDF-- 53 KB].
|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:
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
|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
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,
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
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
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
(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.
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.