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    Highlights for week ending December 28, 2002
  • Sacramento Bee: Editorial: Shorting older workers. Bush rules open doors to smaller pensions. Excerpts: "Imagine you are a 56-year-old worker. You've put in 20 years at Widgets Inc., forsaking other jobs because you trusted in the company's promise to pay you a decent pension at age 65 based on your long, loyal service to the firm. And then the company announces it is changing your pension plan in a way that will reduce the pension you receive at retirement by 30 percent or more. Unimaginable? Unfortunately not. The Bush administration -- a government of the CEOs, by the CEOs, for the CEOs -- this month announced rules on pension conversions that will again open the way for firms to reduce their pension costs (and raise their stock prices and CEO compensation) by pulling the rug out from their older employees. Only a change of heart by the administration, or action by Congress, stands in the way."
  • If link is broken, view Adobe Acrobat version [PDF--79 KB].

  • San Diego Union-Tribune: Cash-balance system a bit murky, may hit older workers hardest. Excerpts: "Others are more critical, alleging that cash-balance pension plan conversions violate the law. Around the country, these conversions have sparked more than 900 complaints of age discrimination at the Equal Opportunity Commission. Critics say the plans are little more than a smoke screen for cutting benefits to older workers. In 1999, the large volume of complaints prompted the Internal Revenue Service to withhold approval of new conversions. But this month, the Department of the Treasury proposed new rules that could reopen the door to the creation of more cash-balance plans."

    "Consider a 25-year-old beginning his career at an annual salary of $36,000, with 4 percent annual raises. After 20 years, the employee would accumulate a lump sum retirement benefit of about $91,000 under a typical cash-balance program. Under many traditional pension plans, that same worker would accumulate a benefit of $85,000. But at age 55, the employee would earn a lump sum of $225,000 under a cash-balance plan, lower than the $347,000 from a typical traditional program. When the employee reaches age 65, the cash-balance plan would yield $494,000, or less than 40 percent of the $1.3 million retirement benefit from a traditional plan."

    "Some companies in these cases make no annual pension contributions to the employee's account until the benefit under the new plan 'catches up' with the benefit the worker has already earned. These years without pension contributions have become known as 'wear away' periods and are cited as a prime abuse of plan conversions. The prospect of 'wear aways' helped spark an employee revolt when IBM first considered a conversion to cash balance. Joseph Andrew Maher, a customer engineer at IBM for 23 years, said the planned conversion would have cut his projected pension from $24,000 annually to $16,000.
  • " If link is broken, view Adobe Acrobat version [PDF--66 KB].

  • Congressman Bernie Sanders: Bush's War Against Older Workers. Excerpts: "President Bush may or may not go to war against Iraq, but we do know that he has already declared war against the economic well-being of the middle class and working families of this country."
  • ... "And now, in the midst of all of this, there is a new economic assault being waged by the Bush Administration against older American workers. The Bush Administration has recently proposed IRS regulations that would allow corporations to undertake a major raid on the pension benefits that older workers have accumulated. These new proposals, if adopted, would allow companies to avoid federal anti-age discrimination laws, and convert traditional defined benefit pension plans into so-called "cash balance" plans. Under the Bush proposal, the promises made to older workers about pension plans that increase retirement benefits based on longevity would be undermined. While corporations would save billions in pension expenditures, some 8 million older workers could see their benefits reduced by 30-50 percent."

  • New York Times: A Change in Traditional Pensions. Excerpts: "Equally troubling, the rules require companies to use only 'reasonable' interest-rate assumptions in calculating the present value of future benefits. Yet the slightest adjustments in assumptions dramatically alter the benefits owed. By not providing a concrete formula, the government is inviting companies to save themselves a bundle at employees' expense. Such lax vigilance of loyal employees' pensions is particularly unacceptable at a time when top executives at too many companies seem willing to manipulate pension plans to benefit themselves.
  • "

  • New Jersey Star-Ledger: Older workers may have to fight to save pensions. Excerpts: "A few years ago, when IBM Corp. was contemplating a major change in its pension program, the threat of losing millions of dollars in promised benefits galvanized workers. They organized, protested and persuaded the company to alter its plans. Millions of other American workers who are covered by traditional pensions may face a similar battle in 2003. That's because the federal government recently issued a proposal that could end a three- year moratorium on the type of changes IBM had sought -- specifically, the conversion of traditional 'defined benefit' pensions to so-called cash-balance plans." ... "'This is something that mobilized IBM workers,' said Jimmy Leas, an IBM employee in South Burlington, Vt., who was involved in the fight when IBM proposed converting to a cash-balance plan. 'We picketed. We wrote letters. People stopped working, and they forced the company to make a change (in its proposal). American workers can put a stop to this.'" ... "Because pension issues can be so complex, workers at companies that are contemplating a shift to cash-balance plans often don't understand what they have lost until long after it's been taken away, said Douglas Sprong, a St. Louis attorney representing employees who are suing over cash-balance conversions. 'IBM had the smartest work force that the world has ever known, so they figured it out,' Sprong said." If link is broken, view Adobe Acrobat version [PDF--65 KB].


  • Albuquerque Tribune: Older workers concerned about retirement plans. Excerpts: "Ask Kathi Cooper how tough it is to face a pension-plan conversion: The name plaintiff in the IBM employees' suit that's still pending in court, Cooper, 52, is a magna cum laude accounting graduate of University of Texas with 24 years at IBM in finance and planning who spent weeks figuring out that the switch to a cash-balance plan would cost me $400,000 when I eventually retire. ... 'Those pretty pamphlets telling you how lucky you and spell out details in little tiny print that takes a math degree to decipher,' she says. 'If Treasury really wants to help workers, it would make employers disclose accurately and in eighth-grade language what they have done to you and what it does to your retirement.'"


  • "i_be_mad_as_heck" clearly and succinctly outlines six fundamental problems with the Treasury Department's proposed regulations for cash balance pensions.


  • Janet Krueger responds to the question "What would be wrong with a cash balance plan if it had a fair conversion and the end result was a balance similar to our current pension plan?" Excerpts: "In IBM's case, the only employees who benefit from the cash balance plans are those who leave with between 5 and 8 years of service -- clearly, IBM is encouraging people to join the mobile work force! Key question -- how many of the newer employees will be allowed to stay until they vest?"
  • ... "Final question: If you want to believe cash balance plans are a good thing, wouldn't 401K plans where IBM does a base contribution for everyone, even employees who don't save for themselves, be better? Why not define and legalize conversions from defined benefit plans to defined contribution plans -- then you wouldn't need this hybrid defined contribution plan trying to live under the ground rules of a defined benefit plan!"

  • U.S. Equal Employment Opportunity Commission (EEOC): Gulfstream Aerospace to Pay $2.1 Million for Age Bias in EEOC Settlement. Excerpts: "Bernice Williams Kimbrough, Director of the EEOC's Atlanta District Office, added: 'Reductions-in force may be a necessary fact of economic life. However, employers cannot use downsizing as a means of eliminating older employees from their workforce. Productive, hard- working employees with 20 to 30 years of experience deserve better than to be pushed out the door, while younger, less experienced individuals are retained.'"


  • Janet Krueger: "I have been wondering exactly how much is being set aside for IBM's senior executives. So I submitted a new shareholder proposal for the 2003 proxy. You can view it at the following link: http://www.cashpensions.org/ibm2003resolution/IBM2003Resolutions_genpage.htm. Apparently, IBM is not interested in fully disclosing executive compensation, nor are they interested in debated the issue with their shareholders, so they put in a formal request to the SEC for permission to omit the proposal -- their 23 page letter is available at the same link. Read more, including IBM's three reasons for omitting the proposal.


  • Linda Guyer shares her New Year's wish list...


  • New York Times: White House Aides Push for 50% Cut in Dividend Taxes. Excerpts: "White House officials are urging President Bush to propose cutting taxes on corporate dividends for shareholders by about half, according to administration officials and Republicans close to the White House." ... "The 50 percent cut would cost the Treasury more than $100 billion over 10 years, and the tax benefits would overwhelmingly flow to the nation's very wealthiest taxpayers." ... "The Urban-Brooking Tax Policy Center, a research center here, recently calculated that, if the government completely eliminated taxes on corporate dividends, 42 percent of the tax benefits would flow to the wealthiest 1 percent of all taxpayers."


  • New York Times: Downsizing Could Have a Downside. Excerpts: "In a quest for the most productive companies in the world, Jason W. Jennings, a consultant and author of a recent book on the subject, settled on 10 businesses that had never made a layoff. 'Not only have they never had a layoff,' Mr. Jennings said, 'but each of them has a written or well-understood covenant with the workers that the corporate checkbook, or management missteps and misdeeds, are never going to be balanced on the backs of the workers.'"


  • New York Times: Options Payday: Raking It In, Even as Stocks Sag. Excerpts: "Similar contrasts between executive pay and corporate performance are fueling much of the public anger with corporate America. Yet even with business under intense scrutiny in 2002, many executives and board members have continued to cash in the stock options they were awarded as part of their pay, making millions of dollars even while their companies lost much of their value."


  • "ibmoptioneer" speculates on 2003 pay raises for IBM employees. Part 2. Excerpt: "True, the plan will appear to be good, but there's the IBM hidden catch! The skew on appraisals will be so bad that few will get the big raises. The result? The sheep get kept under control for another year. Less growth in employee salary expense in the 2003 10-K because of divestitures and layoffs."


  • Bureau of Labor Statistics: Mass Layoffs in November 2002. (Editor's note: Apparently a victim of Federal cost cuts (or, cynically, perhaps because the government doesn't want us focusing on massive job cuts, this is the last issue of BLS's monthly mass layoffs reports). Excerpt: "This is the final news release for the Mass Layoff Statistics (MLS) program. Since 1994, the Department of Labor's Employment and Training Administration has funded the program. That funding will end on December 31, 2002. The Bureau of Labor Statistics (BLS) has been unable to acquire funding from alternative sources and must discontinue the MLS program."


  • Are you a Republican or did you vote for President Bush? We need your help. "carolina_puerto_rican" outlines how you can help.
A bit of (very interesting) history:


New! The Alliance web site has just been updated with a simple 3-step process to help you write those letters! The process includes printable versions of sample letters to help those who don't have lots of time.

Call to action: As you already know, the Treasury put out regulations recently 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.

Why you should care if...

  • You're a young employee: The new Treasury Department rules allow IBM and other employers to change financial assumptions multiple times throughout your career to retroactively reduce your "cash balance". Read Dave Finlay's analysis of how companies can do so.

  • You're a "second choicer": IBM relented and gave you the choice to stay with its traditional pension. Some have speculated they did so since the legality of cash balance pension plans was not clear. The Treasury Department proposal makes it clear that such conversions are legal, and indemnifies corporations against charges of age discrimination. Given a green light from the Treasury Department, IBM could easily force all employees into a cash balance plan.


  • You're a "first choicer": As with "second choicers", given a green light from the Treasury Department, IBM may force all employees into a cash balance plan.


  • You're already retired: As Janet Krueger stated, a class-action lawsuit, Cooper v. IBM asserts that "the hybrid plan IBM converted to in 1995 was age discriminatory, based on the ERISA laws. If the Treasury is allowed to issue regulations declaring that cash balance formulae are not age discriminatory, the court could conceivably leap to the conclusion that the government no longer intends to enforce the age discrimination rules in ERISA. While this would not reduce the pension you are currently collecting, it might eliminate any chance of Cooper v IBM of resulting in a settlement that would amend your pension upwards."

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.

 

In other news this week:
  • Forbes: The New HP Way: World's Cheapest Consultants. Excerpts: "According to Jurgen Rottler, vice president of marketing, strategy and alliances at HP Services, HP will grow in India, building on the 'several thousand' services people the company already employs there. 'In an ideal world,' he said, 'you'd migrate as much as you possibly could to India.'" ... "HP figures a good high-end programmer in India costs about $20,000 a year, about a quarter the U.S. cost. And things could get even cheaper. 'We see China gaining on India about three or four years from now,' said Rottler. HP is also developing staff there."


  • Indo-Asian News Service: Big Blue counters Gates' offer for Indian software. Excerpts: "IBM is leveraging India not only for its 'tremendous skills in software and services' but also because it sees the country as an important market. It has set up five software research and development centres and a solution partnership centre in India. The company has committed $100 million until 2003 for the India software laboratory in Bangalore, which is being scaled up from a headcount of 500 to about 600."


  • Satire from WitCity: The People Speak to the CEO's.
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