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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
" If link is broken, view
Adobe Acrobat version [PDF--66 KB].
"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.
- 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.'"
clearly and succinctly outlines six fundamental problems with the Treasury
Department's proposed regulations for cash balance pensions.
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:
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.
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
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
outlines how you can help.
|A bit of (very interesting)
- Letter to IBM Employees
[PDF--7.0 KB] from Tom Bouchard,
Senior Vice President, Human Resource announcing "changes
to two of our U.S. benefit plans--the IBM Retirement Plan and
the IBM Retiree Medical Plan." May 3, 1999. This is what
got it all started!
note written by an IBM employee from notes taken during a Pension
Plan meeting conducted by Phil Webber, Vice President of HR, held
on June 23rd, 1999 [PDF--39 KB].
(Editor's note: This is a must read if you're interested in the
history of IBM's 1999 changes to its pension and retiree medical
plans. The name of the writer of this Lotus note has been removed
from the document linked to here).
- After much protest from IBM employees, pressure from Congress,
and negative press, IBM announces that employees over 40 years
of age with at least 10 years of service may choose to stay with
the "old" pension plan. (September 17, 1999). (These
employees are commonly referred to as "second choicers").
(No changes were made to the devestation of the retiree medical
plan, however. Many employees consider the loss of lifetime retiree
medical to be even greater than that of the cash balance pension
Thomas Bouchard's e-mail to employees announcing the change [PDF--16KB].
- United States
General Accounting Office (GAO): Private Pensions: Implications
of Conversions to Cash Balance Plans (September 2000, 70 pages).
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
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
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
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.