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for week ending February 22, 2003
- Wall Street Journal: GE
to Disregard Pension Income In Calculating Top-Level Salaries. Proposal by CWA Prompts Decision
Faced by Other Large Companies. By Kathryn Kranhold and Ellen Schultz. Excerpt: "In
a move that could have a significant impact on top-level pay at General Electric Co., the company
has agreed to determine senior executive compensation without regard to any income generated
by the pension plan. The Fairfield, Conn., conglomerate recently adopted the measure in response
to a shareholder proposal by the Communications Workers of America, which includes thousands
of the company's workers and retirees. In response, the CWA has withdrawn its proposal. Ed Fire,
president of IUE-CWA, praised the GE move as 'a step in the right direction.' A number of large
companies, including International Business Machines Corp., face similar shareholder proposals,
and GE is the first large company to move on it. Even though pension assets have declined at
many large companies, the pension plans still pump billions into earnings, thanks to accounting
practices." If link is broken, view Adobe Acrobat
version [PDF--24 KB]
- Poughkeepsie Journal: GE
severs execs' link to pensions. IBM votes on issue in April
. Excerpt: "'IBM slashed pensions for employees with its "cash balance plan conversion"
in 1999 to boost executive pay,' said Vermont resident James Leas, an ex-IBMer activist. 'Vapor
profit from the pension fund became IBM's fastest-growing profit center, growing at over 52 percent
per year between 1996 and 2001.'"
- IBM's 2003 annual stockholder meeting will be held in Kansas City on April 29th. Here are
links to comments on previous stockholder meetings:
provides an excerpt from Lou Gerstner's "elephant" book on how Mr. Gerstner feels
about stockholder meetings. Excerpt: From Gerstner: "These meetings have become,
because the regulators have permitted it, showboating opportunities for gadflies, social
engineers, and disgruntled employees." (Editor's note: Our experience has been that
the "official" (i.e. "meeting of record") is a highly scripted and controlled
exercise that allows little, if any, input from attending stockholders). From "ibmmike2006":
"Gertsner, who buys 750,000 shares one day for $14, and sells 750,000 shares the next
day for $115, do you think he has the right to 'label' long term shareholders as gadflies,
social engineers, and disgruntled employees? I think every shareholder, who has an opportunity
to travel to Kansas City...to establish which part of the 'GSD' division they qualify as
and show up."
- Linda Guyer comments.
Excerpt: "I've been to three shareholder meetings with Gerstner there and I have to
say that first, he has the biggest ego on earth throughout history - with perhaps one exception,
Napoleon Bonaparte. General Patton looks rather humble in comparison. He is a man who does
not like anyone disagreeing with him or questioning him. If anyone in the audience did so
he treated them with utter disdain, like they were stupid and he was put out by having to
respond to such a stupid question from such an idiot. It did not matter whether they were
an employee or someone else."
- Ballard Spahr Andrews & Ingersoll, LLP: Proposed
Cash Balance Plan Guidance Is Employer-Friendly. Excerpts: "The Treasury Department
recently issued proposed regulations which explain how the Federal age discrimination rules
apply to cash balance plans. In general, the proposed regulations indicate that most cash balance
plan designs, including those involving a conversion from a traditional defined benefit plan,
satisfy the age discrimination rules, assuming certain conditions are satisfied. " ...
"While the new proposed regulations leave some questions unanswered — most notably,
the application of age discrimination rules to PEPs — they are a welcome sight to employers
that have adopted cash balance plan designs in recent years. Under the proposed regulations,
most cash balance plan designs will satisfy the age discrimination rules. The Treasury Department
expects to receive a substantial number of comments on the proposed regulations, so stay tuned
for changes that may be adopted in the final regulations."
- Janet Krueger responds
to this rumor posted on a Yahoo! message board: "...big blue will be forcing employees
remaining on the old pension plan to switch to cash balance or leave the company...announcements
forthcoming in second quarter." Excerpt: "The Treasury department issued new regulations
in December that would completely legalize forced cash balance conversions. These could be finalized
as soon as April -- it is probably no coincidence that the IBM rumors all talk about a new conversion
in the 2nd quarter!"
- AARP: Proposed
Rule Threatens to Shrink Older Workers' Pensions Treasury's Proposed Rule Could Pave Way For
Controversial Plans. Excerpt: "New rules proposed by the U.S. Treasury Department would
give a green light to companies that want to convert their traditional pension plans into so-called
'cash balance' plans. Unless strong opposition emerges, the rule change could be effective as
early as April. 'That would be bad news for mid- or late-career workers,' says Karen Friedman,
an official with the Pension Rights Center, a nonprofit advocacy group in Washington. She points
out that when employers switch to such plans, older workers often see their expected retirement
benefits shrivel dramatically—sometimes by as much as 50 percent."
- Dow Jones Business News: Other
Cos May Follow Executive-Pay Moves At GE, Verizon. Excerpt: "Moves by Verizon Communications
and General Electric Co. to exclude income or profit from their pension plans when calculating
bonuses for senior executives are likely to put pressure on other companies to follow suit.
Both GE and Verizon adopted the measures in response to shareholder proposals from groups representing
retired employees. A number of large companies, including International Business Machines Corp.
and Qwest Communications International Inc., face similar shareholder proposals. As investor
fury over exorbitant executive paychecks has boiled over in the past year, 'it would be unusual
for a Fortune 500 company not to take a hard look' at the issue, said Jean FitzSimon, a corporate-governance
specialist at consultancy Bridge Associates LLC."
- New York Times: Shifting
Responsibility for Funding Pensions. Excerpt: "The savings accounts proposed by the Bush
administration are meant to produce fundamental changes in the way Americans think about saving
for retirement and to shift the primary responsibility from the business community to the individual."
- The latest round of correspondence to the SEC relative to Janet Krueger's shareholder resolution
asking IBM to fully disclose all the compensation owed to its senior executives is available
location [PDF] on the Cash Pensions Web site.
Ms. Krueger comments: "Rather than addressing the proposal, IBM is still playing games
about whether I'm a current shareholder -- and the SEC seems to be supporting their shenanigans!"
- Dallas Morning News: Accounting
Board Addresses Issue of Pension Reporting. Excerpts: "The Financial Accounting Standards
Board is soliciting discussions about pension accounting, a complicated and controversial issue
with huge implications: Critics say some companies manipulate the current rules to boost profits
and hide problems. Not long ago, delving into such sensitive issues could put the very survival
of the FASB at risk. In 1994 lawmakers, pressured by a Silicon Valley lobby, threatened to dissolve
the FASB if it did not back down from a rule that would have required stock options to be expensed
the same as other employee compensation." ... "Accounting rules currently allow companies
to calculate their earnings with management's long-term forecast of pension investment returns,
rather than what they actually made -- or, more important, lost. Further, companies can carry
huge pension losses off the balance sheet, amortizing them back on over a number of years."
- Thinking of retiring from IBM in the near future? Janet
Krueger offers important advice...
- Washington Post: Retirees
Face A Health Care Crunch. Excerpt: "Tired of worrying about whether you'll have enough
money to live on in retirement? Okay, maybe you'd rather worry about how you'll pay your medical
costs during those, um, golden years. Those costs, including insurance premiums, are a bigger
problem than you -- and apparently most policymakers -- may have realized. In a new study, Paul
Fronstin and Dallas Salisbury of the nonprofit Employee Benefit Research Institute in the District
have analyzed the cost of those premiums, along with the inevitable co-payments and deductibles,
and come up with some figures on how much individual retirees will likely need to cover them.
The numbers are startling."
- Houston Chronicle: For some,
early retirement brings 'tax torpedo' effect. Excerpt: "There's a situation they don't
tell you about. You're 61. You've had a good career, working for the same company for more than
30 years. You've also enjoyed a good income, regularly earning just over the Social Security
wage-base maximum. This year, for instance, you'll earn $90,000 -- enough that your spouse hasn't
worked for years. Saving in the company 401(k) plan, which provides no employer match, isn't
difficult. In fact, you've participated for years, to the exclusion of all other savings, and
now have $180,000 in the plan -- two years of income. Query: If you intend to retire at 62,
should you continue saving in the 401(k) plan? Answer: No."
- Letter to the editor of Computerworld: Abuse
of H-1B Visa System Is Rampant.
| More on President Bush's Savings Plans
(thanks to Janet Krueger for these links)
- San Jose Mercury News: Retirement
savers' credit hard to achieve. Excerpt: "A credit worth up to $1,000 to retirement
savers is arguably the year's most powerful new tax break. It not only could wipe out
some or all of your 2002 tax bill -- even if you're a procrastinator -- but it will
also boost your odds of retiring comfortably. At least that's how the retirement savings
contribution credit was drawn up in the blueprints. Many skeptics are raising a recurring
practical question in this era of tightly targeted tax breaks: Can anyone afford to
claim the credit? "
- SpencerNet: Will
Employer Groups Scuttle President's Retirement Plan Proposals? Excerpt: "Several
employee benefits groups have responded with criticism of President Bush's recent proposals
for retirement and individual savings. Mr. Bush has proposed the creation of Lifetime
Savings Accounts (LSAs) and Retirement Savings Accounts (RSAs) for individual savings;
and the consolidation of 401(k) plans, SIMPLE 401 (k) plans, IRC Sec. 403(b) tax-sheltered
annuities, and IRC Sec. 457 deferred compensation plans into a single type of plan called
an Employer Retirement Savings Account."
- Dallas-Fort Worth: Bush
proposal offers flexibility in retirement tax rates. Excerpt: "'The biggest
losers from the elimination of deductible IRAs and their replacement with an LSA/RSA
are individuals at high current tax rates, but within the cap for deduction of the contribution,
who think they will be at a lower rate late in their career or in retirement,' said
Dallas Salisbury, CEO of the Employee Benefit Research Institute in Washington ..."
- InsuranceNewsNet.com: Bush's
sweeping retirement proposals causing some industry apprehension. Excerpt: "The
scope of President Bush's proposals to revamp the nation's retirement system is raising
eyebrows in the insurance industry and causing some to question the impact on annuities...
It is vital, says ACLI spokesman Jack Dolan, that Congress and the administration address
the risks and burdens of ensuring savings that last a lifetime."
- Business Week: Bush's
Retirement Rx Is Bad Medicine. Excerpt: "The far more liberalized rules he's
proposing sound good--until you realize how many people could wind up with no savings
Note: Additional links to news articles concerning President Bush's
proposed savings plans are available on the February 8,
2003 and February 15, 2003 pages of this site.
Other News and Opinion
- Newsweek: The Tax Cut Ate Granny’s
Check. The president may or may not win his bet on the economy. But his proposals,
if adopted, would seriously weaken the safety net. Excerpt: "If you’ve ever
heard the riff about how to boil a frog, you’d understand what President Bush’s
economic and tax proposals are all about. You don’t just toss the frog into a
pot of boiling water, because even the foggiest frog would figure out that something
was wrong and jump out. Instead, you start with room-temperature water and boil Froggie
over a low flame, so the water warms slowly. By the time the frog realizes that he ought
to get out of the pot, he’s cooked." ... "Each piece (of the President's
tax cut proposal) is presented as a reasonable, modest step, and is debated in isolation.
But look at the president’s proposals taken together, and you see what’s
going on. He’s trying to make income from investments tax-free, which would radically
transform the cherished notion of a progressive system—that people who have done
better, thanks to what this country has to offer, should pay taxes at a higher rate
than the less fortunate. People get that nice glow contemplating how much this plan
or that plan would save them, not realizing that the warmth they feel is the water temperature
- Citizens for Tax Justice: Bush Administration
Pegs Its New Tax Cut Plan at $1.8 Trillion Over Decade. Latest Round of Tax Cuts Exceeds
the Bush Tax Cuts Enacted in 2001.
- MSNBC: What Is He Thinking? Is
the Bush budget all about slashing Social Security and Medicare? Yes, says Kent Conrad
and ‘it is nuts, stone-cold nuts’. Excerpt: "Sticker shock. That’s
the reaction on Capitol Hill to President George W. Bush’s budget. The deficit
numbers are staggering, even to Bush loyalists: $307 billion next year, more than a
trillion dollars in five years."
- Los Angeles Times:
Bush's Magic Budget. Excerpt: "The administration also uses the trick of phasing
in tax cuts slowly so that the full bill doesn't come due until the end of the decade,
long after Bush is gone. Its estimate of Medicare costs is $300 billion less than the
Congressional Budget Office's. Flying in the face of economic reality, it predicts that
costs for homeland security, education and veterans' programs will decline after 2003.
Above all, the administration totally ignores the costs of its permanent tax cuts in
the decade from 2012 to 2022--trillions more will be lost at the very moment the baby
boom generation is retiring."