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for week ending March 8, 2003
Urgent Call to Action. Deadline is March 13th.
If you haven't written to Congress and the Treasury yet to protest the Treasury Departments
proposed regulations to make cash balance pension plans legal, please do it this week—cards
and letters need to be sent by March 13, 2003. The only way we can be heard over the millions
of dollars being spent on the other side of this issue by corporate lobbyists is by showing
Congress and the Treasury that thousands of real voters will remember this on election day
-- so PLEASE forward this to your friends, colleagues, family and neighbors and ask them
to write, too.
The AARP put out a legislative alert that provides a really good starting point, and sends
the needed letter based on your zip code to your representative, your senators, and the
treasury. It is at http://capwiz.com/aarp/issues/alert/?alertid=1305756&type=CO.
Make sure you personalize the letter a little bit, by at least adding a paragraph on who
you are, and why you care about pension protection -- if you just send the same note as
everyone else, it gets written off.
If you're interested in looking at the nasty regs themselves, they can be found at http://www.treasury.gov/press/releases/docs/cashbalance.pdf
Press articles about the proposed Treasury Department regulations:
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
- You're already retired: 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
- Fortune: Bye-Bye
Pension. Soon hundreds of corporations may slash pensions by as much as half. Excerpts:
"On a cold Philadelphia day this past February, 50-year-old Janice Winston received something
that warmed her considerably: a $400,000 payment from her former employer, Verizon Communications.
The money represented the pension benefits Winston had earned during her 29 years on the job.
It was also about $215,000 more than the company had hoped to pay her."
... "What Bell Atlantic (and, for that matter, IBM and some 300 other big companies) had
done was to switch its dowdy defined-benefit pension plan to an exciting new type of plan being
touted by benefits consultants." ... "Under the proposal now before Treasury Secretary
John Snow, cash-balance plans would not be deemed age-discriminatory if older workers receive
at least the same percentage of pay in their cash-balance accounts each year as younger workers
do. In other words, when the conversion takes place, older workers could still find themselves
with pensions that are essentially frozen for years to come. And the proposal calls for no requirements
to provide employees with transition benefits. Public hearings on the regulations are scheduled
for April 9, after which Snow will make a final determination." ... "Consumer groups,
as you'd expect, are crying foul about any substantial changes to employee pensions. "If
you've made promises to older workers in their 40s or 50s and they've relied on those promises,
it's not fair to change the rules of the game," insists Karen Friedman, a director at the
Pension Rights Center, a consumer watchdog group. Fair or not, though, companies can change the
rules of the game virtually anytime they want. That's a central tenet of America's corporate pension
system: It's entirely voluntary. By law, a company is obliged only to pay what its employees have
already earned under an existing plan. Cutting future pension benefits is perfectly legal, as
long as the cuts apply equally to all plan participants and don't discriminate against older workers."
Editor's note: This article is lengthy, but well worth reading. If link is broken, view
Adobe Acrobat version [PDF--65 KB].
- Fortune: Is
Your Retirement at Risk? Your 401(k) is dwindling. Your job's insecure. Your pension is being
cut. And there's more bad news to come. What do you do now? Excerpt: "All this might not
be so alarming if they had more time to recover. But other high-pressure fronts are gathering.
Pensions have historically provided 24% of retirement income. But don't take them for granted
Bye, Bye Pension). With profits under pressure and 'legacy costs' to current retirees relentlessly
pounding bottom lines, companies have begun to shift as much responsibility for retirement savings
to employees as they can. That includes responsibility for health care. Post-employment health
benefits are increasingly getting axed. The percentage of large firms offering health benefits
to retirees fell to 34% in 2002 from 66% in 1988, according to the Kaiser Family Foundation."
- Reuters: House
Panel Passes Pension Reform Bill. Excerpts: "A House of Representatives committee approved
on Thursday a bill to give workers more control over their pension assets, saying it could have
made a big difference to employees at now-bankrupt Enron Corp. But the Republican-majority panel
rejected a Democratic amendment aimed at protecting older workers caught up in another problem
brewing at many companies since the demise of Enron -- underfunded traditional pension plans."
... "Boehner's committee rejected a Democratic proposal to require companies that switch
out of traditional pension plans to 'cash balance' plans to give current participants the option
of choosing which plan they would like. Traditional pension plans are currently underfunded by
some $300 billion, a government agency that insures pensions says. More of these companies are
expected to try and switch from underfunded traditional pensions plans to cash balance plans under
new rules proposed by the Bush administration in December." ... "Rep. George Miller
of California, Democratic sponsor of the rejected amendment, said the House committee had 'voted
against our effort to stop the President's reckless cash balance conversion plan.' He cited a
study by the General Accounting Office that said cash balance plans could wipe out half the value
of older employees' traditional pension benefits."
- Janet Krueger updates us
with the latest news on the Cooper vs. IBM lawsuit concerning the 1995 changes IBM made to its
pension plan. Note: Most employees are aware of IBM's change to a cash balance pension plan
in 1999. Few are aware that IBM also changed its pension plan in 1995. Cooper vs. IBM focuses
on the age discrimination aspects of both conversions.
- Interested in how you were impacted by the 1999 pension plan change? Dave Finlay's RETIREQ
spreadsheet lets you do a detailed comparison between the 1995 plan and the 1999 plan, You'll
need to use the internal HRA tool first to get your complete salary history. The spreadsheet
has recently been updated to include the 2002 and 2003 interest rates, Social Security numbers,
etc, and are more accurate in projecting your vested rights from the 1995 PCF and your wearaway
period. The spreadsheet is available in both Lotus 123 and Microsoft Excel formats.
Note: You will need a program such as PKZIP
or WinZip to extract these spreadsheets.
- Are you close to retiring and concerned about further changes IBM might make to to its pension
plan? You should follow Janet
Krueger's advice for formally contacting the IBM Plan Administrator to enquire about possible
changes. Ms. Krueger outlines your legal rights.
- Dow Jones Business News: IBM
Senior Vice President Donofrio Sells 51,028 Option-Related Shares. Excerpts: "Senior
Vice President Nicholas M. Donofrio sold 51,028 option-related shares of the company's common
... "Donofrio acquired the shares for $13.35 a share and sold them for $78.40 a share. After
the transactions, he directly owned 118,753 common shares." Editor's note: Mr. Donofrio's
gain on this transaction was $3,318,861. Are your options doing this well? Was your strike price
$13.35 a share?
- Business Week: The New Blue.
Lou Gerstner saved Big Blue. Now it's up to new CEO Sam Palmisano to restore it to greatness.
Excerpts: "The directors were just sitting down for the first IBM board meeting of the
year on Jan. 28 when CEO Samuel J. Palmisano dropped a bombshell. For years, the board had lavished
wealth upon Louis V. Gerstner Jr., keeping his pay in line with other pinstriped superstars
across Corporate America. But in a surprise break from the past, Palmisano asked the board to
cut his 2003 bonus and set it aside as a pool of money to be shared by about 20 top executives
based on their performance as a team. Palmisano doesn't want to say how much he's pitching in,
but insiders say it's $3 million to $5 million -- nearly half his bonus." ... "If
that sounds like the IBM of old, that's exactly what Palmisano is hoping for. The flattening
of the organization, the lowering of CEO pay, the emphasis on teams -- it's all part of his
broad campaign to return to IBM's roots. Palmisano believes that core values remain in what
he calls the company's DNA, waiting to be awakened. And he thinks that this message, which might
have elicited chortles during the tech boom, resonates in the wake of the market crash and corporate
scandals. More important, he believes that only by returning to what made IBM great can the
company rise again to assume its place of leadership in America and the world."
comments. Excerpt: "Good to see the words, back to the 'Core Values'. Does that
mean bringing back the Three basic beliefs? Does it mean, not laying off people while making
a profit and hiring recent college Grads at the same time? Does it mean allowing long term
employees to retire with respect and dignity verses a 'boot out the door?' Are they going
to disclose how much the executives total compensation is, EDCP, SERP, Stock Options, and
bonuses? Is EVERYONE that is an employee at IBM with a employee serial number going to be
in the same retirement program not a separate SERP, EDCP, Stock Options?"
- South Florida Business Journal: Secrecy
surrounds CEOs' Boca Raton convention. Excerpt: "One might expect a lot of news when
the nation's top CEOs, the Senate majority leader and the head of the New York Stock Exchange
get together. Not this time. Except for a three-hour press conference, the recent meeting of
the Business Council at the Boca Raton Resort & Club was kept secret. Even reporters who
participated in sessions are mum. The Feb. 19-21 event hosted the likes of conservative columnist
George Will, NYSE Chairman Dick Grasso, Senate Majority Leader Bill Frist and attorney generals
from Iowa and Pennsylvania." "Panel discussions focused on business leadership, corporate
litigation brought on by states, health care costs and the future of retirement benefits. But
don't click on CNBC or pick up the Wall Street Journal to find out what happened. Their journalists
were there, but they agreed not to report on the event."
- "ibmmike2006" comments.
Full excerpt: "When CEO's are making a thousand times more than entry level employees,
they want to keep it '"their little secret'. Gerstner in 2001, had a salary of $12,000,000
but made $127,000,000 in stock options and bonuses. The CEO's of Corporate America are establishing
themselves as elite and certainly not in the same company as the rank and file employees
who made them rich. I certainly hope the media reporters hound these CEO's to disclose what
goes on in their 'code of silence' sessions for the good of the country. The responsibility
of the CEO's of this country to the well being of this country and the thousands who are
employed by corporations outweighs the 'code of silence' boloney."
- Bloomberg: SEC
Faults Pension Reporting, Wants More `Reality'. Excerpt: U.S. Securities and Exchange Commission
officials say they're concerned that companies are obscuring their pension losses in federal
filings and giving investors incomplete information." ... "IBM, for example, using
an estimated rate of 10 percent, reported assumed pension gains totaling $12.2 billion for 2000
and 2001 in its SEC filings, following FASB rules. IBM's annual reports showed in footnotes
that the world's largest computer maker actually lost $2.8 billion in its pension fund for those
two years -- a disparity of $15 billion. On Dec. 31, IBM said it put $3.95 billion in cash and
stock into its U.S. pension fund to make it fully funded. In addition, pension losses reduced
IBM shareholder equity by $3 billion, says company spokesman Joe Stunkard."
- New York Times Magazine: Too
Old to Work? Excerpt: "As a result, courts go to great lengths not to see age bias
when it is obviously there. In case after case, judges excuse blatantly discriminatory comments
as mere ''stray remarks'' and strain to find alternative reasons that older workers were fired.
In one egregious case, a 56-year-old worker at a North Carolina company was fired. Two weeks
before the firing, a supervisor said to him, ''O'Connor, you are too damn old for this kind
of work.'' This, a federal appeals court held, did not constitute sufficient evidence for discrimination.
Even when older workers make their case, courts are more willing to accept employers' defenses.
Early in the civil rights era, it was established that a company cannot defend a race-discrimination
claim by saying it acted for economic reasons. In the classic case, a restaurant that pleads
'customer preference' -- that it would happily hire black waitresses, but its racist customers
would stop coming -- still loses. But in age cases, courts are all too willing to accept economic
defenses. A company that says it laid off older workers because they were highly paid will often
prevail. This can be a potent weapon for a company like Allstate, which can argue that when
it pushed out all of those agents who were 40 or older, it was looking to get rid of expensive
employees, not old ones."
- Motley Fool: Retirement
on Shaky Ground? The old saw says that retirement rests upon a three-legged stool: Social
Security, a traditional pension, and personal savings. However, the numbers show that each leg
is getting weaker. The solution is to focus on what you can control -- how much you save.
- New York Times: Corporate
Gain, Treasury's Loss in Bush Plan. Excerpt: "The Bush administration's tax proposal
on dividends has become more friendly to investors and to some companies that pay no taxes.
The effect of the latest changes, if enacted by Congress, would probably be to reduce the government's
tax revenue by even more than under the original plan." ... "Pam Olson, the Treasury
Department's top tax official, said the changes were made in response to complaints from companies."