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for week ending April 12, 2003
- St. Louis Post-Dispatch: IBM
workers tell panel pension changes unfair. Excerpt: "When Kathi Cooper of Bethalto,
Ill., an employee of International Business Machines Corp., addressed a panel of Internal Revenue
Service and Treasury Department officials, she was angry, like many others who'd traveled to
Washington to protest proposed changes in pension rules. 'This isn't about me,' she told the
panel Wednesday. 'This is about millions and millions of baby boomers (who) will be harmed when
they can least take it.' Cooper is a lead plaintiff in a class-action lawsuit against IBM for
switching pension plans in the middle of her 25-year career with the company. The result of
the change, she learned, is a 64 percent drop in what she can expect to receive in retirement."
If link is broken, view Adobe Acrobat version [PDF--16
- Wall Street Journal: US
Lawmakers Aim To Stop Treasury Pension Regulations, by Jennifer Corbett Dooren. Excerpts:
"Legislation in both the House and Senate was introduced Tuesday that would require the
Treasury Department to withdraw its proposed rules on pensions. The proposed rules, which will
be the subject of a two-day Treasury and Internal Revenue Service public hearing starting Wednesday,
aim to give companies guidance on converting their defined-benefit pension plans into cash-balance
plans. The legislation, by Reps. Bernie Sanders, I-Vt., and George Miller, D-Calif., would require
Treasury to drop its proposal." ... "Sanders recently had the Congressional Research
Service conduct a study on what would happen if congressional pensions were converted from a
defined-benefit plan to a cash-balance plan. He said most lawmakers, including himself, would
lose money on the deal. The CRS analysis showed that House Speaker Dennis Hastert would lose
69% of the pension's value if converted. The pension was valued at $540,572 as of Dec. 31, 2002.
If it was converted to a cash-balance plan the value would have been $164,455."
Benefits Council to Congress: Mandated 'Choice of Plan' Bill is Ill-Advised Pension Legislation.
[PDF] Excerpt: "Representative Bernard Sanders (I-VT) will
be introducing legislation very shortly that would mandate that employers converting from one
form of defined benefit pension plan to another type of defined benefit pension plan would be
required to obtain the employees’ consent. Rep. Sanders is seeking support and co-sponsors
for this ill-advised proposal. We urge you to carefully consider some of the serious negative
consequences for workers and their employers of such a 'mandated choice' measure before you
commit to co-sponsor or otherwise support this proposal. The attached is offered for your thoughtful
- Watson-Wyatt Press Release: Most
Conversions to Cash Balance Pensions Are Cost-Neutral -- and 80 Percent of Employees Actually
Fare Better. Excerpt: "As the debate over cash balance and pension equity plans heats
up following the release of proposed new rules governing these plans, experts at Watson Wyatt
warn that common misperceptions still abound. 'Critics try to paint all conversions to cash
balance plans as attempts by companies to cut costs at the expense of workers, but the facts
simply do not support these assertions,' said Sylvester Schieber, vice president of research
at Watson Wyatt. (Editor's note: Watson-Wyatt is a consulting firm that has assisted many companies
in their transitions to cash balance pension plans).
- Wall Street Journal: Bill
Seeks to Shield Pensions Switched to Cash Balance Plans, by Ellen E. Schultz and Theo Francis.
Excerpt: "Lawmakers introduced legislation in the House and Senate aimed at protecting
older workers whose companies convert their pensions to cash balance plans, while elsewhere
in Washington hearings employer groups lobbied in favor of preserving retirement arrangements
for highly paid executives. Rep. Bernie Sanders (I., Vt.) introduced a bill that would require
companies that convert to cash balance plans to allow workers who are age 40 or have at least
10 years of service the choice of receiving the benefit they would have accrued under the traditional
pension plan at retirement. The proposal has 116 co-signers; an identical bill was introduced
in the Senate by Sen. Tom Harkin (D., Iowa). Both measures are supported by the AARP, the AFL-CIO,
CWA, and employee groups. The legislation would also forbid companies from low-balling the value
of pensions earned by older workers when they establish opening account balances. The result
is that an older employee may work for years before his pension builds back up to what it had
been before the change. Younger or newly hired workers begin to build a benefit right away."
- Wall Street Journal: Treasury
Move May Ease Shifts To 'Cash-Balance' Pension Plans, by Ellen E. Schultz and Theo Francis.
Excerpt: "Companies may find it easier to convert their pensions to 'cash-balance' pension
plans, thanks to an announcement by the Treasury Department and Internal Revenue Service. The
agencies said they were withdrawing a provision in their proposed rules on cash-balance plans
that requires employers to adhere to a law designed to help ensure that pensions don't discriminate
against lower-paid workers."
- Seyfarth Shaw Management Alert: IRS
Gives Cash Balance Plans Half a Loaf [PDF]. Excerpt: "The
IRS's recent withdrawal of part, but not all, of its controversial cash balance plan regulations
illustrates the old saying that half a loaf is better than none. This Management Alert describes
the difficult position that continues for cash balance plans."
... "The IRS withdrew only the portion of the regulation dealing with discrimination in favor
of highly compensated employees (HCEs). It did not withdraw the equally controversial age discrimination
regulations. In fact, although there have been persistent rumors that the age discrimination regulations
would be withdrawn as well, a two-day public hearing on the age discrimination rules was held
on April 9 and 20, 2003."
- USA Today: Hearings
to debate cash-balance plans. Excerpts: "Employee activists from across the USA urged
Congress Tuesday to enact legislation protecting workers at companies that switch to controversial
cash-balance pension plans. On the eve of hearings on proposed Treasury Department regulations
sanctioning cash-balance plans, workers from companies such as IBM, Verizon and AT&T joined
members of AARP, labor unions and the Pension Rights Center in Washington to protest the proposal
and support a bill sponsored by Rep. Bernie Sanders, I-Vt., and Rep. George Miller, D-Calif.
The bill, introduced Tuesday, is endorsed by more than 100 members of Congress. Among other
provisions, it would require employers that switch from a traditional pension to a cash-balance
plan to let workers age 40 or older or who have worked 10 years or more for the company choose
between the plans."
- Dow Jones News Service: Treasury,
IRS Urged To Change Pension Regulations, by Jennifer Corbett Doorden. Excerpt: "House
lawmakers, middle-aged workers and even a group of large employers Wednesday urged the Treasury
Department and the Internal Revenue Service to change proposed rules governing pensions. The
agencies are holding a two-day hearing on the rules, which are designed to give companies guidance
on converting their traditional defined-benefit pension plans into cash-balance plans."
... "During the 1990s, several companies, such as International Business Machines Corp.
(IBM), converted their defined-benefit plans into cash-balance plans, prompting the outcry of
older workers who charged that the change violated age-discrimination laws. Three years ago,
Treasury and the IRS stopped sanctioning the switch to cash-balance plans until rules are put
into place governing the switch from a traditional pension to a cash-balance plan."
- Washington Post: Pension
Proposal Is Under Fire. Employers Seek Flexibility; Employees Fear Losing Benefits. Excerpt:
"Critics say companies implement cash-balance plans to cut costs, and often rely on the
complexity of pension calculations to hide that fact from workers. 'A lot of workers do not
know what is happening to them,' said Rep. Bernard Sanders (I-Vt.). Sanders and other members
of Congress proposed legislation that would require employers that convert to cash-balance plans
to give workers the option to remain in old plans. Workers from companies such as International
Business Machines Corp. and AT&T Corp. testified that when their employers implemented cash-balance
plans, their retirement benefits were reduced by as much as half."
- Janet Krueger reports on
the Treasury Department hearing. Excerpts: "Most of the consultants talk in black and
white terms about companies who convert from traditional pension plans to cash balance plans.
They talk about 'wear away' not being a significant problem, because it isn't significant when
averaged out over an employee's career... Here again, you need to take a look at the real world.
IBM converted my pension FOUR times in the 90s -- each time my earned benefits came close to
catching up to my frozen protected benefits, they changed the plan again... Older workers at
IBM in the 90s, who thought their dedication to their company was earning them good pensions
when they retired, were actually earning no benefits at all!!! Companies have threatened that
if the compliance rules are too strict, they won't provide pension plans at all. You've suggested
workers would rather sacrifice part of their pension than see it dropped entirely... But you're
not paying attention -- the problem is that when workers THINK they are earning pension benefits,
and in reality are not, they don't compensate by saving money for themselves. If a teenager
comes to you for advice
about sex, and you tell him if that if he does engage in sex he needs to at least do it safely,
would you offer him a box of condoms that have been sitting on the shelf for 30 years and are
full of holes??? NO!!! You know he is FAR BETTER OFF if he KNOWS he doesn't have any protection."
... "Btw, the consultant who insisted that in all of his years of experience, he has never
seen an actual pension plan that discriminates against older workers in the ways so many of
the employees who spoke at the hearing were claiming, happens to be one of the lead attorneys
working for IBM on Cooper v. IBM!!!"
- "just_a_bean_counter" reports
on his impression of the Treasury Department hearing.
- Newsday: Cash
Balance Pensions Debated. Excerpt: "The Treasury Department has breathed new life into
cash balance pensions conversions - which had been popular in the 1990s before being halted
by the Clinton Administration in 1999 after a flurry of employee protests - by proposing in
December that such plans don't discriminate on the basis of age. Officials listened to more
than five hours of testimony from both plan opponents and supporters at yesterday's hearing
in Washington, which continues today. A decision, however, is not expected for several months.
It remains to be seen whether the Bush administration will side with employers - who say they
can't afford to maintain costly traditional pensions in tough economic times - or with workers,
who have mounted a vocal campaign to block the proposal." ... "For Lazzaro Cuttrone of
Bridgewater, N.J., who worked for AT&T for 31 years, the conversion meant he's only collecting
$23,000 in retirement instead of the $47,000 projected before AT&T switched its plan."
- New York Times: A
Plan to Recalculate Pensions. Excerpt: "Corporations would find billions of dollars
of pension shortfalls eliminated overnight under a proposal being prepared to address a longstanding
issue in pension accounting. The proposed legislation, being drafted by a Democrat and a Republican
who sponsored changes in retirement laws in 2001, would create a permanent replacement for the
30-year bond in certain pension calculations. An interim measure, allowing companies to use
a more favorable rate, is set to expire at the end of the year. The proposal, embraced by the
nation's biggest corporations, would use a rate that is tied to high-rated corporate bonds and
that is higher than both the interim measure and the rate that companies have traditionally
used to measure their pension obligations. The higher rate, known as the discount rate, makes
obligations to retirees look smaller, at least on paper." If link is broken, view
Adobe Acrobat version [PDF--65 KB].
- New York Times: Proposal
on Pension Conversion Attacked. Excerpt: "Cash-balance pensions captured the spotlight
in 1999 after employees at I.B.M. discovered that a conversion by that company was reducing
employees' benefits by tens of thousands of dollars in some cases. The harshest effects befell
workers with the most seniority. An age-discrimination lawsuit followed, along with a political
uproar. The Internal Revenue Service, one of three agencies that regulate pension plans, has
stopped approving cash-balance conversions while experts sort out the legal issues. The new
regulations, issued in December, are the Bush administration's proposal to resolve the age-discrimination
- Siskind's Immigration Bulletin: Firebell
in the Night: The Coming L-1 Crisis and What We Can Do About It, by Gary Endelman. Excerpt:
"As the H-1B has become more radioactive, interested employers have increasingly turned
to the L-1 as a less onerous alternative unburdened by labor union attack and DOL oversight.
New L-1s soared by 50% between 1998 and 2002; the first 5 months of fiscal 2003 saw an additional
10% rise in L usage according to State Department data. Over this same period, by contrast,
H-1B visas fell by 27% through 2002 and another 17% thus far in FY 2003. There were 384,000
H-1B temporary workers in 2001 while 329,000, nearly as many, were working here as L-1 intracompany
transfers. The continuing debate over H-1Bs has so sucked all the oxygen out of employment based
immigration that, below the radar, few have noticed that the L-1 has begun to replace it as
the work visa of choice. Critical articles on the L1 are not new. What is different is that
such negative treatment is no longer confined to the nativist fringe but has crossed over into
the mainstream press. That is why the Business Week story on major US companies outsourcing
their IT functions, laying off Americans and replacing them with L-1 international workers supplied
by Tata Consulting, India's largest technology consulting firm, should be, to quote Thomas Jefferson's
reaction to the Missouri Compromise, a "firebell in the night" to the immigration
bar and its business clients."
- Urban Institute: Letting
Older Workers Work: Rethinking Retirement Policies.
- New York Times: Workers
Who Feel Discarded by Bob Herbert. Excerpt: "Among the many things overshadowed by
the war is the substantial human toll that is quietly being taken by the faltering U.S. economy.
Putting Americans to work is not part of the agenda of the Bush administration, and the fallout
from this lack of interest is spreading big time. The U.S. is hemorrhaging jobs. On Friday the
government reported that 108,000 more jobs were lost in March. Some 2.4 million jobs have vanished
since the nation's payrolls peaked two years ago."
- The (United Kingdom) Guardian: US
ignores losses on jobs front. Excerpts: "Baghdad fever gripped the markets yesterday
as investors shrugged off another set of grisly US job figures to focus on the American forces'
advance on Iraq's capital. But analysts said the grim news on the jobs front suggested an end
to the war may not bring the hoped-for rapid recovery. US firms shed 108,000 jobs in March,
according to the labour department, the second month in a row of hefty losses."
- eWeek: Perils of Going Offshore
by Lisa Vaas. Excerpts: "It's no secret the United States has been hemorrhaging IT jobs.
The American Electronics Association reported recently that the United States lost 560,000 high-tech
jobs between January 2001 and December 2002. That works out to a 20 percent shrinkage in high-tech
manufacturing positions and a 9 percent drop in communications services employment. All in all,
the AEA found, the U.S. IT work force shrank by 9.8 percent during the past two years. And,
as the economic slowdown continues, the domestic IT work force is still shriveling, and layoff
announcements keep coming. But the slow economy isn't the only cause of the shrinking IT job
market in the United States. Offshore outsourcing accounts for a sizable portion of this loss.
Analysts say that, during the next 10-plus years, more than 3 million U.S. white-collar jobs
will be lost to offshore outsourcing. Many will be IT jobs. The loss in wages is forecast by
some analysts to reach as high as $100 billion."
- Raleigh News and Observer: North
Carolina Study Questions Benefit of State Business Tax Credits. Excerpts: "Last year,
IBM won $554,000 in state tax credits for creating jobs, though it has been reducing its payroll
ever since. First Union of Charlotte claimed $780,000 in equipment upgrades -- then merged with
Wachovia so both banks could streamline operations. Discount retailer Family Dollar of Matthews
claimed $292,000 in tax breaks for research and development."
- Janet Krueger: Final oral arguments were heard today in the appeal of Berger v Xerox Retirement
-- Judge Posner's comments are especially interesting. The court posted a recording of the final
discussion on their web site; some of it is a bit difficult to hear, but it is worth listening
to. Listen. (Requires Windows Media
Player or other media player capable of playing MPEG audio. Running length: 47 minutes).
- Dow Jones Newswire: Cos.
May Face Talent Shortage As Baby Boomers Retire. Excerpt: "Companies could soon be
faced with a severe shortage of talent and skills unless they take steps to encourage older
employees to delay their retirements. With an estimated 77 million baby boomers set to retire,
productivity in many organizations is likely to suffer unless companies find ways to retain
their skills and experience, according to a report released Thursday by the Conference Board."