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    Highlights for week ending June 21, 2003
  • The Observer (United Kingdom): IBM paid Revenue £700m over tax evasion'. Excerpts: IBM paid the Inland Revenue an estimated £700 million to settle claims of tax evasion in 2001, says a disaffected former employee of the US computer giant. If the allegation is true, the payment would almost certainly be the largest of its kind in Revenue history. IBM declined to confirm or deny the claim yesterday, calling it 'rumour and speculation'. ... In 1999 Churchhouse claimed that IBM UK had transferred artificially high royalties to its loss-making American parent in the early Nineties, in an attempt to reduce the group's global tax bill. He said that this alleged 'transfer pricing' allowed the company to evade up to £330m in UK taxes.
    • "har_philby" comments. Excerpt: Maybe the reason IBM did so well under Gerstner was because they didn't pay their foreign taxes for many years and suddenly faced a tax bill that could only be paid if the pension fund was raided? Destroying employee loyalty always comes to roost!

  • Dow Jones Business Wire: Long-Standing IBM Pension Lawsuit May Be Nearing Endgame. Excerpts: The suit alleges that International Business Machines Corp. (NYSE:IBM - News) treats its older workers unfairly under two pension plans, one started in 1995 and another in 1999. Kathi Cooper, a 52-year-old Illinoisan who works for IBM, is the lead plaintiff in the suit, which also represents 140,000 other employees in the U.S. Cooper and the others will get larger annuities when they retire if their suit succeeds, according to Doug Sprong, a benefits lawyer at Korein Tillery in Belleville, Ill., who is representing the plaintiffs. ... A key part of the case involves IBM's conversion in 1999 of one its traditional defined-benefit pension plans to a cash-balance plan. Cash-balance plans, in general, have been a flashpoint for employee anger, and have spurred such a controversy that the Internal Revenue Service declared a moratorium on new cash-balance pensions in 2000. Employee activists don't like cash-balance plans because they say they're less rewarding to longtime employees. The plans don't calculate benefits based on salary during final years of service, as do traditional defined-benefit plans. Another criticism is that when companies convert old plans to cash-balance they often freeze older workers' benefit accrual for a period to bring them into line with younger employees.
    • Editor's note: Last week's highlights link to several other articles pertaining to the Cooper v. IBM lawsuit.

  • Telegraph Forum (Bucyrus and Crawford Counties, Ohio): Pension suit alleges age bias. Editor's note: This is a duplicate of a Binghamton Press & Sun-Bulletin article referenced in last week's highlights but this version includes a photograph of lead litigant Kathi Cooper.

  • New York Times: Pension Reserve: What's Enough? Excerpts: Accounting is a dismal science, pension accounting even more so. But it is increasingly important to penetrate the fog today, when companies are using complex and sometimes hidden tactics to change the way they pay for their pension plans. For the roughly one in five workers in the private sector whose employers have established pension plans, those changes could significantly affect the way they live in retirement. ... Companies in several industries say that rules requiring big contributions to underfunded pension plans must be changed. The shortfall for General Motors is so daunting that on Friday it said it will have to sell $13 billion in bonds, with most of the proceeds going to reduce deficits in its American pension plans. In Washington, varying relief mechanisms are being sought, but all would have the same effect: to reduce the amounts that employers set aside today for benefits due in the future. The long-term effects of that could be harmful. Federal officials have spent the last quarter-century prodding companies to fully fund their pension plans; they say that ballooning pension deficits show a need for more contributions, not exemptions. ... "We're going to create this whole class of people 30 years from now that's going to be dependent on the government, because corporate America has decided that it's not their responsibility. It's going to be a big, huge problem," he said.
    • Janet Krueger comments. Excerpt: One thing she doesn't mention is that if the Wall Street perception of tragedy whenever a company has to contribute to its pension fund is part of what stopped the distribution of COLAs to retirees...

  • Wall Street Journal: GE's Proposed Labor Pact Sweetens Retirement Benefits. Excerpts: The proposed contract negotiated between General Electric Co. and its 14 unions last weekend, the terms of which were disclosed Wednesday, includes significant increases in pension benefits and more early-retirement slots for the company's graying manufacturing work force. ... GE's future retirees also would receive gains. GE would increase guaranteed pension benefits for long-service employees by as much as 35% over the four-year period. The company also would increase the supplemental payments that a retiree of at least 60 years of age receives for up to three years until he or she is eligible to receive Social Security. The previous three-year contract estimated that pension benefits increased 10% to 15% over the prior pact. ... After the talks were completed, GE executives told the unions that they would also authorize an extra pension check this year to current retirees. ... In addition to the wages and pension issues, GE's unions were looking to increase the number of available slots for workers to take a special retirement package. The last three-year contract allowed for 850 workers -- both nonunion and union -- to do so. Under the new contract, 1,020 union workers would be permitted to retire early, with 600 this year and an additional 420 employees in 2005.

  • Wall Street Journal: Pensions Fall -- Not CEO's Bonus. Companies Shift Compensation Formulas To Preserve Payouts to Their Top Officers. Excerpts: Corporations have been feeling the pinch as ailing pension plans cut into their profits. But several large firms are making sure that one item doesn't suffer: the bonuses paid out to top executives. For much of the past decade, pensions helped fatten the bottom line at many companies thanks to an accounting quirk, indirectly boosting executive bonuses and incentive compensation, which are typically tied to a company's financial performance. Now that the up-and-down stock market has made many pension plans a drag, not a boost, on earnings, some companies including General Electric Co., Delta Air Lines and Verizon Communications Inc. have started removing pension effects from their executive compensation formulas. In some instances, companies are dressing the maneuvers up as corporate-governance reform. ... But corporate governance experts say this phenomenon underscores how, at many companies, bonuses are becoming an entitlement, regardless of company performance. "This pattern where pension surpluses are included for bonuses but pension expenses are excluded just underscores how these incentive programs can be manipulated in order to maximize payouts," said Carol Bowie, director of governance research at the Investor Responsibility Research Center, a Washington research and advisory firm for institutional investors.

  • Alternet.org: Washington to Nation: Drop Dead on the Job. Excerpts: Americans are already working more hours than at any time since the 1920s. Some 63 percent of Americans log more than 40 hours a week, according to a new survey by the Internet travel company Expedia.com. Two other polls found that nearly 40 percent of Americans work more than 50 hours per week. We work 2.5 more weeks a year on the job than the Japanese and up to three months more than the Europeans. The average middle income family now puts in four months more on the job in total hours each year than in 1979. For my money, the biggest threat to family values is the hostile takeover by work of every inch of our lives. ... But we refuse to see the problem, blinded by an obsession that work style -- how long, how hard, how torturously -- is more important than what we accomplish. We somehow think that long hours will translate into higher productivity. But Europe had a higher productivity rate than the U.S. for 14 out of the 19 years between 1981 and 2000, according to the U.S. Federal Reserve Board. The evidence from Europe and enlightened companies in the U.S. shows that you can be productive and have a life.

  • Australian Broadcasting Corporation: US wage gap widens. Excerpts: COMPERE: In the United States, the fat cats are getting fatter, with top executives ranking in wages in the hundreds of millions of dollars. A survey of wage rates in the United States shows the gap between the average worker and top corporate executives has widened to an enormous gulf in the nineties. Agnes Cusack reports from Washington: AGNES CUSACK: Corporate profits in the United States are estimated to have increased by 108 per cent in the nineties. Pro-Labor think tanks have set out to find who's gained. They say the average American worker's pay has risen by 28 per cent in the past decade - barely above the inflation rate, while salaries for chief executive officers have increased by 481 per cent. ... CHUCK COLLINS: The compensation process in the United States is set by committees at the corporation level, and these compensation committees tend to be made up only of other CEOs and other very high paid executives, and so they really don't have a lot of incentives to critically look at this growing disparity. AGNES CUSACK: If the average pay of a production worker had risen at the same rate as CEOs salaries in the nineties, he or she would be earning $173,000 a year rather than the current $45,000. The minimum hourly rate would be $34 rather than $8. Unemployment is low in the United States, but Chuck Collins says the tight labour market hasn't helped the average worker.

  • "stanleyfogel" comments on IBM retirement plans, past and current, and provides details on IBM's retirement plan for executives. Excerpt: In addition, the B/C/D/E (aka E1/E2/E3/E4 and even before that 71/72/73/74) executive pay levels generate an automatic 66% retirement pay based on total base pay. The executives get 66% no matter what happens. They get it even if they get laid off or fired the next day after they sign the papers since they become immune to the 30 year rule. ... The fact is that when you become a real IBM executive-a member of the Senior Management Team (there are many Band 10's that have ersatz executive titles) you get to leave anytime without any pension penalty, you get 66% of your salary, and you get to keep whatever you've saved.

    Throw in the special medical plan I hear that's coming, the free annual laptop, extra discounts on purchases, special fares and memberships to rental car/airline and other deals, things are that bad for the IBM senior management team retiree. They probably have lots of time to post on boards like this! That's why many will sell their souls and their integrity to get to that level. You're almost immune from anything. Editor's note: The IBM Executive Deferred Compensation Plan (EDCP) for the 2003 Plan Year is available in Adobe Acrobat [PDF--569 KB] format.

  • Janet Krueger asks Dave Finlay: "What I find sad is the way the cash balance plan penalizes high performers. Could you please show us what the numbers are if the employee in question started at the same date and had the same starting salary, but had average pay raises of 10%?" Dave Finlay replies (full excerpt): Here is the table redone with an average wage increase of 10%. The change of 5% to 10% is accomplished by adding 5% to the increase for each age. That method works fine for changing from 4% to 5% to 6%, but I have no data to indicate that it works for 10%. That said, here are the results:

    With an average raise of 10%:
    Retirement Age: 55 60 65
    1980 SEF Plan 33.5% 43.7% 50.2%
    1995 PCF Plan 34.5% 44.3% 44.9%
    1999 Cash Balance Plan 8.7% 10.8% 13.4%

    Several things have changed. The 1980 SEF uses a 10 year salary average; so at higher pay increases, the pension looks smaller compared to the final 5 year average. The 1995 PCF rewards higher paid employees with 'excess points'; so those numbers increase as pay increases. As expected, the 1999 CB decreases. Also, by age 65 this person is paid over $700,000.

    So, here it is with a 6% average raise:
    Retirement Age: 55 60 65
    1980 SEF Plan 36.2% 47.3% 54.3%
    1995 PCF Plan 32.5% 41.6% 42.3%
    1999 Cash Balance Plan 12.2% 16.3% 21.7%

    It doesn't take much of a change to see the difference.

    Editor's notes:
    • An earlier posting by Dave Finlay explains that the figures in the above tables show pension income as percent of final 5 year average pay for the three major iterations of IBM retirement plans at age 55 with 30 years service, age 60 with 35 years, and age 65 with 40 years.
    • Dave Finlay has created a spreadsheet you can use to compare your pension benefits under IBM's retirement plans, including the cash balance plan. See for yourself how much you may have lost! Download Microsoft Excel format. Download Lotus 1-2-3 format.

  • Boston Globe: Wal-Mart Ordered to Recognize Union; Workers Win Historic Bargaining Order; Company Ordered to Turn Over Information to Union. Excerpts: When meat cutters at a Jacksonville, Tex., Wal-Mart voted for United Food and Commercial Workers Local 540 representation, the company refused to recognize the union -- and suddenly changed the job functions of the meat cutters with a change to case-ready meat. Wal-Mart believed it had successfully circumvented the UFCW's first victory at one of its stores -- until a National Labor Relations Board Administrative Law Judge ordered the company to recognize and bargain with Local 540 over the effects of the change to prepackaged meat. This order comes more than three years after the original union election. ''Changing the way all of its stores sell meat shows the extent to which Wal-Mart will go to keep the union out of its stores,'' says UFCW Executive Vice President Mike Leonard. ''Anytime management concocts a scheme to ratchet down people's livelihoods, it says a lot about the real nature of the company.''

Coverage on H1-B and L1 Visa and Outsourcing Issues

  • Press Associates Union News Service, courtesy of WashTech.org: White collar job exodus to increase, panelists warn. Excerpt: Information technology workers in Connecticut saw their work sent to Bermuda. Massachusetts General Hospital transmits CAT scans of patients by computer for examination by radiologists--in Bombay. Workers in India entered New Jersey's welfare recipients' paperwork into computers, until an uproar brought those jobs to Newark, employing nine people. But New York City's parking tickets are sorted by computer techs in Ghana. And General Electric engineers, represented by IFPTE Local 147 in Schenectady, N.Y., saw some of their jobs transferred to Mexico--and that's despite the fact that they're unionized. These and other examples point up a growing trend: An exodus of white collar jobs overseas, just as factory jobs migrated to developing nations in previous decades, witnesses warned a House panel on June 18. And the transfer abroad of white-collar jobs leaves those jobless workers in the U.S., like their blue-collar colleagues, with few prospects here at home. "How do you retrain a chemical engineer?" one panelist asked the Small Business Committee.

  • BBC News: Union warns of India jobs 'decimation'. Excerpts: The UK Government has been urged to tackle an alleged social and industrial "earthquake" caused by the export of IT jobs to India. White collar science and engineering union Amicus wants ministers to set up an independent commission to investigate the issue. It warns Britain will turn into a nation of "fat cats and hairdressers" unless action is taken. The unions' words are unlikely to be well received in India, which is already fighting anti-outsourcing proposals from several US states. ... Amicus, which opened its annual conference in Blackpool on Saturday, predicted that 200,000 UK jobs were likely to be lost unless something is done about the crisis in IT and finance. Whole communities are being asked to face the nightmare of the 1980s once again. It said the sector was facing the biggest industrial collapse since manufacturing was "decimated" in the 1980s.
    • Linda Guyer comments. Excerpt: I realize this topic is not about pensions (directly) - but if we don't wake up and smell the coffee on this we will have NO JOBS left in high tech in this country. I have heard from a very good source that IBM is planning to shift 30,000 jobs in the next year to other countries like India. (That's 25% of US employees). The IGS strategy is to outsource every single job that currently works on an internal account.

  • Hindustan Times (India): Outsourcing to India can grow fivefolds: Research firm. Excerpts: Outsourcing of IT jobs to India could grow fivefold to $50 billion by 2008 if it can overcome a US labour backlash, says a report by investment-analyst firm Brean Murray Institutional Research. But despite the assurances the US administration gave to visiting Indian Commerce and Industry Minister Arun Jaitley to allay his country's fears on this, indications are that political opposition to offshore outsourcing is still high among the uncertainties that could slow that projected growth, according to the study. During his visit to Washington this month Jaitley raised the issue of state legislation banning outsourcing of technology jobs to India with US Trade Representative Robert Zoellick, who assured him that the federal government considers these measures as a "bad policy" and "is trying to resist it".

  • eWeek: Lawmakers Look To Curb L-1 Visas. Excerpts: pair of Congresswomen this week raised questions about the L-1 visa and promised to fight abuses of the program, which some say has cost the jobs of American IT workers. Rep. Rosa DeLauro (D-Conn.) announced plans to introduce legislation that will, among other things, place an annual cap of 35,000 on L-1 visas and will require L-1 workers to be paid prevailing U.S. wages. The bill would also deny L-1s to any company that has laid off an American worker in the six months before or after filing an L-1 application. "At a time when domestic employment is at an all-time high and tens and thousands of jobless tech workers and others are looking for work, it is important to close the loopholes that disadvantage American workers," DeLauro said in a press release. ... "In some cases the American worker was instructed to train the new arrival only to be summarily dismissed and replaced by the foreign worker," Johnson said.
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