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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.
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.
- 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
- 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
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%:
|1980 SEF Plan
|1995 PCF Plan
|1999 Cash Balance Plan
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:
|1980 SEF Plan
|1995 PCF Plan
|1999 Cash Balance Plan
It doesn't take much of a change to see the difference.
- 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:
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,"