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for week ending July 5, 2003
- PBS's television program, NOW with Bill Moyers, featured a segment titled Pension
Pain on its June 27th show. The overview
for the program states: "According to a 2003 survey by the Employee
Benefit Research Institute (EBRI) and the American Savings
Education Council (ASCE), many Americans are ill-informed about just how much money they
will need in retirement, and how to plan accordingly. Traditionally, retirement experts have
told us to think of retirement as a 'three-legged stool' comprised of personal savings, Social
Security and employer sponsored pensions. These days, the stability of all three legs are being
challenged - and some people are worried. This week NOW looks at how traditional pension plans
are faring. Experts refer to what we think of as 'traditional' pensions as 'defined benefit
plans.' Below you'll find more information about these plans as well as about other increasingly
popular types of pension plans. The NOW Web site includes these segments pertaining to the Pension
The full transcript of the
June 27th NOW with Bill Moyers is available online. (You'll need to scroll about one-third
of the way down the page to view its transcript). Excerpts:
- MAN 1: We lost our post-retirement medical. We've lost, some of us, up to 50% of our pensions.
MAN 2: They have taken away what you and I worked our lifetime for. MAN 3: You know, when
I retired, it was the promises and the dream, and now it has become the lie and the nightmare…
BROWN: Last week, hundreds of workers, retirees, and elected officials gathered at Boston's
historic Fanueil Hall. They came from all over New England to rally over what they call
the crisis in retirement security. MAN 4: Just protect the benefits you promised. Don't
want anything more. If you retired and you were promised a benefit, a company should meet
that commitment. BROWN: Nothing has this crowd angrier than cutbacks in their retirement
benefits. They say those cutbacks keep on coming.
- BROWN: By now, you may think you've heard it all. But there's yet another way some companies
are using creative accounting in their pension plans. GORDON: They have used these pension
plans as what they themselves call an earnings management tool. BROWN: What does "earnings
management tool" mean? Here how it works: if a pension plan earns such good returns
that it exceeds 100% funding — in other words, has more money than it needs —
companies are allowed to credit that extra money in their pensions towards their annual
bottom line. GORDON: Rather than using the plan for what it was really intended, they saw
it as a device that could be manipulated to try to create the illusion of better corporate
financial performance than really existed. BROWN: According to the Wall Street investment
firm Goldman Sachs, in the year 2000, 35 companies in the S&P 500 attributed more than
10% of their bottom line to pension excesses, even as, in many cases, the value of their
pension funds actually shrank. That contradiction has many people baffled. The Securities
and Exchange Commission is now looking into whether some pension funds were being abused
to gin up company profits.
- A.J. Norby, President, National Retiree Legislative Network (NRLN) testified on "IRS
Regulations Governing Reductions of Accruals and Allocations Because of The Attainment of Any
Age; Application of Nondiscrimination Cross-Testing Rules to Cash Balance Plans", to The
Internal Revenue Service At a Public Hearing on April 9, 2003. See
complete text of testimony. (This is a must read for people that don't understand why IBM
and other companies embraced cash balance conversions, and why there has been such an employee
rebellion around such conversions). Excerpts:
- Regardless of the analytical differences between these various problems, it is plain to
NRLN’s membership that they were triggered by a corporate process of regression of
the private benefit system so that underperforming and often ethically-challenged corporate
elites could gain enormous and undeserved wealth.
- Once IRS ruled that cash balance plans were to be treated as a species of a defined benefit
plan, an escape from the surplus tax surcharge provisions of the Code became available.
By converting to a cash balance plan instead of a 401(k), for example, the employer was
regarded as simply amending a defined benefit plan to replace one defined benefit plan formula
with another. Under this scenario there was no termination, no surplus reversion, and no
tax surcharges. However, in one stroke, the employer succeeded in drastically reducing its
pension liabilities (principally for older workers), reporting an even more substantial
surplus, and using these artificially-inflated reports of its ostensible business prosperity
to justify new and greatly improved cash bonuses and stock options to its top executives.
If the same company that switched to a cash balance plan in these circumstances also reduced
or cancelled its retiree health liabilities, it could double or triple the cash bonuses
or stock options awarded to its corporate inner circle.
- Where a defined benefit plan with surplus assets is converted into a cash balance plan
and older workers are not provided with the option of retaining their defined benefit plan
coverage and/or cannot accrue pension credits under the replacement cash balance plan until
their applicable defined benefit plan accruals have “worn away”, there can be
little doubt that the cash balance plan is primarily for the benefit of the employer, not
the employees and their beneficiaries, and that it also promotes invidious discrimination
between younger and older employees. The defined benefit plan sponsor made a commitment
to provide certain benefits under that type of plan, it was provided generous tax privileges
to fulfill those commitments, and it has the means to fulfill them.
- Dow Jones Business News: Judge
In IBM Pension Suit Says He Will Rule In 'Weeks'. Excerpt: The lawsuit alleges that IBM
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.
- Portsmouth (New Hampshire) Herald: Don’t
be fooled by Medicare prescription reform rhetoric. Excerpts: But what neither plan deals
with is the escalating costs of prescription drugs and the questionable practices by drug manufacturers
aimed at keeping those costs - and their resulting profits - high. Legal reforms talked about
so much during the last congressional campaigns, which would have reduced costs by forcing drug
companies to spend less on advertising and by making the criteria for releasing generic, less
costly versions of the same drugs to the public less stringent, have been forgotten in all this
new rhetoric. Of course, we all know why: Drug manufacturers are major contributors to political
campaigns and our congressmen and senators certainly don’t want to bite the hands that
feed them. ... Once again, Congress is prepared to pass an entitlement program that benefits
big business and big money, but keeps those it ostensibly claims to help in the position of
having to choose whether to spend their meager incomes on food or medication.
- New York Times Editorial: How
Not to Fix Medicare. Excerpt: Bluntly put, the House legislation is a ruse. The bill delivers
a prescription drug benefit, but this benefit is simply the attractive window dressing for the
legislation's ultimate aim: fundamentally revamping Medicare to create a competitive system
based on private health plans. Consider the bill's major features. Private health insurers would
be given increased government payments so that they could sweeten their benefits to lure the
elderly and the disabled out of the traditional Medicare program. Beneficiaries choosing private
plans with lower premiums would get a rebate from the government; those choosing plans with
higher premiums would have to pay more. In 2010, the traditional program would be forced to
compete with private plans. From then on, the amount that beneficiaries paid for Medicare would
be set not by law, but by market forces. This might sound like a great way to encourage consumer
choice — until one realizes that the cost of alternative insurance options would be mainly
determined by the health of those enrolled. Since the least healthy enrollees would most likely
stay in traditional Medicare rather than brave the private market, the program's premiums would
likely rise substantially. This would encourage healthier beneficiaries to seek lower premiums
in the private sector, leaving only the sickest behind.
- New York Times: Employers
Seek to Shift Costs of Drugs to U.S. Excerpt: The bills to provide drug benefits through
Medicare that were passed by the House and the Senate last week offer some of the country's
largest employers a long-sought prize: shifting at least some of their burden of soaring drug
costs to the federal government. With billions of dollars at stake, those companies are lobbying
hard to make sure that those gains survive in the final version of the law. The effort is being
led by a shrinking number of companies that pay for health coverage for millions of retired
workers — notably General Motors, Ford, Verizon, SBC Communications, I.B.M. and Caterpillar.
If link is broken, view
Adobe Acrobat version [PDF--65 KB].
- Wall Street Journal: Most
Workers Are in Dark On Health of Their Pension. Excerpt: For millions of American workers,
few retirement issues are more vital than the health of their pension plans. But companies have
waged a successful battle to keep crucial information about their plans a secret. The fight
comes amid rising alarm about the fate of pensions. Some employers, notably steelmakers, have
killed decades-old pension plans. Many other companies have reduced pension benefits by restructuring
their plans. And employers are now lobbying Congress for formula changes that would let them
make smaller pension contributions and smaller payouts when people retire.
- Washington Post: Time
to Redirect Your Retirement Savings? New Tax Numbers Don't Tell the Whole Story. Excerpt:
Since last month's tax-cut bill slashed rates on stock dividends and capital gains, a number
of number crunchers have begun to question the wisdom of investing in tax-deferred retirement
accounts, such as IRAs and 401(k) plans. This goes against the grain of the past couple of decades
of retirement-planning advice. But times have changed -- so is it time for you to change, too?
- New York Times Editorial: Picking
Workers' Pockets. Excerpt: The Bush administration, which has the very bad habit of smiling
at working people while siphoning money from their pockets, is trying to change the federal
Fair Labor Standards Act in a way that could cause millions of workers to lose their right to
overtime pay. The act, one of the last major domestic reform measures of the New Deal, gave
Americans the 40-hour workweek and a minimum wage (which began at 25 cents an hour in the late
1930's). It wiped out grueling 12-hour days for many workers and prohibited the use of child
labor in interstate commerce.
- Have you ever wondered what happened to Mike Sinneck, former vice president of business operations
at IBM Global Services Americas? Read
about him and his new job here.
- Forbes: Court Rules An E-Mail
Is Not A Trespass. Excerpt: The California Supreme Court refused to enjoin a former Intel
engineer from sending e-mails to all company employees, rejecting the argument that such e-mails
constitute a trespass on the Intel computer system. The court, by a 4-3 decision, reversed lower-court
rulings that prohibited former employee Ken Hamidi from sending e-mails critical of Intel to
thousands of its employees. Intel had argued that the e-mails had trespassed on its private
network and had distracted its employees. But the California Supreme Court found that, to make
a trespass claim, Intel would have to show that its computers were damaged in some way, and
they were not.
- ReclaimingDemocracy.org: Inherent
Rules of Corporate Behavior. Excerpt: Most citizens now realize that corporate wrongdoing
is not just a matter of unethical behavior among a handful of executives. But the myopic focus
on financial issues and Wall Street remains, threatening to misdirect our attention from the
real source of corporate harms: the very structure of the modern corporation and the laws that
govern it. In his 1991 book, In the Absence of the Sacred, writer Jerry Mander included a self-descriptive
list, "Eleven Inherent Rules of Corporate Behavior." His insights have never been
more timely, as they illustrate the severe limitations of "corporate responsibility"
and illustrate the essential truth that corporations must be redefined and subordinated to democracy,
not merely regulated or pleaded with to do the right thing.
- The Vault
Network's IBM Business Consulting Services message board is a popular hangout for both legacy
IBM Global Services and new-to-IBM PricewaterhouseCoopers consultants. A recent memo from IBM
HR to IGS employees stated that personalized compensation statements sent to employees to confirm
compensation and earnings were in error. According to the memo, an administrative error resulted
in erroneous reporting of pay ranges for a particular band and job family. "Specifically,
the range overstated actual market pay by approximately 25% at each point in the range and is
thus not an accurate indicator of your pay relative to the market." At least one contributor
to the Vault BCS message board had trouble believing this was an administrative error, and states
Coverage on H1-B and L1 Visa and Outsourcing Issues
- WashTech News: Microsoft
plans largest lay-off of full-time employees in company history. Excerpt: When Eric
Poore began working as a customer service representative for Microsoft’s technical
call-routing center in 1997, he was told his advancement opportunities were endless. Two
years into his Microsoft career Poore’s hard work paid off with a promotion to Outlook
Technical Router, where he managed technical questions about Microsoft’s email program.
But less than a year later, the position was outsourced – a handy euphemism for
being sent to India or elsewhere to cut labor costs - and he was demoted back to his original
customer service job. Four years after Poore lost his first position to outsourcing, he
is about to lose his six-year career because Microsoft is in the process of a massive
relocation of Customer Central call center jobs to India and Canada. Employees estimate
that Microsoft is planning to eliminate at least 800 jobs in the next fiscal year at the
company's Las Colinas facility outside of Dallas, Texas and shift the work offshore.
- Seattle Times: Microsoft
shifting jobs to India office. Excerpt: This information completely contradicts Microsoft's
public position that the impacts of their focus on sending work abroad is not going to
affect its U.S. employees," said Marcus Courtney, WashTech president. "Clearly,
Microsoft is starting to cut its U.S. work force and send work abroad in order to slash
its labor costs."
- Information Week: EDS
Opens Services Facility In India. Excerpt: EDS said Tuesday that it has opened a 500-seat
IT services facility in India to serve customers who wish to move back-office operations
to the subcontinent--where labor costs can be less than half of what they are in the United
This week on the Alliance@IBM
- Many people have said they did not get the Alliance survey on issues at IBM. If you
have not filled out the survey please read the note below and go to the survey link. Thank
you. In order for us at the Alliance@IBM to improve our work and sharpen our focus, we
have prepared a survey which we are hoping our members, subscribers and friends will fill
out. We will share the results with everybody. Thank you for helping and please click
on the following: http://r.mb00.net/s/c?k.4nkv.1.20ny.px6.
Editor's note: Some of the questions on this survey will remind you of the opinion surveys
IBM used to use back when they were interested in the opinions of their employees.
- The Alliance@IBM has recently added an excellent OffShoring
News page, including an IBM
Offshoring News section.