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    Highlights for week ending August 9, 2003
  • Wall Street Journal: Memos Sent to IBM Show Awareness Of Pension Moves. Excerpts: E-mails from benefits consultants to top human-resources executives at International Business Machines Corp. in 1999 give a detailed look at how some of the company's pension changes would affect younger versus older workers and perhaps cause thousands of employees to stop building a new benefit for several years. ... The e-mails provide a rare glimpse into the detailed calculations benefits consultants provide employers who are changing their pension plans, and these kinds of calculations could draw scrutiny at a time when the U.S. Treasury is expected to issue regulations that say whether cash-balance plans violate age-discrimination rules in pension law. ... "As you can see," the memo continued, the enhancement "is directly related to age. Young employees get the benefit," he said, and "old employees do not." The e-mail was dated May 4, 1999, about two months before the company changed to the new cash-balance pension plan.

    Another consultant, Scot Martin, a principal at Mercer Human Resource Consulting, prepared tables that showed estimates by Mercer and Watson Wyatt of how many employees would cease to build a pension temporarily after the new cash-balance plan formula was adopted. In one table, Mercer estimated that out of a total of 138,600 participants, 28,300 employees would cease to earn a benefit for one to five years following the conversion. Older employees at many companies have complained that after a change to a cash-balance plan, they stop building a benefit for a period of time -- a situation called "wearaway" -- because their opening account balance is worth less than the benefit they have already earned. As a result, their pension doesn't grow in value until their account grows with pay credits and interest.

    A Jan. 10, 2000, memo written by Kathleen Roin, director, IBM world-wide retirement programs, describes ways that wearaway can happen in IBM's plan, even though employees' account balances grow with pay credit, interest credits and, if applicable, transition credits. In one example, "Meg," a 44-year-old employee with 14 years of service, will have a benefit that is reduced by 47%, because she loses the value of an early-retirement subsidy existing in the prior plan, but unavailable to her in the new plan under certain conditions. Her initial account balance would purchase an annuity of only $3,112 a year, rather than an annuity of $5,795 under the old formula. If link is broken, view Adobe Acrobat version [PDF-- 52 KB].


  • Business Week Commentary: Pensions That Discriminate against Older Workers. Excerpt: Kathi Cooper is something of a rarity in America these days. She has spent her entire career with a single company. For the past 24 years, Cooper has thrived at IBM, first in finance and planning and now working in internal controls. "I absolutely adore that company," she says. Yet that didn't stop Cooper, 53, from taking IBM to court over changes it made to its traditional defined-benefit pension fund in 1995 and '99. She and thousands of other employees had tallied up their payouts under the newest plan, a so-called cash balance plan, and compared them with the old one. Younger workers with shorter tenure at Big Blue would make out better under the new plan, but to veterans like Cooper, the math didn't look right. And on July 31, Federal Judge G. Patrick Murphy of the Southern District of Illinois agreed. He concluded that the plan was indeed unfair, and in fact illegal.
  • If link is broken, view Adobe Acrobat version [PDF--45 KB].

  • CBS MarketWatch: IBM ruling turns promising pension move into headache. Excerpt: The latest salvo over controversial "cash balance" pension plans came on Thursday, when a federal judge in Illinois ruled that International Business Machines Corp.'s (IBM) switch to such a pension plan in the 1990s discriminated against older employees. That is in direct contrast to proposed rules by the Internal Revenue Service that argue that cash balance plans do not discriminate against older employees, said Dallas Salisbury, president of the Employee Benefits Research Institute. If link is broken, view Adobe Acrobat version [PDF--91 KB].


  • CBS MarketWatch: Ruling on IBM's Pension Plan Raises More Questions Than It Answers, According to Towers Perrin. Excerpt: "The extent of the migration to these hybrid pension plans shows that the business and legal communities firmly believe that the current U.S. legal and regulatory environment supports these types of plans," said Steve Kerstein, leader of the Global Retirement practice for Towers Perrin. "Nevertheless, we support and encourage the efforts of Congress and federal agencies to clarify the hybrid plan issue. These efforts should discourage wasteful lawsuits so that plan sponsors are more secure in establishing and maintaining these plans." If link is broken, view Adobe Acrobat version [PDF--78 KB].


  • CBS MarketWatch: Cash-balance plans under fire. Court ruling against IBM could invalidate all such plans Excerpt: Like others who are opposed to the age discrimination that's often found during conversions, Norman Stein, a law professor at the University of Alabama, sees the ruling against cash-balance plans as favorable to employees, though the technical basis of the court's finding doesn't necessarily address the plans' real problems. "If you think of (cash-balance plans) as defined-contribution plans, you'd think they're not age discrimination," Stein said. But, the judge found "they violate an important technical requirement that all defined-benefit plans are required to satisfy," he said.

    "What makes them bad is not what makes them illegal, and what makes them illegal is not necessarily what makes them bad," he said. "But because they're bad for most older employees, I don't think they should get a free pass. I think it should go back to Congress and Congress should decide what are good cash-balance plans and what are bad ones. That can happen if all cash-balance plans are illegal.

    "They have caused tremendous, tremendous pain for older employees because these conversions have really hurt them," Stein added. "These really are age discriminatory, they really have hurt older employees, and for technical reason they also happen to be illegal." If link is broken, view Adobe Acrobat version [PDF--41 KB].

  • iSeries Network: Judge Rules Age Bias in IBM Pension Switch. Excerpts: IBM’s announcement of the switch back in 1999 caused such a storm of protest from employees who saw their anticipated retirement dollars evaporating that the company made a partial compromise and allowed employees age 40 and older with 10 or more years of service to remain in the traditional plan. But that was clearly not enough for many of the employees who went ahead with the suit. Thursday was their day to shine. By noon on Friday, Cooper had received more than 1,000 phone calls and emails from fellow IBMers thanking her for standing on the front line in this battle. The effort and the stress have been worth it, she believes. “The train had to be stopped,” she says. “These pension formulas are bad for America. It’s all part of the corporate greed that is left over from the ’90s.”

    Employees also received an internal memo from Randy MacDonald, IBM senior vice president of human resources, which quickly found its way to a number of public and employee-based Web sites and discussion group lists. The memo contained words that angered some IBMers even more: “IBM has been defending this lawsuit to preserve our pension plan. Despite our efforts, earlier this afternoon, the U.S. Federal District Court in Illinois ruled that IBM’s current pension formulas violate the age discrimination provisions of federal pension law. We strongly disagree with this ruling. IBM will appeal, and we will prevail.” Garrett Lanzy, vice president of Alliance@IBM and a senior engineer at IBM in Rochester, notes that the “general feeling of people in Rochester is that Randy MacDonald’s memo is trying to scare people that this court decision will threaten people’s pension plans — but employees aren’t really panicking.”

    Lanzy tells of a “company-wide ‘Values Jam’ — an electronic news group — held by IBM last week. Sam Palmisano had asked all employees to contribute their ideas about how IBM should focus on corporate values.” Some of the ideas discussed, says Lanzy, were to return to respect for the individual and customer service. Then, Lanzy says, “late Thursday, someone suggested that IBM not appeal this case and use this as a new starting point to regain the trust of the employees. That idea resonated with a lot of people.” But it’s not likely to happen. IBM’s press release and MacDonald’s memo were emphatic about the company’s intention to appeal. And whether or not this ruling is overturned will mean a lot to more than IBM and its employees. Analyst Bob Djurdjevic, president of Annex Research, points out that “this ruling is not just about IBM, but about hundreds of other companies as well.” If link is broken, view Adobe Acrobat version [PDF--29 KB].


  • Janet Krueger responds to a message board post stating "Many of my coworkers are now suddenly worried about the pension plan(s) being completely cancelled by IBM. That was the implied threat in Randy MacDonald's memo to employees last week. (Editor's note: Mr. MacDonald's memo was posted in last week's summary highlights). Full excerpt: You missed the biggest factor -- as long as IBM is managing to significantly prop up their bottom line using vapor profits from the pension plan, they won't terminate it -- quarterly earnings are just too important to them!

    If they were to terminate the plan, then a number of federal protections would step in, protecting all of the benefits everyone has accrued up through the date of the termination. Even those who have not worked their for a full 5 years become vested, which provides another major disincentive for IBM to terminate the plan.

    Once enough money has been set aside to pay everyone's benefits in full, a 50% federal excise tax is applied to the remaining funds. (Yes, that is another major disincentive -- and please note that if there is a deficit, rather than a surplus, IBM would have to add in enough from their operating funds to make up the difference.) Any funds left after the excise tax is paid would then be transferred to the operating funds.

    If the economic disincentives aren't enough, IBM would likely also have to face another sizable chunk of public employee discontent and negative media exposure.

    Net: I think the Randy McDonald's threats are empty, purely intended to instill fear and doubt in the employee population, as well as to prop up their lobbying investment on Capitol Hill and with the Treasury, where they are asking for all of their actions to be retroactively legalized.


  • Ms. Krueger adds one more reason to the above list. Full excerpt: If IBM terminates the plan, then as part of the termination, they would have to pay off or purchase annuities for everyone currently covered under the plan, both those who are still working and those who are retired. Consequently, they would have to disburse close to $40 billion dollars in assets, which they would no longer have control over. This is yet another bit time disincentive for termination, as they could no longer use pension funds to help pay for controlling interests in companies like Red Hat!


  • Don't trust Randy MacDonald to look out for your pension? Are you interested in seeing what your pension would be under the 1991, 1995, and cash balance (1999) IBM pension plans? David Finlay, a retired IBM Boulder employee, has created a spreadsheet that calculates these figures for you. Download it, fill in your salary history and see for yourself what your retirement benefits would have been under the three plans. We highly recommend the exercise if you haven't done it yet --it will be enlightening! Download Lotus 1,2,3 version [ZIP--1.0 MB]. Download Microsoft Excel version [ZIP--1.0 MB].


  • Janet Krueger: "The article below provides a good overview of the legal issues involved in Cooper v IBM. Note especially the discussion about what might happen if Treasury proceeds with issuing their heavily protested regulations from last December: 'The courts generally defer to "reasonable" regulations, but a protracted court battle over whether deference is due these regulations could ensue if Treasury issues them in final form'." Courtesy of Benefits Link, from the August 4, 2003 issue of Deloitte & Touche's Washington Bulletin, a periodic update of legal and regulatory developments relating to employee benefits: IBM's Cash Balance and Pension Equity Formulas Violate ERISA, District Court Rules. If link is broken, view Adobe Acrobat version [PDF--85 KB].


  • From Kathi Cooper, the lead plaintiff in Cooper v. IBM. Excerpt: This is to everyone that has contacted me since Thursday. I am overwhelmed with calls (both my IBM line and my private line) and with e-mail (both my IBM ID and my personal ID). I am quite comfortable in saying I have heard from at least 1,000 of you. Read more... If link is broken, view Adobe Acrobat version [PDF--57KB].


  • From Janet Krueger: I've seen a LOT of assumptions being made over the last several days about what the settlement might be, and who might be helped by it. Speculation can be fun, but it should not be confused with fact. Here are the facts...


  • "cityfarmer51" supplies the "Pension Ruling: Frequently Asked Questions & Answers" as posted on the IBM Intranet "W3 News" page. Excerpt from "cityfarmer51's" Yahoo! message board post:
    Q: How will this ruling affect employees? Will my benefit be decreased or increased?
    A: The ruling addresses a complex and technical area of pension law, and more study is needed to determine all ramifications. Plus the judge has not addressed any remedy prospectively or retroactively.
    Q: Won't this ruling force IBM to offer choice of pension plans to all employees?
    A: No. Keep in mind the ruling, if it stands, would invalidate not only the more recent cash balance formula but also the prior formula that employees were choosing to keep in `99. Under the court's ruling, there is nothing to choose between -- both formulas would be considered invalid.
    Q: Is IBM's pension plan unique? If not, why aren't other companies being sued?
    A: IBM's pension formulas are not unique, and we expect that hundreds of other employers and pension plans will face similar suits if the judge's decision is not overturned on appeal. While at least two other employers - AT&T and Onan - had been previously sued on grounds similar to the IBM case, in those cases, the courts rejected the plaintiffs' claims and affirmed that cash balance plans were lawful.
    Q: How are executives affected by this?
    A: This situation affects executives in the same way; executives and employees participate in the same pension plan as well as health, dental and other employee plans.
    Q. Where does the case go from here? How long will it take?
    A: IBM will appeal the lower court ruling.
  • Wall Street Journal: The Erisa Trap: Workers Find Limited Rights to Sue Insurers. Excerpt: In 1997, when Donya Anderson decided to deduct $7.36 a month from her paycheck to pay for disability-income insurance, she thought it was worth it for peace of mind. Her decision seemed vindicated three years later, when, three months pregnant with her fourth child, she submitted a claim with the insurer, UnumProvident Corp. Citing complications with Ms. Anderson's previous pregnancies and a job at a carpet factory that required lifting 50-pound bales of fabric and pushing 1,000-pound carts, her obstetrician had told her she should stop working. But UnumProvident denied the claim, leaving Ms. Anderson, 36 years old, no choice but to quit her job in the Andalusia, Ala., factory and apply for government assistance. Then, when she tried to sue in state court, the insurer successfully argued the case should be heard in federal court -- and she wasn't eligible to seek punitive damages. An UnumProvident spokesman said the company couldn't discuss the case in detail "because we do not have a signed authorization from Ms. Anderson to discuss the claim and it's our policy to protect the privacy of our policyholders."


  • "ibmmike2006", a retired IBM manager, explains why he joined the Alliance@IBM. (Editor's note: We highly recommend reading this post). Excerpt: The coupe of Gerstner, in 1993, with the help of board insiders changed all that. Gerstner wound up as the 364th Richest American in 2002 with a net worth of $630 million. The pension eroded, there were no contributions and no COLA's. Much of Gerstner's wealth did not come from increased sales, from innovation, or invention, oh no. It came from Assets that thousands of IBMers worked their butts off for 75 years. The buildings, the plants, and the forcing out of those who never saw the maximum accumulation of their pensions in their 50's.

Call for Action, Courtesy of Janet Krueger

On Wednesday, August 13, 2003 Reps. Bernie Sanders (I-VT), Gil Gutknecht (R-MN), George Miller (D-CA), Maurice Hinchey (D-NY), Dave Obey (D-WI), and Rahm Emanuel (D-IL) will be sending the following letter to President Bush renewing our call for the immediate withdrawal of the proposed cash balance pension regulations in light of the positive court ruling in Cooper v. IBM.

Our goal is to get an equal number of Republicans and Democrats to co-sign the letter. On January 30, 2003 we sent a letter with 8 R's urging the President to immediately withdraw the proposed cash balance regulations. We are asking that they co-sign our new letter.

Here's who we need:

  1. Rep. John McHugh (R-NY) representing Platsburgh, Watertown and Oswego, NY.
  2. Rep. James Walsh (R-NY) representing Elmira, NY.
  3. Rep. Rob Simmons (R-CT) representing the eastern half of Connecticut
  4. Rep. Jack Quinn (R-NY) representing Jamestown, NY
  5. Rep. Virgil Goode (R-VA) representing Charlottesville and Danville, Virginia
  6. Rep. Chris Smith (R-NJ) representing parts of Trenton, NJ
  7. Rep. Sherwood Boehlert (R-NY) representing Utica, Auburn and Oneonta, NY

Any help we could get in securing those signatures or any other likely Republicans before Wednesday, August 13, 2003 would be most appreciated. As we are trying to get a balanced letter, for this letter we are not asking anymore Democrats to co-sign at this time. Thanks!

Warren Gunnels
Legislative Director
Rep. Bernie Sanders
202-225-4115

View letter to President Bush [PDF--3640 KB].

Coverage on H1-B and L1 Visa and Outsourcing Issues

  • WashTech: IBM Offshoring Audio Now on Web. Excerpt: Two weeks ago we reported on IBM's plans to move thousands of U.S.-based information technology jobs overseas. IBM executives and managers discussed the perceived need and rationale for accelerated offshore sourcing during an internal summit earlier this year. The meeting was broadcast live over the Internet to the company’s 2,000 human resource managers around the world. The discussion was recorded by IBM and stored on an internal company web site. An IBM employee upset about the company's plans provided a copy of the digitized audio file to WashTech. Today, we offer audio from the actual IBM HR meeting at which these plans were discussed.

    Choose from one of the following links to hear Tom Lynch, IBM's incoming employee relations director, discuss the company's plans to ship IT work abroad, and force IBM employees to train the foreign workers who will be replacing them.

    Editor's note: We highly recommend you listen to the audio from this meeting. It's startling to hear first-hand the words of the IBM executive in this recording. Related news stories concerning this recording are available in the July 26, 2003 edition of these summary highlights.

  • Alliance@IBM: Transcript of Tom Lynch meeting. (If you can't listen to the audio, read the transcript.). Excerpts: US workers or workers in a country where the work is being relocated from, will, in many cases, be asked to train their replacements. If we’re moving work to China, the Chinese management team and maybe some Chinese workers will have to come to affect the transfer of technologies to do that. That’s going to raise a lot of tensions as you’re training someone to do a job that you know is no longer going to be yours at the end of a fixed period of time. ...

    And finally, the industrial relations reactions.. We’re already seeing some of this. Washtech is a part of the CWA, the same way that CWA, the Communications Workers of America, has the Alliance@IBM as the IBM local union affiliate and Washtech, which is set up out on the west coast, in Washington state, and trying to organize employees at Microsoft and at Amazon.com. To log on that website there is a whole lot of stuff as to why this off shoring stuff is terrible for employees; why employees need the union to fight it. That is where you can get the Microsoft pitch as well in it’s entirety, that the senior union vice president took out, and you can see some of the fairly appealing arguments that they’re making to like organizing to help fight this, some dignity issues, you know, those of us who track union campaigns realize that unions rarely have to get more money. Issues like dignity and justice and fairness, those sort of gut sort of issues tend to raise or strike an emotional cord after which the money issues, pay and benefits issues can come in but the dignity of being told that not that your job is going away but that’s it’s moving and you’re going to be put out of work as a result of that.


  • Forbes: Blue-Chip Companies Send More Jobs to India. Excerpt: A decade ago, a wag famously warned of the giant sucking sound from Mexico, which threatened to steal America's working-class jobs. Today, the giant sucking sound comes from a different spot on the globe, and it menaces a different type of worker. India increasingly is landing high-skilled, highly paid positions for engineers, accountants and financial analysts formerly employed in the United States. ... No CEOs or CFOs have outsourced their own positions to lower-paid executives in India. But this job shift is striking because it reaches so high up the corporate ladder, hitting the formerly cushy ranks of white-collar corner offices. Your job could be next. Among the outsourced are computer programmers, engineers, accountants and financial analysts, not to mention thousands of less-skilled workers who answer phones at call centers. Critics decry the job migration as shortsighted bottom feeding. By moving middle-class jobs to the Third World, corporate America is abandoning U.S. workers at a time when jobs are hard to find, said Thea Lee, chief international economist for the AFL-CIO. "I don't doubt that it's cheaper," Lee said. "But companies need to take a slightly longer time frame rather than just cutting payroll costs right now."


  • WashTech News: GAO Green Lights Offshoring Study. Excerpt: The General Accounting Office agreed on Tuesday to study the trend of U.S. companies exporting engineering and technical jobs overseas to cheaper labor markets. Congressmen Jay Inslee (D-WA) and Adam Smith (D-WA) wrote a letter to the GAO Inspector General on July 17th requesting such a study.


  • WashTech News: AFL-CIO: Reform H-1B and L-Visa Programs. Excerpt: In the current recession—unlike previous economic downturns—a growing number of well-educated and highly skilled U.S. professional and technical workers have found themselves in the long lines of the unemployed. They and their families have not only been battered by the economic trauma of being out of work, but increasingly they are finding themselves victimized by dysfunctional U.S. guest worker policies. For many—particularly workers in high tech—these policies have made a bad situation much worse.

    Under current law, employers, especially in high tech, are abusing temporary visa programs to allow hundreds of thousands of guest workers with no rights and no job security to take job opportunities in the United States, when workers in this country are unemployed and even being laid off. There are now more than a million of these workers in the United States under the two largest guest worker programs, H-1B and L-1. Yet neither of these programs connects in any way to the realities of the U.S. labor market and our rising unemployment rate.


This week on the Alliance@IBM Site:

  • Fact sheet: U.S. Tech Jobs Moving Offshore. Excerpt: Recent reports indicate that U.S. employers will move about 3.3 million white-collar service jobs and $136 billion in wages overseas in the next 15 years. IT giants such as Microsoft, HP and IBM are leading the way. The results are clear for U.S. technology workers — increased job insecurity, lower wages and fewer benefits. Some Facts Behind IT Offshoring...


  • A new page with information about the Cooper vs. IBM lawsuit has been added. Content on this page includes:
    • Summary of Judge Murphy's ruling
    • Full text of Judge Murphy's ruling
    • Who is included in the class action?
    • Excellent article in the NY Times
    • IBM's Press Release in response to the ruling
    • Letter from J.R. MacDonald, Sr. VP of Human Resources, to employees
    • Consultant Watson Wyatt, not surprisingly, takes IBM's side.

  • Sample Letters for you to send your elected officials about Off Shoring.


  • IBM Pension Lawsuit FAQ. A list of frequently asked questions about the class action lawsuit against IBM's 1995 and 1999 pension plans. On July 31, 2003, a federal district court judge ruled in favor of the employees in this case. IBM has said it will appeal the judge's decision.

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