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    Highlights for week ending August 30, 2003
  • Business Week: The Great American Pension-Fund Robbery. (Editor's note: This is a "don't miss" article. It explains why IBM and other companies have been playing shenanigans with employee pensions). Excerpts: But if pensions are under water, the cause is less a perfect storm than a leaky boat ravaged by pirates. For more than a decade, corporate sponsors of pension plans have been systematically looting them. The great pension raid is of a piece with the other accounting deceptions of the 1990s, and it had the same motivation -- to boost reported earnings and stock prices. Since the 1980s, many corporations have shifted from traditional defined-benefit plans to defined-contribution plans such as 401(k)s, which cap the company's liability and shift the risk to workers and retirees. But that shift is only the most visible part of the story. As of yearend 2002, some 42 million workers and retirees and $1.6 trillion dollars were still in traditional pension plans -- and these have been raided. ...

    Convert from conventional plans to "cash-balance plans." This was invented by Bank of America in 1985 and widely imitated. Terminating a pension plan results in a large tax penalty, so consultants invented a hybrid that quacks like a 401(k) but doesn't trigger the penalty. The Internal Revenue Service went along with the fiction that a cash-balance plan, which reduces payouts, is not really a termination of the plan. The conversion creates imaginary individual accounts that pay a set rate of return. Companies then book their projected future savings as current earnings, thanks to a bizarre determination by the Financial Accounting Standards Board. On July 31, in response to a lawsuit by IBM workers, a federal judge ruled that such conversions constitute illegal age discrimination. ...

    Once, pension plans were intended to induce loyalty and long service in workers. Now, big corporations and their executives seem to care about only one category of worker -- top managers, who loot the plans while protecting their own assets. Ordinary long-tenured employees are deemed liabilities. The remedy for depleted pension funds is much tougher regulation. But the Bush Administration wants to weaken anti-discrimination rules to make it even easier for top executives to have one set of rules for employees and another for themselves. To solve the underfunding problem, the government should be forcing companies to disgorge money that was improperly diverted from plans to corporate bottom lines, thus making the plans whole. Instead, the Administration wants to allow companies to use more liberal accounting assumptions about rates of return. It's fine to have an Administration that prides itself on being pro-business. But don't the tens of millions of employees who loyally serve Corporate America also count as part of business? Shouldn't their pensions be protected as well? If link is broken, view Adobe Acrobat version [PDF--27 KB].


  • FairEconomy.org: Labor Day "Executive Excess" Report: CEOs Profit from Layoffs, Pension Shortfalls, and Tax Dodges. Excerpt: CEOs at companies with the largest layoffs, most underfunded pensions and biggest tax breaks were rewarded with bigger paychecks, according to a new report, “Executive Excess 2003: CEOs Win, Workers and Taxpayers Lose.” Median CEO pay skyrocketed 44 percent from 2001 to 2002 at the 50 companies with the most announced layoffs in 2001, while overall CEO pay rose only 6 percent. These layoff leaders had median compensation of $5.1 million in 2002, compared with $3.7 million at the 365 large corporations surveyed by Business Week. ... Between 1990 and 2002, average CEO pay rose 279 percent, far more than the 46 percent increase in worker pay, which was just 8 percent above inflation. CEO pay dramatically outpaced the performance of the S&P 500, which rose 166 percent in the same period, as well as the 93 percent rise in corporate profits. The CEO-worker pay gap was 281-to-1 in 2002, nearly seven times greater than the 1982 ratio of 42-to-1. (Editor's note: Be sure to download the Executive Excess Report from this article [PDF--221 KB], if for no other reason than to view the cartoon at the top of the report).


  • Janet Krueger (full excerpt): Just a heads up that tomorrow morning Reps. Bernard Sanders (I-VT), Gil Gutknecht (R-MN), George Miller (D-CA), Sherwood Boehlert (R- NY), Maurice Hinchey (D-NY), John McHugh (R-NY), David Obey (D-WI), Rob Simmons (R-CT), Rahm Emanuel (D-IL), Jerrold Nadler (D-NY), Carolyn Kilpatrick (D-MI), Rosa DeLauro (D-CT), Robert Wexler (D- FL), James McGovern (D-MA), and Anibal Acevedo-Vila (D-PR) will be sending the attached letter to President Bush urging him to immediately withdraw the proposed cash balance regulations in light of the Cooper v. IBM decision. The link below is the letter that was sent in January also urging the President to withdraw these regs signed by 217 Members of the House and the Senate.
    http://bernie.house.gov/documents/01-30-03--Cash_Balance_to_Bush.pdf [PDF--3640 KB].
    If your representative is listed above, send them a note with a big thank you! If your representative is NOT listed above, please send him/her a letter expressing your anger about the fact that the Treasury still has not withdrawn the proposed regulations that were attempting to invalidate Cooper v IBM. Also, please send letters to your senators -- we want everyone in Congress committed to letting us have a final court ruling and settlement before they jump in and muddy the waters by changing the law!
    • Excerpts from Congressman Sander's letter to the President: According to the General Accounting Office, annual pension benefits of older employees can drop by as much as 50 percent after a company converts from a traditional defined benefit plan to a cash balance plan. Large companies favor the conversion because they can save hundreds of millions of dollars a year in pension costs. Delta Airlines, for example, recently announced it would save $500 million per year by switching to a cash balance plan. In the late 1990s, IBM initially estimated it would save $200 million per year by switching to a cash balance plan. IBM, AT&T, and Verizon are among the 300 to 700 large companies that have already converted to a cash balance pension plan. An additional 1300 companies had been waiting for IRS approval of their conversion plans even before the regulatory change was announced. Thousands of companies employing millions of people would be eligible to convert their pension plans under the proposed regulations.

  • Wall Street Journal: Despite Some Bright Signs, Pensions To Suffer For Years. Excerpts: Securities markets have boosted traditional pensions this summer, but companies with ailing plans aren't out of the woods yet. In fact, defined-benefit pensions could hit earnings harder in 2003 than in many years, despite recent recovery in the plans. The reason: pension losses in the past few years that have been obscured by accounting rules are about to catch up with companies. The rules let companies spread out gains and losses. Many companies, for example, booked a gain last year, even though they took a loss. ... Beyond the question of pension liabilities, the larger issue of how companies should report on plans to investors is just going to become more pressing. The Financial Accounting Standards Board, a private-sector rule maker in Norwalk, Conn., has said it will soon propose new rules for companies to report on their pensions. FASB plans to require more pension information, more frequently, in corporate financial statements. "I really do think pension accounting needs to be substantially redone in the United States," said David Bianco, accounting analyst at UBS Warburg. "We're hearing a lot of people saying there needs to be a change in the rules."
    • "justa_bean_counter" comments. Full excerpt: Isn't it ironic that when pension trusts were over funded, no one wanted to change FAS87. After all, IBM saw a 30% increase in earnings per share because of it. Now that everyone is in the red, look out mama, they want it fixed and fixed now! What a rip! Bottom line, corporate America needs to fund our trusts, as it should be!

  • AARP: Pension Legislation: Fast Way to Lose Big. Employer Proposal Would Depress Lump-Sum Pension Payouts to Workers. Excerpt: Most Americans can be excused for not knowing the slightest thing about how interest rates are used to calculate their pension benefits. But this may be one more instance of what you don't know can hurt you—right in the pocketbook. Especially if you're about to retire or change jobs, and you're expecting a nice fat lump-sum pension payment to enlarge your nest egg. Here's what you ought to know: Even a small change in interest rates can make a big difference in the size of your lump-sum payment. And Congress, pressed by employers, is considering a change in pension accounting that would bring about just such a reduction. Beset by huge pension liabilities, employers want Congress to approve a higher interest rate for calculating future pension obligations, a change that would reduce their pension costs—but would cut deeply into lump-sum payouts.


  • Des Moines Register editorial: Reality check on MSAs. They're just another tax shelter, not health-care reform. Excerpt: After all the hype is stripped away, it's clear medical spending accounts don't render people "insured." They simply disguise another tax shelter for the affluent while peddling it as something for the average person.


  • Center on Budget and Policy Priorities: What's in a Name? House Bill Would Change Name but not the Substance of a Proposed Expansion of Medical Savings Accounts. House To Consider MSA Expansion that Could Drive Up Insurance Costs, Increase the Number of Uninsured, and Provide Tax Shelters to Healthy, Affluent Individuals. Excerpts: Few would propose a tax cut targeted toward healthy, affluent people that increases health insurance premiums for those who are sick. That is the probable consequence, however, of the Health Savings Accounts proposal coming to the House floor. ... The MSA provisions of the House-passed bill, which are virtually identical to the Administration’s MSA expansion proposal, would both make MSAs much more widely available and make them more attractive as tax shelters. This would likely lead to much more widespread use of MSAs by healthy, younger individuals, especially more affluent ones. Because it could lead to much more widespread MSA use, the proposed MSA expansion risks causing extensive “adverse selection” and significantly weakening comprehensive employer-based insurance. The shrinkage of comprehensive employer-based coverage could cause serious problems for many health care consumers, particularly older and sicker workers. The proposal also would be likely to lead to greater abuse of MSAs as tax shelters. Overall, the proposals to make MSAs more widely available and more lucrative as tax breaks would likely worsen the health insurance status of older and sicker Americans, while reducing federal revenues and adding to the deficit.


  • Minneapolis Star-Tribune editorial: Give Congress a taste of its own medicine. Excerpt: President Bush, many of my U.S. Senate colleagues, and I have all said, rhetorically, that America's senior citizens deserve prescription drug coverage "as good as Congress gets." Unfortunately, there's no walk to that talk. The final prescription drug bill will be written after Labor Day by a House-Senate conference committee, with considerable input from the Bush administration. However, the separate bills that have passed in the House and Senate would provide seniors and other Medicare recipients with only half the coverage members of Congress now receive. That is not nearly good enough.


  • Midrange Server: As I See It: Fanning the Flame. Excerpts: Much of the stress experienced by IT personnel is a result of unrealistic scheduling. I've seldom heard the word "schedule" in a development context when it wasn't preceded by the modifier "aggressive." There is a macho business ethic that doesn't tolerate things being easy. You can't just compete, you have to crush the competition, so it would be an admission of wimpiness to advocate for "realistic" schedules. But in my experience, the number-one reason why projects fail, why programming managers lose their jobs, why programmers quit theirs, why users gripe, and why IT personnel experience burnout is the imposition of unrealistic schedules. The requirement that people work harder and longer hours is often a poorly disguised attempt to compensate for reckless expectations created by untenable deadlines. If individual heroics are the default substitute for sensible scheduling, reexamine your department's criteria for making commitments.

    It is easy to get swallowed up by the crisis of the moment and lose perspective. When external pressures mount, programmers are too often sacrificed on the altar of today's disaster. Habitually working dedicated people to exhaustion is a clear indication of systemic problems. Individual sacrifice should not become the answer to every crisis. Problems occur in context. If your staff is constantly fighting fires, you have a process problem. Employees are not empowered to create or change a process; they simply thrive or fail within established structures. Only management can change a process, and fighting for appropriate changes that support the staff to succeed, and not to fail, is an IT manager's responsibility. Employees, however, are a great source of information about what's working and what isn't. Ask them.


  • TomPaine.common sense: Jobs Without Power Working In America. Excerpt: When we can't band together at work, if that's our choice, we leave our economic future in the hands of companies that break the law every day, with no consequences, because they make money every day they don't have to bargain with a union chosen by workers. Companies fire employees, threaten to close plants and they hire trained union-busters to strike fear into the hearts of workers. Millions more of our neighbors, friends and relatives would happily join a union if they weren't faced with an antiquated legal system, which long ago ceased to become relevant because it is simply a tool used to brutalize Americans at work.


  • MSNBC: Are we done with the 40-hour week? Excerpt: Kranz’s schedule is flexible, but not light. Work often comes home. “You want 40 billable hours a week,” he says. “Then you have management time and marketing time, and that’s all done above the 40 hours you’re billing.” Such are the tradeoffs of modern working America. There was a time — first during the Great Depression, then in the postwar years — when the 40-hour week was an American staple. But those days bear little resemblance to today. For one thing, employers nowadays frequently find it easier to add hours to workers’ schedules than to hire, train and provide benefits to a new employee. ... Indeed, that pressure to perform may have flipped the hourly balance. “It used to be that when you got a college degree you could get a white-collar job and take it easy,” Kuhn says. “It’s just the opposite now. It’s blue-collar folks who have more time for leisure.” ...

    If the 1950s family breadwinner — almost certainly Dad — provided for his family on 40 hours a week, today’s working couple often more than doubles that in combined hours. University of Pennsylvania sociologist Jerry Jacobs points out that if one half of a couple exceeds 40 hours, his or her partner usually does too. More hours can provide more disposable income, but Jacobs finds that doesn’t necessarily translate into a better standard of living. “The salaries for a lot of these jobs have stagnated. The expectations while you’re working these long hours have gone up,” he says. “It’s putting a tremendous amount of pressure on family life.”

    But many workers, particularly younger ones, are more concerned about work-life balance than money or advancement, ISR found. It may in part be a sign of how many recent grads became disillusioned with wired workaholism as the paradigm-shift hoopla of the ’90s was uprooted. “They’re not necessarily bought into the notion of work 80 hours and life will be grand,” says ISR’s Patrick Kulesa. Even among corporate innovators, it’s harder to inspire loyalty. Nokia has faced layoffs. Microsoft ended employee stock options and signaled an end to many millionaire dreams. Southwest has been hammered by its unions, which want the airline to overhaul salaries and work rules. Unions also see the overtime changes, as well as the growing number of tech jobs being shipped overseas, as a rallying point. “The working conditions, while they’re not inside a factory, are in many ways every bit as exploitive as in the old-line factories,” says the AFL-CIO’s Owens. “I really do think that there is a change in the air.” If link is broken, view Adobe Acrobat version [PDF-234 KB].
Coverage on H1-B and L1 Visa and Outsourcing Issues
  • Wall Street Journal: Laid-Off Tech Workers Denied Govt Job-Training Benefits. Excerpt: Software developer Jim Fusco wonders why he should be treated any differently from a factory worker. Fusco was laid off from his job at International Business Machines Corp. (IBM) in Piscataway, N.J., in May 2002. He attributed the layoff to IBM's transfer of information-technology jobs to Canada and India. IBM spokesman Clint Roswell declined to comment specifically on Fusco's situation, but said the company is continuously "rebalancing" its work force, which operates in more than 160 countries. In search of new employment, Fusco applied for job-training assistance and weekly cash payments under a federal program for people who lose their jobs due to increased imports or the transfer of jobs overseas. Begun in the 1960s, the Trade Adjustment Assistance program was designed to soften the blow to U.S. workers - typically in manufacturing - of expanding global trade. ...

    India's worldwide exports of software and services rose 26% to $9.5 billion in the 12 months ended March 31, with 70% going to the Americas, according to the National Association of Software & Services Companies, an Indian trade group. Employment in India's software and services sectors rose 24% to 650,000 professionals in the same period, the group said. The trend is expected to continue. Gartner Inc. believes one in 10 American technology jobs will move overseas by the end of 2004. Job losses at U.S. technology firms have been substantial. Fusco was one of more than 15,000 IBM workers laid off last year, many of whom were in services. If link is broken, view Adobe Acrobat version [PDF--31 KB].


  • Business Standard (New Delhi, India): Bush’s party to raise funds via Noida, Gurgaon. Excerpt: The US Republican Party now has a band of young and enthusiastic fund-raisers in Noida and Gurgaon. HCL eServe, the business process outsourcing arm of the Shiv Nadar-promoted HCL Technologies, has bagged a project to undertake a fund-raising campaign for the US Republican Party over the telephone. This is the first time such a project has been handed out to a company outside the US. The market research and public relations companies engaged by the party usually undertake such projects. HCL eServe has put in place a team of 75 people to work on the project out of its call centres in Noida and Gurgaon. According to industry sources, the number of seats could be ramped up depending on the success of the campaign. These operators are required to call up people in the US seeking their support for President George W Bush and a donation for the Republican cause.


  • Public Broadcasting System: Now, with Bill Moyers. Foreign Service. Excerpts: The numbers are startling: 3.3 million jobs in less than 15 years. That's the number of U.S. jobs expected to be lost overseas by 2015 according to a recent report by Forrester Research. But the sheer size of the exodus isn't what's worrying analysts the most — it's the type of jobs. Some critics are worried that this time it's the corporate main office is getting ready to shut down and head out of the country, packing up cubicles and all. As reported on NOW, a new wave of jobs are leaving U.S. shores: software development, customer service, accounting, back-office support, product development and other white collar endeavors.


  • Silicon.com: Indian outsourcing: forget the politics, where are the workers? Top IT firms worried about lack of graduates. Excerpt: What's on the mind of executives running the booming Indian IT firms kept busy by the shifting of work from the West to India? Not the political controversy, but whether India can produce enough talent to fill the huge demand for workers the trend has fuelled. ... Labour groups and white-collar workers in the US have long protested the offshore outsourcing trend. Recently, Microsoft's plans to relocate its customer support work in Texas and North Carolina to India added more fuel to the ongoing saga. "I'm not that worried about what they believe. There is nothing much I can do about it, except keep quiet and wait it out," said Pande. "If we do something, it may be seen as token gestures to address the issue and people can see through those."


  • Silicon India: Oracle to double India headcount to 6,000. Excerpt: Oracle, the world's leading enterprise software company, plans to double its workforce in India in the next one year.


  • Hindustan Times: American IT body pitches in for outsourcing. Excerpt: In some more good news for the buoyant Indian BPO sector a high-power American industry body has made a strong case for outsourcing tech jobs so that the US can remain competitive in the IT field. At a time when there is a growing domestic backlash over the flight of American jobs to India and some other countries, the Information Technology Association of America (ITAA) published a position paper that sets out the rationale for global outsourcing. The organisation that represents over 400 American IT firms said that the US companies must have the ability to compete in both domestic and global markets. It said that the companies "must be able to make workforce sourcing decisions based on numerous considerations, including labour cost".


  • Yahoo! News: Can the Tech-Job Drain Be Stopped? Excerpt: The business case for moving high-pay technical jobs to labor markets with lower wages is compelling. So compelling, in fact, that many of the giants of the computer hardware and software industries have embraced offshore outsourcing with enthusiasm. Why pay a programmer US$40,000 to $70,000 per year, goes the argument, when the same work can be had for $5,000 per year from a highly skilled coder in India? ... In fact, U.S. workers face more than one threat from overseas competition. In addition to the outright movement of jobs, technical employers also have lobbied heavily to add to the numbers of workers they can bring to the U.S. on special visas to fill open positions. In the case of the H1B visa category, they have been successful in getting the total number of persons who can enter the U.S. under the program raised from 65,000 to 195,000 per year. This October, that program expansion will come up for approval again.

    Another visa category under which enterprises bring in overseas workers is the L1 -- a program originally intended to facilitate the movement of executives of companies with business units across the globe, according to Courtney. Recently, many employers have had employees from other countries come to the U.S. under L1 visas to be trained to do work that they will return to their own countries to complete. That, said Courtney, is "a loophole you can drive a Mack truck through," and his organization is working to close it up.
This week on the Alliance@IBM Site:
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