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    Highlights for week ending November 15, 2003

  • CIO Magazine: Managers Not Cutting It. Ask the Source. Full excerpt: You know the rotten apples in the barrel will infect other workers with their poor attitudes (see our story, How to Find, Fix or Fire Your Poor Performers). If you're dealing with employees who aren't performing, get some advice from Dick Grote about how to have the right conversation. Grote answered your questions about how to fix poor performing staff members from October 31 until November 16, 2003. Question: At IBM, we are experiencing a backlash from workers because of the overseas outsourcing. How do you deal with this? You certainly can't fire everyone—not at least until you have their jobs filled overseas... How can you motivate or put pressure on your team to continue to perform in these circumstances? Answer: What does a "backlash" look like? Start by being very specific about the actual behaviors that you're applying the "backlash" label to. While you may not be able to fire everybody, a dual-pronged strategy may be appropriate. First, fire those who are actively and obviously acting in counterproductive and inappropriate ways. And then communicate fully with the rest of the troops so that they know as much as you can tell them about what to expect. Bad news doesn't cause people to act backlashingly. It's the absence of any news that causes them to engage in mischief. Editor's note: CIO Magazine has apparently pulled this question from its Web site.


  • Forbes: U.S. lawmakers hit cash balance pension rules. Excerpt: Congressional negotiators agreed on Wednesday night to block the Bush administration from finalizing its proposed pension rules on cash balance plans, in in an attempt to stop changes that can reduce payouts to older workers. ... Cash balance conversions last year, but the Senate recently voted to block these regulations, and the House voted to forbid the Treasury from trying to overturn a court ruling in a cash balance conversion case involving International Business Machines Corp


  • Reuters: US employers mad at blow to cash balance pension plan. Excerpt: U.S. employers on Thursday denounced a decision by congressional negotiators to bar the Bush administration from finishing rules that would allow companies to convert pensions to "cash balance" plans. Lawmakers from the House and Senate late Wednesday made the decision in an attempt to stop pension changes that older workers, such as those in a court case against International Business Machines Corp., say reduce their payouts.


  • Dow Jones News Service: IBM Blasts Congress on Pension Inaction. Excerpt: Mr. MacDonald (IBM Senior Vice President, Human Resources) said: "The protection that was once afforded to employees under defined-benefit plans, including the protection afforded through government, will be lost as companies migrate to plans run by individual employees." Earlier this year, IBM lost a major age-discrimination case regarding the impact on employees of changes it made in its defined-benefit plan. IBM had hoped that Congress would make changes in pension regulations that would have allowed such changes and effectively mooted the suit. IBM said it is continuing to appeal that case.


  • Janet Krueger answers the question "Help me understand why you feel that CB (not necessarily IBM's implementation) is inherently illegal, bad or wrong." Full excerpt: Here are some of the reasons I think cash balance plans, implemented as defined benefit plans, are inherently bad:
    • No corporation has started a cash balance pension plan from scratch and for good reason. Only through a cash balance conversion can pension theft occur. New cash balance plans defined as a hybrid between defined benefit plans and defined compensation plans might be simple and easy to implement -- the complicated rules in the Treasury regulations that attempt to make them fit under the umbrella of defined benefit plans just don't cut it!
    • Cash balance conversion plans exploit the pension benefits of older workers, an undeniable fact.
    • Cash balance plans don't necessarily allow young, mobile employees to walk away with better benefits than the traditional plans -- minimum vesting is still 5 years!
    • "Going to cash balance" is often no different than saying "we're going to cut 30% off your pension accruals."
    • A pension fund could be qualified under the defined benefit rules as "fully funded" and still not contain enough cash to pay out all the cash balances if a corporation goes bankrupt -- the adequacy of funding is determined through complex actuarial calculations that are not easily verified or understood.
    • Even cash balance pensions are not secure -- companies can continue to adjust the formulas downward with additional amendments in place of making fund contributions.
    • Most corporations that convert to Cash Balance were NOT underfunded at the time of conversion. It's all about greed! Corporations say CB is easy to administer and understand. NOT TRUE.
    • If you mangle the ERISA Law enough to make the Cash Balance shoe fit, we guarantee a language that NO ONE will understand or be able to implement -- even the dozens of complex examples in the proposed regulations don't clarify what the new rules are.
    • A Cash Balance Plan is nothing more than a simple savings plan except the employee would receive greater protections at their local bank or credit union.
    • The cash balances in cash balance plans are hypothetical amounts that are not guaranteed by the PBGC -- only the calculated age 65 annuities, that fluctuate based on prevailing interest rates, are protected.
    • A Cash Balance Plan does NOT qualify as a Defined Benefit Plan in ERISA because it does NOT provide a defined benefit.
    • The Federal Courts are examining Cash Balance Plans. It is an American right to have our day in court. Allow the Judicial Branch to do their due diligence and do NOT deny us justice!
    • Under the proposed regulations, plans can qualify as cash balance plans without even offering lump sum distributions -- they simply have to change how benefits are 'expressed' in the plan documentation.

    Cash Balance Plans, under defined benefit ERISA law, are wrong!

  • In a follow-up post, Janet Krueger outlines what a "good" cash balance law would look like: Full excerpt: If Congress wants to legalize cash balance plans, they should do CASH BALANCE PLANS the RIGHT WAY -- Defined Balance plans could be a great vehicle for small and medium sized businesses!
    • Define a new ERISA category for Cash balance plans, rather than modifying defined benefit or defined contribution rules to accommodate them.
    • Create a plan type that doesn't require annual services from an actuary; the level of funding can easily be tested by adding together the virtual cash balances.
    • Require Federal Insurance against the virtual cash balances, not against calculated annuities.
    • Shorten the vesting schedule.
    • Allow employees to convert the balances to an IRA or defined contribution plan whenever the balance exceeds a critical amount, to avoid making the plan an "employee-mobility" incentive.
    • ERISA Defined Balance Plans would be simple to understand and easy to administer.
    • Few, if any, corporations have started a cash balance pension plan from scratch and for good reason -- they aren't any simpler to set up than traditional pensions -- currently, the consulting companies only focus on cash balance plans as conversion, money-saving vehicles.
    • Because a cash balance plan is expressed as growing cash balance, rather than as an annuity, the protections and plan information need to be designed around that balance.
    • A defined balance plan would be "fully funded" as long as the fund contains the sum of the hypothetical employee balances -- this would ensure the capability of paying out all the balances in the event of a plan termination or company bankruptcy.
    • Additional research would need to be done to determine what non-discrimination rules would make sense for cash balances -- these do not need to become another executive compensation vehicle!
    • The initial legislation for Defined Balance plans should be focused on designing a vehicle for companies who do not currently have defined benefit plans in place -- conversions from existing defined benefit plans would only be supported through a plan termination. A follow-on study should determine whether/how conversions should be supported without going through plan determinations.
    • The Pension Protection Act of 2003 should be passed and used to regulate conversions from one defined benefit type to another, as long as both defined benefit plans fully comply with the defined benefits age discrimination rules.

  • Dave Finlay explains why cash balance pension plans are so appealing to corporations, yet such a bad deal for employees—including young employees. Full excerpt: A Cash Balance plan looks like a Defined Contribution plan (with only one poor investment choice) from the outside. But inside, it is very different. The big difference is that the cash isn't there.

    If a Defined Contribution plan calls for an employer to contribute 5% of salary, they actually have to put that much into the plan. For a 30 year old employee with a Defined Contribution account balance of $10,000, the plan actually has $10,000 in it.

    Because the CB has been crammed into the Defined Benefit plan, they get to follow the Defined Benefit rules for determining how much money the plan needs to be fully funded. They get to project the account balance forward to the 'normal retirement age' using one interest rate (say 4%) and then discount it back to today using a different rate (say 7%). The net is that for a 30 year old employee with a Cash Balance of $10,000 the plan would actually need only $3696 to say that it is fully funded. (For a 40 year old, $4912 is needed.)

    So a 401K or a Defined Contribution plan is far superior to a Cash Balance plan because the cash is actually there. Cash Balance members are just company creditors.

  • New York Times: Xerox Settles Pension Suit With Retirees. Excerpt: The Xerox Corporation said yesterday that it had agreed to settle a lawsuit over the way it calculated pension benefits by paying an additional $239 million to thousands of employees who retired from 1990 to 1999. ... The dispute centered on Xerox's cash-balance pension plan, a type of plan that became controversial in the late 1990's. Cash-balance plans first appeared in the late 1980's and proliferated in the 1990's, billed as a modern, worker-friendly arrangement that combined certain features of traditional pension plans with other features of 401(k) plans. ... The controversy started when some workers discovered, after their companies switched to cash-balance plans, that they had been stripped of their ability to earn valuable benefits that the earlier pension plan had offered. Such losses were mostly among older workers, who had been poised to earn the biggest share of their benefit because they were approaching retirement. Their anger led to accusations that companies were discriminating on the basis of age in converting their plans, and to lawsuits. In July, a federal judge hearing one such case, against I.B.M.'s cash-balance plan, issued a ruling suggesting that the vast majority of all cash-balance pension plans discriminate illegally against older workers simply because of the way they build benefits. That ruling applies only to I.B.M.'s plan, but most other cash-balance plans accrue benefits in the same way. If link is broken, view Adobe Acrobat version [PDF--27 KB].


  • Association of Flight Attendants: Is Your Pension in Jeopardy? Learn about Proposed Changes that Could Affect Your Retirement. Excerpt: Defined benefit pension plans, which have been negotiated as part of airline employee contracts and provide those workers with a modest pension for a secure retirement at most major carriers, are under attack by airline management. Management says the plans are too costly and are underfunded. Often companies, the press, and government officials point to defined benefit pension plans as the main cause of the pension funding problem. Our pension plans are made out to be the villain, and suggestions abound that the only way for the industry again to be profitable is to terminate costly pension plans and reduce other benefits. It is important for airline workers to educate themselves about pension basics, to learn the true facts surrounding the current situation, and to share this information and their views with their representatives in Congress. Editor's note: Although this article was written with airline industry employees in mind, it applies to us all. It is an excellent introduction to pension plans, explains what cash balance plans are all about, and explains why management at many U.S. corporations (including IBM) have changed to cash balance plans. We highly recommend you read this article. (Print the PDF version and read it off-line!).


  • South African Broadcasting Organization: Pensioners protest outside IBM over pension fund. Excerpt: Motorists in Sandton were surprised this morning when pensioners protested outside IBM's offices over the way the company handles their pension fund. The pensioners claim amongst others that IBM has not contributed to the pension fund while the only incoming contributions are those employees pay every month.


  • IT Web (South Africa): Pensioners accuse IBM of stealing fund surplus. Excerpt: Their strategy is to deny pensioners their increases and to boost the surplus for their own use,” says Roger Hull, an IBM pensioner on the fund's board of trustees. “They changed the rules to give them control by their own appointed trustees. To get any motion through, six out of eight trustees have to agree, so nothing we need to do for the benefits of our pensioners gets through.” ... On top of this, Hull says IBM has retained the right to veto any motion that does get passed by the board, which renders them incapable of changing the fund to bring its rules in line with the Pension Funds Act. (Be sure to watch the video clip available on this page).


  • Business Day (South Africa): Former Employees to Sue Ibm for R200m. Excerpt: Disgruntled former employees of IBM in SA plan to take the global technology company to court, alleging that it improperly used more than R200m in pension fund money, enriching itself at the expense of more than 400 pensioners. The pension group said it would draw Finance Minister Trevor Manuel into the case, alerting him to the drama as the minister with overall responsibility for the South African pension fund industry. This is the pensioners' most public step yet in a long-standing dispute dating back to the mid-1990s and comes at a time when there is a flurry of claims that companies defrauded pensioners out of millions of rands.


  • Wall Street Journal: Cash-Balance Plans Appear To Face a Regulatory Limbo. Excerpt: Late Wednesday night, the House and Senate agreed to keep language in the Transportation Treasury Appropriations Bill that prevents the Treasury from issuing proposed regulations on cash-balance plans until at least October 2004. The bill, which will be voted on next week, would be a victory for employee groups who strongly opposed the anticipated regulations, which are viewed as sympathetic to employers. Last December the Treasury indicated that it wouldn't consider cash-balance plans to be age discriminatory, and employee groups have said that Treasury regulations would counter a July ruling by a federal district court that International Business Machines Corp. discriminated against older workers when it adopted a cash-balance plan. "We have defeated the President's plan to cut millions of older workers' pensions in half," said Rep. George Miller, a California Democrat who co-sponsored the initial amendment in the House. If link is broken, view Adobe Acrobat version [PDF--31 KB].


  • Dave Finlay tells a "fairy tale" about cash balance pensions. Excerpt:Once upon a time, IBM converted most employees to a Cash Balance plan with assurances from Watson-Wyatt and ERIC that everything was legal, the IRS would approve it, and the Treasury Department would shortly issue conversion rules that would settle everything. But the evil IBM employees didn't like it and created a big fuss. The IRS stopped approving CB conversions, and Congress prevented Treasury from issuing conversion rules. In a very strange turn of events, it was IBM's CB conversion that caused CB conversions to have a problem. ERIC was upset with IBM, and IBM was upset with Watson-Wyatt.


  • New York Times: Failed Pensions: A Painful Lesson in Assumptions. Excerpt: Robert M. Bowden retired from his job as accounts manager for a large trucking company with a plan to travel for himself. But his company's pension plan collapsed this year, and his annual payout was cut to $24,000 from $48,000. Mr. Bowden and other retirees of the company, CNF, see a culprit. In a lawsuit, they accuse the company of failing for many years to set aside enough money in the plan. ... "There are ways companies can kind of game the system, to contribute a lot less money than is realistic," said Jeremy I. Bulow, the Richard Stepp professor of economics at Stanford University's graduate school of business. Essentially, he said, they are trying to get a loan from the government agency that insures pensions, the Pension Benefit Guaranty Corporation, or from their employees. "That's what they're trying to do, and it's very bad news," he said.


  • New York Times: For Middle Class, Health Insurance Becomes a Luxury. Excerpt: Mr. Thornton is one of more than 43 million people in the United States who lack health insurance, and their numbers are rapidly increasing because of ever soaring cost and job losses. Many states, including Texas, are also cutting back on subsidies for health care, further increasing the number of people with no coverage. The majority of the uninsured are neither poor by official standards nor unemployed. They are accountants like Mr. Thornton, employees of small businesses, civil servants, single working mothers and those working part time or on contract. "Now it's hitting people who look like you and me, dress like you and me, drive nice cars and live in nice houses but can't afford $1,000 a month for health insurance for their families," said R. King Hillier, director of legislative relations for Harris County, which includes Houston.


  • The Onion (satire): Congress Raises Executive Minimum Wage to $565.15/Hr. Excerpt: Our lifestyles are expensive to maintain," Boeing senior vice-president of international relations Tom Pickering said. "The costs of even the most basic executive transportation, food, and clothing are staggering. Since 1993, the average cost of maintaining a household of six, including a butler, a cook, a maid, a driver, and a groundskeeper, has increased by 14 percent. All this, even after we work our fingers to the bone for hundreds of hours a year, painstakingly assembling our benefits packages. It shouldn't have to be this hard." Some executives called for even more support, in the form of increased benefits and reimbursements. "Well, it's a good start," said Abby Kohnstamm, IBM senior vice-president of marketing. "But I still don't get a transportation allowance for my company-owned limo. And no one has addressed the fact that almost 8 percent of my income disappears after taxes.


  • Forbes: Ex-IBM worker says he lost his sense of smell. Excerpt: A former IBM factory worker who says his workplace environment led him to contract a fatal form of cancer told a California court Wednesday that he lost his sense of smell following years of exposure to harmful chemicals on the job. James Moore, a 62-year-old who spent 27 years in various jobs producing computer equipment at a Silicon Valley plant, said he first noticed that he was no longer sensitive to smells in 1973, seven years after he joined International Business Machines Corp., when his third child was born.


  • New York Times editorial by Paul Krugman: The Trojan Horse. Excerpt: What are we going to do about Medicare? That should be the subject of an open national debate. But right now Congressional leaders are trying to settle the question by stealth, with legislation that purports to be doing something else. ... Meanwhile, another proposal—to force Medicare to compete with private insurers — seems intended to undermine the whole system. This proposal goes under the name of "premium support." Medicare would no longer cover whatever medical costs an individual faced; instead, retirees would receive a lump sum to buy private insurance. (Those who opted to remain with the traditional system would have to pay extra premiums.) The ostensible rationale for this change is the claim that private insurers can provide better, cheaper medical care. But many studies predict that private insurers would cherry-pick the best (healthiest) prospects, leaving traditional Medicare with retirees who are likely to have high medical costs. These higher costs would then be reflected in the extra payments required to stay in traditional fee-for-service coverage. The effect would be to put health care out of reach for many older Americans.


  • Washington Post editorial: Unnecessary Measures. Excerpt: Given that it's usually referred to as the "Medicare prescription drug bill," most people assume the main purpose of the large health care bill -- now the focus of acrimonious House and Senate negotiations -- is to add prescription drugs to the services provided by Medicare. Why, then, has House Speaker J. Dennis Hastert (R-Ill.) been quoted as saying that "one of the most important pieces" of this bill is a measure that has nothing to do with Medicare? ... What Congress appears to be talking about -- along with a gaggle of interest groups -- is not a measure that would serve as a transition to a more sophisticated health care system but a particularly lucrative tax shelter for the rich; the medical savings accounts, in some versions of the legislation, would allow people to invest as well as withdraw money tax-free. This almost unprecedented double tax break sets a bad model. It can only be construed as another piece of congressional fiscal irresponsibility.


  • Associated Press: 3 People Arrested on Charges of Taking Bribes From South Korean Affiliate of Computer Giant IBM.


  • Denver Post: Fighting for health care. Excerpt: Until now, the majority of the middle class has been insured; there has never been a critical mass of uninsured to cause a revolt. Today, however, many are unemployed and uninsured. Or they're expected to carry a heavier insurance burden in the form of higher co-payments and more expensive prescriptions. Others, to lower their monthly premiums, have huge deductibles. ... In their attempt to increase profits, HMOs have grown acres of paperwork and erected multiple layers of bureaucracy, finessing the art of denial to a science. Today, 20 percent to 40 percent of HMO takings go to administration and exorbitant administrators' salaries. While there is yet no street fighting about the state of our health care, a truly dangerous pessimism lays siege on the land. It's an issue that has placed doctor against patient; doctor against doctor; and doctor against HMOs and their administrators. That cosmetic surgeons can charge exorbitant sums of hard cash, while those who actually save lives are nickled and dimed by HMOs, leaves a bitter taste in many mouths. That saving lives is less valuable than bean counting angers many.

Coverage on H1-B and L1 Visa and Outsourcing Issues
  • Business Standard (India): Protecting IT margins. Excerpt: The flood of new business coming to India in IT services and business process outsourcing (BPO) over the last few months has been breathtaking. ... The ‘backlash’ issue is also becoming serious as elections approach in the US and skilled white-collar people who lose their jobs get the attention of the media and politicians. Nasscom has been seeking to highlight the economic gains to the US from offshoring, but the effort has to be redoubled.


  • Computerworld: Outsourcing's Dirty Little Secret. Excerpt: Outsourcing is perceived as the silver bullet of the day, and many companies indeed benefit from it. But the dirty little secret of outsourcing has emerged: Everyone isn't happy. By the end of the first year, more than 50% of the companies that have outsourced major IT functions are unhappy with their outsourcers, according to an informal survey of my clients. By the end of the second year, 70% are unhappy. Studies by DiamondCluster International Inc. and PA Consulting Group have also uncovered significant amounts of dissatisfaction with outsourcing deals.


  • Computerworld: Job agency hires foreign help. An Indiana unemployment agency has hired a company that's bringing in up to 65 programmers from India. Excerpt: An Indiana state agency chartered to help unemployed residents find jobs began a controversial IT project this month with the U.S. subsidiary of an offshore software developer, which plans to bring in programmers from India to work on the project. New York-based Tata America International Corp. will send up to 65 IT staffers from India to work alongside 18 state employees over the next two years at a government facility in Indianapolis. The team will replace a tax and unemployment claims processing system that runs on Unisys Corp. mainframes with a client/server application written in Java, said Patrick Murphy, a deputy commissioner at the Indiana Department of Workforce Development.


  • Wall Street Journal: India Aims to Calm U.S. Outsourcing Fears Lobbying Effort Counters Complaints About Competition for High-Tech Jobs. Excerpt: In recent months, a coalition of Indian government officials, business groups and well-heeled Indian-Americans has quietly launched an extensive lobbying campaign to counteract complaints that India is taking an unfair number of high-end U.S. jobs. India's recent image problems can be attributed mainly to the Washington Alliance of Technology Workers, a unit of the Communications Workers of America. The union has been pushing states to pass legislation that would block government contract work from being performed overseas and pressing Congress to put new limits on guest visas granted to high-technology workers. "There is a huge, fundamental shift of the American economy" overseas, primarily to India and China, warns Marcus Courtney, WashTech's president. ... To fight back, the Indian government is paying several high-priced Washington lobbying and law firms to craft an "education" campaign extolling the benefits to the U.S. of closer economic ties with India. They argue that sending some jobs overseas more than repays the U.S. with lower prices for imported goods, expanded markets for U.S. products and fatter profits that U.S. companies can plow back into more-innovative businesses. If link is broken, view Adobe Acrobat version [PDF--52 KB].


  • TechsUnite: AT&T Wireless Exporting Tech Jobs to India. Washington Employees “Livid” About Training Replacement. Excerpt: The layoffs happen by ones and twos, AT&T Wireless employees say. Some employees are quietly called into a manager’s office and simply told that their jobs are being eliminated. Others are told that they will be participating in a “pilot project” where they are expected to train an employee of an offshore outsourcing firm how to perform their job. The goal of the pilot project, they later learn, is to move jobs to India, where qualified, English-speaking employees will work for as little as 10 percent of the salary U.S. workers are paid. That's how as many as 70 percent of approximately 3,900 IT employees, most based at company facilities in Redmond and Bothell, Wash., will lose their jobs, say reliable sources at the company who asked not to be named.
This week on the Alliance@IBM Site:
  • Informational Conference Calls about the Bias in Layoff Lawsuit. Excerpt: Please circulate to older laid off IBMers who have not joined the suit as well as those who have joined. We have four conference calls and meetings in Vermont scheduled for Friday, November 21, 3-5pm; and 7-9 pm EST Saturday, November 22, 10am-noon and 2-4 pm EST. These calls will be with attorney Jeff Young of the law firm McTeague, Higbee, Case, Cohen, Whitney & Tokar, PA. Mr. Young is one of our attorneys in our age discrimination suit.


  • There will be a "Town Meeting" hosted by Representative Bernie Sanders, from Vermont, at 6:30 PM on Monday, Nov 24th to discuss escalating health care costs for IBM retirees. A large turnout is expected. The meeting will be held at the Lawton Middle School, 104 Maple Street, Essex Junction, Vt. NRLN Board member Bill Jones will also speak at the meeting.


  • IBM Global Services "rebanding initiative" - Some employees' job bands are being lowered, some face pay cuts.


  • Jimmy Leas has put together an Age Discrimination in Layoff Lawsuit Flier. View the flyer [Adobe Acrobat---PDF]. The chart to the right is included in Mr. Leas flier. Bar graph showing Age Discrimination in IBM Layoffs


  • IBM has been ordered by the U.S. National Labor Relations Board (NRLB) to post notices to employees that the company has violated the National Labor Relations Act. View the document here.


  • What is your issue at IBM? We'd like to hear from our web site visitors. Please submit your comments about employment at IBM, on why you visited this site, why you joined the Alliance, what issues are of concern at your workplace, how this web site has been useful to you, or any other related topic.


  • Why we need the Alliance@IBM.
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