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    Highlights—September 18, 2004
  • Wall Street Journal: IBM Settles Small Part Of Pension Suit, by Ellen E. Schultz. Excerpt: International Business Machines Corp. settled a small part of a massive lawsuit involving its cash-balance pension plan for an undisclosed sum, according to the notice of settlement filed in Illinois Wednesday. IBM employees filed the suit, Kathi Cooper v. IBM, in 1999, saying IBM violated rules against age discrimination and other aspects of pension law when it made various changes to its pension plan in the 1990s. Last year, U.S. District Court Judge G. Patrick Murphy in the Southern District of Illinois ruled that IBM discriminated against older workers when it converted to a cash-balance plan in 1999. He could rule at any time on how much money IBM will have to pay to roughly 130,000 current and former employees. This week's partial settlement of the case involved only one of the claims, a "termination" claim, and doesn't involve the claim of age discrimination, nor other claims in the suit. The partial settlement affects several thousand employees who were employed by IBM on July 1, 1999, and terminated employment before they completed five years of service, and therefore weren't vested in their pensions. The plaintiffs maintained that when IBM changed the pension to a cash-balance plan, effective July 1, 1999, the move resulted in a "partial termination" of the pension. Under pension law, when a company terminates a pension plan, everyone immediately becomes vested in the pension, even if they haven't been employed at the company long enough to qualify for vesting. ...

    Whether IBM ultimately wins or loses, the court decision is unlikely to affect other companies with cash-balance plans because Congress is likely to pass legislation changing the law, saying that cash-balance plans aren't inherently age-discriminatory. While legislation isn't expected this year, it would effectively insulate other companies from lawsuits. A change in the law, even if retroactive, wouldn't help IBM because Congress can't enact legislation reversing a federal-court judgment based on the law in effect when the suit was brought. IBM has said discussing legislative changes would be "speculative." If link is broken, view Adobe Acrobat version [PDF--25 KB].

  • CBS MarketWatch: IBM Wins Time for Talks in Pension Case. Excerpt: The Illinois judge presiding over the case had been expected to announce damages soon. But IBM on Friday asked him to postpone the decision on payments to other employees, saying the company is "in discussions regarding a possible resolution of some of the remedies, issues and/or claims in the suit." IBM has argued it shouldn't be forced to make retroactive payments because it could not have foreseen the judge, G. Patrick Murphy of the U.S. District Court for the Southern District of Illinois, would declare the cash balance plan illegal. Murphy wrote in his decision that IBM wasn't justified in claiming it was blindsided. "The prohibition against age discrimination existed long before the appearance of cash balance plans," he wrote in his Feb. 12 ruling. "All that has changed is IBM's clever, but ineffectual, response to law that it finds too restrictive for its business model."

  • CBS MarketWatch: IBM Statement on Filing in Pension Lawsuit. Full excerpt: IBM and the plaintiffs in the case of Cooper et al v. the IBM Personal Pension Plan and the IBM Corporation have filed a notice with the United States District Court for the Southern District in Illinois. The notice formally advises the Court that the parties are in discussions regarding a possible resolution of some of the remedies issues and/or claims in the suit and seeks a postponement of the Judge's anticipated decision. IBM plans to continue, through the appellate process, to defend the legality of its cash balance pension plan. On Wednesday, September 15, 2004, the parties advised the Court that they had resolved the partial plan termination claim, which affects a limited number of former employees who worked for the company for less than five years.

  • Janet Krueger answers a question about the Cooper v. IBM lawsuit. Full excerpt: Normally, employees do have to work at IBM for a full five years before becoming vested in the pension plan -- that means if they leave before then, they will not get anything. Cooper v. IBM made multiple charges against IBM, that created 3 separate sets of class members:
    1. One part of the suit is that the 1995 pension equity formula illegally discriminated by age. This affects anyone who was employed at IBM since the plan was adopted in 1995, and who retired under or who is still covered by the 1995 formula, which would primarily be those employees who were over 40 and had served more than 10 years on July 1, 1999. The lead plaintiff representing this group is Kathi Cooper.
    2. A second part of the suit involves the cash balance plan that IBM adopted in 1999. These charges also relate to age discrimination. This portion of the suit would impact anyone employed at IBM after July 1, 1999 who is covered by the cash balance plan, or who has retired or left under the cash balance plan. The lead plaintiff representing this group is Beth Harrington. It should be noted that this group grows larger whenever IBM hires or acquires new US employees.
    3. A third charge is that when IBM converted from the pension equity plan to the cash balance plan on July 1, 1999, the change was so major that IBM effectively terminated one plan and created a new one, which would be called 'partial termination'. The federal laws that regulate pensions (ERISA) have detailed rules for what has to be done when a pension plan is terminated, one of which being that all employees covered by the prior plan immediately become vested, no matter how long they had served. This means that everyone covered by the pension plan on July 1, 1999 should have been vested, and therefore if they left IBM after that, they should have received a small pension pay out even if they left before serving a full five years. The lead plaintiff representing this group is Matt Hillesheim. This is the charge that was referenced in Wednesday's court filing as being tentatively settled, with details to be worked out.

  • American Benefits Council: Talking Points on Hybrid Plans. Excerpt: Courts Have Recognized Hybrid Plan Designs Are Not Discriminatory. Many hybrid plan critics point to the case in the Southern District of Illinois in Cooper v. IBM as evidence that the plan design is per se discriminatory against older workers. That court's reading of the law is incorrect and is out of step with other courts. In June 2004, a district court in Maryland in the case of Tootle v. ARINC found that hybrid plan conversions do not violate age discrimination prohibitions. The Tootle case is consistent with two other cases namely: Eaton v. Onan Corp. and Campbell v. Bank of Boston. In Tootle, the court affirmed that the plan formula did not violate the ERISA prohibition on age discrimination because the concept of compounding interest is not inherently age discriminatory.

  • Washington Post: Congressman to Push for Tougher Pension Rules. Excerpts: In what he calls an effort to preserve the nation's traditional pension system, a leading House Republican plans to push for legislation that requires companies to keep their pension plans fully funded, encourages them to put in more money, even in boom times, and removes the legal uncertainty surrounding cash balance plans. Rep. John A. Boehner (R-Ohio), chairman of the House Education and the Workforce Committee, is scheduled to outline in a speech today principles for "comprehensive reforms to strengthen our worker pension system and ensure that workers can count on the benefits they've been promised." ...

  • WashTech News: Study Details Three Year U.S. High-Tech Job Bust. High-Tech Cities See No Job Growth, High Unemployment. Excerpts: A new report by the Center for Urban Economic Development at the University of Illinois, Chicago, shows that U.S. high-technology workers are still facing chronic unemployment and a serious jobs deficit despite an economic recovery being declared three years ago. The report, entitled "America's High-Tech Bust," found that the U.S. high-tech economy continued to lose a whopping 200,000 jobs after the recession was declared over in November 2001 by the National Bureau of Economic Research. ... The report cited offshore outsourcing as contributing to the lack of strong job creation in this sector. Marcus Courtney, president of WashTech, noted that only a few years ago, the high-tech economy in the U.S. was the most dynamic sector and touted as the new economy that was going to be the backbone of job creation for the future as the nation moved away from its manufacturing roots. "It is stunning to think that in every region of the country, we have fewer high-tech jobs today than we did three years ago. We must focus on exporting our products instead of our jobs to turn this critical situation around."

  • SmartMoney: What Happened to the Jobs? Excerpt: Last week's unemployment numbers, which showed 144,000 jobs added to U.S. payrolls in August, did little to clarify the politically sensitive discussion about the strength of the economic recovery. This ambiguity was evident in campaign stump speeches. While President Bush argued that the unemployment rate fell to 5.4% from 5.5%, John Kerry pointed out that the numbers were below expectations of 150,000 new jobs. A more detailed analysis of the labor-force situation can be found in a report issued on Labor Day by the Economic Policy Institute (EPI), a nonpartisan think-tank based in Washington, D.C. "The State of Working America 2004-2005," co-authored by Lawrence Mishel, Jared Bernstein and Sylvia Allegretto, shows that the U.S. labor force, while recovering somewhat in 2003, remains on the ropes. Income fell 9.2% for all Americans in 2001 and 2002, according to the Internal Revenue Service, the study points out. And while wage growth steadied in 2003, it failed to keep up with the pace of inflation. ... Perhaps the primary reason why wage growth hasn't been reflected in the rebound is that a major portion of corporate growth has gone to pad the bottom line, rather than to wages, a trend that differentiates this recovery from past business cycles, the study said. "When you look at the corporate sector, you see that 85% of the economic growth went to corporate profit and interest," says Mishel, president of EPI. "In previous business cycles, it would have been almost the opposite, where corporate profits and interest comprised about 20% of the growth."

  • Forbes: Good News For Corporate Crooks. Excerpt: Two years after President George W. Bush established by executive order the Corporate Fraud Task Force to, as he put it, "use the full weight of the law to expose and root out corruption," the Federal Bureau of Investigation is launching fewer white-collar inquiries than before Sept. 11, 2001. A new Government Accountability Office report examining the effects of the FBI's shift to counter-terrorism finds it began 32% fewer new white-collar investigations in fiscal 2003 than in fiscal 2001. (The report does not count new whistleblower cases in its analysis.) That's a surprise considering this drop follows so closely high-profile scandals at Adelphia Communications, HealthSouth, Global Crossing, Tyco International, Worldcom and Enron. Not to mention, heightened scrutiny of the corporate suite following the criminal case against Martha Stewart Living Omnimedia's namesake founder or the spate of pricey civil settlements for wrongful trading practices at several Wall Street power firms, such as Citigroup and Goldman Sachs.

  • Democratic staff of the Committee on Energy and Commerce: Bush Administration Ignores 44 Million Uninsured in U.S as it Awards Contract for Universal Health Care in Iraq. Excerpt: On the day that the Bush Administration awarded a contract to Abt Associates to provide universal health service to 25 million Iraqis within a year, U.S. Representatives Diana DeGette (D-CO), John D. Dingell (D-MI), and Sherrod Brown (D-OH) called on President Bush to provide the same commitment to the 44 million Americans without health care coverage. The contract by the US Agency for International Development (USAID) seeks to “help facilitate rapid, universal health service delivery to the Iraqi population” including “basic health care available to 12.5 million persons” after six months and “25 million persons” after one year of program implementation. The Administration also requires all 25 million Iraqis to have maternal, child health care, and health information and education after six months of program implementation.

  • USA Today: Medical costs eat at Social Security. Excerpts: With a new Medicare drug benefit set to begin in 2006, Americans 65 and older can expect to spend a large and growing share of their Social Security checks on Medicare premiums and expenses, previously undisclosed federal data show. Information the Bush administration excluded from its 2004 report on the Medicare program shows that a typical 65-year-old can expect to spend 37% of his or her Social Security income on Medicare premiums, co-payments and out-of-pocket expenses in 2006. That share is projected to grow to almost 40% in 2011 and nearly 50% by 2021. Unless Congress does something to hold down costs confronting seniors, the official projections suggest that health spending will consume virtually the entire amount of Social Security benefits when children born today reach retirement age. The table was provided by the Department of Health and Human Services at the request of Rep. Pete Stark, D-Calif. Stark, who opposed the drug benefit enacted last year at President Bush's urging, sought the data after noticing that a chart included in previous annual reports was not in the 2004 version. Stark charged that the administration threw out the chart because it shows future Medicare costs under the new law will erode Social Security checks. "It doesn't look good to lie to grandma, so the Bush administration has withheld information and come up with other creative ways to mask the damage they have done to Medicare," Stark said.

  • Physicians for a National Health Program is a not-for-profit organization of physicians, medical students, and other health care professionals that support a national health insurance (NHI) program. Specifically, we believe that a single-payer system (where the government finances health care, but keeps the delivery of health care to mostly private control) is the only solution to solving the United States' many health care problems: 43 million citizens with no health insurance, many more with only limited coverage, skyrocketing health insurance premiums, malpractice costs, long-term care issues, and relatively poor health indicators, when compared to similar industrialized nations. Endorse PNHP's Proposal for Single Payer. Excerpt: The United States spends more than twice as much on health care as the average of other developed nations, all of which boast universal coverage. Yet over 39 million Americans have no health insurance whatsoever, and most others are underinsured, in the sense that they lack adequate coverage for all contingencies (e.g., long-term care and prescription drug costs). Why is the U. S. so different? The short answer is that we alone treat health care as a commodity distributed according to the ability to pay, rather than as a social service to be distributed according to medical need. In our market-driven system, investor-owned firms compete not so much by increasing quality or lowering costs, but by avoiding unprofitable patients and shifting costs back to patients or to other payers. This creates the paradox of a health care system based on avoiding the sick. It generates huge administrative costs, which, along with profits, divert resources from clinical care to the demands of business. In addition, burgeoning satellite businesses, such as consulting firms and marketing companies, consume an increasing fraction of the health care dollar.

  • Denver Post commentary by Dani Newsum: Universal healthcare...for Iraq. Excerpts: Whenever some brave (or suicidal) politician proposes that we change our national or state priorities and move affordable health care and prescription medicine to the top of the list, a chorus of drug and insurance industry lobbyists and their political waterboys in the White House and Congress start howling about socialized medicine. Now, if there’s one billion dollars of American money available to create a universal health care system in Iraq – I’d THINK that Americans would demand that we come first. But I’d be wrong. Why is it okay for my tax dollars – and yours - to pay for universal health care coverage in Iraq, and for top-of-the-line health coverage for nine million federal employees, including the president, former presidents, members of Congress and their families, and federal judges through the Federal Employees Health Benefits Program, but not for the rest of us? And not for the 45 million Americans who don’t have health insurance – although a majority of the adults in this unlucky group have jobs. ... According to the Post, almost 40% of all patients admitted to Colorado hospitals in 2003 were emergency room admissions. Which makes sense for someone without health insurance. If you show up at a doctor’s office with a low grade fever and sore throat – but no insurance – you’re out of luck: the doctor is not in. But if you show up at an emergency room a week later - and five times sicker – more often than not federal law will require that you be treated, although the cost of treating you will be higher. The more serious the ailment, the higher the cost to the patient’s health and to the wallets of the hospital and taxpayers. I have an acquaintance whose 54-year-old sister, “Mary,” died this year. Mary lost her job a couple of years ago, couldn’t afford the outrageous COBRA payments, started her own business and hoped for good health until she could rebuild her bank account. But Mary died this spring – of pancreatic cancer. Mary died because she lost her job and her benefits.

  • "flatsflyer": 1983 About Your Company Book. Full excerpt: If you still have old copies of About Your Company Book, there is some interesting reading. On inside back cover: In 1983 IBM paid $391.3 M for Medical/Dental; $644.3 M for Retirement. Flatsflyer writes: And Dandy Randy makes a big deal out of the fact that last year 2003, IBM spent over $600 Million on Health Care. Doesn't sound to me that IBM's costs have increased that much, not even doubled over a 21 year period. Dig out your old books and start to communicate to others that maybe sitting on the fence. The lies must be exposed and the Union is the best means of protecting ourselves from the lying Greedy IBM Executives like McDonald and Palmisano.

  • Kaiser Network: Bush, Kerry Focusing on Health Care Issues While Campaigning in Battleground States.

  • Contingencies: Presidential Prescriptions for Our Ailing Health Care System [PDF]. Excerpt: Health care takes a big bite out of the budget—not just yours and mine, but the country’s GDP as well. And if you’re one of the estimated 44 million people who don’t have health insurance, that bite can gobble you up. So it’s not surprising that along with the economy and the war (in Iraq, in Afghanistan, on terror), health care reform has become a major issue in the upcoming presidential election. Because making health insurance available and affordable is a challenge many actuaries face, Contingencies asked the candidates what they plan to do about reforming the health care system, reducing its exorbitant cost, and covering the uninsured. We also asked two actuaries active on the Academy’s Health Practice Council to provide nonpartisan comments on the competing proposals. Their com ments are their own and do not reflect their individual companies, Contingencies, or the American Academy of Actuaries.

  • New York Times: Bush Describes Kerry's Health Care Proposal as a 'Government Takeover'. Excerpt: President Bush sped across southwest Michigan on Monday, assailing Senator John Kerry for plans that he said would result in nationalized health care. Mr. Bush also defended his proposal to privatize part of Social Security, saying longstanding Democratic contentions that it would undercut the system amounted to "the most tired, pathetic way to campaign for the presidency." ... Mr. Kerry's campaign officials on Monday called that characterization a fabrication and a deliberate distortion. "It's ridiculous," said Sarah Bianchi, the policy director for the Kerry campaign, in a telephone call to reporters who were traveling with Mr. Bush. "The reason he is doing it is that he doesn't have a plan; he has a failed record." Ms. Bianchi said of Mr. Kerry's plan: "It gives small business a tax credit to buy health insurance. The last time I checked, tax cuts for small businesses is not nationalized health care." Under the plan, the government would pay for 75 percent of the premiums for catastrophic health care - that is, coverage for very expensive, nonroutine care. It would pay for that by rolling back the tax cuts passed early in the Bush administration for those earning more than $200,000 a year.

  • Los Angeles Times, courtesy of Yahoo! News: 2 Very Different Cures for Healthcare Crisis. Excerpts: Although the presidential campaign has been dominated for months by Iraq and, more recently, the candidates' military records, few issues matter more to voters — or more profoundly divide President Bush and Sen. John F. Kerry — than the plight of the U.S. healthcare system. ... Bush and Kerry do not simply disagree on how to deal with these troubling developments. They want to take the system in radically different directions. Kerry would expand the existing system of employer-provided insurance and federal health programs for those who slip through the cracks. Bush, in healthcare as in other aspects of social policy, wants to rely on market-oriented alternatives to government programs. ... Healthcare is an important aspect of both candidates' broader themes. For Kerry, healthcare's rising cost is a big part of the "middle-class squeeze" that he says is Bush's legacy. For Bush, the health insurance system is — like pensions and workplace rules — an outmoded, government-regulated relic of another era. He would replace it as part of his push for an "ownership society," which he says would give individuals more responsibility and control over their lives.

  • ConsumerAffairs.org: Per Capita U.S. Health Care Costs Triple Canada's. Excerpt: The overhead cost of operating the United States health-care system is more than three times that of running Canada's on a per capita basis, and the gap is getting bigger, according to a study published today in the New England Journal of Medicine. Savings gleaned from a national health insurance system like Canada's would be enough to provide medical insurance for the 41 million Americans who now lack coverage, the researchers said. The study puts the administrative cost of the U.S. system at $294 billion per year, compared to about $9.4 billion in Canada. That translates to a per-person cost of $1,059 in the U.S. and $307 in Canada. A similar study, conducted in 1991, put per-capita costs in the U.S. at $450 and Canadian costs at one-third of that. The study by Dr. Steffi Woolhandler of the Harvard School of Medicine found that Americans spend more on administrative costs because of the many private companies supplying insurance coverage. The multitude of companies create increased paperwork while Canadian doctors send their claims to a single insurer, the government. "What we've got now under the current health-care system in the U.S. is a giant food fight between doctors, hospitals, patients and insurance companies as to who gets stuck with the bill," Woolhandler said. Also, the study noted, private insurers spend large sums on marketing and underwriting, costs that the Canadian system doesn't have to bear.

  • Wall Street Journal, courtesy of the San Francisco Chronicle: Before Social Security, retirement looked bleak. Excerpt: Getting old is rarely regarded as a happy prospect, but before Social Security, aging in America often meant penury and sometimes even the poorhouse. When America was a nation of farmers, men and women who no longer could do hard physical labor frequently lived with their children and contributed to the domestic economy by babysitting, tending the garden, sewing or cooking. By 1920, however, when more Americans lived in cities than on farms, old people faced a bleaker future. Urban homes were smaller, and wages paid the rent. Once people became too old to earn a salary, they were, however loved, an economic encumbrance. "In the U.S.," a government adviser wrote in 1934, "many workers can escape the economic problems of old age only by dying before their period of superannuation sets in." Ironically, while life expectancy was rising quickly, many employers shunned older workers. A 1930 survey found that almost a third of 224 American factories had maximum age limits for new employees. Four plants wouldn't hire anyone over the age of 40. In another 41 plants, the age limit was 45. The rest had no fixed limits, but they rarely hired people over the age of 50.

  • The Tennessean: Frist won't bring drug import legislation up for vote. Excerpt: Despite outrage rising in Tennessee and across the nation over the soaring costs of prescription drugs, Senate Majority Leader Bill Frist is blocking legislation that would allow consumers to purchase medicine from Canada at much cheaper rates. Citing concerns for safety, the Tennessee Republican and the Senate's only physician said recently that he would not bring a bipartisan drug import bill to the Senate floor for a vote — at least not before Congress adjourns next month. ''I'm not going to support a bill that is unsafe for the American people, or potentially unsafe for the American people,'' Frist said. Frist's position is consistent with President Bush's stance and the U.S. Food and Drug Administration's concerns that there is no way to guarantee that drugs imported from Canada are actually coming from that country and are untainted.

  • Washington Post: Health Care Humbug. Excerpt: AMERICANS HAVE come to expect political ads to stretch the truth, but a recent duo from the Bush campaign cross the line. One, titled "Medicare Hypocrisy," tries to blame Democratic nominee John F. Kerry for the recent hike in Medicare premiums. The second, called "Healthcare: Practical vs. Big Government," says the Kerry health care plan would amount to a "government-run healthcare plan" costing a whopping $1.5 trillion over 10 years. ... In fact, what's striking about Mr. Kerry's approach is the degree to which it builds on the existing system. There are no employer mandates, no price controls, no premium caps; instead, Mr. Kerry seeks to lessen the financial pressure on employers through a voluntary program in which the government would shoulder some of the costs of catastrophic care. He also attempts to lower insurance costs for individuals and small businesses by letting them buy into a version of the plan offered to federal employees. And he would expand coverage for, among others, uninsured children -- in the very government program for which Mr. Bush pledged, in his nomination acceptance speech, to "lead an aggressive effort to enroll millions of poor children who are eligible but not signed up." There's a legitimate debate to be had about the wisdom of the two campaigns' health plans. But so far no one's having it.

  • Economic Policy Institute: The chronic problem of declining health coverage. Employer-provided health insurance falls for third consecutive year. Excerpt: The costs to working families of the recession and jobless recovery have been amply documented in terms of jobs, wages, and incomes (Mishel et al. 2004). Yet the persistently weak labor market in tandem with sharply increasing health costs have led to a related problem for working families: the loss of employer-provided health coverage. This report examines the erosion of employer-based coverage since 2000, with an emphasis on the characteristics—gender, race, education, and wage and income levels—of those who have lost coverage. Although unemployment has increased and the labor market has shrunk over this period, the loss of jobs cannot explain all of the decline in employer health care coverage. Jobholders also experienced a drop in coverage from 58.9% to 56.4%, a change of 2.5 percentage points. This decline may be the result of a couple of trends: the slack in the labor market that has weakened workers' bargaining power or steep increases in health care costs that are being passed to employers and employees in the form of higher premiums and lower take-up rates. But regardless of the causes, an examination of the recent data clearly reveals a widespread loss of coverage. Predictably, those with the least education or income lost ground, but so did those with college degrees and higher incomes. Children were particularly likely to lose employer-based coverage, although many of those from poorer families have been picked up by publicly provided insurance. In essence, the direction of health care policy is being determined by employers, who are shifting the cost of health coverage for the least-advantaged children to the public sector. While such a shift in the source of coverage for these children may be desirable in that it ensures they have reliable, ongoing care that is less sensitive to fluctuating market forces, it also exposes them to the ups and downs of federal and state fiscal policy.

  • New York Times: Private Plans Costing More for Medicare. Excerpt: Members of Congress expressed concern on Thursday about new data indicating that Medicare pays private health plans more than it would cost to care for the same patients in the traditional Medicare program. Lawmakers of both parties raised questions about the payments, which were increased under the new Medicare law to entice more private plans to participate in Medicare. ... "The majority of seniors in traditional fee-for-service Medicare should not subsidize the minority of seniors in private plans," said Senator Olympia J. Snowe, Republican of Maine. Senator Jeff Bingaman, Democrat of New Mexico, said that "large overpayments to H.M.O.'s were built into the bill" that Congress passed last year, and he asked why people in traditional Medicare should bear the cost of such "subsidies." Congress once assumed that private health plans could get by on payments equal to 95 percent of the cost of treating patients in traditional Medicare, but experience showed that was not enough to keep plans in the program. The Medicare Payment Advisory Commission, an independent federal panel, says in a report to Congress that Medicare is paying private plans an average of 107 percent of what it would cost to cover their patients under the traditional fee-for-service program. Payments were as high as 116 percent of the traditional Medicare cost in some cities and 123 percent in rural counties.

  • Washington Post: The Vanishing Middle-Class Job. As Income Gap Widens, Uncertainty Spreads. More U.S. Families Struggle to Stay on Track. Excerpt: It's his road because, at 3:43 a.m. on a Wednesday, no one else wants it. Clark is nearly two hours into a workday that won't end for another 13, delivering interoffice mail around the state for four companies -- none of which offers him health care, vacation, a pension or even a promise that today's job will be there tomorrow. His meticulously laid plans to retire by his mid-fifties are dead. At 51, he's left with only a vague hope of getting off the road sometime in the next 20 years. Until three years ago, Clark lived a fairly typical American life -- high school, marriage, house in the suburbs, three kids and steady work at the local circuit-board factory for a quarter-century. Then in 2001 the plant closed, taking his $17-an-hour job with it, and Clark found himself among a segment of workers who have learned the middle of the road is more dangerous than it used to be. If they want to keep their piece of the American dream, they're going to have to improvise.

  • Washington Post: Senate Panel Votes to Block Overtime Rules. Excerpt: The Senate Appropriations Committee voted yesterday to block the Bush administration's controversial new overtime pay rules, but only after the Senate's most senior Republican warned that a slew of such legislative riders could complicate final deals on bills needed to fund the federal government in fiscal 2005.

  • BusinessWeek: The Coming Pensions Crunch. US Airways' bankruptcy points to a wider problem: Corporate America hasn't been meeting pension-fund obligations. Excerpt: Worried about the trend, the PBGC is asking Congress to give it a higher stature in bankruptcy claims. In a statement put out Sept. 14, the insurer, which now guarantees the pensions of 44 million workers, noted that in its bankruptcy filing, US Air said it would be "irrational" to make pension contributions because it "provides no benefit to the estate." "That's a remarkable statement," says PBGC Executive Director Bradley D. Belt. "The company is saying it's irrational to keep your pension promises and to comply with federal pension law. Bankruptcy should not be the path of least resistance to deal with your pension obligations."

  • Vault's IBM Business Consulting Services message board is a popular hangout for IBM BCS employees, including many employees acquired from PwC. Some sample posts follow:
    • "We are hiring, but..." by "MythAndMeaning". Full excerpt: We are now hiring entry-level staff in BCS, to some extent. Part of the problem is the annual spasms our leadership go through in shaping the percentages of our non-executive staff at each level. One year, they decide we need to shift weight to the lower bands and thin the herd at B9 & 10. The next year, holy cow, it's just the opposite. There is at present a real shortage of B6 and 7 staff. During '03, we had 46% of our one-rated Band 6's leave the US part of the firm, for example. Big surprise: smart marketable people, new to the workforce, sub-market salaries, no variable pay. And no hiring pipeline -- I have never seen any company as incompetent at managing the planning, recruiting and hiring process as IBM. (Say, don't we do HR consulting?) I don't see the offshore or imported staff thing happening in my neck of the woods, Dose of Reality. Maybe it's the non-IT nature of the work I do, probably different in AMS/AIS or wherever you are.
    • "And Partly Incorrect" by " GoingBackwards". Excerpt: I work my ~70-hour weeks, and with the exception of one manager in all these years, my efforts have been recognized. I know I could be out the door in a heartbeat and I'm not happy about that. I'm not happy about a lot of what IBM does to us these days. I am one of those "dumbass lazy" legacy IBMers often referred to on this board. I was very excited about the PWCC acquisition, having worked with them with a previous employer. I agree, you guys are a class act. But so are some of us IBMers. I work hard and put my customers first. I don't kiss any butt or lick any body parts -- it's against my religion. I let my work, my knowledge and my skills (technical and otherwise) speak for themselves. As long as I'm fairly happy, I'll stay where I am. But mediocrity? No, I have no patience for that and would go out of my mind if I worked in an area where that was the norm. I'm not rah-rah IBM. But it's not all bad.
    • "tall order" by "StanleyKubrick". Excerpt: IBM couldn't care less per se about BCS. It's like a tiny bit of the Eastern Front. The only reason they bought PWC was to stop Accenture making out that if you outsourced IT to IBM all you would get was a bunch of dumb techies whereas if you outsourced it to them they'd transform your business (likely story !... look at Sainsburys in the UK) Old PWC model - greedy, ambitious slippery pyramid with a large base of overcharged twenty-somethings at the bottom. (Not a model that is likely to fly in the future in my opinion, particularly not with competition from the likes of WIPRO.) IBM model - hundreds of thousands of nameless, but numbered drones all slaving away on the same grade for decades. (with a politburo on the top!)
    • "Glad to help out" by "deep_eye". Full excerpt: How 'bout giving the company those "free" hours, because you are on a fixed price project, the project manger/partner does not have clue #1 and you will need to do 3 revisions between Friday at 6:30 pm and Monday at 8:00 am to placate the client. But it's OK, that's what weekends are for, right? How 'bout paying for business incidentals out of your own pocket because it's easier than explaining them and getting reimbursed through our fabulous expense accounting system. How 'bout bustin yer ass on a project, spoon feeding the manager/partner, dealing with the client's daily temper tantrums, putting in 70 hour weeks (for a solid month), going above and beyond and then getting scaled down to a "2" to meet the curve in the performance evaluation. NOW THAT'S WHAT I'M TALKIN' ABOUT!!! (Is this the positive aspects that everyone on the board wants to hear? Hope so).
    • "Vacation is irrelevant" by "IGS_Consultant". Full Excerpt: BM doesn't track vacation because vacation days are irrelevant. Since utilization targets aren't adjusted for available vacation, it's not possible for employees with 4 or 5 weeks of vacation to actually take it. The 50 year old with 4 or 5 weeks of vacation has to work the same number of hours as the 25 year old with two (or 3 weeks, now) of vacation. The *only* hours IBM cares to count are those that are billed to a customer. Travel time, admin time, vacation and holiday time, sick time...all irrelevant.
    • "2003 Raises" by " ibmfree". Full excerpt: The raises for BCS professionals from band 6-8 were based on two things - how bad they wanted to keep you, and how likely they thought you were to quit. Myself and colleagues that were close to quitting and they wanted to keep (ie we had high billable utilization)received raises of 7-9%. Others who were not wanted, or considered unlikely to leave, received 0%. Bonuses were even better. Office staff received their expected bonuses, consultants received a $25 USB drive with a presentation about how great it is to work for IBM. Priceless.
    • "No future" by "sickofit04". Full excerpt: In my opinion, part of the reason that there are no middle level people is that IBM doesn't promote people who are worthy. I have many associates who are truly underpaid and undervalued and most have quit because of it. Utilization (chargeable hours) is playing such a large part of the review process that people are overlooked. This past year I saw one very unworthy person promoted over another worthy person because of utilization differences which the unworthy person had inflated. In addition, the requirements for promotion are too extreme for consulting, i.e. the requirement to sustain skills on multiple projects regardless of the time period of each project. This yields a sense that there is no potential for a future and advancement if staffed on a long project. The lack of competitive salaries and the incorrect information that is fed to try to justify the situation further impact those sentiments. It always amazes me when companies fail to give raises to retain quality people only to hire unqualified people at a higher rate when employees quit. This is happening like crazy right now here. The structure doesn't make sense and isn't working. Lower level HR managers know this but feel helpless in making any changes. IBM hasn't managed to figure out that what works for the rest of big blue doesn't work for the consulting branch. Unfortunately, by the time that happens it will be too late; their reputation will have been critically wounded.

  • National Bureau of Economic Research: Stealth Compensation Via Retirement Benefits. Abstract: This paper analyzes an important form of "stealth compensation" provided to managers of public companies. We show how boards have been able to camouflage large amount of executive compensation through the use of retirement benefits and payments. Our study highlights the significant role that camouflage and stealth compensation play in the design of compensation arrangements. Our study also highlights the significance of whether information about compensation arrangements is not merely publicly available but also communicated in a way that is transparent and accessible to outsiders. (Editor's note: The full paper may be downloaded for USD 5.00).

  • Washington Post: Lobbyists Line Up on Overtime Pay. Business, Labor Groups Both Vow to Keep Up Pressure. Excerpt: Intensive lobbying in the fight to stop the Bush administration's eligibility rules for overtime pay will continue unabated, despite doubt on both sides that legislation on the issue can pass this year. On Thursday, the House handed Democrats and other opponents of the new rules a major victory when it voted 223 to 193 to block the Labor Department from enforcing the regulations which took effect Aug. 23. Lobbying efforts now turn to the Senate, where the appropriations committee will consider a similar measure. Both business and labor lobbyists plan to keep up the pressure. "We will lobby because of the likelihood of additional votes," said Lee Culpepper, the top lobbyist for the National Restaurant Association, a leader among business groups that favor the new regulations, and therefore oppose the legislation.

  • Washington Post: $3 Trillion Price Tag Left Out As Bush Details His Agenda. Excerpts: The expansive agenda President Bush laid out at the Republican National Convention was missing a price tag, but administration figures show the total is likely to be well in excess of $3 trillion over a decade. A staple of Bush's stump speech is his claim that his Democratic challenger, John F. Kerry, has proposed $2 trillion in long-term spending, a figure the Massachusetts senator's campaign calls exaggerated. But the cost of the new tax breaks and spending outlined by Bush at the GOP convention far eclipses that of the Kerry plan. ... Some fiscal conservatives who are dismayed by the return of budget deficits found little to cheer in the president's convention speech. Stephen Moore, president of the conservative Club for Growth, said that Bush's Social Security plan was money well spent by saving the system in the long run, but he added that Bush "has banked his presidency on the idea that people don't really care about the deficit, and he may be right." "He's a big-government Republican, and there's no longer even the pretense that he's for smaller government," Moore said.

  • Communications Workers of America (CWA): Economy Brings Bad News for Workers. Excerpts: EPI's annual report, "The State of Working America," found that working families have lost ground since 2000, mainly due to the "jobless recovery." The recession, which officially began in March 2001, affected a diverse group of workers, EPI said. Hurt were "young and old, less educated to highly educated, laborers to professionals. Manufacturing jobs were lost for a record 41 consecutive months," the report found. Companies' demand for offshoring has increased, especially in information technology, putting more jobs at risk, EPI said. A new study by the Center on Budget and Policy Priorities looked at who is winning in the current economy and found that, since the end of the recession in late 2001, 47 percent of the real income growth has gone to corporate profits and just 15 percent to wages and salaries. This marked the first time since the recovery following World War II that corporate profits got a bigger share of income growth than workers, the report said.

  • InformationWeek: Bringing It Home. J.P. Morgan Chase decided it was better off using the business-technology resources and strategies it got from Bank One than handing them over to IBM. Excerpt: J.P. Morgan Chase will continue to work with IBM on smaller projects and buy its hardware and software. But that may be small consolation for executives at IBM Global Services, who must have cringed upon hearing that J.P. Morgan Chase had tapped Dimon as its president and chief operating officer. As CEO of Bank One, Dimon scrapped a $2 billion IT outsourcing contract the bank had inked with IBM and AT&T in 1998. Dimon canceled that deal, known as the Technology One alliance, in 2002, explaining that Bank One's outsourcing experience "hadn't worked out," and it needed to "control its own destiny." Dimon joined J.P. Morgan Chase in the merger with Bank One. ... The bank is meticulously planning its transition back to an in-house operation to avoid operational disruptions. For instance, it's documenting all the processes IBM performs on its behalf in areas such as help desk and application support with an eye to replicating the procedures internally. It's also holding town hall meetings with employees returning from IBM in order to communicate roles and responsibilities through the transition. "It's relatively early in the deal, and a lot of employees didn't change locations or functions," Costa says. J.P. Morgan Chase will reel in most of the 4,000 IT workers it already had dispatched to IBM.

  • The Journal News (Westchester, Rockland and Putnam Counties in New York): Big Blue loses multibillion outsourcing contract. Excerpts: When Big Blue and JPMorgan announced the seven-year deal in December 2002, they called the arrangement a "groundbreaking" example of IBM's strategy of providing computing services on a "pay-as-you-go" basis. Technology industry pundits speculated the deal was in jeopardy this summer when JPMorgan completed its merger with Bank One Corp. During his tenure as chief executive officer of Bank One, JPMorgan President Jamie Dimon showed a willingness to ax outsourcing deals with IBM and AT&T as a strategy to cut costs. ... IBM isn't publicly bemoaning the loss of the giant contract. IBM said in a filing with the U.S. Securities and Exchange Commission that the change will have a "positive impact to IBM earnings per share" in 2005. The company may now save the money it would have spent on technology gear used to run JPMorgan's systems, IBM spokesman James Sciales said. "Obviously, those investments will no longer be made," he said. Sciales declined to say if JPMorgan paid a fee to nullify the companies' agreement. "In general, contracts contain provisions to safeguard IBM's financial interests," he said. This isn't the first time a company outsourced jobs to IBM, then took them back, Sciales said, though he couldn't immediately identify other instances. This April while discussing first-quarter earnings, IBM's former chief financial officer John Joyce said the pace of what he called "contract rescopings" was on the decline. Joyce, who is now running Global Services, noted that such changes in services contracts were to be expected during the recent economic downturn. Technology industry analyst Bob Djurdjevic, who runs Annex Research in Phoenix, said it looked to him like both companies were "happy to be rid of each other" and speculated that the deal wasn't as lucrative as IBM had hoped it would be.

  • "Press Release," a humorous interpretation of the JPMorgan/IBM breakup, by "Dose of Reality". Excerpt: On the heels of this excellent news, IBM has decided to capitalize on the revelations uncovered in the impact analysis that supported this conclusion. Said an unidentified executive “Frankly we were a bit surprised that our profits would be favorably impacted in 2005, but it didn’t take our management team long to ask the really insightful question – why stop at one client?” This inverse relationship between revenue and profit can easily be capitalized on! We will shortly announce plans to cancel virtually all of our existing outsourcing contracts. We have assembled a high-powered cross-functional team to prioritize our target list of ODC’s (On-Demand-Cancellations). We are starting with the clients with the highest customer satisfaction ratings, since it is highly probable that that list will be positively correlated with the list of MUC’s (Most Unprofitable Contracts). We have to guard against being too hasty here, since we don’t want to experience too large a spike in our EPS – we need to leave room for future growth. However, the nice thing about this play is it is totally under our control.

  • New York Times: I.B.M. Shrugs Off Loss of a Service Contract It Once Flaunted. Excerpt: Back in December 2002, when J. P. Morgan Chase announced a seven-year, $5 billion deal to outsource much of its data processing to I.B.M., both companies bragged that the contract - the largest of its kind for I.B.M. - would reduce costs, create value and propel innovation at J. P. Morgan. Now both companies are saying, uh, never mind. In a major blow to I.B.M.'s grand corporate strategy of providing technology services to companies large and small around the globe, J. P. Morgan Chase said yesterday that it was pulling the plug on the contract less than two years into its existence. The 4,000 J. P. Morgan employees who moved to the International Business Machines Corporation as part of the deal will return to the bank early next year. ... The 2002 contract was the centerpiece of I.B.M.'s transformation from a technology manufacturer to a technology manager, a strategy devised and overseen by the chief executive, Samuel J. Palmisano. According to analysts, the contract with J. P. Morgan was among the largest such outsourcing contracts ever signed; only a $6.9 billion deal won by the Electronic Data Systems Corporation to manage information technology for the Navy was larger. ... But yesterday's announcement made some analysts wonder whether I.B.M.'s technology outsourcing strategy - its response to what it calls the on-demand era - is as promising or as profitable as the company has led investors to believe. "This was Palmisano's grand vision, and this was the reference account," said Fred Hickey, editor of The High-Tech Strategist, an investment newsletter in Nashua, N.H. "This whole on-demand strategy kicked off just a couple of years ago was predicated on these kinds of large accounts they were going to win. Now, not very long after starting it, they're pulling it back. You have to question whether this strategy is going to be successful or if services will be, as Sun's Scott McNealy says, the graveyard for old tech companies that can't compete."

  • CNN/Money: IBM, LG Electronics end joint venture. Excerpt: IBM is ending a joint venture in South Korea with LG Electronics Inc. that was implicated in a bribery scandal this year. "We came to a conclusion that the local market situation has changed for LG and IBM in a way that is better for them to seek growth opportunities independently," LGIBM PC Corp. said in a statement on Tuesday. Officials at LGIBM, 51-percent owned by IBM Korea and 49 percent by LG Electronics, were investigated this year by prosecutors over a bribery case involving state contracts for the supply of computer parts and servers. Prosecutors said the joint venture won orders illegally. The investigation led to the jailing in February of three former officials of IBM Korea for up to 18 months.

  • VertMarkets, Inc.: Money Alone Won't Woo Workers. Excerpt: As the job engine heats up, workers say an offer of more money won’t be enough to make them choose one employer over another, according a survey by global career management services company Lee Hecht Harrison. The Lee Hecht Harrison survey of 946 recently-outplaced professionals found that if they were presented with multiple job offers, 39% would definitely accept – and 57% might accept – one offering a lesser compensation and benefits package, but better corporate culture, work-life balance, career/leadership development opportunities or other quality-of-life enhancements. Only 4% would definitely accept the one with the most generous compensation and benefits, regardless of other factors. “What we’re seeing is a fundamental shift in what is valued by prospective employees,” observed Lee Hecht Harrison Executive Vice President Bernadette Kenny. “While compensation will always be important, workers today are placing less emphasis on monetary rewards and more on benefits and programs that contribute to professional development and work/life balance.”

  • Benefits Restoration, Inc.: Volume 2, Issue 8 – August, 2004. BenefitsRestoration, Inc. is an organization for Retirees, Spouses and Future Retirees. If you are a current employee, please feel free to join as well.

  • Jim Hightower: American Egalitarianism. Excerpt: Labor Day is all about our country's long striving toward the ideal of egalitarianism, which really is the Big Idea of America itself––the idea that we might create a society based on the democratic values of economic fairness, social justice, and equal opportunity for all. The practical expression of this ideal is in the creation of the middle class, an economic haven from laissez-faire greed, allowing the great majority of workaday folks to pursue happiness without the vicissitudes of oppressive poverty. But a middle-class possibility is not a given in our country, for the forces of greed are constantly pushing to eliminate it. We only have a middle class because our parents, grandparents, and great grandparents fought, bled...and died to create the framework that allows people to climb up. It's a framework composed of wage-and-hour laws, minimum wage, social security, public education, affordable housing, medicare, the GI bill, headstart...and so many more elements. Yet, this is the very framework now being so rapidly and gleefully dismantled by Washington and Wall Street, knocking down millions of working families and cutting off middle-class opportunities for young people. Even though ours is the richest economy in the world.

  • Humor from www.complexman.com: Consulting Value Proposition Explained Part 1. Part 2. (Editor's note: If you're a consultant, this is a "must read!")

Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • Computerworld: Indian IT execs face offshoring backlash. Excerpt: The recent backlash in the U.S. against offshore outsourcing has made many Indian software executives cautious about what they say publicly about the heightened concerns relating to data security and privacy. But executives at many companies say it's important that security concerns related to work in India not be blown out of proportion. "It's an election year, so there's been a bit of hype around it," said Sudip Banerjee, president of enterprise solutions at Wipro Technologies Ltd.

  • CNET News: Study: 400,000 IT jobs lost since 2001. Excerpt: The information technology industry lost 403,300 jobs from the start of the recession in March 2001 to April 2004, with nearly half of those jobs disappearing after the recession's official end, according to a new study. The report said 200,300 IT jobs were lost after November 2001 and found steep job losses in the San Francisco, Boston and San Jose, Calif., regions. The study, which was released Tuesday, was written by researchers at the Center for Urban Economic Development at the University of Illinois at Chicago for union group WashTech. Officials from the center and WashTech argued that the job losses resulted from several factors, including the shift of work to lower-cost nations and the use of H-1B visas, which can be used to import computer programmers and other skilled workers. Nik Theodore, a co-author of the study, said U.S. technology workers are experiencing something worse than a jobless recovery. "For America's IT workforce, this has been a job-loss recovery," he said. ... Critics respond that offshoring costs U.S. workers jobs and threatens the country's long-term technology leadership. The exact scale of the trend has been somewhat murky. But Marcus Courtney, president of WashTech, said a tally of jobs "offshored" since 2000 has passed 250,000. The tally, a project involving WashTech and other groups, is based on media accounts. Courtney said one of the first steps to improve the job situation for technology workers is to reform the H-1B and L-1 visa programs. L-1 visas allow companies to temporarily bring in employees from other countries for managerial or executive work, or for work that entails specialized knowledge. "It's almost economically impossible to argue that there are not enough skilled, high-tech workers domestically," Courtney said.

  • New York Times: Taxing Global Profits. Excerpts: A new study showing that American multinational companies booked a record $149 billion of profits in tax-haven countries in 2002 is further evidence, if any were needed, that the corporate tax structure is much in need of repair. The research, done by a former Treasury Department economist and published in a journal that is the tax industry's bible, Tax Notes, looks at American subsidiaries that are located in countries with low or no corporate taxes, like Ireland, Bermuda, Luxembourg and Singapore. Some offshore entities are merely tax-reducing way stations. In other places, American companies have legitimate business operations, which are often coupled with aggressive tax-avoidance strategies. Take a simplified example: Say a company has a subsidiary in Ireland that manufactures a computer part for $10 to be sold to customers in the United States for $50. The Irish subsidiary sells the part to the American parent company for $35 - a markup that is so huge as to be abusive because the high-value patents and know-how for the part exist in the United States. When the part is sold in this country for $50, the company will owe tax on $15 of the profit, even though it will make $40 on the deal - $25 of that will be booked as profit for its Irish subsidiary. The study concludes that the more that American companies can use foreign subsidiaries to lower taxes, the greater their incentive to invest and employ staff abroad. That means a steady, significant erosion of this nation's corporate tax base, amounting, the study says, to "many billions of dollars."

Now on the Alliance@IBM Site:
  • Congressman Maurice Hinchey (22nd District of New York): Retirement Security. Excerpts: A number of large companies, including some in our area, have reduced retirees' health benefits in order to cut costs and increase profits. I strongly believe this practice should be illegal. The decision to retire is based on an estimate of what your income and expenses will be after you stop working. It's impossible arrive at a realistic estimate if companies are allowed to change the rules after you've already retired. That is why I am an original cosponsor of the Emergency Retiree Health Benefits Protection Act (H.R. 1322). This bill would protect retirees in employer-provided health plans from having their benefits eliminated or cut back. It would also obligate employers to restore previous health benefits taken away after an employee's retirement unless the employer can demonstrate substantial business hardship. I will continue to pressure the House leadership to bring this critical legislation up for a vote this year. ... Since IBM announced its intention to switch to a cash-balance plan in 1999, I have called for strong federal protections for workers whose benefits would be decreased by the conversion. I have also sponsored legislation that would give employees a choice between the two types of pension plans when a conversion is proposed. In July, a U.S. District Court ruled that cash-balance formulas inherently violate federal pensions laws against age discrimination.

  • Mid-Hudson News Network: Ulster legislature supports pension protection. Excerpt: A resolution calling on the U.S. Congress to pass legislation protecting the pensions of persons retired from profitable companies was approved by the Ulster County Legislature, after some debate. The resolution cited IBM retires, who faced health benefits premium increases of 67 percent in 2002 and 29 percent in 2003. Arthur Richter, of Kingston, part of an organization fighting to protect the benefits of what he says may be up to 40,000 IBM retirees in the Hudson Valley, told the legislators this hits hard at many who can ill afford it. “What’s happening now is that these premium increases are now being by the company. They are saying they are not going to absorb any more increases. They are now going to be passed on,” he said. “This becomes rather onerous if somebody has a modest pension.” The resolution passed 26 to 4. Among those opposed, Chairman Richard Gerentine who said he sympathizes with the IBM retires, but believes this is another level of government interference in private business.

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In Politics—
Note: The views expressed in the news articles and editorials in this section are those of their authors. They do not reflect the views of the Alliance@IBM. They do reflect the views of the editor of www.ibmemployee.com.


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