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    Highlights—December 4, 2004
  • Janet Krueger: IBM retiree medical costs. Full excerpt: IBM's costs for providing retiree medical are most assuredly going down. Please reference footnote W from last year's annual report at http://www.ibm.com/annualreport/2003/noflash/fr_ncfs_w.shtml. Check out the line titled "Nonpension postretirement benefits — cost".
    • In 2003, IBM paid $294 million.
    • In 2002, IBM paid $324 million.
    • In 2001, IBM paid $376 million.
    Seems like a pretty strong downward trend to me! Of course it does say the number of U.S. retirees collecting pension benefits dropped from 136,365 in 2002 to 136,302 in 2003, but I don't think that accounts for the decline in non-pension benefits.
    • "DEPeter" comments. Full excerpt: According to my soon to be obsolete ThinkPAD, in 2002 IBM paid $2375.98/retiree and in 2003 paid $2156.97/retiree. So where are the various cap amounts being spent? $3500 for medicare retirees and $7000 for non-medicare? This year alone, my cost including premiums, copays and deductibles has already reached $8800.07 as of the end of October. I expect it to exceed $10K by year end and next year to be even worse what with higher premiums, deductibles and out of pocket amounts. Thanks, Lou.
    • Janet Krueger replies to "DEPeter". Full excerpt: As I've said before, IBM never said they would spend the caps, or even come close. Their only commitment is that they will never EXCEED the caps. Big difference!

  • Janet Krueger speculates on IBM's cost for employee medical coverage. Full excerpt: IBM doesn't choose to report on how much they are paying on IBM employee medical insurance, or on how much they are collecting in co-payments. My guess would be that the net cost per employee to IBM is going down, though, for several reasons: 1) The average age of IBM employees is dropping; 2) The amount charged to employees for full coverage is increasing; 3) IBM is making 'cheaper' options available that don't provide full coverage; 4) IBM is creating incentives for employees to move spouses and dependents to other coverage whenever possible. That's just a guess, though, as IBM does not provide data, even when specifically asked.


  • New York Times: A Premature Sunset for Pension Plans?, by Mary Williams Walsh. Excerpt: Traditional pension plans are said to be an unaffordable burden on companies and taxpayers, a regulatory Rubik's cube, a relic that doesn't work in a global economy. Instead of counting on a pension, millions of employees are urged to build up their own savings, and bear their own investment risk, in 401(k)'s and similar plans. The Bush administration and some members of Congress want to apply this thinking to Social Security as well, by redirecting a portion of the payroll tax into personal savings accounts. Is the country throwing in the towel too soon on the traditional pension? For all the problems, its defenders say, it is still possible to keep a pension plan, large or small, on a sound financial footing and pay the promised benefits on schedule without overwhelming the sponsor. ... At the Texas Municipal Retirement System, however, "we just took a different approach," Mr. Anderson said. The fund tuned out the siren song of Wall Street long ago, and followed a much more conservative strategy. It forecasts how much it will have to pay retirees and when, and then buys and holds high-grade bonds that will pay those amounts on the same schedule. It's a simple technique that won't post spectacular gains and doesn't even try to beat the S. & P. 500, but avoids the mismatch plaguing most pension funds these days. And it is cheap to execute: Mr. Anderson said the payroll for the small staff of civil servants who do most of the work is less than $400,000 a year, a small fraction of what outside money managers would charge to run a $10 billion portfolio. "I think we have a good story to tell," Mr. Anderson said. But it isn't a story Wall Street or the pension industry particularly wants told. The success of Texas Municipal and a handful of similar funds tends to make everybody else look bad - all the more so because many pension funds once followed the same strategy, but abandoned it years ago in favor of playing the market.

    Why don't more pension funds follow the lead of the '50 fund or Texas Municipal? Largely because it seems to be in no one's financial interest (except the covered workers') to do so. The incentives in law, regulation and industry practice all work against conservative fund management. For one thing, an accounting rule gives sponsoring companies wide latitude to create paper profits for themselves, perfectly legally, if they keep lots of stocks and even riskier assets in their pension funds, but conservative bonds won't do the trick. State and local governments do not make profits, but they can use the same accounting tactic to help balance their budgets, on paper, by reducing the pension contributions that seem to be required. ... Pension accounting is not the sexiest of subjects, so it is perhaps not too surprising that few shareholders or taxpayers have complained very loudly about these problems yet. Nor is it in the interests of money managers to raise the issue, because aggressive pension management yields big revenue for Wall Street and feeds demand for stocks. If link is broken, view Adobe Acrobat version [PDF--22 KB].


  • New York Times: I.B.M. Said to Put Its PC Business on the Market. Excerpts: International Business Machines, whose first I.B.M. PC in 1981 moved personal computing out of the hobby shop and into the corporate and consumer mainstream, has put the business up for sale, people close to the negotiations said yesterday. While I.B.M. long ago ceded the lead in the personal computer market to Dell and Hewlett-Packard so it could focus instead on the more lucrative corporate server and computer services business, a sale would nonetheless bring the end of an era in an industry that it helped invent. The sale, likely to be in the $1 billion to $2 billion range, is expected to include the entire range of desktop, laptop and notebook computers made by I.B.M. ... The companies that make the most money from PC's these days are Microsoft and Intel - whose software and chips are the standard for most of the personal computers sold, regardless of the maker. ... In the 23 years since I.B.M. lent its prowess in mainframe computers to the production of desktop machines, it has been widely criticized for having destined the machines to commodity status by giving Microsoft and Intel the rights to those essential standards. And although Apple Computer holds less than 4 percent of the personal computing market worldwide, it has been able to command relatively high prices and richer profits because it has controlled the software and hardware that goes into its machines.


  • New York Times: Contemplating a PC Market Without I.B.M. Excerpts: "If they're able to complete a deal," Mr. Promisel said, "Lenovo is obviously going to be more aggressive on the pricing front, which could lead to a compression on price points in the industry," potentially eating into the profits of every PC maker. The price for I.B.M.'s personal computer unit is likely to be $1 billion to $2 billion. A buyer would be purchasing the blueprints to the ThinkPad, generally regarded as the world's most reliable and secure laptops. "The ThinkPad isn't just the best machine for the price," said Richard Dougherty, director of the Envisioneering Group, a market research firm in Seaford, L.I. "It is the machine for anyone concerned about security." A buyer would presumably get the ThinkPad name and also I.B.M.'s customer list, but whether that would be worth much over time remains to be seen. According to people close to the negotiations, a buyer is also likely to get the use of I.B.M.'s brand name on PC's for a transitional period and I.B.M. may continue to sell the computers to corporate customers after the business unit is sold. Mr. Dougherty said he was already hearing from I.B.M. customers fretting about a sale to a company that has specialized in low-price machines. "Customers are saying, 'Oh my God, we need to be assured we can get ThinkPad models that are just as secure and reliable, and not just a watered-down ThinkPad brand from Lenovo,'" Mr. Dougherty said.


  • New York Times: An Unknown Giant Flexes Its Muscles. Excerpt: Lenovo. Who? Although virtually unknown in the United States, Lenovo - said to be in talks to buy I.B.M.'s personal computer business - is China's largest PC maker and the world's fastest-growing one. And it is emblematic of the ambitions of emergent Chinese industrial giants to create global brand names and capture market share beyond their own borders. Formerly relegated to a low profile as the cheap assemblers for the rest of the industrialized world, Chinese companies now have their sights set on becoming global powers in their own right.


  • Wall Street Journal: IBM's Sale of PC Arm To Cut Size, Not Profit, by William Bulkeley. Move Is Expected to Add To Earnings and Increase Presence in China Market. Excerpts: Analyst Steven Milunovich of Merrill Lynch, which does investment-banking business for Big Blue, estimates that the sale could add five cents a share to earnings next year by eliminating losses from the PC business. Mr. Milunovich, who owns no IBM stock, currently estimates IBM will earn $5.50 a share next year, up from $5 this year. But because PCs account for so much of IBM's revenue and are losing money, the gains to IBM's profit margins will be greater than the incremental per-share earnings gains. Over the long haul, better margins usually translate into a higher stock price. ... IBM executives have said the PC was important in positioning IBM as a full-service vendor. Its heavily advertised ThinkPad laptops have been the company's most recognizable personal product and gave it cachet among executives who didn't care about servers and databases. ThinkPads are the leading laptop in Asia. In the first nine months of this year, personal systems have been IBM's fastest-growing business, increasing 17% to $9.37 billion in sales and showing a $70 million pretax profit. ... Analysts say that, if IBM does leave the PC business, it risks opening up to competitors some of its loyal customers who might be skeptical about Lenovo as a supplier. Duane Zitzner, executive vice president of Hewlett-Packard's PC unit, says, "This will create a lot of uncertainty amongst IBM's customers and it should." He adds that "Lenovo has been a made-in-China-for-China player," and selling in the U.S. or France would require new logistics and supply chains.


  • New York Times: Calpers Ouster Puts Focus on How Funds Wield Power. Excerpts: The ouster of the president of California's public pension fund has raised questions about whether pension funds, endowments and other big activist investors will be able to keep wielding influence in corporate governance campaigns. ... The fund president, Sean Harrigan, was removed yesterday from the $178 billion California Public Employees Retirement System, known as Calpers, America's largest pension fund. He said his ouster was retaliation for the campaigns that he and others had been leading to change behavior at companies like Disney, Safeway, the New York Stock Exchange and Kohlberg Kravis Roberts. Even when the initiatives failed they often pitted Mr. Harrigan, a union official, against business groups. ... Calpers has long sought ways to use the power of its holdings to influence corporate behavior. Its trustees have argued that doing so is a crucial part of their fiduciary duty, because insisting on good corporate governance is likely to bring about more valuable shares. In addition to providing pensions for about 1.4 million current and future retired public workers in California, Calpers provides health insurance for the state's work force. ... But Frederick E. Rowe, a money manager in Dallas and the chairman of the Texas Pension Review Board, said that while he did not agree with everything Calpers had been doing under Mr. Harrigan's leadership, he thought that on the whole Calpers was performing a useful service by representing retirees when few others did. "President Bush talks about transitioning to an ownership society," Mr. Rowe said. "Well, we already have an ownership society, and the people who are owners don't know they're the owners. The owners are the people in America who hope to retire, and who are retired, and who depend upon a stream of income that their deferred investments generate. And they don't have many advocates."


  • Boston Globe: Social Security funding at issue. Borrowing likely under Bush's plan. Excerpts: Facing record budget deficits, the Bush administration probably will turn to short-term government borrowing to help finance its plan to add personal retirement accounts to Social Security, officials said yesterday. ... An analysis this year by the White House Council of Economic Advisers found that tapping the bond markets to pay for private accounts would increase the nation's debt-to-GDP ratio by 23.6 percentage points by 2036. The GDP is the gross domestic product. Under this strategy, the debt held by the public would increase by as much as $4.7 trillion. But the new government bonds would be repaid 20 years later, eliminating Social Security's unfunded liability while reducing the tax burden in the long term, advocates said. Democrats have pledged to protect Social Security from ''privatization" by Bush and his Republican allies in Congress. The president already is under fire over record federal budget deficits, and Democrats warn that the nation's mounting debt load could become a drag on economic growth. ... Bush opposes raising taxes or requiring additional contributions from workers. The White House had once hoped that budget surpluses, projected in 2000 at $5.6 trillion over 10 years, would fund the transition period. But the surpluses have vanished. The federal budget deficit hit a record $412 billion in the 2004 fiscal year that ended Sept. 30. And the Congressional Budget Office has projected $2.3 trillion in accumulated deficits over the next decade. Opponents have said that, although investment accounts would be voluntary, many Social Security recipients could be hurt by putting money in the stock market. In addition, critics have said, investment accounts would drive up the federal deficit regardless of how accounting rules are changed. They contend that the additional borrowing would trigger higher interest rates and strain economic growth.


  • Baltimore Sun courtesy of the Philadelphia Inquirer: Phasing into retirement - with IRS help. An intriguing proposal would allow workers to trim their hours and tap into pensions without penalty. Excerpts: More and more employees say they want to ease into retirement, gradually reducing their hours on the job as they get older before quitting work altogether. But because of today's rigid pension regulations, they may feel their only choices are to quit work or stay on the job full time. The Treasury Department is offering a possible middle ground. Last week, Treasury, along with the Internal Revenue Service, proposed new rules that would allow workers to cut their hours and collect part of their pensions at the same time.


  • Bureau of Labor Statistics, courtesy of International Labor Communications Association: Just Over Half of Private Sector Workers Take Employer-Provided Health Care. Excerpts: Differences were stark in the National Compensation Survey: Employee Benefits in March 2004, depending on whether a firm was union or not, small or large, and whether the workers were in white-collar and blue-collar or service occupations: 89 percent of union workers had access to health care benefits, while two-thirds of non-union workers did. But while 81 percent of the union workers took the medical coverage, only half of the non-unionists did. ... While 43 percent of union workers were in plans requiring no contributions for workers themselves, one-third were in plans with no employee contributions for family coverage. Only 21 percent of non-union workers were in fully employer-paid plans for themselves and 7 percent were in such plans for families. Not counting those fully employer-paid plans, union workers also paid less for health care: $56.53 per month for each union worker, compared to $68.98 monthly for nonunionists, and $195.12 for family coverage for unionists' households, lower than the $273.51 for non-union households' monthly coverage.
    • "flatsflyer" comments. Full excerpt: With all of it's purchasing power, technical expertise, why can't IBM at least be average or better than average. The poor coverage I get is almost twice as expensive and the deductibles, out of pocket, copays, etc. simply proves that IBM is either corrupt, inept or lying to us.

  • TaxProf Blog: Red States Feed at Federal Trough, Blue States Supply the Feed. Excerpts: The Tax Foundation has released a fascinating report showing which states benefit from federal tax and spending policies, and which states foot the bill. The report shows that of the 32 states (and the District of Columbia) that are "winners" -- receiving more in federal spending than they pay in federal taxes -- 76% are Red States that voted for George Bush in 2000. Indeed, 17 of the 20 (85%) states receiving the most federal spending per dollar of federal taxes paid are Red States. Here are the Top 10 states that feed at the federal trough (with Red States highlighted in bold): ... In contrast, of the 16 states that are "losers" -- receiving less in federal spending than they pay in federal taxes -- 69% are Blue States that voted for Al Gore in 2000. Indeed, 11 of the 14 (79%) of the states receiving the least federal spending per dollar of federal taxes paid are Blue States. Here are the Top 10 states that supply feed for the federal trough (with Blue States highlighted in bold)...


  • New York Times Opinion: The 9/11 Bubble, by Thomas L. Friedman. Excerpts: The Washington Post had a story on Monday that contained possibly the greatest hint to a sitting cabinet secretary to start looking for another job that has ever been printed. The article reported, "One senior administration official said Treasury Secretary John W. Snow can stay as long as he wants, provided it is not very long." Provided it is not very long! ... This is a time when we really need a strong Treasury secretary capable of speaking up for fiscal sanity. We are about to embark on a 10-year period in which recent tax cuts and runaway spending are expected to add $5 trillion to the cumulative deficit. In my lifetime we will have gone from the Greatest Generation to the Profligate Generation to the Bankrupt Generation. Yes, I'm talking to you 20-year-olds. President Bush has called for sacrifice - but not by his generation. He's passing the bill onto your generation. "The 9/11 crisis has been used as a license to spend and cut taxes rather than to set priorities and focus our resources on what is critically important to our nation's security," said Robert Hormats, vice chairman of Goldman Sachs International. And Congress has played right along, as have people like Josh Bolton, Stephen Friedman and Gregory Mankiw - Mr. Bush's key White House economic advisers. "You know that all these guys know better," said Clyde Prestowicz, head of the Economic Strategy Institute. ... The very reason Mr. Bush had the luxury of launching a war of necessity in Afghanistan and a war of choice in Iraq, without a second thought, was because of the surpluses built up by the previous administration and Congress. Since then, the Bush team has been slashing taxes in the middle of two wars, weakening the dollar and amassing a huge debt burden - on the implicit assumption that nothing will go wrong in the future. But what if there is another 9/11 or war of necessity? We're cooked. The tax revenue won't be there, so the only option will be more borrowing and a weaker dollar. But what happens if the Chinese and other foreigners, who now hold over 40 percent of our Treasury securities, decide they don't want to hold these depreciating dollars anymore, let alone buy more?


  • Alliance@IBM: IBM Essex Junction, VT Plant “Honored” With 2004 Dirty Dozen Award. Excerpts: Charging that IBM does not adequately protect their employees, their families and the community at large from dangerous solvents and chemicals used in the manufacturing process, the Alliance @IBM / CWA Local 1701 joined the Toxics Action Center to present the company with a 2004 Dirty Dozen Award. ... Many toxic chemicals are used in the manufacturing of computer chips at IBM’s Essex Junction plant. The givers of the Dirty Dozen Award say that IBM does not provide adequate safety training for employees, nor a full, understandable disclosure of the health risks associated with these chemicals. “IBM is acting as a bad corporate citizen” said Earl Mongeon. “The so-called ‘clean room,’ where computer chips are made, is clean only for the chips, not for the workers. We all know IBM employees who have gotten sick or have died” Mongeon said. “It’s time IBM takes responsibility for workers’ safety by devoting funding to employee training and providing full disclosure of the health risks from working with these toxic chemicals.” Employees and their families across the nation are involved in lawsuits demanding compensation for health problems, including rare forms of cancer.


  • Vault's IBM Business Consulting Services message board is a popular hangout for IBM BCS employees, including many employees acquired from PwC.


  • Consultant humor: Partners vs. Consultants Status Symbols:
    Cartoon

Coverage on H1-B and L1 Visa and Off-Shoring Issues
  • Computerworld: Anything but IT. Many students see an advanced degree in IT as a ticket to obsolescence and outsourcing. They have other plans. Excerpts: Educators and IT industry executives are warning that a crisis is looming in the IT job market. Only this time, it's not that there are too many job hunters seeking too few positions. To the contrary, they say that the U.S. isn't producing IT experts in the quantity and quality that it needs to remain the leader of the global IT market. ... Students told us that advanced technical degrees are expensive and may not provide the skills they need to be competitive in the job market. Many plan to seek business degrees instead of technical degrees in graduate school because they fear that they are more likely to be outsourced if they don't have business qualifications. ... "At present, there is a lack of interest in this discipline," says Mathew J. Palakal, chairman of the Department of Computer and Information Sciences at Purdue. "This could be due to the uncertainties in the job market. Outsourcing is on everybody's mind, and computer science is considered as a high-risk career choice."


  • Computerworld: Gartner: Half of U.S. IT operations jobs to vanish in 20 years. Predicts improvements in data center technologies will lead to job cuts.


  • Computerworld: H-1B backers want bigger increase in cap. Congress increased the H-1B visa cap for the current fiscal year by 20,000. Excerpts: Trade groups and IT vendors such as Microsoft Corp. and Intel Corp. had urged Congress to raise the fiscal 2005 cap, as had technology users such as The Goodyear Tire & Rubber Co. Despite the vote to do so, some H-1B proponents said that the legislators didn't go far enough. The number of additional H-1B visas needed this year "is closer to 50,000," said John Palafoutas, a senior vice president at the AEA, a Washington-based trade group. Large numbers of students graduating from U.S. universities with advanced degrees in fields such as computer science are foreign nationals. Proponents of the cap increase argue that it's in the nation's best interest to keep these skilled graduates here and that an H-1B visa is a path to permanent residency. ... That's true at Tata Consultancy Services Ltd., a Mumbai, India-based IT services firm with operations worldwide. Tata has about 8,000 employees in North America, primarily in the U.S., and about 7,200 of them are here on some kind of visa. Among its U.S. workers, about 65% have H-1Bs, and the remainder hold L-1 visas, said spokesman Victor Chayet. He added that many of Tata's U.S.-based employees are graduates of universities in India and that only a handful ever seek permanent residency here. The company doesn't discourage workers from applying for green cards, but its service delivery model is based on the ability to move people from country to country as needed. "Keeping that fluid workforce is to our benefit," Chayet said. Groups representing high-tech workers opposed any increase in this year's H-1B cap. Al Gray, executive director of the National Society of Professional Engineers in Alexandria, Va., said current indications are that there "are no really serious shortages" of engineering and IT workers.


  • Jobs with Justice: Nov. 28 - Dec. 17 national tour to visit 9 cities…Indian labor leaders to address "outsourcing" issue. Seeking dialogue with U.S. workers about mutual interests in fight to defend good jobs and ensure fair labor standards. Excerpt: Less than a month after a U.S. presidential election where candidates traded accusations about the increase in the number of jobs shifting from the U.S. to other countries, a delegation of labor leaders from India is embarking on a tour of nine major U.S. cities to open a dialogue about ensuring that the interests of working people everywhere are respected and promoted. "The jobs that multinational companies destroy in the U.S. outnumber the jobs they create in India, as workers are working harder and longer," said Ashim Roy, the President of several unions representing General Electric workers in Gujarat state. "The companies create insecure jobs at near-poverty level wages with inhuman working conditions. We want to work with our sisters and brothers in the U.S. and elsewhere to prevent exploitation and guarantee jobs with fair wages and human dignity for all." "We will resist the corporations' efforts to pit us against each other," said V. Chandra, a woman who has worked in the coal industry for 25 years and is the Organizing Secretary of a union representing 50,000 miners. "We know that the companies see no borders in their efforts to make money, so we too must look past them," she added. "Workers are talking across the continents about their mutual interests; together we can defend jobs with fair labor standards."

 

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