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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".
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.
- In 2003, IBM paid $294 million.
- In 2002, IBM paid $324 million.
- In 2001, IBM paid $376 million.
- "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
- 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
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
- 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
- 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
- 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
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:
|Coverage on H1-B and L1 Visa and Off-Shoring
- Computerworld: Anything
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."