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    Highlights—October 1, 2005

  • Yahoo! message board post by Janet Krueger. Excerpts: Both houses of Congress now have pension reform acts in the works that include over 500 single spaced lines of small print. The pension reform acts are under change, so it is not possible to predict what the final version will say when it gets to President Bush's desk.
    You're foolish if you believe that corporate actions that are illegal now will still be illegal at the end of the year -- things are changing!
    What we do know is that large corporations who have large pension obligations are heavily lobbying Congress on a daily basis. Corporations claim they need the 'freedom' to adjust to 'changing circumstances' based on 'competitive pressures' and they claim that all of the regulations in place right now around plan adjustments and plan terminations 'get in the way' and increase the probability that the PBGC will have to step in and take over, which increases the risk that the American tax payer will have to finance 'bail outs'.
    Once corporations have the freedom to 'adjust' payments to existing retirees without fear of lawsuits, the system will be ever so much better! After all, corporations took on these obligations voluntarily, so they should be able to release them at will, right???
    We all need to be letting our representatives and senators in Washington know that we are watching, that American retirees deserve the ability to rely on corporate promises made to them, and that Congress needs to be adding teeth to ERISA, NOT breaking it apart...
  • Business Insurance: Senate leaders agree on pension reform package. By Jerry Geisel. Excerpts: A key change agreed to by negotiators is the elimination of a provision in the HELP bill that would have required employers that already have adopted cash balance plans to amend those plans retroactively to fit certain requirements. The compromise bill, though, does retain provisions in both bills that would require employers that prospectively convert traditional plans to cash balance plans to meet certain requirements, such as giving plan participants the right to choose between the two plans.
  • Pension Rights Center, courtesy of a post on a Yahoo! message board by Kathi Cooper: Legislative Alert, It's Time to Act!. Excerpt: As you know, the Senate Finance and HELP Committees reached an agreement earlier this week on their pension funding and reform bill. As you know, the 600-page bill includes many provisions including those that would prospectively legalize cash balance plans –- in exchange for providing some protections for older employees (the summary of the bill is below).
    We have heard that Senator Judd Gregg (R-NH) is going to offer an amendment to the bill on the Senate floor that would LEGALIZE CASH BALANCE PLANS RETROACTIVELY. WE HAVE TO ACT NOW TO STOP THIS AMENDMENT!!!
    • CALL YOUR SENATORS AND TELL THEM TO OPPOSE THE GREGG AMENDMENT OR ANY OTHER AMENDMENT THAT SEEKS TO LEGALIZE CASH BALANCE PLANS RETROACTIVELY.
    • Call, e-mail and fax Senators Grassley and Baucus of the Finance Committee and Senators Enzi and Kennedy of the HELP Committee. Thank them for their leadership on this issue and commend them for reaching a deal on cash balance issues that helps mitigate the losses of older employees in cash balance conversions in the future. URGE THEM TO HOLD THE LINE AND OPPOSE ANY AMENDMENTS THAT LEGALIZE CASH BALANCE PLANS AND CONVERSIONS RETROACTIVELY.
    When you leave messages or send faxes and e-mails, here are some of the points you may want to make:
    • THERE MUST BE NO RETROACTIVE LEGALIZATION OF CASH BALANCE PLANS. Retroactive legalization would be exceedingly complicated and would undermine the rights of hundreds of thousands of older workers, many of whom have pending lawsuits. Also, many legal experts say retroactive legalization would be unconstitutional.
    • Cash balance conversions have hurt hundreds of thousands of older employees by cutting their benefits by as much as 50 percent.
    • CASH BALANCE PLANS WERE, ARE, AND HAVE ALWAYS BEEN ILLEGAL. THEY WERE DECLARED AGE DISCRIMINATORY IN A LANDMARK US COURT CASE (COOPER V. IBM) AND HAVE NEVER BEEN AUTHORIZED BY CONGRESS.
    To reach your Senator in Washington, call the Senate operator at (202) 224-3121 and ask to be connected. Or to find your Senators and their contact information visit this website at http://www.senate.gov/general/contact_information/senators_cfm.cfm
  • In a Yahoo! message board post, Janet Krueger answers questions concerning cash balance pension legislation. Full excerpt:
    Question: Not sure I fully understand the prospective/retroactive thing > with regards to past actions. Let say the new law comes into effect June 1 2006. Let's further assume that all CBs prior > are declared illegal if lawsuits filed.
    Ms. Krueger's response: Currently, at least according to Judge Murphy's ruling, Cash Balance plans are illegal. The pension reform bill being pushed through Congress seeks to legalize them. If they are legalized PROSPECTIVELY, then companies who implement them in the future could not be sued, but workers who were converted in the past could still file lawsuits.
    If they are legalized RETROACTIVELY, then all conversions implemented in the past would now be deemed to be legal. Unless a 'carve-out' is created for litigation currently in process, the Federal Court of Appeals would have to rule in favor of IBM on Cooper v IBM, and IBM would keep the extra $1.4 billion agreed to in the settlement.
    Hopefully that helps you understand why IBM has spent millions of dollars, and even broken the law, trying to convince Congress to legalize cash balance plans retroactively.
    Question: A company that CB their employees in 1999 say, would need to bring them back, pay for the additional 6 years of old plan benefits, then terminate the plan or cash balance them again under the new guidelines? (Not applicable to IBMers since the lawsuit has been settled.)
    Ms. Krueger's response: As I said, it could very well be applicable to IBMers. That is why we want you to let your representative and senators know just how outrageous it would be for them to cave into IBM's demands and pass retroactive legislation.
    So far, workers' voices have prevailed in Washington. The house bill is not currently retroactive, and neither is the merged senate bill. BUT there are rumors that the bills may be amended with retroactivity before they are passed. AND there are rumors that the conference committee that will merge the house and senate bills will add retroactivity.
  • Yahoo! message board post by "ibmaccountant": IBM's Pension Strategy? Full excerpt: The strategy is becoming very clear.
    1. Get Cooper v IBM off the books via a Republican congressional pardon.
    2. Legalize forced CB conversions for current and future pensioners. Use a bill, initially proposed by democrats and unions to protect employees, but hijacked by the Republican majority to protect large corporations.
    3. Create via law a new CB conversion interest calculation instrument that is more volatile and can spike for a year or so several times a decade to give corporations more chances to get the conversion done when it is advantageous to them.
    4. Reduce the CB conversion costs by doing the conversions at IBM for all eligible personnel by 2009 when inflation and higher rates spike, thus reducing the pension total amount because the rates are higher.
    5. Force boomers to stay at their jobs so the demographics doesn't affect large corporations by making the FHA only pay late in life (if at all) and keep raising the bar so that the safety zone between retirement and medicare eligibility is smaller and smaller every year.
    6. If it's even illegal, go after the old pensioners by converting them as well. By the time they've assembled, organized and reacted and gone to court and possibly won something, it'll be a pyhrric victory. The Harvard Business Review advocates that.
    The end result?
    1. No pensions by 2009. All current and future pensioners will be on cash balances.
    2. No medical costs by 2009.
    3. Employees that are desirable and still working like slaves will be forced to stay.
    4. Like GE, the company will now be able to move all its functions to any market in the world, disposing its "human resources" on demand.
    5. Brand tarnish is reduced because retired employees will be in lower economic classes.
  • Don Peterson comments. Full excerpt: You are probably correct about everything except the medical. As long as IBM has a large number of employees (doesn't have to be the same employees) and retirees it can negotiate good prices on medical coverage and NOT pass the savings on to those employees/retirees. Can you say, "profit center?"
  • Yahoo! message board post by "bozemansmith". Full excerpt: It is difficult to find precise examples of direct transfer of Employee Benefit dollars to Executive Compensation, but consider this:
    IBM took large sums of cash (which could have been used to fund employee benefits) and instead used it to buy back stock on the open market. This has the dual effect of reducing the number of shares outstanding and thus increasing the value of the shares (company assets per share go up) and improving the confidence of Wall Street by exhibiting IBM's own confidence in the stock's growth potential. The prime IBM beneficiaries of this "stock pump" were of course the executives with large stock options (Lou carried away many more millions in stock option loot than he ever did in direct compensation or pension benefits). While the stock has not really grown, the market capitalization or "value" of IBM (number of shares outstanding X share price) HAS fallen dramatically, from being in the top ten to somewhere around the 450th spot, I seem to recall.
    No "market conditions" forced this investment choice, it was an executive decision to transfer wealth to a particular group. Not unlike your reference to the national government and economics: The US can afford to fund social security and clean up after Katrina and Rita and perhaps fight a war in the middle east. But it can't do it and give huge tax breaks to the wealthiest Americans at the same time. (Our government leaders are not forced to choose here, however, and just pile on ever increasing debt.)
    IBM could easily fund full pensions and retiree medical, they simply choose not to and instead to focus on executive compensation and incentives and some questionable business ventures at the same time ("On Demand" has failed to deliver on much of the promised - hyped? - benefits. Unsurprisingly, that has not seemed to have much impact on the options and bonuses for the leadership team.)
    To somehow paint the corporate leadership team as just "victims of the marketplace" is disingenuous at best. The knew full well exactly what they were doing to the employees and what the effect would be. They thought that a combination of outsourcing and a tight job market would let them get away with it. So far, perhaps they are, aided and abetted by a government increasingly run by and for the benefit of Big Business. The long term outlook is not so positive, but the current "Kleptocracy" culture sweeping though corporate boardrooms is about getting mine now, and to hell with the future.
    The next time you hear some IBM executive say "We are doing the best we can in these difficult times..." think about just who they are trying to do the best for...
  • Minneapolis Star-Tribune: Pensions are in crisis. By H.J. Cummins. Excerpts: Retired mechanic Randy Daly had two thoughts when Northwest Airlines declared bankruptcy: "I'm going to lose medical benefits for me and my wife," he said. And, "If my pension gets turned over to the government, I'm going to lose some more money." Both are strong possibilities for the Apple Valley resident, who's 61, and together they would cost him about $1,300 of the $2,860 monthly benefit he just started collecting in April. "I'm retired. You'd think you'd be safe, wouldn't you?" Daly said. "But no, that's not the way it works. You put 40 years into a place, and you get promises and then, whoops, they change their mind." [...]
    A country where private industry counted 114,000 pension plans a generation ago now has only 31,000 -- and the decline is accelerating. Among the country's Fortune 1000 companies, the number of plans frozen or terminated jumped from 45 in 2003 to 71 last year, according to Watson Wyatt Worldwide, an employee benefits consultant. Another 25 companies closed their pensions to new hires.
    The result is that older Americans are staring at the least-secure retirement in at least three generations. Many can expect to outlive their money. The biggest byproduct of the new order is fear. Even older Americans already retired worry about their children, said Dennis Gerhardstein, programs director of the Minnesota Senior Federation. "They tell me, 'We have our pensions. But the boomer generation thought they had a solid agreement, and now someone's changing the rules on them midstream.' "
    Boomers see the new employer message as "Good luck to you. Hope you don't get sick. Hope you don't get fired. Hope you save some money," Gerhardstein said. "That's the anxiety I see in people's eyes at retirement seminars these days." [...]
    Discrimination, bad management and corporate scandals also have played a role in killing pensions. Last year, for example, IBM agreed to pay $300 million to settle a lawsuit brought on behalf of hundreds of thousands of current and former employees. Depending on appeals, that figure could climb as high as $1.7 billion. A federal court in 2003 ruled that IBM's new defined-benefit pension plan discriminated against older employees.
  • Minneapolis Star Tribune: Cash-balance plans change rules of game. By H.J. Cummins. Excerpts: Call them "pensions lite." One of the biggest jolts in all the pension turbulence has been cash-balance plans, the latest big iteration of retirement benefits for working Americans. [...]
    But courts across the country are divided on whether the plans are legal. A judge in one high-profile case ruled that they discriminate against older workers. The biggest commotion is around how the plans are appearing in workplaces, most of them conversions from old-style pensions that workers say have shorted them, in some cases, hundreds of thousands of dollars in their projected pension payouts. [...]
    Two Minnesota companies made special provisions to help employees of all ages adapt. When Medtronic Inc. adopted a cash-balance plan last spring, it allowed all of its 22,000 U.S. employees to decide whether they wanted to convert to a new retirement option or stay with the company's old-style pension. "We don't want to force everybody into a different type of retirement plan," said Roger Chizek, U.S. benefits director at the Fridley-based medical devices company. "We preferred to do it over a period of time and let people make the choice," Chizek said. [...]
    The biggest black cloud over cash-balance plans is a lawsuit by a quarter-million IBM Corp. employees and retirees. They say that the plans are illegal -- and that even if the plans were legal, IBM's isn't. Last fall, a federal judge in East St. Louis, Ill., ruled that cash-balance plans, by design, discriminate against older workers. IBM is appealing. If the company ultimately loses, the plaintiffs will share a $1.7 billion settlement.
    Janet Krueger, a trainer and consultant who worked at IBM in Rochester for 23½ years, would get a piece of it. The daughter of an IBM engineer, Krueger quit the company because of its 1999 conversion from a pension to a cash-balance plan. She calculates that conversion reduced her pension by 40 percent, about $500,000 over her retirement years. One problem, said Krueger, now 52, was that the company low-balled her "opening account balance," essentially what the company said her pension was worth at that time.
  • Workforce Management: Pension Tension. By Mark Schoeff Jr. Excerpts: Five years ago, the Pension Benefit Guaranty Corp. enjoyed a $9.7 billion surplus and relative obscurity. But now, in the wake of such high-profile pension failures as the $6.6 billion default by United Airlines in May, the federal agency is running a $23.3 billion deficit, and both the PBGC and its executive director, Bradley Belt, have a higher profile.
    That puts Belt, a former congressional aide and financial services firm executive, in a sort of bully pulpit. And he’s using it to stress that companies were living in a fantasy world in the 1990s, when a strong bull market enabled them to reap profits from their defined-benefit retirement plans. Belt is bluntly telling plan sponsors to face the reality of market downturns, like the one that hit in March 2000 and continues to linger. His key message: Corporations must prepare for such realities by treating pensions as a cost center and keeping them fully funded at all times.
    "Companies have to write checks every year for wages; they have to write checks every year for 401(k) plans; they have to write checks for health care benefits, for paper clips, for notepads," Belt says. "But somehow we came to accept this notion that we didn’t have to put any money into pension plans--that you could ride these asset gains forever, ignoring that markets are cyclical." [...]
    After Labor Day, additional committees in the House and Senate are expected to offer their own bills. Key congressional leaders indicate that they want to enact pension legislation by Christmas. So far, employers are balking at the proposed changes. A Credit Suisse First Boston report in June found that some large companies would have to sharply increase the amount of money they contribute to their defined-benefit plans if the Bush proposal became law. Administration and congressional proposals include a provision to raise PBGC premiums from $19 to $30 per pension plan participant. IBM, for example, would have had to allocate an additional $1.32 billion this year,
  • Yahoo! message board post by Kathi Cooper (of Cooper v. IBM). Excerpt: I love IBM. I really do. That is why I did what I did. It's like waking up one morning and discovering your parents are on heroin. You will do what it takes to make them better, shocking as it is to learn the truth about them. Another analogy is like having an errant teenager in the house and using tough-love to get him back on track. I love IBM that much. I don't bash IBM. I tell the truth.
  • Yahoo! message board post by "rondo_74172". Excerpts: I was outsourced from a Fortune 500 company to IBM and I can tell you for certain that the benefit packages are no where near close to one another. 1st, IBM's health package is almost twice as expensive for the same coverage, the vision coverage is much better, the dental is a bit below par. The (IBM)employer contribution into the 401k plan is far behind that of my former employer and my former employer still has an active and open to all pension fund. You don't know if IBM considers the average worker a productive unit - that surplus you're talking about is of PRODUCTIVE UNITS - even Jetski says so.
  • Yahoo! Business and Finance message board post by "idoubtitagain". Full excerpt: IBM's solution to their lack of experience due to layoffs and the fact that 50% of their employees have less than 5 years experience, is to create notes databases full of 'reusable work items' to compensate for the fact that they laid off multitudes of <> that actually knew what they are doing and who to find the answer from (Informal employee relationship networks), replaced them with lower cost GR's (global resources) and now IBM is struggling with the fact that it now, due to GR/US time zone impacts and the high dependence on e-mail responses, takes 24 hours to turn around a business impact issue that used to take 1 hour during US business hours.
  • Financial Times: Big Blue is glad you're going grey. By Alison Maitland. Excerpts: The grey hairs are rapidly showing in the oil and gas industry in Europe and the US. At an estimated average age of 49, half the workforce is expected to retire in the next five to 10 years. The US nursing and teaching professions face a similar demographic crunch, as do aerospace and utilities companies. These sectors are experiencing labour shortages as younger people balk at heavy manual work, unsociable hours and "unsexy" skills such as engineering. Employers are being forced both to find imaginative recruitment solutions and to consider how to hang on to mature workers for longer. It is into this tricky territory that IBM, the world's largest technology company, is stepping with the launch today of consulting services to help companies prepare for the potential loss of skills as the baby-boom generation reaches retirement. [...]
    IBM says it is offering a comprehensive package that includes analysis of companies' workforce demographics and skills, job modification and training of older employees to maintain productivity and methods to capture their knowledge and pass it to the next generation, possibly through modern apprenticeships. "The ageing population will be one of the major social and business issues of the 21st century," says Mary Sue Rogers, head of IBM's 3,500-strong human capital management consulting group that will provide the new services. The company is responding to requests for help from clients, especially in the US, Canada, Scandinavia, Germany and Italy. [...]
    IBM plans to use "cultural anthropologists" and social scientists to help clients understand the impact of an ageing workforce. But its new service draws heavily on its existing strengths in IT and outsourcing. "The solutions are going to be increasingly process and technology-driven," says IBM. The taxonomy of [companies'] population is data-driven. Capturing knowledge is in many ways IT-driven." IBM cites the transformation of its own internal travel expenses process from a paper-based system to an online tool. It says the 3,000 processing staff, many of whom are babyboomers, have been transformed into consultants, selling the application to other companies. "They went from being an internal cost centre to an external billable resource."
  • Yahoo! message board post by "dave49_98": They can't be serious can they? Full excerpt: I am hard pressed to understand what value add IBM brings to dealing with older employees? What do they know about training, developing, ore retaining anyone over 53? Their specialty is one word - INDIA. Who id going to get scammed and pay 200 bucks an hour for that sage advice? Look at the last paragraph. The crappy online travel tool replaced 3000 staff. Did they get fired no, they are all salespeople selling the tool. Does anyone believe this bulls**t?
  • USA Today: Flood spawned IBM, so maybe Katrina will plant similar seed. By Kevin Maney. Excerpt: Hard to imagine that a flood like the one in New Orleans could possibly result in anything good. Yet in one of those odd twists of history, a 1913 flood that devastated Dayton, Ohio, had a huge impact on the technology industry. If not for that flood — still among the worst in the USA — there would have been no IBM. Which would have meant no System/360 in the 1960s, no "THINK," no legendary salesmen in white shirts, no IBM PC. And if there had been no IBM PC, then Microsoft might today be a quaint little specialized software company and Intel a struggling maker of memory chips. Michael Dell might be a salesman for Unisys. All because the Dayton flood kept Thomas Watson Sr., who built IBM, from going to jail.
  • Investor's Business Daily: Will 401(k) shortfalls precipitate wave of lawsuits? By Robert Powell. Excerpts: Millions of Americans will set out to retire over the next few decades only to discover they don't have enough in their nest egg to fund their golden years. And when that happens, many Americans will look to blame someone for their misfortune. In fact, odds are high that Americans -- being the lawsuit-happy lot they are -- will start suing everyone and anyone, including former employers, plan sponsors and perhaps even 401(k) plan providers.
    Consider, for instance, how far away Americans are from being able to enjoy a comfortable retirement today. The typical working American household is on track to replace only 59% of projected preretirement income in retirement, according to Fidelity Investments research. That's about 20 percentage points to perhaps as high as 40 percentage points below what some experts say they might need.
  • Reuters, care of cnet news.com: Microsoft to double India staff. Excerpt: India's $17.2 billion software services industry employs about 1 million people. Exports of software and business services are forecast to grow 30 percent to 32 percent in the year to March 2006, powered by the country's low-cost, IT-savvy and English-speaking work force.
  • New York Times: Cronies at the Till. Excerpts: The first results are in on who is set to profit from the Katrina cleanup, and - surprise - many of the firms winning major contracts have big political connections. Congressional investigators are already looking into AshBritt, a Pompano Beach, Fla., company with ties to Mississippi's governor, Haley Barbour - the former chairman of the Republican National Committee. AshBritt has nabbed $568 million in contracts for trash removal. Questions have also been raised about the political connections of two other major contractors: the Shaw Group, and Kellogg, Brown & Root, a subsidiary of Halliburton. Both companies have been represented by Joe Allbaugh, President Bush's former campaign manager and the former head of the Federal Emergency Management Agency - although Mr. Allbaugh says he does not help any of his clients obtain federal contracts.
    And there's more. An article in yesterday's Times by Eric Lipton and Ron Nixon reports that more than 80 percent of the $1.5 billion in contracts signed by FEMA for Katrina work were awarded without bidding or with limited competition. The Times article even finds a federal employee - Richard Skinner, the inspector general for the Homeland Security Department - willing to go on the record with his concern, saying, "We are very apprehensive about what we are seeing."
  • Los Angeles Times: When connected turns into corrupted. Excerpts: CRONY CAPITALISM is the name of the Republican game. Their slogan is "take care of your friends and leave the risks of the free market for the suckers." That would be John Q. Public. From Halliburton's overcharging in Iraq to Enron's manipulation of the California energy crisis and now the emerging hurricane reconstruction boondoggle, we witness what happens when the federal government is turned into a glorified help desk and ATM machine for politically connected corporations.
  • BusinessWeek: Judge: Cos. can offer two-tier health plans. By Maryclaire Dale. Excerpts: Reversing her earlier decision, a federal judge ruled that companies may offer younger retirees better health care benefits than they give older retirees who qualify for Medicare. The AARP sued over the rule change proposed by the Equal Employment Opportunity Commission on grounds that unequal health packages amount to age discrimination. U.S. District Judge Anita B. Brody initially agreed, granting an injunction in March that barred the federal agency from adopting the rule. However, a recent U.S. Supreme Court ruling in an unrelated case compelled her to change course, she said in a ruling Tuesday.
  • Lakeland (Florida) Ledger: Retirees Lose Out as Bankrupt Companies Cut Pensions. By Steve Karnowski. Excerpts: Murray Specktor, a first officer who flew Boeing 747-400s on Northwest Airlines' Asian routes, took early retirement this year at the age of 52, knowing he wouldn't get a huge pension. But now that the carrier has filed for bankruptcy protection, he fears his monthly payments will be cut as much as 70 percent. "I just wanted to move on and do some other things," he said from his home in Palm Springs, Calif. "I retired with a reasonable expectation that the pension I retired on would be available to me." [...]
    Adding to the PBGC's strain, say some insiders, is a category of corporate turnaround specialists sometimes known as vulture investors, for whom jettisoning the underfunded pension plans of troubled companies is a common strategy. Wilbur Ross -- who turned a handsome profit when he used the strategy in buying up five failing steel companies including Bethlehem Steel and Weirton Steel -- recently told The New York Times he's looking at investing in struggling auto parts makers such as Delphi Corp.
    When the government takes over a pension plan, the payouts usually don't change. But with airlines, pilots and sometimes other employees can take enormous hits when a plan is turned over to the PBGC. Federal law limits annual pension payments for plans canceled in 2005 to $45,613 for people who retire at age 65. Pilots must retire by age 60, but because the rules that govern the PBGC penalize retirements before 65, their maximum annual payment in a plan canceled this year would be $29,649, according to the PBGC. [...]
    Some people may have trouble sympathizing with well-paid pilots, said Norman Stein, a pension expert at the University of Alabama School of Law. But he pointed out that for many pilots, it's almost too late to make up the difference. "I think there's something wrong with a system that can change, with the stroke of a pen, a $150,000 pension to a $35,000 pension overnight," Stein said.
  • Inquirer (United Kingdom): No one ever got fired for buying IBM. Consultants multiply like breeding rabbits. Excerpts: A project manager has posted a description of how costs for IT projects can run way over budget and cause hordes of contractors and consultants to arrive and break the bank. According to Tristan Yates, he worked for a major worldwide defence contractor and watched the project turn from a modest venture into a Big Blue immodest adventure. Yates said he worked on an enterprise wide portal and knowledge management project, which he describes as good idea that's been overhyped and oversold.
    IBM was selected for the portal element of the project, claimed Yates, and when he started working on the project there was one IBM consultant on site. Occasionally another IBM consultant, "a thought leader", would tip up. The thought leader showed the guys on the job Big Blue solutions which would fit the bill, and these components started to displace other vendors' offerings.
    Pretty soon IBM Global Services consultants started to home in and the project ended up with 20 consultants rather than the one and a bit, each being paid $325 an hour, Yates claims. He claims that the budget became "burnt blackened toast", with the consultants staying on the job for over seven months, with the army of consultants and contractors costing a quarter of a million dollars a week.
    He adds, in the long tale here, that it might be a great idea if several Fortune 500 chief information officers started to share information on vendors' contract performance.
  • Harpers Magazine: A Spoonful of Sugar. Excerpts: Posted on Wednesday, September 21, 2005. From course materials used to train more than 3,000 sales representatives working for Merck & Co., Inc. between 1999 and 2004. The documents were among 20,000 pages obtained from Merck by the House Committee on Government Reform for a May 5 hearing on the anti-inflammatory drug Vioxx. Vioxx was withdrawn from the market last September, more than four years after a study by Merck first found that it increased the risk of heart attacks. At the time of Vioxx’s withdrawal, more than 2 million patients worldwide were taking it. Originally from Harper's Magazine, July 2005. [...]
    Physician says: “What a great football game yesterday. Did you see how effective Drew Bledsoe was in the fourth quarter? That guy is amazing.” Possible rep response: “Bledsoe is effective on so many levels. He’s a leader, you feel safe with him carrying the ball, and he’s a proven winner. You know who else that sounds like? Zocor, a market leader with an eight-year safety record, proven to save the lives of your patients. Physician, what concerns do you have about Zocor leading your team in the fight against congenital heart disease?”
Vault Message Board Posts
Vault's IBM Business Consulting Services message board is a popular hangout for IBM BCS employees, including many employees acquired from PwC. The following are a few sample posts:
  • "Rate math" by "Dose of reality". Excerpts: If you want to know how much to charge IBM, you have to put yourself in the shoes of the PM or partner that has decided to subcontract to you. If you are filling a typical band 8 role, we would normally charge the client $220 - 250 an hour for your time, or an annual equivalent of around $425,000 at 90% utilization. Fully loaded internal cost for that resource is around $95k salary and $40k in benefits, hiring cost, infrastructure, etc, not including corporate allocations. Gross margin would be around $290k, with an effective cost rate of $75 an hour.
    In order to break even on you vis a vis an internal resource, we would have to pay you around $92 an hour. It is slightly higher than the internal charge rate, since you don’t have any unbillable downtime – we only pay you for hours worked and billed. However, we wouldn’t really try to break even vis a vis the “prototype” internal employee, since 1) there is no guarantee that he will be 90% chargeable – it’s an unfair standard, 2) we have total flexibility with your hours, and 3) we realize that we have to pay a premium for the luxury of having a real “on demand” resource. All those factors will raise the amount we are willing to pay you.
    If you have a skill that is in high demand, I would go for around $135 an hour, otherwise $120 an hour would make more sense. If your skill equivalent is higher or lower than band 8, ratchet it up or down accordingly. One other word of advice, get your agreement in writing and make sure you are not committing yourself to targets that are impossible or immeasurable. IBM will screw you the first chance they get. You will be disadvantaged vis a vis your internal project colleagues, since they have contacts and a history with IBM, and you don’t. If there are problems on the project, and there will be, you will be the first to get the blame.
  • "25%/year attrition rate as design point" by "ExIBMpeon". Excerpts: One can imagine that a minimum 25%/year recent employee (voluntary+involuntary)attrition rate is the target for BCS. Especially if you make some simple assumptions:
    • The PwCC folks all came in a bag. Apply the "80-20 rule", 20% provide 80% of the value, hence get rid of the rest (80%) as cheaply as possible.
    • You don't train people and you don't let them sit on the bench, so no lost investment if they leave.
    • people who think for themselves are such prima donnas and they want above average pay, better stick with the recruiting leftovers, they are less disruptive, more obedient and more compliant. See "80-20 rule" above.
    • These days I/T fashions typically last less than 5 years and "old timers" are so "negative" explaining why your idea failed on their last 4 out of 5 projects.
  • "Some synthesis" by "Dose of reality". Excerpts: The arguments for BCS to subcontract are:
    • More flexible resource capacity. Taken to an extreme, utilization would be 100% universally!
    • More flexible resource availability - get the right skills in the right place when you need them, instead of shoehorning reluctant misfits as a matter of course
    • Lower direct cost for work than can be done offsite. For this resource pool, it also improves our competitive bidding position since clients don’t have to pay travel expenses
    The arguments against subcontracting are:
    • Difficulty maintaining resource quality
    • Client perceptions that we are just pulling people off the street; i.e. brand erosion
    • Lack of team cohesion
    • Higher per hour cost for equivalent talent. There is a definite cost to shifting downtime risk to the consultant. In some cases we will be able to contract them at the same rate as full-time employees, but generally that is because they consider themselves transients looking for any paycheck they can get. They will bolt with the first better opportunity that comes along
    • Having to compensate for a lack of client face time. With an onshore/offshore model, the “chain letter” approach to development reduces efficiency
    • Smaller “farm team” to develop into practice leaders
    For these reasons, there is a natural cap on the number of project resources that can be external. Since the philosophy, or should I say Mantra, around here is “on demand”, the flexible, lower cost model is being pushed beyond the level that is optimal for long term success. Like all the other decisions around here, it is just serving to keep the inmates in power for as long as they can hold out, but it is killing the brand.
    The other implication of this model has to do with relationship marketing. The fewer dedicated insiders that we have walking the halls of loyal clients, the fewer opportunities we will have to add to the project pipeline. The yield of follow-on projects is directly correlated to the number of project team members we have thinking about it and incentivized to make it happen.
  • "Consider it elsewhere" by "Dose of reality". Excerpts: IBM Strong points: IBM is bigger, IBM has more people, IBM advertises more, IBM invented the system 360, IBM has a cool nickname (Big Blue), .......did I mention that IBM is bigger??
    BM Weak points: IBM is a technology sweatshop, IBM is more interested in peddling its own products and outsourcing services than delivering consulting, IBM's compensation policies are not competitive, with flat salaries, and no bonuses despite setting high bonus targets year after year, IBM has lost most of its top talent due to the above, IBM’s administrative polices are more cumbersome than the government, IBM HR is fat, dumb, happy and useless, IBM finance doesn’t have a clue about what drives the business and develops business plans by plug and play in Excel until the numbers work despite the fact that the client and resource market won’t support the underlying assumptions, IBM leaders are product-bred political hacks whose talents are best suited to selling insurance or Avon door to door, and IBM has gotten so big that it can’t get out of its own way.

New on the Alliance@IBM Site:
  • Alliance@IBM: Attention IBM employees: IBM is blocking e-mail to and from the Alliance@IBM e-mail address endicottalliance@stny.rr.com from inside the company. Please send your job cut information and other correspondence from your home e-mail. You can also contact us the following ways: Phone 607 658 9285 or Fax 607 658 9283.
  • IBM Pension Lawsuit FAQ about Cooper v IBM, Updated 6-21-05. Excerpt: Below is a list of frequently asked questions about the class action lawsuit against IBM's 1995 and 1999 pension plans. The answers are my personal opinions, have not been verified with either IBM or plaintiffs’ counsel, and should not be construed as legal advice. On July 31, 2003, a federal district court judge ruled in favor of the employees in this case. IBM will appeal portions of the ruling. On September 28, 2004, IBM and the legal team on Cooper v IBM announced that an agreement had been negotiated that settles some of the claims and set the amount of damages that IBM will pay to the class if IBM's appeal of the district court's age discrimination rulings is unsuccessful. Click on any question to jump to the answer. Or scroll down and read them all.
  • Alliance@IBM General Comments from Visitors . Excerpts: We'd like to hear from our web site visitors. Please submit your comments about employment at IBM, on why you visited this site, why you joined the Alliance, what issues are of concern at your workplace, how this web site has been useful to you, or any other related topic. We will publish selected comments. (We reserve the right to edit for clarity, brevity, spelling, grammar). Some sample posts follow:
    • Comment 09/23/05: This one crosses the border on psychotic: IBM is touting product on its website that "As your workforce matures, flexible IBM solutions can help you innovate." Innovate?? IBM's "innovation" is to lay off older workers, cut compensation and cut retirees' benefits. Are they offering software that helps do this? What innovation have they shown in dealing with an aging workforce? They go on to say, "The most successful societies will likely be those willing to encourage and to offer lifelong opportunities and choices to their people — for example, by adjusting their public policies and by promoting continuous learning and career transitions — to find ways to encourage the lifelong development of market-driven skills; and to draw upon the talents of all citizens, including older citizens and the disabled, who historically have often been excluded from the workforce." IBM's cut their lifelong policy, laid off older workers, cut training, etc. adding to the problems they now propose to solve. In addition they say developed countries will need to bring in foreigners to fill the void of retiring workers. This is beyond bizarre. -Anonymous-
    • Comment 09/23/05: Interesting comment from a post about how they are concerned about science and math not putting out enough people. I was laid off 2 years ago in Burlington Vermont at age 42 as a engineering process tech with 17 years. I started on the manufacturing line and they gave me (us) and opportunity to earn a 2 year electrical engineering degree sending us full time. At the time it was an innovative way to get more technicians as there was a perceived shortage. Most of us were laid off 10 years later. The irony now is there is no jobs with this background to replace what we did and were trained for at IBM. I wouldn't recommend a math or science program to anyone. The old adage that you needed a college degree to get ahead is now the opposite. The return on investment with a 4-5 year full time student is dismal at best with an education costing as much as $100K. There is more cost effective ways to earn a living in the trades or getting a CDL license to drive a tractor trailer or oil truck. Food for thought for your kids. -Anonymous-
    • Comment 09/25/05: As a worker who was outsourced to IBM 3 years ago i can honestly say that working for IBM is by far the worst experience of my professional career. I have never seen such a poorly run clueless organization in my entire life. IBM makes FEMA look good. New ideas and innovations will never be submitted to management because as most of the workforce know the management will then take the credit for it. There is no future at IBM for any workers in the USA. Don't let them sell you their lies. Get educated and get out as soon as you can. I liked an acronym that i saw on here awhile back, IBM=Idiots Become Managers. At the account where i work that is proven on a daily basis. -Anonymous-
    • Comment 09/25/05: IBM is so far out of touch with reality that is boggles the mind of the still employed workers in the USA. No one at my account believes anything that management says or promises. We have seen too many former workers that have been burned by managements false promises. The tragedy is that upper management is clueless on how to run a company or treat its workers with respect. My best day at IBM will be the day I give my two weeks notice. I encourage you all to look for jobs outside of IBM and even in other professions. IBM is by far the worst company I have ever worked for in my twenty five years in the computer industry. -Anonymous-
    • Comment 09/26/05: As a recently resourced employee, it's interesting to read the commentary from others. Thinking about IBM and how it is focusing more and more on selling 'knowledge' based services, based upon employee expertise, how at the same time can the company treat employees as just another widget and hope to succeed in the long run? If the employees ever collectively get smart, IBM could be severely damaged if all of a sudden these knowledge employees failed to show up for work! -Anonymous-

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