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    Highlights for week ending July 5, 2003
  • PBS's television program, NOW with Bill Moyers, featured a segment titled Pension Pain on its June 27th show. The overview for the program states: "According to a 2003 survey by the Employee Benefit Research Institute (EBRI) and the American Savings Education Council (ASCE), many Americans are ill-informed about just how much money they will need in retirement, and how to plan accordingly. Traditionally, retirement experts have told us to think of retirement as a 'three-legged stool' comprised of personal savings, Social Security and employer sponsored pensions. These days, the stability of all three legs are being challenged - and some people are worried. This week NOW looks at how traditional pension plans are faring. Experts refer to what we think of as 'traditional' pensions as 'defined benefit plans.' Below you'll find more information about these plans as well as about other increasingly popular types of pension plans. The NOW Web site includes these segments pertaining to the Pension Pain feature:
    The full transcript of the June 27th NOW with Bill Moyers is available online. (You'll need to scroll about one-third of the way down the page to view its transcript). Excerpts:

    • MAN 1: We lost our post-retirement medical. We've lost, some of us, up to 50% of our pensions. MAN 2: They have taken away what you and I worked our lifetime for. MAN 3: You know, when I retired, it was the promises and the dream, and now it has become the lie and the nightmare… BROWN: Last week, hundreds of workers, retirees, and elected officials gathered at Boston's historic Fanueil Hall. They came from all over New England to rally over what they call the crisis in retirement security. MAN 4: Just protect the benefits you promised. Don't want anything more. If you retired and you were promised a benefit, a company should meet that commitment. BROWN: Nothing has this crowd angrier than cutbacks in their retirement benefits. They say those cutbacks keep on coming.

    • BROWN: By now, you may think you've heard it all. But there's yet another way some companies are using creative accounting in their pension plans. GORDON: They have used these pension plans as what they themselves call an earnings management tool. BROWN: What does "earnings management tool" mean? Here how it works: if a pension plan earns such good returns that it exceeds 100% funding — in other words, has more money than it needs — companies are allowed to credit that extra money in their pensions towards their annual bottom line. GORDON: Rather than using the plan for what it was really intended, they saw it as a device that could be manipulated to try to create the illusion of better corporate financial performance than really existed. BROWN: According to the Wall Street investment firm Goldman Sachs, in the year 2000, 35 companies in the S&P 500 attributed more than 10% of their bottom line to pension excesses, even as, in many cases, the value of their pension funds actually shrank. That contradiction has many people baffled. The Securities and Exchange Commission is now looking into whether some pension funds were being abused to gin up company profits.

  • A.J. Norby, President, National Retiree Legislative Network (NRLN) testified on "IRS Regulations Governing Reductions of Accruals and Allocations Because of The Attainment of Any Age; Application of Nondiscrimination Cross-Testing Rules to Cash Balance Plans", to The Internal Revenue Service At a Public Hearing on April 9, 2003. See complete text of testimony. (This is a must read for people that don't understand why IBM and other companies embraced cash balance conversions, and why there has been such an employee rebellion around such conversions). Excerpts:
    • Regardless of the analytical differences between these various problems, it is plain to NRLN’s membership that they were triggered by a corporate process of regression of the private benefit system so that underperforming and often ethically-challenged corporate elites could gain enormous and undeserved wealth.

    • Once IRS ruled that cash balance plans were to be treated as a species of a defined benefit plan, an escape from the surplus tax surcharge provisions of the Code became available. By converting to a cash balance plan instead of a 401(k), for example, the employer was regarded as simply amending a defined benefit plan to replace one defined benefit plan formula with another. Under this scenario there was no termination, no surplus reversion, and no tax surcharges. However, in one stroke, the employer succeeded in drastically reducing its pension liabilities (principally for older workers), reporting an even more substantial surplus, and using these artificially-inflated reports of its ostensible business prosperity to justify new and greatly improved cash bonuses and stock options to its top executives. If the same company that switched to a cash balance plan in these circumstances also reduced or cancelled its retiree health liabilities, it could double or triple the cash bonuses or stock options awarded to its corporate inner circle.

    • Where a defined benefit plan with surplus assets is converted into a cash balance plan and older workers are not provided with the option of retaining their defined benefit plan coverage and/or cannot accrue pension credits under the replacement cash balance plan until their applicable defined benefit plan accruals have “worn away”, there can be little doubt that the cash balance plan is primarily for the benefit of the employer, not the employees and their beneficiaries, and that it also promotes invidious discrimination between younger and older employees. The defined benefit plan sponsor made a commitment to provide certain benefits under that type of plan, it was provided generous tax privileges to fulfill those commitments, and it has the means to fulfill them.

  • Dow Jones Business News: Judge In IBM Pension Suit Says He Will Rule In 'Weeks'. Excerpt: The lawsuit alleges that IBM treats its older workers unfairly under two pension plans, one started in 1995 and another in 1999. Kathi Cooper, a 52-year- old Illinoisan who works for IBM, is the lead plaintiff in the suit, which also represents 140,000 other employees in the U.S. Cooper and the others will get larger annuities when they retire if their suit succeeds, according to Doug Sprong, a benefits lawyer at Korein Tillery in Belleville, Ill. who is representing the plaintiffs. A key part of the case involves IBM's conversion in 1999 of one its traditional defined-benefit pension plans to a cash-balance plan. Cash-balance plans, in general, have been a flashpoint for employee anger, and have spurred such a controversy that the Internal Revenue Service declared a moratorium on new cash-balance pensions in 2000.

  • Portsmouth (New Hampshire) Herald: Don’t be fooled by Medicare prescription reform rhetoric. Excerpts: But what neither plan deals with is the escalating costs of prescription drugs and the questionable practices by drug manufacturers aimed at keeping those costs - and their resulting profits - high. Legal reforms talked about so much during the last congressional campaigns, which would have reduced costs by forcing drug companies to spend less on advertising and by making the criteria for releasing generic, less costly versions of the same drugs to the public less stringent, have been forgotten in all this new rhetoric. Of course, we all know why: Drug manufacturers are major contributors to political campaigns and our congressmen and senators certainly don’t want to bite the hands that feed them. ... Once again, Congress is prepared to pass an entitlement program that benefits big business and big money, but keeps those it ostensibly claims to help in the position of having to choose whether to spend their meager incomes on food or medication.

  • New York Times Editorial: How Not to Fix Medicare. Excerpt: Bluntly put, the House legislation is a ruse. The bill delivers a prescription drug benefit, but this benefit is simply the attractive window dressing for the legislation's ultimate aim: fundamentally revamping Medicare to create a competitive system based on private health plans. Consider the bill's major features. Private health insurers would be given increased government payments so that they could sweeten their benefits to lure the elderly and the disabled out of the traditional Medicare program. Beneficiaries choosing private plans with lower premiums would get a rebate from the government; those choosing plans with higher premiums would have to pay more. In 2010, the traditional program would be forced to compete with private plans. From then on, the amount that beneficiaries paid for Medicare would be set not by law, but by market forces. This might sound like a great way to encourage consumer choice — until one realizes that the cost of alternative insurance options would be mainly determined by the health of those enrolled. Since the least healthy enrollees would most likely stay in traditional Medicare rather than brave the private market, the program's premiums would likely rise substantially. This would encourage healthier beneficiaries to seek lower premiums in the private sector, leaving only the sickest behind.

  • New York Times: Employers Seek to Shift Costs of Drugs to U.S. Excerpt: The bills to provide drug benefits through Medicare that were passed by the House and the Senate last week offer some of the country's largest employers a long-sought prize: shifting at least some of their burden of soaring drug costs to the federal government. With billions of dollars at stake, those companies are lobbying hard to make sure that those gains survive in the final version of the law. The effort is being led by a shrinking number of companies that pay for health coverage for millions of retired workers — notably General Motors, Ford, Verizon, SBC Communications, I.B.M. and Caterpillar. If link is broken, view Adobe Acrobat version [PDF--65 KB].

  • Wall Street Journal: Most Workers Are in Dark On Health of Their Pension. Excerpt: For millions of American workers, few retirement issues are more vital than the health of their pension plans. But companies have waged a successful battle to keep crucial information about their plans a secret. The fight comes amid rising alarm about the fate of pensions. Some employers, notably steelmakers, have killed decades-old pension plans. Many other companies have reduced pension benefits by restructuring their plans. And employers are now lobbying Congress for formula changes that would let them make smaller pension contributions and smaller payouts when people retire.

  • Washington Post: Time to Redirect Your Retirement Savings? New Tax Numbers Don't Tell the Whole Story. Excerpt: Since last month's tax-cut bill slashed rates on stock dividends and capital gains, a number of number crunchers have begun to question the wisdom of investing in tax-deferred retirement accounts, such as IRAs and 401(k) plans. This goes against the grain of the past couple of decades of retirement-planning advice. But times have changed -- so is it time for you to change, too?

  • New York Times Editorial: Picking Workers' Pockets. Excerpt: The Bush administration, which has the very bad habit of smiling at working people while siphoning money from their pockets, is trying to change the federal Fair Labor Standards Act in a way that could cause millions of workers to lose their right to overtime pay. The act, one of the last major domestic reform measures of the New Deal, gave Americans the 40-hour workweek and a minimum wage (which began at 25 cents an hour in the late 1930's). It wiped out grueling 12-hour days for many workers and prohibited the use of child labor in interstate commerce.

  • Have you ever wondered what happened to Mike Sinneck, former vice president of business operations at IBM Global Services Americas? Read about him and his new job here.

  • Forbes: Court Rules An E-Mail Is Not A Trespass. Excerpt: The California Supreme Court refused to enjoin a former Intel engineer from sending e-mails to all company employees, rejecting the argument that such e-mails constitute a trespass on the Intel computer system. The court, by a 4-3 decision, reversed lower-court rulings that prohibited former employee Ken Hamidi from sending e-mails critical of Intel to thousands of its employees. Intel had argued that the e-mails had trespassed on its private network and had distracted its employees. But the California Supreme Court found that, to make a trespass claim, Intel would have to show that its computers were damaged in some way, and they were not.

  • ReclaimingDemocracy.org: Inherent Rules of Corporate Behavior. Excerpt: Most citizens now realize that corporate wrongdoing is not just a matter of unethical behavior among a handful of executives. But the myopic focus on financial issues and Wall Street remains, threatening to misdirect our attention from the real source of corporate harms: the very structure of the modern corporation and the laws that govern it. In his 1991 book, In the Absence of the Sacred, writer Jerry Mander included a self-descriptive list, "Eleven Inherent Rules of Corporate Behavior." His insights have never been more timely, as they illustrate the severe limitations of "corporate responsibility" and illustrate the essential truth that corporations must be redefined and subordinated to democracy, not merely regulated or pleaded with to do the right thing.

  • The Vault Network's IBM Business Consulting Services message board is a popular hangout for both legacy IBM Global Services and new-to-IBM PricewaterhouseCoopers consultants. A recent memo from IBM HR to IGS employees stated that personalized compensation statements sent to employees to confirm compensation and earnings were in error. According to the memo, an administrative error resulted in erroneous reporting of pay ranges for a particular band and job family. "Specifically, the range overstated actual market pay by approximately 25% at each point in the range and is thus not an accurate indicator of your pay relative to the market." At least one contributor to the Vault BCS message board had trouble believing this was an administrative error, and states why here.

Coverage on H1-B and L1 Visa and Outsourcing Issues

  • WashTech News: Microsoft plans largest lay-off of full-time employees in company history. Excerpt: When Eric Poore began working as a customer service representative for Microsoft’s technical call-routing center in 1997, he was told his advancement opportunities were endless. Two years into his Microsoft career Poore’s hard work paid off with a promotion to Outlook Technical Router, where he managed technical questions about Microsoft’s email program. But less than a year later, the position was outsourced – a handy euphemism for being sent to India or elsewhere to cut labor costs - and he was demoted back to his original customer service job. Four years after Poore lost his first position to outsourcing, he is about to lose his six-year career because Microsoft is in the process of a massive relocation of Customer Central call center jobs to India and Canada. Employees estimate that Microsoft is planning to eliminate at least 800 jobs in the next fiscal year at the company's Las Colinas facility outside of Dallas, Texas and shift the work offshore.

  • Seattle Times: Microsoft shifting jobs to India office. Excerpt: This information completely contradicts Microsoft's public position that the impacts of their focus on sending work abroad is not going to affect its U.S. employees," said Marcus Courtney, WashTech president. "Clearly, Microsoft is starting to cut its U.S. work force and send work abroad in order to slash its labor costs."

  • Information Week: EDS Opens Services Facility In India. Excerpt: EDS said Tuesday that it has opened a 500-seat IT services facility in India to serve customers who wish to move back-office operations to the subcontinent--where labor costs can be less than half of what they are in the United States.

This week on the Alliance@IBM Site:

  • Many people have said they did not get the Alliance survey on issues at IBM. If you have not filled out the survey please read the note below and go to the survey link. Thank you. In order for us at the Alliance@IBM to improve our work and sharpen our focus, we have prepared a survey which we are hoping our members, subscribers and friends will fill out. We will share the results with everybody. Thank you for helping and please click on the following: http://r.mb00.net/s/c?k.4nkv.1.20ny.px6. Editor's note: Some of the questions on this survey will remind you of the opinion surveys IBM used to use back when they were interested in the opinions of their employees.

  • The Alliance@IBM has recently added an excellent OffShoring News page, including an IBM Offshoring News section.
"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
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