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Highlights—November 1, 2008

• OpEd News: Judge Changes Pension Plans of Older Retirees So They Get Less. By Sherwood Ross . Full excerpt: Conservative judges seem not to object when companies “dishonestly screw millions of older workers” out of pension monies, a prominent legal reformer says. The conservative Judge Frank Easterbrook of the Seventh Circuit did just that in the IBM pension case by “changing the nature of (employees’) pension plans” from “traditional types” to “cash balance” plans, writes Lawrence Velvel, dean of the Massachusetts School of Law at Andover in his latest book, “An Enemy of the People (Doukathsan Press).”

  “The switch in plans approved by Easterbrook can cost older workers, who may have been at a company for decades, 20 to 50 percent of the pension they expected to receive and had sometimes worked for decades to get,” Velvel writes. Even the conservative Wall Street Journal confirmed older workers “can end up with pensions that are 20% to 50% lower.”

  Velvel said Easterbrook’s opinion “allows huge companies all over the country---hundreds of them---and smaller ones too, to dishonestly screw millions of older workers out of major portions of the pensions they expected to have when they retired.”

  “It is not enough, you see, that people who worked for a company for 20 or 30 years suddenly found themselves out of a job,” Velvel commented. “Nor is it enough that companies’ pension plans for workers weren’t funded, or were funded with company stock that declined terribly in value, so that, while top executives escaped with tens of millions in golden parachutes or funded pensions, or stock options worth millions for bringing companies out of bankruptcy, ordinary workers found themselves with little or nothing by way of pensions when companies fell on hard times or went bust.”

  Basically, Velvel says, Easterbrook wrote a complex opinion “purporting to prove that the change from a traditional to a form of cash balance plan did not constitute age discrimination against older workers,” but instead “is age-neutral” even through older workers were getting screwed in ways that would never occur to younger workers who are far closer to their starting dates than their ending dates.”

  “To ostensibly prove age-neutrality,” Velvel goes on to say, Easterbrok “sought to display intellectual pyrotechnics through complicated, often mathematical, discussions of the time value of money, imputed credits, interest rates, defined-benefit plans versus defined-contribution plans, benefit accruals, and other true arcana.”

  Easterbrook dismissed the arguments against his switch made by the older workers, stating, “(all) of these propositions (may be) correct, and (all) of them are irrelevant.”

  Velvel writes, The only relevant points are two that Easterbrook (and two concurring judges) chose to ignore, chose not even to mention or discuss: (1), the change in pension plans by IBM and hundreds of other companies was grossly unfair to older workers, who had no option to stay with the old plan and consequently lost a major share of pensions they had worked for for years” and (2), it was sheer dishonesty to promise people certain pension benefits, to use the promise to obtain their work for decades, and to then welsh on the promise and cheat people.”

  Velvel also raises the issue of whether it is not age discrimination to allow younger workers to retain their benefits while stripping older workers of those benefits. The law school dean recalled in his essay, “The Seventh Circuit’s Abominable Decision In The IBM Pension Plan Case,” that former Chief Justice Earl Warren frequently asked the question of his decisions, “Is it fair?”

  By contrast, he writes, “You don’t think Easterbrook asked whether it was fair, do you? One would never expect a life tenured, amply pensioned, deeply-conservative, elitist federal judge to ask that question, would one?”

  “You don’t think he even asked if it was honest for companies to promise workers a given level of pension, for which the workers then worked for years, for decades, and to then withdraw the promise when the workers got older and could not start over again, do you? Of course not.”

  Dean Velvel is a cofounder of the Massachusetts School of Law at Andover, a law school that provides a quality, affordable education for minorities, students from low- and middle-income backgrounds, and immigrants. He has been honored for his work by The National Law Journal and described by The National Jurist as a leading reformer in the field of legal education.

• Austin American-Statesman: Perry put brakes on data center deal with IBM. Governor calls for service review after data losses, server crashes. By Kate Alexander. Excerpts: Citing recent data losses and service problems, Gov. Rick Perry on Tuesday ordered a halt to IBM Corp.'s massive data center consolidation involving dozens of state agencies while officials review the problems. Perry's move does not change the status of IBM's seven-year $863 million contract, which began in March 2007. But the governor's intervention shines the spotlight on the agencies' concerns about IBM's service and the response by the Department of Information Resources , which is overseeing the contract.

  "The problems that have been painfully documented over recent months, including state agency concerns about unreliable e-mail systems, administrative cost increases and other breakdowns, have resulted in a loss of confidence in DIR's ability to provide Texas agencies with a proper level of service for technology services," Perry wrote in a letter to the agency. ...

  The long-simmering issue of IBM's work boiled over this summer after the attorney general's office lost a significant amount of data in a server crash at its Medicaid fraud division in Tyler. IBM had failed to back up the data, as required by the contract. Eight months of data files from the office's fraud investigations were initially lost because the office had stopped using its previous file back-up software in November, though 90 percent of the data has since been recovered, documents from the Department of Information Resources show.

• Dallas Morning-News: Gov. Perry halts transfer of Texas records to IBM data management program. By Emily Ramshaw and Robert T. Garrett. Excerpts: Gov. Rick Perry suspended the transfer of state records to an IBM data management program on Tuesday, saying serious glitches in Texas’ privatized computer system had put state agencies in danger. Mr. Perry said no more state data should fall under IBM’s control until his office can complete an assessment of the system. IBM has failed to perform “the crucial backup of data for more than 20 state agencies,“ Mr. Perry wrote in a letter to Brian Rawson, who oversees the IBM contract for the state’s Department of Information Resources. “The agency has failed to implement a system of checks and balances that ensures data security, jeopardizing the ability of state agencies to deliver services to their constituencies.” ...

  Last week, The News reported that a July server malfunction in the attorney general’s Tyler Medicaid fraud unit destroyed nearly half of eight months’ worth of documents – compromising scores of prosecutions. In the months before that crash, more than 10 agencies complained about network breakdowns and server backup problems with IBM, The News reported on Tuesday – an indication that the attorney general’s documents weren’t the only ones at risk. ...

  Texas lawmakers ordered the outsourcing of Texas’ information technology in 2005, and one by one, state agencies have been switching over to the IBM system. Mr. Tieszen said he doesn't know how many agencies will be affected by Mr. Perry's order. Currently, 27 state agencies are in varying stages of this transition, and many – including the Texas Department of Transportation and the Health and Human Services Commission – have expressed serious misgivings. “We’re getting complaints and anecdotes in all the time about problems that have cropped up with this system,” said Mike Gross, the coordinator of the Texas State Employees Union. “They thought they would economize [by privatizing]. Instead, they took a one size fits all approach.”

• Dallas Morning-News reader comments on Gov. Perry halts transfer of Texas records to IBM data management program. A few sample comments follow:
  • I have been involved with IBM Global Services at three different companies, two were fortune 50. Every experience was wholly negative and other than a few friendships with some good people who work for IBM I cannot think of a single positive think to say about IBM's services. Each of these companies have or are currently trying to end their relationship with IBM IMO they do have good hardware and software solutions. And it is true as someone here has said, IBM does have I.T. best practices and procedures very well documented. But that's it, they talk a good game but they're too top heavy and cumbersome to practice what they preach. just my .02
  • I've seen three companies outsource their IT. These were no where near as large as this but…They were team oriented IT departments with around 30 employees each. They were very successful and the budget was tight. They had time to proactively check PC's, networks and servers. Then the big outsourcing bureaucracy came and the left hand didn’t know what the right was doing. Customer service went down with a lot of “that’s not my job”. The big bureaucracy kept pouring more bodies in and more bodies until there were three times as many employees but not keeping up with the original duties. All the people that were being supported were disgusted and just gave up. They’ve been told that this is the way it’s going to be because of cost saving measures. Well, the cost is double what it used to be and upper management all got big fat raises and bonuses for making ridiculous decisions. It's been 6 years and one company is trying to bring IT back. It's going to cost a bundle and I don't think they'll ever pull it off.
  • I, too, am a 'customer' of IBM and the DataCenter, and a member of the IT staff. I can tell you, in no uncertain terms, that the so-called support we have received from IBM from the beginning has been nothing short of a nightmare. Having to take the support back over would also be a nightmare - having to fix everything they haven't over the last year and a half or so. But in the long run, we'd be better off. And tell me this... when they figure the amount of money we will "save" due to the outsourcing, do they consider the amount of time, energy and effort that is put in by State staff who have to 1. redo what is messed up by IBM, 2. do what IBM won't / can't do, or all the work that has to be redone because poor workmanship on IBM's part lost information that had already taken weeks, months or years to collect? And for those of you who are asking who will hold the agencies accountable - EXCUSE ME. It wasn't the agencies who decided this was a good idea. The people you need to hold accountable will soon be sitting in a big granite building up on a hill in Austin. Talk to them, and IBM.
• Reuters: IBM sues to block executive from moving to Apple. Excerpt: IBM said Mark Papermaster, who was vice president of the company's Blade Development unit until last week, signed a noncompete agreement with IBM that would prevent him from accepting a job with a competitor until one year after leaving the company. In the suit filed at the United States District Court in Manhattan, IBM said Papermaster was one of its top 300 managers and had access to a wide range of the company's intellectual property and trade secrets.
• UNI Global Union: First-ever strike at IBM Turkey. Excerpts: Last Friday, the first-ever strike in Seventy years of existence took place at IBM Turkey. More than 200 participants, half of which were from IBM and the other half from other IT companies, joined the action in front of IBM building. The main message delivered to the press by the strikers was directed to IBM’s CEO Sam Palmisano who will host the Business Leadership Forum in Istanbul next November. A protest letter will be sent to the 400 participants of this Forum, which is a gathering of business and institutional leaders to discuss the changes in the global economy. In short the message is “Fix the problem or don’t come to Istanbul”.
• ZD-Net Australia: IBM and Flightdeck workers reconcile. Excerpts: An organiser for the Australian Services Union (ASU), which had been handling the negotiations with IBM, said that recently the talks had been concerned with the text of new letters of offer for the employees involved and had now reached a conclusion. The letters are soon to be sent out to employees to check and sign, the organiser continued.

  Just under 50 employees at the IBM Flightdeck in Baulkham Hills had voted to take industrial action in the form of four-hour rolling stoppages after IBM declined to negotiate an agreement with employees.

• Forbes: Rich Cheat More On Taxes, New Study Shows. By Janet Novack. Excerpts: A new study based on unpublished Internal Revenue Service data shows the rich are different when it comes to paying taxes: They hide more of their income. The previously unreported study estimates that taxpayers whose true income was between $500,000 and $1 million a year understated their adjusted gross incomes by 21% overall in 2001, compared to an 8% underreporting rate for those earning $50,000 to $100,000 and even lower rates for those earning less. (The "net misreporting rate" as the IRS calls it, includes both underreported income and inflated deductions.) ...

  The main reason for the income-related cheating disparity: Higher income folks receive more of their income from sources that are easier to hide, including self-employment earnings; income from rents, partnerships and S corporations; and capital gains.

• Yahoo! IBM Pension and Retirement Issues: "Opting Out of Retirement Medical Plan" by "jd_bldr". Full excerpt: I retired from IBM 2 years ago but am still working as a contractor. With the 2009 medical benefits package I recently received and its cost increases, there are now more cost-effective options through my sub-contracting company. But I have a couple of questions before I leap.
  1. If I opt out of the IBM retiree medical plan this year, will I still be able to get back in for future years? Any issues with pre-existing conditions?
  2. The IBM plan has the selection period in Oct/Nov and the coverage goes from January to December. My subcontracting company's plan has the selection in March and coverage runs from May to the following April. What are my options for covering this gap -- both now and whenever I decide to fully retire and won't have the subcontractor coverage any more?
• "Re: Opting Out of Retirement Medical Plan" by "madinpok". Full excerpt: 1. According to the current rules, if you opt our of the IBM medical plan for 2009, you will be allowed to re-join in the future, provided that you can prove you were covered by a qualified medical plan with no gaps in coverage in the interim, even if you have pre-existing conditions.

  2. If you take a job with a new employer now, that should qualify as a life event status change that would allow you to drop IBM coverage and enroll in the new employer's plan immediately. When you are no longer employed with that employer, that is another life event which would allow you back into the IBM plan, even if it is mid-year.

• Yahoo! IBM Retiree Information Exchange: "Re: 2009 benefits" by "jsb2b2". Full excerpt: IBM EPO - MVP $193/$888; IBM High Deductible with HSA - MVP $146/$$672; IBM High Deductible PPO - MVP $0/$299; IBM Medium Deductible PPO - MVP $170/$782; IBM Low Deductible PPO - MVP $267/$1,041; Aetna Open Choice PPO $177/$810 (Offered thru Retiree Health Access),

  This is another 28 percent increase. Here is a brief history in case you may have forgotten. 2004 IBM EPO - MVP = $48(Self)+$101(Spouse) per month as an employee. Took early retirement at 55. Retired: Self/Spouse 2005 IBM EPO - MVP = $ 93/$326 per month; 2006 IBM EPO - MVP = $100/$400 per month 18 percent increase; 2007 IBM EPO - MVP = $117/$503 per month 20 percent increase; 2008 IBM EPO - MVP = $150/$690 per month 27 percent increase; 2009 IBM EPO - MVP = $193/$888 per month 28 percent increase.

  Why does the Spouse cost 4 times the Retiree?

  Why does it appear that IBM does not negotiate rates fairly with the insurance companies? For example: If IBM contributes $7500 "Health Dollars" and I pay $10,656 for my spouse and I, why does it cost $18,156 with 20 percent co-pays when the average "Family" plan is less than $14,000?

  If the average Healthcare Plan increase is 12 percent, why are IBM increases 28 percent?

  How much could it cost IBM for non-Medicare eligible Retiree medical since IBM no longer covers Retiree spouses unless they were "grandfathered" into the Retiree medical?

  I know of no IBM retiree that is Medicare eligible that uses any IBM plan due to cost.

  Therefore, it appears IBM is purposely pricing these plans so only the most desperate Retiree will take the IBM plan and IBM will save the $7500 "Health Dollars" promised to all IBMers. IBM is quick to tell anyone who asks how they spend billions on Employee/Retiree Healthcare. This is absolutely misleading and disgusting.

  My wife's Family Plan with Excellus BCBS at a small local hospital went up 16 percent to $191 per month with $15 office co-pays and $5/$10/$15 medication co-pays and this hospital is no where near a $92 billion company reporting record profits each quarter. Hospitals routinely lose money so if my wife contributes $2292 for her "Family Plan" does anyone think that the hospital kicks in another $15,864??

  Since I know of no Federal, State, County or Local government active employee/retiree nor any teacher that pays such ridiculous rates, I am writing my elected officials to take a look at any tax incentives or any other Federal or State government handouts IBM may receive under the guise of Healthcare provision. I urge all to do the same and maybe next year your premiums for the non-Medicare eligible Retirees won't break $1,000 per month which will then account for almost one half of your never increasing pension.

• Yahoo! IBM Retiree Information Exchange: "Re: 2009 benefits" by "madinpok". Full excerpt: I've provided some comments to your questions inline below.

  Why does the Spouse cost 4 times the Retiree?

  You are seeing the effect of the IBM subsidy of $7500/$7000. For you alone, the premium would be $2316 per year ($193 x 12). Add in the $7500 subsidy and the total cost for insuring just you is $9816. When you add coverage for your spouse, there is no additional subsidy, so you pay all the additional cost. And that is $8340. The net effect is that from your point of view, it looks like it costs 4x to insure your spouse.

  Why does it appear that IBM does not negotiate rates fairly with the insurance companies? For example: If IBM contributes $7500 "Health Dollars" and I pay $10,656 for my spouse and I, why does it cost $18,156 with 20 percent co-pays when the average "Family" plan is less than $14,000?

  In most cases, IBM does not negotiate with insurance companies. IBM is self insured and uses companies like MVP or UHC to administer the plans. The reason it costs $18,156 to insure you vs $14,000 for an average family plan is that retirees are placed in a different group all by themselves. Unfortunately, that group consists of old people that have many more medical expenses than younger folks. So the insurance costs more. We can debate whether it is fair to group people this way, but unfortunately, that's the way it works these days.

  If the average Healthcare Plan increase is 12 percent, why are IBM increases 28 percent.

  Part of the reason for this is caused by the IBM subsidy. When the total cost of the plan goes up 12 percent, you have to pay all of it. Since your premium is about 60% of the total insurance cost, it looks like a 20% increase to you, based on your premiums. The rest of the difference probably comes from the fact that the retiree group has higher medical expenses and thus their costs are going to increase more than the national average, which includes all those healthy, young people.

  How much could it cost IBM for non-Medicare eligible Retiree medical since IBM no longer covers Retiree spouses unless they were "grandfathered" into the Retiree medical? I know of no IBM retiree that is Medicare eligible that uses any IBM plan due to cost.

  There are quite a few people here in this Yahoo group who say the do sign up for the IBM medical plan even though they are on Medicare. They view it as primarily a prescription plan and/or as catastrophic medical coverage.

  Therefore, it appears IBM is purposely pricing these plans so only the most desperate Retiree will take the IBM plan and IBM will save the $7500 "Health Dollars" promised to all IBMers. IBM is quick to tell anyone who asks how they spend billions on Employee/Retiree Healthcare. This is absolutely misleading and disgusting.

  You are right. It is to IBM's advantage if you decline to sign up for medical coverage.

  My wife's Family Plan with Excellus BCBS at a small local hospital went up 16 percent to $191 per month with $15 office co-pays and $5/$10/$15 medication co-pays and this hospital is no where near a $92 billion company reporting record profits each quarter. Hospitals routinely lose money so if my wife contributes $2292 for her "Family Plan" does anyone think that the hospital kicks in another $15,864?

  Your wife's employer probably doesn't contribute $15,864 towards the cost since their employee group probably has many of those healthy, young people in it, and no retirees, and therefore their costs are lower. As an IBM employee, when you go from active employee status to retiree status, the total cost of your health insurance coverage goes up by over 60%. Last year, the COBRA cost of the IBM Low Deductible PPO was about $10,000. But the Low Deductible PPO plan for FHA retirees (who pay the full cost and get no subsidy) was $16,152. A 60% increase because you moved from the active group of employees to the retiree group!

  Since I know of no Federal, State, County or Local government active employee/retiree nor any teacher that pays such ridiculous rates, I am writing my elected officials to take a look at any tax incentives or any other Federal or State government handouts IBM may receive under the guise of Healthcare provision. I urge all to do the same and maybe next year your premiums for the non-Medicare eligible Retirees won't break $1,000 per month which will then account for almost one half of your never increasing pension.

  Government employees usually have some of the best medical benefits. That is because as taxpayers, you and I are paying for it for them.

• eWeek: Abusing the H-1B System to Fix the Washing Machine. By Kevin Fogarty. The Department of Homeland Security suspects error or flat-out fraud in as many as 20 percent of H-1B visa applications filed by U.S. employers seeking foreign workers. An audit of H-1B visa applications by the Department of Homeland Security's USCIS (U.S. Bureau of Citizenship and Immigration Services) division found H-1B visa applications filed by U.S. employers used fake educational degrees, forged letters or signatures on supporting documents such as those attesting to the qualifications or experience of the applicant, and fictitious work histories and references.

  Some H-1B visa applications even faked the job for which the applicant was supposed to be applying and one went so far as to file an application for a "business development analyst" that the employer actually intended to employ fixing washing machines in a Laundromat. ...

  The high rate of abuse is a threat not just to the foreign workers brought to the United States under false pretenses, but to U.S. technology workers, who must compete with illegally depressed wages kept low by employers who abuse the system, said Gordon Day, president-elect of the U.S. branch of IEEE (Institute for Electrical and Electronics Engineers).

• Yahoo! IBM Pension and Retirement Issues message board: "Re: 2009 Social Security COLA is 5.8%" by "ranheimchas". Full excerpt: It looks like the SS increase will just about cover the increase in my IBM medical insurance premium payments. I would like to take one of the less expensive medical plans that have limits on prescription drugs, but after having cancer, I know full well what would happen it it ever came back and I had a cap on prescription drugs. If only IBM would take us out of the high risk pool and put us in with the entire IBM workers medical plans, as it used to be, many of us might be able to make ends meet with the savings on our medical payments. It would not cost IBM anything to make this change. It would greatly lower the cost for the retirees, while adding a little more of the cost to the larger working force who can better afford it.
• Yahoo! IBM Pension and Retirement Issues message board: "Re: 2009 Social Security COLA is 5.8%" by Jim Askew. Full excerpt: Actually, adding retirees to the employee pool would cost IBM because in recent years, IBM has followed the practice of paying for the full cost of *employee* health insurance. Note that this practice does not extend to spouse or child coverage, which have had large premium increases that employees must pay. (IBM would really prefer its employees to not have spouses or children...they tend to get in the way of working exorbitant amounts of free overtime.)

  So, if retirees were included in the employee pool, that would drive up the cost (to IBM) of its "paid in full" employee contributions. As you know, since IBM's contribution for 1st choicer retirees is fixed, all increases in premiums from year to year are imposed on retirees themselves, resulting in no increased cost to IBM as medical costs increase. It's all about risk shifting, which is what our country's health insurance industry spends inordinate amounts of our health care budget on.

• Wall Street Journal: Obama vs. McCain: It's About Your Money.
• Hartford Courant: Offices Cut Perks, But Some May Go Too Far. By William Weir. So, you're cutting back at home, waiting a little longer in the year to turn on the heat. Maybe you and the family are eating out a lot less. But what about your second home, the workplace? The things we once took for granted — year-end office parties, an always-filled water cooler — could be on their way out, too. As the economy slumps and businesses are on the lookout for ways to pare costs, what will become of the little things that make work a little easier? Changes don't have to be that dramatic to make a difference. Perhaps coffee still brews in the office, but it's been changed from the good stuff to a generic brand. ...

  "I don't think businesses are going to cut coffee," says Judit Price, a career coach in Massachusetts. "That's not such a big cost, and it's keeping them in the building and giving them focus and energy. It's more cost-effective than not serving coffee." ...

  "What it comes down to is companies that are worried about their margins are now scrutinizing their expenses," he says. Bean counters have to decide whether the damage to morale that would result from cutting certain perks is worth the expenses saved. "That's the equation they're asking themselves." And just as companies get a lot more out of offering coffee, they reap similar benefits with year-end parties, Challenger says. "People really feel they're essential. It brings the community together, even if only to grieve over the crisis the company is facing."

• Forbes: Dangerous Downsizings. By Ed Sperling. Excerpts: Even in Silicon Valley, where the business climate is relatively robust, the number of layoffs continues to increase. This is in no small measure due to the compensation structures of the CEO and chief financial officer who are rewarded, often lavishly, for cutting operating expenses and improving revenue per employee. Unless they started at the company and grew with it, they often view it as a temporary stay during which they execute sound business principles.

  There are two things wrong with this picture. First, sooner or later you burn out your employees and destroy the company's innovation and drive with this model, no matter how often you turn over your staff. And second, the burden for keeping the corporate machinery running leaner and more efficiently falls increasingly on the IT department in general and the chief information officer in particular. Moreover, the CIO is seeing cutbacks within his or her own department and is unable to keep up with the push for efficiency.

  To attribute this trend to the downturn is convenient but wrong. This process of getting leaner and meaner was accelerating even before the mortgage meltdown became apparent. Companies are so lean right now that most employees don't have the energy left to be mean.

• Detroit News: Lease perks anger workers. Despite cutbacks, automakers continue to offer subsidized vehicles for many of their managers. By Bryce G. Hoffman. Excerpt: As Detroit's Big Three shutter factories, slash jobs and trim benefits, one executive perk remains: subsidized cars and trucks for management, often with insurance, maintenance and gasoline included. Bonuses have been frozen, health care co-pays increased and retirement plan contributions curtailed, but until recently, these management lease programs have remained largely untouched.