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Highlights—December 29, 2012

  • Seeking Alpha: Is IBM In Trouble? By Arne Alsin. Excerpts: Mispricing happens the other way as well, with stocks where price exceeds value by a wide margin. Such is the case with IBM, a stock priced too high given the structural deficiencies in its operating model. Unfortunately for IBM shareholders -- and I am one, indirectly, through ownership of Berkshire Hathaway -- this is a story that looks as if it will end badly.

    Pushing on a String. For several years now, IBM has been plowing shareholder capital into buying back shares. IBM has bought 800 million shares on the open market since 2004, retiring 500 million (most of the difference went to management). It's an aggressive buyback program, and it works wonders for earnings per share as long as you have a healthy, vibrant operating model.

    Ah, but here's the rub: IBM does not have a healthy, vibrant operating model. Organic revenue growth is nonexistent, and its attempt to "buy" growth via acquisition has failed miserably. The company spent $17 billion in acquisitions over the last five years, yet 2012 revenue will come in at the same level it was in 2008, about $103 billion. It's certainly a red flag, and it suggests that IBM's vaunted sales force is having a tough time convincing customers to sign new contracts.

    Margins have expanded dramatically in recent years, with operating margins soaring from 16% to 27%. It's the result of cost cutting, not because IBM has pricing power (deflation is a powerful trend in IT). The impetus for expanded margins: The jobs of about 30,000 U.S.-based employees have been outsourced, primarily to India. In 2005, U.S.-based workers comprised more than 40% of IBM's workforce; today it's 21%. Out of 433,000 worldwide employees, there are only 92,000 employees left in the U.S., while there are over 120,000 in India.

    But let's set aside the outsourcing issue, as it's understandably sensitive -- those 30,000 "resource actions" (IBM's euphemism for layoffs) came during a deep and difficult recession. I don't want to distract from the core issue here -- namely, that IBM's operating model is structurally flawed. ...

    By outsourcing jobs to India (and to a lesser extent, Brazil and China) IBM has driven a huge increase in operating efficiency, dramatically lowering costs. Unlike Costco, however, it doesn't pass the savings on to customers. It inures to the benefit of shareholders, which, of course, includes management.

    Customers are now paying a 100% markup on cost, much higher than in years past. Even if we assume a large markup in software (23% of total sales), it still leaves services and hardware with markups of 70%, by my estimates. My guess is that such rich markups are part of the reason why IBM has been unable to generate and sustain organic sales growth.

    By now you should be getting the gist of the story: Hyper-aggressive management, incentivized by a boatload of stock options, sets a $20 earnings goal for 2015 to be achieved through a combination of cost cuts (outsourcing) and stock buybacks.

    But there's a big, obnoxious assumption embedded right in the middle of that equation: revenue. Absent revenue growth, management's plan doesn't work. It can't cut its way to $20 per share in earnings and it's having a helluva time buying revenue growth via acquisitions. The fact that IBM's revenue line is so demonstrably poor raises one's suspicion about the value proposition offered to customers. If customers were happy with the value of the service packages they sign up for, wouldn't there be some decent organic growth? ...

    What Should IBM Management Do? In my view, IBM management doesn't have a whole lot of options. The competitive landscape has changed almost overnight, leaving IBM's core franchise exposed. IBM's model of selling end-to-end solutions with rich margins is becoming less competitive. In the short term, financial engineering can help IBM meet earnings targets. It can prop up the revenue line with more acquisitions and the net income line with more share buybacks; it can even tuck expense into "restructuring charges," which are likely to balloon in the quarters to come.

    Selected reader comments follow:

    • As a current IBM employee, I agree with what Arne is saying. I have seen from the inside the cuts they keep making in order to grow EPS.

      IBM hits record EPS and stock value, but they tell us it is a poor year and offer no or very small raises. The executives get compensated based on EPS, the employees get compensated on some target that is never published to us. I think our target is revenue based.

      Bonuses are such a joke.

      I have seen work off-shored and watch the quality and responsiveness go down. Then we US based employes have to pick of the slack. Why? For one our offshore counter parts can not work over 40 hours a week. Two, a lot of them are not very good. IBM has made a conscious decision to trade cheap labor for lower quality.

      They expect us to do cutting edge development but we can only get a new machine every 3 - 5 years.

      An e-mail came out earlier this year we could no longer buy monitors. The monitor on the laptop was good enough.

      Office supplies are locked up. You have to know the magic person with the key. I end up buying my own paper and pens.

    • Arne, I've been an IBM employee for 15 years and the company is going downhill fast...We are losing customers left and right, all new deals are "tiny" and employees are PISSED OFF! Once the 2015 roadmap is hit, this company will massively backtrack. There is nothing there to support it internally. I LAUGH at all the expert comments I read...they have no idea at all what is going on here. I barely work with a person in the US anymore. It is all India, Brazil, Costa Rica, Argentina, Hungary...I can't believe people are buying IBM stock at it's current price...that is crazy considering what is going to happen. My gut is telling me that IBM will sell off the Global Services LOB. It is just a commodity now and makes them no money. They should just sell it to Tata, Wipro, or someone like that. I bet that is the big move they will make in 2014/2015...
    • What, is the board of directors commenting on this article? The author is dead on with this. They have sent existing and new I/T jobs all over the world instead of hiring in the US. They have made every attempt to eliminate the remaining US senior staff and are continuing to do so. They have cut all perks, benefits and training to the US staff.

      Their pay in the BRIC countries is lower then other companies so what they are basically doing is training there and the folks then leave for other home companies taking any expertise that the US IBMers have taught them.

      They have decimated their sales staff as well, do a little searching and you will find many sales folks who have had it with their practices.

      The quality of the software products and the IGS staffing they are using in Brazil, china and India have left a trail of broken and patched up systems all over the world.

      Of course the stock has done well in the short-term, but if you are thinking that IBM is a good long term investment... I have a bridge to sell you. The only people that have prospered by IBM's so called vision is the board of directors and some lucky upper management folks. When IBM comes crashing down, it won't matter to them.

    • IBM has the most sophisticated support network in the world with trained engineers from call support to onsite service. It isn't free anymore and this has been an adjustment for many. Of course Linux isn't free any more either. And you can get Linux from IBM on IBM systems supported by IBM. I wouldn't want it though. Any time you install open systems software, you are setting yourself up for security breaches.
    • I'd have to disagree and say that IBM customer support is terrible - the worst in the industry. IBM has some VERY good engineers but getting to them requires hours and multiple phone calls. Their front line is the problem. You will go through layers of Bangalore accents to get to someone in Austin, TX that knows what they are doing.
    • Buried in your post is the key phrase "the value is not there," which is the REAL problem. The quality of IBM's work has declined significantly over the years as those with IBM's previous remarkable work ethic have retired, or left, or been forced out. Those India employees get three to five years with IBM on their resumes and then go elsewhere.
    • Some good points and some loyalty. Name one thing IBM has done for its employees in the last 10 years, meaningful? Benefits cut, pay raises cut, recognition cut, severance cut, 401K paid at the end of 2013 versus monthly (a cut) and on and on. You can only employ this model so far before it bites you in the ---. IBM has been a great company but not recognizing the signs got us in trouble in the 90's. To much outsourcing, to many layers of Management, programs not held accountable for ROI, limited focus on employees, no organic growth, estranged Senior Management team. Be objective and honest so maybe things will change and again get us on a track of growth and "Best Company to Work for
  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "Jimyce". Full excerpt: Everyone is assuming there will even be a bonus this year. Last year they did away with shift premiums, extra comp on weekends, we received no raises this year, they did away with the bimonthly matches, so I think this is the only thing besides pay cuts left to take away from us as far as compensation anyway. I know they have to take something away every year, because they have no mind to grow business, just make things cheaper for them to operate till IBM goes belly up and they take their money and run.

    In order to get a RA, at least in my group, you need to be a three performer, so if you plan anything with your manager you may have to accept a three to be considered, at least that is what I am told. And, if you're a 3 you get no bonus anyway. 6 months pay if you get it would be way more than that anyway, but if they decide not to give you the RA, and you want to leave you accept a three, end up retiring anyway with no extra or bonus, if you stay no raise if there is any because your a three. This is what happened to my buddy. He wanted to retire this year, asked to be laid off, accepted a three for last year and received no bonus pay. Then they had no resource actions for our group, so he got nothing.

  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "tkoconnor1954". Full excerpt: I was a consistent 2+ appraisal and my last appraisal was a 2+ and I was part of the March 2012 Resource action and also got my performance bonus. R/A's are NOT just performance based, Executive management hands down the budget challenge and the second and first lines must divvy up no matter how painful. And after all these years ... of layoff after layoff there should be very few 3 performers left.
  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "teamb562". Full excerpt: Oh, believe me, I know personally, there are always 3's. You know, the PBC skew that's applied against labor, what's it like 5%/85%/10%. It will always ensure there are 10% 3's to pluck from the smoking pot. Remember, the bar always rises, higher and higher, year after year.

    There is no beating these pigs. Those that hold the cashola makes the rules. Get the best deal you can and split. I cut myself a double-3 deal, got paid to leave with a year medical. A no brainer.

  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "ibm20yrsnot40". Full excerpt: I'm wondering if they have found a way to even screw us on the "get a '3' and take the severance and the 1 year medical" tactic? Let's say that you are already retirement eligible. The old tactic was to position yourself for an RA or, if the timing was not going to cooperate, "work" yourself into a '3' so they will initiate a management induced separation and then you would get the "reduced" severance package and the 1 year continuation of medical (along with a couple of other bene's).

    Now if you do that since you are retirement eligible, under these new 401K match rules, can they screw you out of whatever match you have earned? I have not seen that specific scenario covered in any of the info on the new 401K match rules that I have seen.

  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "lastdino1". Excerpt: You're catching on. There seems to be a theme of less and less severance so if you get the 3 you'll get less. But watch out if you try to fake the 3 in order to get severance you don't want to be an MIS (management-initiated separation) candidate. With an MIS you stand a chance of getting 0. As for the 401 strategy it looks like they can save a fair amount of bucks by firing people before 12/15 of each year. That's their plan.
  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "lastdino1". Excerpt: Kevin it has been mentioned many times. There will ALWAYS be 3's. I don't know the skew today buy when I left it was something like 5% (1's), 20% (2+'s) , 60& (2's) , 10% (3's) , 5% (MIS). So as the 3's go you would reach up into the 2 bucket and reset the distribution. What people do not want to believe is there is always someone better then them.
  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "prof732". Excerpt: What management does not want to believe is that many good people are not concerned with whether someone is "better then them" (sic). They are confident that they are good at what they do, and valuable as employees.

    The management approach of raising the alleged bar each year, with no commensurate increase in compensation, is really just a form of management by intimidation. It's debatable whether it is a good technique for increasing productivity, but it's a fine way to encourage talented people to leave the business.

  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "prof732". Excerpt: Are you suggesting that an employee performance evaluation program, presented as a process in which the employee sets goals, those goals are reviewed and approved by the manager, and meeting those goals results in a satisfactory rating, is being manipulated by management to justify firings, especially of older employees, without fear of lawsuits?

    That would be a dishonest approach. IBM has a policy of "Respect For The Individual", they told me so.

  • Yahoo! IBM Pension and Retirement Issues message board: "Re: Retirement advice" by "prof732". Excerpt: Hah, we don't even set our goals. They set them for us each year, add a few things in to make them tougher, and send it to us to copy and paste into our PBC. Kind of takes away from "personal goals" doesn't it?
  • Wall Street Journal MarketWatch: 4 reasons not to roll over an old 401(k). Commentary: Don’t walk away from a good thing. By Mike Piper. Excerpts: Conventional wisdom says that after leaving your job, it’s smart to roll your old 401(k) into an IRA. In many cases, that’s true. An IRA typically offers a much greater range of investment options than a 401(k). There are, however, certain situations — some of them fairly common — in which it makes sense to leave your old 401(k) alone or move it somewhere other than an IRA:

    1. You plan to retire between ages 55 and 59.5. ... What many investors don’t know is that with a 401(k), the 10% penalty on distributions does not apply if you are at least age 55 (rather than 59.5) at the end of the calendar year in which you left your employer. ...

    2. You’re planning a Roth conversion ...

    3. Your old 401(k) has better investment options...

    4. You have employer stock in your 401(k)...

  • Glassdoor: Employees' Choice Awards. Glassdoor is excited to announce our fifth annual Employees' Choice Awards, a list of the 50 Best Places to Work. The top 50 winners were selected by the people who know these companies best – their employees. Editor's note: IBM again did not make the top 50. Among its competitors that did are McKinsey & Company, Google, Salesforce.com, Citrix Systems, Intel, Apple, Qualcom, Digitas, and SAP.
  • Glassdoor IBM reviews. Selected reviews follow:
    • IBM is great if you are a shareholder but not so great if you're an employee” Current Advisory Software Engineer in Austin, TX . Pros: Access to extremely smart industry leaders within the company, good focus on customer satisfaction and creating solid products and services. Reasonable benefits. Cons: I was with the company for 10 years and saw the culture erode significantly from high employee morale to low. The job I took after leaving IBM was a 50% improvement in compensation and this isn't uncommon. The issue is that they've cut so much cost out of the business trying to march to their Earnings per Share roadmap that it has had a far reaching effect on the allowable operating expenditure of the various business units. This translates into promotions being few and far between, measly compensation and raises and extenuating circumstances required to attend education or conferences that involve travel. The culture is also quite hierarchical vs. collegial and egalitarian. Advice to Senior Management: Ask yourself, why would smart people want to work at IBM? Factor in compensation, benefits and how exciting the work is. Then factor in that good engineers and product managers are in worldwide demand. I mean it, we can literally go anywhere. Then ask yourself whether you're keeping the good engineers or just the ones that don't have the sense to leave.
    • I loved being an IBMer.” Former Contract Management in Cincinnati, OH. Pros: IBM provides an incredible amount of information, data, and tools to help anyone at any level to do the job. IBM has more patents than most any other company in the world and that brings with it respect for anyone who works for IBM. Cons: Off-shoring of American jobs. Short-changing customers to offshore to cut costs. Apparently customer satisfaction is no longer a goal. Long hours and the thought of a job loss always in the back of one's mind. Advice to Senior Management: Refocus on the customer, keep resources here in the United States, and focus on employees and not just the next executive payout.
    • Great for experience but not a long-term career” Former Project Manager in Dublin, Ireland. Pros: Great exposure to different technologies and business environments. Lots of opportunities to develop career, if you're pro-active about it. Looks good on CV. Get to work with a lot of great people. Cons: Pay - IBM is one of the worst payers in the marketplace, with minimal benefits. Burn-out and Stress - Stress-related sick leave is a major problem, with many of the best people having to take weeks off to recover from being over-worked and under-supported. Permanent staff are treated the same as contractors, increasingly under pressure to find billable hours to record. Employees = costs: constantly made to justify their jobs by logging billable hours or justify their place on payroll. Cost cutting has gone too far - can't even get a paper clip! Management are not managers, just administrators of policies cascaded from out of country. Bureaucracy - poorly designed, inflexible processes and lack of guidance turn simple tasks into endurance tests. Employees are expected to build up wide personal networks within the company just to get the most basic tasks completed. It's all about who you know, not what you know. Rudimentary tooling - some of the online tools are unfit for purpose. But lack of investment in internal innovation means nothing ever improves. Spreadsheets are used just for just about everything. Advice to Senior Management: Give employees the resources they need to do their jobs in a professional manner or all the best ones will end up working for your competitors.
    • Lots of smart people, less opportunity in the US” Current Program Director in Research Triangle Park, NC. Pros: Lots of great, smart people. A good place to start or change career paths and work as part of an experienced community. Mentoring and common career communities are top-notch (technical and non-technical), but on you to participate and make the time to contribute. Cons: There definitely an effort to reduce headcount in the US. Visible shifts with less opportunity and job security for US and Western Europe employees. Shifts in compensation and HR policies make staying long term less attractive. Expense control is insultingly tight and is a near daily hinderance to getting work done. A common joke is wondering when we'll all have to bring our own chairs to work. Advice to Senior Management: You don't have to go back to the "old IBM" as far as treating employees, but right now it feels like the strategy is to drive away as many employees as possible with cost cutting measures.
    • I was forced to work 6 and 7 days a week for almost a year” Former Test Engineer in Research Triangle Park, NC. Pros: Part of a global team. Lots of knowledge available. Cons: I worked on the release of a project that was behind schedule and hundreds of people that I worked with were forced to work 6 and 7 days a week in order to stay employees. We did this for a year until the project was released. Additionally, while being forced to work this many hours, many of our coworkers were laid off right before the release of the 2011 earnings. Surely, this was done for number crunching with stockholders. The burden fell on us to make up for the hundreds of lost employees in the upcoming year. Very disappointed with IBM and I never felt that my job was secure in any way at this company. Advice to Senior Management: Encourage freedom and enjoyment the job. Lighten up the atmosphere and make the place more flavorful. Everything is "boxy."
    • Not entirely professional” Former Employee. Pros: Good branding, well known name. Cons: No employee loyalty or integrity, lack of qualified personnel to work on projects, questionable offshore resources forced in to projects. Advice to Senior Management: Try to sell projects that you can then deliver on.
    • Just waiting around for the next RA” Former Solutions Architect. Pros: There are many opportunities here due to their size. 401k 1-1 matching up to 6%. Structure.

      Cons: A shadow of its past. IBM has so many all star employees that would do anything for their customers, but the company just does not seem to value that part of the business.

      Work until you have been totally spent, it's not about quality, it's about numbers. Oh, then wait until your number is called and you are sent packing. Then hope that you get a half decent package.

      Difficult to be loyal to a company that is simply going by the numbers. outsourcing many jobs, then come with excuses to not give bonuses.

      They have a 5 point scale, 1, 2+, 2, 3, 4 (1 being god like). Most fall into the 2 area, occasional 2+. Just makes everyone equal and not a great way to show the differences.

      Advice to Senior Management: Establish a better review system based on a 10 point scale or something similar. Many pins and needles when an RA is rumored, there is nobody safe.

    • Time to move on...management got too greedy” Current Software Developer in San Jose, CA. Pros: Co-workers; customers; global friends; international. Cons: Management. Long hours. No recognition. No freedom to speak the truth. Advice to Senior Management : You lost touch with the individual contributor.
    • IBM Financial Analyst - Somers NY” Current Financial Analyst in Somers, NY. Pros: IBM is very flexible in terms of working from home. Health care package is decent. Cons: There are literally NO perks given outside of your salary and very poor financial benefits. Advice to Senior Management: Stop cutting back employee benefits
    • No longer world class” Current Development Engineer in Rochester, MN. Pros: IBM employees still have good reputation, even though management does not. Cons: Executives have totally rejected the values and principles of the Watsons. People are not valued, and short term profit is pursued by cutting quality, service, and skilled employees. Effectively no raises for most US employees for the last decade except for executives. Bloated bureaucracy with 5-6 layers of vice presidents (out of 8-9 layers of management) between the average professional and the CEO. Just when it seems morale can't get any lower, executives find a way to knock it down more. Withholding 401k match is the latest scheme. Advice to Senior Management: Read "A Business and Its Beliefs" by Thomas Watson.
    • Horrible. DO NOT JOIN this dumb company.” Current Applications Developer in Bangalore (India). Pros: I can not think of one single reason. OK. It is a brand. Use it while you can. Cons: Thousands. Very low salary. No increments. Hire many contractors. Throw them out anytime. Very bad team morale. Outsourcing all jobs to India. Have to pay for everything - tea, coffee, books, bags, courier - everything. Advice to Senior Management: Be nice to your employees. Or your clients and then your shareholders will feel the impact.
    • Culture” Former Project Manager. Pros: There are no pros anymore to working for this company. Cons: They are sending everything overseas; they take advantage of their employees; work/life balance is nonexistent. Advice to Senior Management: Listen to your employees and quit sending jobs overseas.
    • IBM is still a good company to work for but not what it used to be” Current Solution Architect in Raleigh, NC. Pros: Breadth of technology. Highly skilled work force. Large community for skill tap. Cons: Loss of core value of respect for the individual. Too focused on short term bottom line instead of maximizing long term value. Bureaucracy. Too many restrictions on hiring making it difficult to transition to other jobs. Advice to Senior Management: Relearn how to foster the sense of community and camaraderie that made IBM great. Stop focusing only on the short term returns and remember that the work force you have is a great asset that if you stroke it, it will stroke you back.
    • Generally poor company to work for - many more cons than listed” Current Senior Managing Consultant in Washington, DC . Pros: Work from home, IBMers seem professional and knowledgable.

      Cons: Poor management structure - matrix no one can figure out who actually is accountable or in charge. Incredibly pitiful (complex, difficult to use, myriad of security and login features, etc. etc) internal business and HR types processes, procedures for employee everyday use. Unbelievably poor support for employees on their computers and software. My boss was without his computer for about 3 weeks - the employees computer is required for access to everything they need for our work. I personally lost my Lotus Notes (required e-mail system) for 5 business days with no way to get to it accept drive to an office and login on a walk-up station. Lotus Notes owned by IBM is a far weaker e-mail system than MS Outlook. Lotus Notes and all other internal software and systems are very cumbersome and not user friendly.

      IBM has recently made many moves to cut costs at the employees expense and loss of productivity. It is truly a self service organization. There is constant pressure to improve your utilization (a term used for maximizing billable hours). Management pressures many ways to not take your vacation, holidays, etc to improve your utilization - it's part of the culture.

      IBM in the last month announced they are going to withhold 401k contributions to the end of the year (netting IBM a very large $10's of millions in time value of money/interest) and not funding those that aren't still with IBM by Dec 15th of any given year. A quick analysis of this - nets IBM $84 Million annually +/- 50%.

      IBM is willing to try to market themselves in many areas they really have limited or no knowledge or expertise in (many areas of the "Smarter Planet"). Personally witnessed this from involvement in many marketing efforts. IBM uses high dollar marketing executives who are very capable but limited knowledge of the basics in the markets they are pursuing.

      IBM's acquisition process can in many instances slash/trash and burn acquired companies. The company I worked for was purchased and has in a few years been basically put out of business - former company employees laid off, attrition seeing the handwriting on the wall with very few survivors.

      Enough said...

      Advice to Senior Management: Read the Cons and do something about these practices before IBM declines.

    • It pays the bills, sort of.” Current Financial Analyst in Somers, NY. Pros: If you're good and have a compelling reason they'll eventually let you work from home (granted all career progression will stop at that point but it's nice to work from home). Cons: They'll work you like a donkey and then pay you peanuts. And you quickly learn that even if you're a top performer you shouldn't expect any type of reward or meaningful increase in compensation because it isn't coming. Advice to Senior Management: If you want to keep top talent you have to actually give them an incentive to stay.
    • A mixed bag but overall, heading in the wrong direction” Current Senior Managing Consultant in Atlanta, GA. Pros: Broad resources to leverage for any assignment, reasonable pay, benefits historically excellent. Cons: Benefits slowly going down the drain, constant US resource actions leading to extremely overworked people left (now you have to be billable at least 125-145% of the time just to be considered "average"); extremely unfair rewards system (advertise that they "reward performance" but reality is, rewards are extremely limited so most who "perform" are definitely NOT rewarded due to the inadequate forced curve.) Innovation is possible at IBM, but definitely an uphill battle. Most business units are purely interested in staffing their ops and nothing more--you will have to fight LONG and HARD to get anything new seriously considered--but, it IS possible at least. Advice to Senior Management: Your maniacal focus on your shareholders is ruining this company--slowly, but surely. There's no advice I can really give, because you aren't interested in anything else, despite what you tell clients IBM is all about. It's a shame to watch this historically great American company sinking with respect to delivering real value to customers.
  • CBS MarketWatch: "Chaining" inflation gauge would hurt Social Security recipients. Excerpts: Among the policies lawmakers are considering as part of the "fiscal cliff" talks in Washington is to change how the government measures inflation in Social Security payments. President Barack Obama has proposed adopting what is known as a "chained" Consumer Price Index, or CPI, as part of his plan to reduce the nation's deficit and raise revenue through an income tax hike wealthy Americans.

    Advocates contend that this approach is a relatively painless way to shrink the government's budget gap and to shore up the federal retirement program, which they contend is financially troubled. But liberal lawmakers and pundits have panned the idea, arguing that it would result in lower benefits for Social Security recipients, millions of whom depend on the program as their main source of income.

    What does chained-CPI mean? The government currently calculates Social Security's cost-of-living adjustment, or COLA, each year based on how inflation affects urban wage earners and clerical workers. Known as CPI-W, this index measures changes in the prices of a fixed basket of goods that are deemed to be representative of regular purchases by wage earners.

    In contrast, the chained-CPI assumes that as prices increase, consumers make substitutions in what they purchase. The common illustration is that if the price of beef increases but the price of chicken is stable, consumers will purchase less beef and more chicken. ...

    Who would be hurt? In general, people who would be negatively affected by the use of the chained-CPI would be retirees and other beneficiaries who receive most of their income from Social Security and who aren't in a position to switch to other goods and services when prices rise.

    For example, Medicare premiums and out-of-pocket medical expenses take up a large share of many retirees' budgets. Many retirees have no alternative to Medicare, so for these people the only "substitution" for medical care paid under the program is to go without it. ...

    For more than a third of of all older beneficiaries, Social Security provides 90 percent or more of total income, while for non-married beneficiaries that figure rises to 46 percent. These are the people who would suffer most under a chained-CPI, a group that encompasses more than one-third of all Social Security beneficiaries and almost half of all single participants in the program, many of whom are elderly widows. ...

    The bottom line: The elderly poor, singles, widows, widowers, and non-whites will be most negatively affected by shifting to a chained-CPI approach to calculating Social Security cost-of-living adjustments. If you count just those retirees whose Social Security benefits represent 90 percent of their total income, that's over 13 million Americans.

New on the Alliance@IBM Site
  • Sign the petition at change.org: International Business Machines (IBM USA): IBM must REVERSE the decision changing the IBM match 401(k) contribution. Petition wording: IBM must REVERSE their recent decision to change the timing of the IBM match and automatic contribution for our 401(k) Plus Plan and Excess 401(k) Plus Plan.

    We, the petitioners want IBM to keep the automatic contribution at semi-monthly and NOT an annual contribution.

    IBM, by moving the automatic contribution from semi-monthly to an annual contribution effectively denies employees who are terminated in resource actions up to the cut off of December 15 of the given year, the matching contribution from IBM. Furthermore, the movement of the automatic contribution to the end of the year denies interest generated for the employees 401(K) account. Sign this petition to tell IBM to REVERSE this decision, immediately!

    And if you are an active IBM employee, please Join Alliance@IBM CWA Local 1701.

    Web site: http://www.allianceibm.org; Twitter ID: @Allianceibm; Facebook: Allianceibm CWA

  • Job Cut Reports
    • Comment 12/22/12: I can see the Personal choice holidays either being reduced or go bye-bye altogether next. Personal choice holidays is just PTO (Paid Time Off) and IBM doesn't want to pay for time off if they have their druthers. It hurts their billed charges to the customer accounts. Besides you can't make your billable utilization rates if you take all of the personal choice holidays. So IBM plays off of that against you the resource (your not even an associate like in WalledMart). If you miss your utilization target, you now get a PBC 3. Not enough outrage over the 401(k) plus changes so IBM will figure little outrage over this move too. IBM doesn't care about the person anymore (your a resource) so why have personal choice holidays in the first place? You human beings (that's what you truly are but not treated as such by IBM) need to take a unified union stand on what little benefits you have left. -PC'ed-
    • Comment 12/24/12: What? We still can't get over 1000 signers to the 401(k) petition? Your giving Randy Mac a Ho-Ho-Ha Christmas present. Bah humbug to the IBMers and others still acting like sheep in not signing or for those IBMers still not joining the Alliance. You can bet 2013 will be worse for many of you. If you think this is a threat by me then you don't know or want to listen to reality. -sign_sign-
    • Comment 12/26/12: Was not a Merry Christmas when you have to work on it to try to avoid a PBC 3 and a definite RA. Will New Year 2013 be much different? -anonymous-
    • Comment 12/26/12: IBM is getting at your $$$ again. As in 1999 with the cash pension (I like to call it pittance) heist they are doing something similar with the 401(k)+ plan which they will make the IBM 401(k) MINUS (-) plan. If history teaches you anything, if you don't learn and act from what has happened in the past it will bound to happen in one form or another again. PLEASE sign the petition and join the Alliance (if you can't afford $10 a month join as an associate member for $5 a month)) as your 2013 New Year's resolution! -
    • Comment 12/28/12: anonymous-retiree IBM's health as a company has no affect on your pension (as long as it under the PBGC limits) and does not guide their reducing employee benefits. The pension fund is in good shape too. They will sell your pension rights to an insurance company if it saves them money. IBM is making record profits yet is reducing benefits and employees. IBM management is making bad business decisions for short term gains. You or I can not change the path they have taken. I wouldn't be surprised if they eliminate the 401K match altogether. Employees are treated like garbage. No contact .. No rights. -samtheman-
    • Comment 12/28/12: For those of you who are afraid to challenge your rating, as an FYI - last year I got a 3 rating, I did not accept the rating and had it escalated to 2nd line / HR, my manager was instructed by HR to change the rating, however, must add that it was a very stressful time having to document / meet with 2nd line and HR rep.. My 2nd Line mgr was an @$$ but my HR rep was very understanding. I work 60 hours weeks and deserve allot more than a 3 rating, if they think they will try that again this year I will challenge it again just to send a message to management that I will not accept their BS.. -Anon_PBC-
    • Comment 12/29/12: "there are people in Dubuque who have received two 3's in a row and still have their jobs." Well they either are paid around $20K or are so gullible with their PBC talk with their jerk manager to believe they will not be in the next RA. Or it shows just how desperate IBM is to staff a GDF in Dubuque based on how badly they treat the troops, er resources. Is it possible if IBM pulls out of Dubuque they have to pay Iowa and Dubuque economic penalty $ that is more than what they pay ALL the resources in Dubuque? -anonymous3-
News and Opinion Concerning Health Savings Accounts, Medical Costs and Health Care Reform
  • Washington Post: Earn an average salary? Covering your health spending will take 58.3 workdays. By Sarah Kliff. Excerpt: We usually think about the growth in health care spending in straight dollars, the number put toward medicine from one year to the next. Chris Conover has another way of going about it: He recently graphed the number of work days, paid at average wage, necessary to buy an average amount of health care. Right now, the average worker needs to work nearly two months of eight-hour work days – 58.3 days, to be exact – to purchase the average amount of health care spending. Back in 1958, that number stood at 14.8 days.
  • Associated Press, courtesy of the New York Times: Partial List of Taxes and Fees in Health Overhaul. Excerpt: Starting in 2014, President Barack Obama's health care law will expand coverage to some 30 million uninsured people. At the same time, insurers no longer will be allowed to turn away those in poor health, and virtually every American will be required to have health insurance — through an employer or a government program or by buying it on their own.

    For the vast majority of people, the health care law won't mean sending more money to the Internal Revenue Service. But the wealthiest 2 percent of Americans will take the biggest hit, starting next year.

    And roughly 20 million people eventually will benefit from tax credits that start in 2014 to help them pay insurance premiums.

    A look at some of the major taxes and fees, estimated to raise nearly $700 billion over 10 years...

  • Washington Post: Five ways your health care will change in 2013. By Sarah Kliff. Excerpts: The Affordable Care Act’s biggest year is, without a doubt, 2014: That’s when the federal subsidies to purchase health insurance roll out. It’s also when penalties for not buying coverage kick in. But many of the big changes will start gradually in 2013. They range from increasing payments to Medicaid doctors to upping Medicare taxes to the exchanges’ very first open-enrollment period. Here’s a quick guide to what will happen in health care in the next year.

    Health-care cost growth will slow to a new low. ...

    Your Medicare taxes will increase. (If you earn more than $200,000 per year, or as a couple $250,000 per year). ...

    Your insurance plan will be explained in plain English. ,,,

    Primary care providers in Medicaid will get a 73 percent raise. ...

    The Obamacare exchanges will open for business.

  • USA Today: Health care law may help Baby Boomers. The federal government is moving forward with the Affordable Care Act. And Baby Boomers stand to gain the most. By Christine Dugas. Excerpts: Since the recession, Boomers have been hard hit by unemployment, shrinking nest eggs and rising health care costs. During those years, about 8.6 million Boomers were without health insurance, according to a special 2009 report by Commonwealth Fund.

    As the Boomer generation approaches retirement, many hope that the health care law will fill the void. "It is a game changer," says Ron Fontanetta, a health care group practice leader at Towers Watson. "It will provide health care access to pre-65 retirees in a very significant way."

    Retirees who have not reached age 65 are more at risk -- they don't qualify for Medicaid, and if their former employers don't offer retiree health benefits, they will not have a group discount.

    Also, it doesn't take much for a health insurance company to say that they have a pre-existing condition and deny them coverage, says Paul Fronstin, head of health benefits research at EBRI. Even if Boomer retirees can get a private health insurance plan, it will be very costly.

    Based on their age alone, Boomers have to pay prices that are five to seven times higher than younger Americans, according to AARP. But if early retirees can wait until the ACA takes effect, it will change the playing field, says Fronstin. ...

    The ACA also will change the labor force. Currently, Boomers may continue working longer than they want to keep health insurance, especially if they have pre-existing conditions. "ACA could change the dynamics in all kinds of ways," Fronstin says. "You could have people going to part-time work instead of full time. It is giving people choices."

  • Huffington Post: GOP Governors Deny The Poor Health Care In Opposing Obamacare's Medicaid Expansion. By Peter S. Goodman and Jeffrey Young. Excerpts: RUSTON, La. -- With no health insurance and not enough money for a doctor, Laura Johnson is long accustomed to treating her ailments with a self-written prescription: home remedies, prayer and denial.

    Over decades, she made her living assisting elderly people in nursing homes in jobs that paid just above minimum wage and included no health benefits. So even as her feet swelled to such an extent that she could no longer stuff them into her shoes, and even as nausea, headaches and dizziness plagued her, she reached for the aspirin bottle or made do with a teaspoon of vinegar. She propped her feet up on pillows and hoped for relief.

    "Before I got sick," she said, "I hadn't been to the doctor in 20 years."

    After she collapsed last year and landed in in a local emergency room, doctors diagnosed her with congestive heart failure, high blood pressure and hypothyroid. They ordered her not to work. She arranged a Social Security disability benefit, and she enrolled in Medicaid, the government-furnished insurance program for the poor. She used her Medicaid card to secure needed prescription medications. Her ailments stabilized.

    But this year, the state determined that the $819 a month she draws in disability payments exceed the allowable limit. By the federal government's reckoning, her $9,800 annual income made her officially poor. But under the standards set by Louisiana, she was too well off to receive Medicaid.

News and Opinion Concerning the "War on the Middle Class"
Minimize "It is a restatement of laissez-faire-let things take their natural course without government interference. If people manage to become prosperous, good. If they starve, or have no place to live, or no money to pay medical bills, they have only themselves to blame; it is not the responsibility of society. We mustn't make people dependent on government- it is bad for them, the argument goes. Better hunger than dependency, better sickness than dependency."

"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich." From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.

  • Wall Street Journal: Sometimes, Enough Really Is Enough. Excerpts: As 2012 comes to a close and you are deluged with news about the stock market's performance for the year, John C. "Jack" Bogle, pioneer of the low-cost index fund and founder of Vanguard Group, wants you to remember this: The stock market is a giant distraction from the business of investing."

    In his 60-year career, Mr. Bogle has witnessed what to him is a concerning shift from a world where long-term investing was the mantra to one in which short-term speculation is running rampant.

    And so, on the one-year anniversary of this column, I caught up with Mr. Bogle to discuss the difference between investing and speculating and, in the spirit of the holidays, what it means to have "enough."

    "People look at investing more or less as trading stocks or mutual funds or God forbid ETFs, and that has nothing to do with investing," he says. ...

    Consider: Annual turnover of U.S. stocks climbed from about 15% in 1951, when Mr. Bogle entered the investment business, to 100% in the 1990s to 280% in 2008 before dipping slightly to 250% in 2011.

    The problem with all that trading, he explains, is that, like casino gambling, it's ultimately a loser's game after transaction costs, advisory fees, sales loads and administrative costs are factored in. ...

    He writes: "... we Americans like to buy things—in abundance—before we have the cash to pay for them. We focus on today's wants rather than tomorrow's needs. Even our wealthiest citizens never seem to have enough. We compare ourselves with our neighbors and, since the realities of life can be so hard to overcome, we look to speculation—even at long odds—to lift us out of the everydayness of our lives."

  • Investment News: Enough already, UBS deserves the death penalty. Alleged Libor-rigging is the latest in a long series of scandals tied to the Swiss bank. By William D. Cohan. Excerpts: There is no point in mincing words: UBS AG, the Swiss global bank, has been disgracing the banking profession for years and needs to be shut down.

    The regulators that allow it to do business in the U.S. -- the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Office of Comptroller of the Currency -- should see that the line in the sand was crossed last week. On Dec. 19, the bank paid $1.5 billion to global regulators -- including $700 million paid to the CFTC, the largest fine in the agency's history -- to settle claims that for six years, the company's traders and managers, specifically at its Japanese securities subsidiary, manipulated the London interbank offered rate and other borrowing standards.

    Libor is a benchmark index rate, off which trillions of dollars of loans are priced on a daily basis. According to the Wall Street Journal, two of the many victims of the Libor fraud -- a scandal that so far has nabbed Barclays Plc and UBS but will probably include other large global banks -- were the quasi-federal housing agencies Fannie Mae and Freddie Mac, which together claim to have lost more than $3 billion as a result of the manipulation. ...

    “The alleged conspirators we've charged -- along with others at UBS -- manipulated the benchmark interest rate upon which many transactions and consumer financial products are based,” Attorney General Eric Holder said in a statement. “They defrauded the company's counterparties of millions of dollars. And they did so primarily to reap increased profits, and secure bigger bonuses, for themselves.”

    To see the level to which UBS employees descended, one need look no further than their written communications, as per U.S. prosecutors' document dump. “Mate yur getting bloody good at this libor game,” one broker told a UBS derivatives trader. “Think of me when yur on yur yacht in monaco wont yu.” ...

    In levying the record $700 million fine, David Meister, the CFTC's director of enforcement, said that “when a major bank brazenly games some of the world's most important financial benchmarks, the CFTC will respond with the full force of its authority.” That's good as far as it goes, and the CFTC is to be commended for rooting out the global Libor manipulation scandal.

    But an even more emphatic message needs to be sent to UBS by its prudential regulator in the U.S.: You are finished in this country. We are padlocking your Stamford, Connecticut, and Manhattan offices. You need to pack up and leave. Now.

  • Washington Post opinion: Tax fairness and the wealthy. By Ray D. Madoff. Excerpts: A central question for leaders confronting our fiscal crisis is fairness in the tax system — in particular, whether the wealthiest Americans are paying their fair share. While there appears — or, at least, appeared — to be some agreement between President Obama and House Speaker John Boehner that taxes on the wealthy must go up, the amount of the increase remains undecided. Many argue that the wealthy are already paying a disproportionate share of taxes, a view that new data from the Internal Revenue Service appear to support. Missing from the conversation, however, is an appreciation of the way these data fail to accurately describe the true income of the wealthiest Americans. ...

    People pay income tax only on amounts that Congress counts as income. This excludes the sources of revenue most commonly enjoyed by the richest Americans: gifts, inheritances, distributions from trusts and proceeds of life insurance.

    How much tax-free income do the wealthy enjoy each year? While we can all guess — and common sense tells us that the numbers are significant — we cannot know for sure. This income is not only tax-free, but there also is not even an obligation to report it.

    To illustrate the perversion of this system, imagine two taxpayers, each earning a salary of $50,000. Suppose, however, that during that same year one of the taxpayers is also the beneficiary of a trust that pays for his mortgage and all other living expenses. Suppose the same taxpayer, during the same year, also receives a $25,000 gift from his aunt and uncle, a $7 million inheritance from one set of grandparents and a $50 million distribution from a life insurance policy from his other grandparents. Even though we can all agree that this taxpayer became significantly more enriched than the other over the course of the year, our income tax system ignores all of this non-salary income and regards both taxpayers as if they were identical. Most surprising, the federal government has expressed no interest in even learning about any of these payments.

    Estate and gift taxes will play no role, either. These examples fit well within current exemptions, and even Obama’s plan to increase estate and gift taxes would still exclude from taxation all of the transfers cited above. ...

    Everyone agrees that fairness matters when it comes to income taxes. But we cannot have an honest discussion about tax fairness when we are kept in the dark about how much income people actually receive. Only when full reporting is required can we have an accurate picture of people’s true income. Then we can begin to fashion a tax plan that is fair for all Americans.

  • Associated Press: Ordinary folks losing faith in stocks. By Bernard Condon. Excerpts: Andrew Neitlich is the last person you'd expect to be rattled by the stock market. He once worked as a financial analyst picking stocks for a mutual fund. He has huddled with dozens of CEOs in his current career as an executive coach. During the dot-com crash 12 years ago, he kept his wits and did not sell.

    But he's selling now.

    "You have to trust your government. You have to trust other governments. You have to trust Wall Street," says Neitlich, 47. "And I don't trust any of these." ...

    Since they started selling in April 2007, eight months before the start of the Great Recession, individual investors have pulled at least $380 billion from U.S. stock funds, a category that includes both mutual funds and exchange-traded funds, according to estimates by the AP. That is the equivalent of all the money they put into the market in the previous five years.

  • Smirking Chimp: The Liberal Scrooges. By Richard Eskow. Excerpt: Liberals and progressives who want to cut Social Security? Democrats who want to cut one of their party’s signature achievements?

    “It has been done in your name, or at least in that of your family,” said Scrooge.

    As Christmas Eve approaches, supporters of the “chained CPI” are engaging in increasingly tortured – and positively Scrooge-like – arguments for the President’s callous and economically unsound proposal.

    And they’re doing it in the name of the “progressive movement.”

  • New York Times: Closing Loopholes Isn’t Enough. By Leonard E. Burman and Joel B. Slemrod. Excerpts: Republicans in Congress say they will do anything rather than raise tax rates. Apparently, that includes rushing headlong over the fiscal cliff and throwing the economy into a possible recession.

    When, in an effort to avert the now infamous tax increases and spending cuts to take effect on Tuesday, House Speaker John A. Boehner proposed his so-called Plan B — which would have nudged up tax rates only for those earning over $1 million a year — rank-and-file Republicans promptly rebelled, storming their party caucus with the rhetorical equivalents of pitchforks.

    One can’t argue with religion — and for some, the unwillingness to bend on marginal rates is just that. But for many politicians, the refusal to raise tax rates rests on a faulty premise.

    The Congressional Budget Office projects that if the United States follows a likely scenario in terms of demographic changes, spending and economic growth through 2035, America’s coffers may fall short by as much as $2 trillion a year in current dollars. With a predicted gap so large, any deal to restore the country’s fiscal balance must include at least some new revenue.

    But even those Republicans who acknowledge that additional tax dollars will be necessary say we can get what we need without increasing a single tax rate. All we have to do is close up some “loopholes” and “broaden the base”! We can keep in place the Bush-era tax cuts, they say, and make up any lost revenue simply by eliminating various deductions, exclusions and credits.

    At first glance, the idea seems great. Who wouldn’t want to root out the tax evaders and finaglers who are shirking the shared burden? And the idea of a broader base of taxpayers paying lower rates across the board sounds so much simpler and fairer for every citizen.

    But closing loopholes is neither sufficient to do the job nor as “fair” to everyone as it might seem.

  • AlterNet: Fiscal Cliff Hanger: Why Republicans Don't Care What the Nation Thinks. A weakened national party and more intense competition in primaries is making the Republican Party impervious to national opinion. By Robert Reich. Excerpts: Are House Republicans – now summoned back to Washington by Speaker John Boehner — about to succumb to public pressure and save the nation from the fiscal cliff?

    Don’t bet on it.

    Even if Senate Minority Leader Mitch McConnell cooperates by not mounting a filibuster and allows the Senate to pass a bill extending the Bush tax cuts to the first $250,000 of everyone’s income, Boehner may not bring it to the House floor. ...

    Public opinion is already running strongly in favor of President Obama and the Democrats, and against the GOP. In the latest CNN/ORC poll, 48 percent say they’ll blame Republicans if no deal is reached while 37 percent blame Obama. Confidence in congressional Republicans is hovering at about 30 percent; Obama is enjoying the confidence of 46 percent. And over half of all Americans think the GOP is too extreme.

    Yet Republicans haven’t budged. The fact is, they may not care a hoot about the opinions of most Americans. ...

    House Republicans don’t run nationally. They run only in their own districts — which, because of gerrymandering, are growing even more purely Republican. Their major concern is being reelected in 2014, and their biggest potential obstacle in their way is a primary challenge from the right.

    The combination of a weakened national party and more intense competition in primaries is making the Republican Party relatively impervious to national opinion.

    This poses a large strategic problem for the Democrats. It could be an even bigger problem for the nation.

  • Charlotte News & Observer: Fix the debt? What of private pensions? By Scott Klinger. Excerpts: While America’s CEOs are fretting about the government’s so-called “fiscal cliff,” millions of American workers face a financial disaster that gets much less media attention. There’s a half-trillion-dollar deficit in the nation’s worker retirement benefits.

    The Great Recession, which decimated retirement assets, played a big role in building this lesser-known cliff. But many corporations could have avoided the problem by shoring up these funds during the boom years. Instead, they siphoned pension assets for other profit-boosting purposes. When the pension deficits started to balloon, many corporations responded by slashing back their benefit programs.

    As a result, Americans today are more reliant on government-funded Social Security and Medicare programs than at any other time in the last 60 years.

    What’s even more outrageous is that the very same CEOs who have contributed to rampant retirement insecurity are now calling for cuts to these earned-benefit programs for senior citizens.

    Nearly 100 CEOs have banded together in an effort to convince the American public that Social Security and Medicare lie at the root of America’s fiscal challenges.

    Their “Fix the Debt” campaign features plain-spoken Americans in their ads and sounds moderate because they call for both spending cuts and revenue increases. But the real objectives of the campaign include massive new corporate tax cuts and reduced spending on Social Security and Medicare, which would likely involve raising the retirement age.

    American workers, at present, cannot collect Social Security and Medicare until age 66, the highest retirement age among rich countries. In 2020, the Social Security retirement age will rise to 67, assuring that American workers will be toiling longer than those in any other industrialized country for years to come. In contrast, Japanese and Chinese workers can collect their equivalent of Social Security starting at age 60.

    The Fix the Debt campaign’s CEO supporters need not worry about Social Security because they’re members of the “I’ve Got Mine Club.” Fifty-four of the CEOs leading Fix the Debt directly benefit from lavish executive retirement programs. Their collective pension assets total $649 million, which comes to more than $12 million per CEO. That’s enough to garner a $65,000 retirement check each month starting at age 65 that will continue for as long as they live, according to a new report by the Institute for Policy Studies, which I co-authored. In contrast, the average retiree receives just $1,237 from Social Security each month.

If you hire good people and treat them well, they will try to do a good job. They will stimulate one another by their vigor and example. They will set a fast pace for themselves. Then if they are well led and occasionally inspired, if they understand what the company is trying to do and know they will share in its sucess, they will contribute in a major way. The customer will get the superior service he is looking for. The result is profit to customers, employees, and to stcckholders. —Thomas J. Watson, Jr., from A Business and Its Beliefs: The Ideas That Helped Build IBM.

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