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Pensions - Duke Energy Employee Advocate

Pensions - Page 4 - 2000

" Slaves lose everything in their chains, even the desire of escaping from them" - Rousseau

Stop Approval of Cash Balance Pension Plans

Press Release - September 29, 2000

WASHINGTON --- US. Representative Rob Andrews (D-NJ-01) and U.S. Senator Tom Harkin (D-IA) today released a General Accounting Office (GAO) report urging the Internal Revenue Service (IRS) to stop the approval of Cash Balance Pension Plans until the Department of Labor and the Department of the Treasury can complete a full review of these plans and their effects on American workers' retirement benefits.

"This report is a ray of light peeking in on companies converting their employees pensions to cash balance plans, exposing the potential for age discrimination. I applaud the GAO for calling on the IRS to suspend cash balance pension plans until there are more comprehensive worker protections in place," Harkin said. "While many companies talk about how younger workers may benefit from converting to cash balance plans, the report shows that conversions can be devastating for older workers. It is not uncommon for older workers to face a loss of more than a quarter million dollars in benefits because of cash balance plan conversions."

"I am deeply concerned regarding the GAO's findings given that their research demonstrates that these cash balance plans are potential harmful to older American workers who are very close to retirement age and are depending on these assets," said Andrews. "I recognize that we must provide employers the requisite tools to attract and retain talented employees but we must not do so on the backs of the hard working Americans who have helped to get us this far."

Currently, about 19 percent of Fortune 1000 firms sponsor cash balance plans that cover an estimated 2.1 million active participants. The reasons given for the proliferation of these plans are the ability to reduce total pension costs, increase portability to enhance the recruitment of younger or more mobile workers and the capability of adding a lump sum benefit feature that can be used to better explain pension benefits to workers.

According to the GAO study, cash balance plans leave older workers at a tremendous disadvantage because these plans decrease the rate at which normal retirement benefits accrue therefore raising the age at which an individual can retire with full pension benefits. In addition, this report illustrates that, prior to conversion, many older workers were participating in defined benefit plans in which the proportion of benefits they were earning accelerated the longer they were employed at the company. Under the cash balance plan, the percentage at which these older workers are accruing benefits is reduced during the very period of their careers in which they would have been receiving the highest percentage of their pension.

In response to these findings the GAO has recommended the following to alleviate the problems associated with cash balance plans, including:

  • Amend ERISA to require firms to provide participants with more timely information, in plain language, about plan changes that can reduce future pension benefits.

  • Amend ERISA and the Code to establish requirements that would prevent firms that convert to cash balance plans from creating a wearaway period at conversion on the value of prior accrued benefits.

  • The relevant federal agencies should take steps to clarify how these plan designs will be treated under current pension law.

  • The Secretary of the Treasury direct the Commissioner of the Internal Revenue to establish a moratorium on determination letters approving cash balance or similar hybrid plan designs until IRS acts on our recommendations by promulgating comprehensive regulations addressing these plans and develop a regulatory framework that would recognize and provide comprehensive requirements for cash balance plans.

  • The Secretary of Labor should direct the Assistant Secretary of the Pension and Welfare Benefits Administration, under authority provided by ERISA, to amend the disclosure requirements for summary plan descriptions and summaries of material modifications to plans to include clear statements regarding the hypothetical nature of cash balance accounts, to identify the potential of the conversion to reduce future pension accruals and early retirement benefits, and to develop standardized language that firms may use to meet the amended disclosure requirements.

  • The timeframe in which notice about plan changes that can reduce future benefits accruals should be provided increase from the current 15 day time frame to no less that 90 days.

Andrews, the Ranking Democrat of the Employee-Employer Relations Subcommittee that over sees pension law requested this report in response to the growing practice of employers converting traditional defined benefit pension plans to cash balance plans. Harkin, a member of the Senate Health, Education, Labor and Pensions (HELP) committee, is a leading advocate for ensuring that workers get their full pension and the author of the "Older Workers Pension Protection Act" (S. 1300). This legislation is intended to curb the disturbing trend in which the pension benefits of many older workers are frozen for years when a company switches pension distribution plans.

"If the pension bill comes to the Senate floor before Congress adjourns, I am planning to offer an amendment to provide meaningful protection for workers from the abusive practice, where older workers see their already accrued pension benefits worn away by companies that reduce their pension benefits," Harkin added.

Open Pension Letter to Congress

Duke Energy Employee Advocate - September 27, 2000

This letter, which has been signed by employees representing many companies, is being hand delivered to all senators now. The letter opposes the Roth pension bill and supports Senator Harkin's amendment.





(Requesting Senate to Vote "NO" to Sen. Roth's pension proposals & "YES" to Sen. Harkin's Amendment):

When the Senate Finance Committee unanimously passed the markup of HR 1102, they probably did not realize they essentially gave a green light to one of the largest financial scandals in history. Senator Tom Harkin (D-IA) has publicly come out against it and will be offering an Amendment to address the primary concerns which would at least put a hold on or delete the stealth wording currently in Senator Roth's proposal which is bad news for employees with cash balance pension plans; plans where employees have already earned "early retirement subsidies"; and could legitimize cash balance conversion violations in ongoing lawsuits. The issues involved are very complex. Congressman Bernard Sanders (I-VT) has spoken out against the Age Discrimination and this legislation (Reference: We have high hopes that Senators will carefully scrutinize the real intent of the Sen. Roth proposals and vote NO for the Sen. Roth submission and YES for Sen. Harkin Amendment.

Please take the time to examine the issues raised by this OPEN LETTER TO CAPITOL HILL, and support Senator Harkins' cash balance pension amendment on this issue. Should such amendment fail, or the detrimental wording not be removed, then please vote against the entire bill. Please do not allow Congress to be stampeded into passing legislation that will kill any chances for redress in the court system by employees who have already been robbed of significant percentages of their earned pensions under current law, courtesy of the ERISA Industry Committee and other corporate financed lobbyist efforts.

An extract of Senator Harkin's proposed amendment/press release follows:

"The Committee's bill also allows employers to violate a number of existing worker protections. For example, it appears to eliminate important age discrimination protections. In doing so, it seems to invalidate a number of age discrimination lawsuits. It appears to undercut the current EEOC study of this issue." and appears it may implicitly adversely affect existing litigations such as the "11th Circuit ruling in Lyons v. Georgia-Pacific Corporation that requires corporations to provide protections for lump sum determinations for employees."

"It is my intention to offer an amendment on the Senate floor that offers meaningful protection for workers rather than changing the law to eliminate their existing rights."

Senator Roth (R-DE) and his cohorts, have already hoodwinked many representatives (House & Senate of both political parties) into voting for their markup proposal.

There is devastating wording that could kill the early retirement provisions already earned by employees, reduce past earned and future retirement earnings of the majority of the US work force, legalize cash balance plan conversions (where corporations are already in violation of existing law, as reported by a number of experts in the pension & pension law field) that are already under scrutiny and investigation by the EEOC, DOL, IRS, etc. Our elected representatives have NO BUSINESS trying to step into this at all, especially having a hand in legitimizing present and prior employer violations. We ask our representatives to vote YES for Senator Harkin's amendment; if it doesn't pass, we then ask that all references to 'cash balance' and 'early retirement' provisions' be removed (leaving focus on the IRA and 401(k) limits ONLY); OR VOTE "NO" to the entire Sen. Roth pension proposal.

Ever since Congress passed IRC Section 411(d)(6) as part of the Retirement Equity Act of 1984, the industry-supported lobbyists have been trying to get rid of it. Their first inroad was the Treasury regulation (in 1988 or so) that allowed them to eliminate the early retirement subsidy if the benefit was paid as an optional 'reduced' immediate annuity prior to age 65. Now, it appears, they are trying to use conversions to cash balance plans to eliminate the early retirement subsidies also. This is simply wrong to eliminate and/or drastically reduce the already earned pre-65 benefits, especially since most aging Americans are being forced to leave early (not by choice) and have already earned "early retirement subsidies".

In summary, the following are the primary concerns with Senator's. Roth's pension proposal and the items raising these concerns MUST be removed.. Senator Harkin's Amendment will address these concerns, so we hope all will vote "YES" to Senator Harkin's 'Cash Balance" Amendment and "NO" to Senator Roth's proposal.

  1. Do not legitimize cash balance plans or undermine ongoing lawsuits against them.

  2. Do not remove any protections on earned early retirement subsidies.

  3. Any ban of wear-away must protect earned early retirement subsides.

  • Age Discrimination: The bill must clearly state that 'hybrid' plans such as cash balance plans ARE NOT exempt from Age Discrimination (current verbiage implicitly indicates otherwise), most especially on conversions already enacted under current ADEA and ERISA regulations. Do not legitimize cash balance plans or undermine ongoing law suits on this matter. REMOVE ALL REFERENCE TO "CASH BALANCE" HYBRID PLANS or VOTE "NO" to Roth's proposal.

  • Wear-Away & Early Retirement Subsidies: ANY ban of wear-away must protect the "early retirement subsidies" that many employees have already earned. Current verbiage indicates only age 65 wear-away may be banned which is basically worthless and provides no protection at all to the average American worker who has already earned "early retirement subsidies". REMOVE ALL REFERENCES TO "EARLY RETIREMENT SUBSIDIES" or VOTE "NO" to Roth's proposal.

  • "Timely" Disclosure to Employees: The bill must provide employees with a comparison of annuities and relative actuarial value under the old and new plans so that employees can readily do a relative compare of the actuarial value of old and new plan -- most especially urgent for employees who are provided choices between plans, but needed for all employees.

  • Verbiage Made Public for Review/Discussion: The fact that the precise markup verbiage for all Senators and the affected public was not made available timely enough for proper and thorough review (and no additional markup was allowed) before full Senate vote, is a grave concern to many. Many feel this delay may have been an attempt to try to push through legislation without the required review, discussion and markup.

  • The touting of raising IRA and 401k limits (that would benefit a very small select group of higher paid workers) is deemed to be a cover-up to what they are really trying to accomplish. It seems this is all just a pretext the industry is using to push through all the other detrimental wording in this legislation proposal that could reduce & eliminate pensions to millions of Americans -- merely to superficially prop corporation's bottom lines with vapor profits, deceiving investors while robbing employees.

  • In addition, the elimination of the automatic reporting of the "Summary Annual Report" (SAR), as now slated in the 'Roth Retirement 2000' bill is not acceptable. The law currently requires that the SAR be distributed automatically to all plan participants (each year in the case of plans with 100 or more members; every three years for others). Senator Roth's bill would eliminate this currently required automatic distribution.

Those that support the verbiage included in Senator Roth's proposal (as-is) are likely to become known as the supporters of one of the "LARGEST FINANCIAL SCANDALS IN U.S. HISTORY."

Please help put a STOP to this scandal - VOTE NO to ROTH; YES to HARKIN! This proposed legislation is reportedly going for full Senate vote within the next week or so. PLEASE HELP preserve the earned and due retirement benefits of the U.S. workers (your voting constituents) and save our U.S. economy BY VOTING "NO" to the likes of Senator Roth's proposal and BY VOTING "YES" to Senator Harkin's Amendment.

The Employee's Petition Against Age Discrimination and Senator Roth's pension proposals was online and viewable through midnight, Sunday, September 24, 2000 at below URL. A copy of the Petition, number of signatures, and States represented that signed the Petition are attached to this letter.

(may not be linkable or viewable "online" after midnight, September 24, 2000, as it closed and full list of signatures and Petition mailed out the letter from to Senator Roth on the Petition close date of September 25, 2000 - so we have attached copy to this Open Letter To Capitol Hill).

Thanking you in advance for your attention and support on this serious matter.


Lynda P. French
IEBAC Board Member, Cashpensions Webmaster/Spokesperson, and Alliance@IBM/ CWA Member
Cashpensions "Multi-Company" Employee Website:
Alliance@IBM/CWA Website: CWA: Alliance@IBM/CWA
Austin, Texas (IBM Retiree)

Co-signers to OPEN Letter to Capitol Hill follow:

Tom Ainsworth
Current SBC Employee
Danville, CA

Linda M. Allen
Austin, TX

Calvin Arnason
IBM Employee (26+ years service) - Currently in IBM Global Services
Portland, OR

Harry Ballard
Ultimate Marketing Inc. Employee (previously worked for IBM)
New Orleans, LA

John T. Brown, Jr
IBM Retiree
Ottsville, PA 18942

Lee Conrad
National Organizer
Alliance@IBM/ CWA
Website: CWA: Alliance@IBM/CWA
Endicott, NY

Bill Costine
IBM Employee
Beacon, NY

Charles B. Dupree, VP, NAPRI
National Association of Prudential Retirees
Website: NAPRI: National Association of Prudential Retirees and Vested Terminators, Inc (r)

Paul R. Edwards, Chairman
Coalition for Retirement Security
Phone/Fax (413) 796-1710
Springfield, MA 01118-2410

Mary Fletcher
ACE Corp Website: (AT&T Concerned Employees Council on Retirement Protection (ACE CORP))
AT&T Employee
Tampa, Fl

David Gabry
IBM employee & Alliance@IBM/CWA Member
Olivebridge, NY

Chuck Grandstrand
Onan Retiree
Wyoming MN 55092

Artie Jones
The Boeing Co.
Systems Adminstrator 33+ years
Huntington Beach, CA

Katie Jones
IBM Employee
Dallas, TX

Janet Krueger
IEBAC Website:
IBM Employees Benefit Action Coalition (IEBAC) Board Member & Spokesperson
Rochester, MN

Andy Lang
Retired Pension Actuary from Pennsylvania

Stephen Langlie
ONAN Retiree
Chisago City, MN 55013

Edith Lueke
IBM Employee
Rochester, MN

Bill & Maria MacDonald
ONAN Corporation Retiree
Blaine, MN

Peg MacPhail
Tivoli Employee
Austin, TX

James J. Mangi
IBM employee since 1989 (currently in IBM Global Services, Southbury, CT)
Alliance@IBM/CWA Member and Organizer
Danbury, CT

Jimmie Eugene Matthews
Duke Energy Employee Advocate Website:
Duke Energy Corporation
Denver, NC

Bill McGreevy, Jr.
IBM Southbury Employee

Debra Rosenbaugh
AT&T Employee
Atlantic Beach, FL 32233

Corinne Rosenbaugh
North Florida University, Student (Junior)
Atlantic Beach, FL 32233

Donald W. Shuper
BROL Website:
Boeing Retirees on the Line (BROL)
Redmond, WA

Rose Sylvia
Personal Website:
Prior IBM Employee (recently resigned after 23 yrs service)
Lott, TX

Daryl Spartz
IBM/Whistle Communications
Foster City, CA

Frederick C. Stanley
IBM Employee (23+ years service) - Currently in IBM Software Group
Massapequa, NY

Wyn Triska
Portland General Electric (subsidiary of Enron)
Estacada, OR

Donald P. Valk
Lucent Retiree & CWA Member
Austin, TX

Janice Winston
Verizon/Bell Atlantic Employee Coalition for Retirement Security (BAECRS) Website:
Verizon Employee Coalition for Retirement Security (formerly Bell Atlantic)
Philadelphia, PA

Roger K. Winters
ACE Corp Website: (AT&T Concerned Employees Council on Retirement Protection (ACE CORP))
AT&T Retiree
Winter Springs, FL


1) Copy of e-thepeople Petition Against Age Discrimination and Senator Roth's markup
2) List of Numbers Of Petitioners, by State (from above Petition attachmen)

The letter and attachments may be viewed by cliking the link below:

Why ERIC is Screaming

Duke Energy Employee Advocate - September 25, 2000

ERIC is screaming, crying, and blubbering to The Treasury Department. Their world is falling apart.

The Treasury Department has made some very sound proposals that could solve virtually all the cash balance pension plan injustices.

If The Treasury has offered sound proposals to solve pension problems, why is ERIC screaming in pain? Because their stock in trade is manufacturing the very problems that The Treasury wants to fix!

The only way ERIC can make money for their large employer bosses is by lobbying for money to be taken from your pension. That is their sole reason for existing. ERIC (and the APPWP) have spent years scheming to bilk the American workers out of their earned pensions. They are highly upset now that a strong light is being directed toward their dastardly practices!

The Treasury Department pension proposals were revealed in a letter to Senator Thomas A. Daschle from Acting Assistant Secretary Talisman.

These two proposals would solve many of the problems that have caused the pension revolt:

  • Meaningful disclosure of the money taken from employees.

  • Prohibition of wearaways in cash balance conversions including early retirement benefits.

The Treasury knows that disclosure alone is almost worthless. They also know that prohibition of wearaway alone would be virtually worthless. The prohibition must include early retirement subsidies.

You know that The Treasury Department is on the right track by listening to the howls of ERIC. The Treasury is working with Congress to try to fix the problems created by self-serving lobbyist such as ERIC.

We trust that The Treasury Department will continue on the right track.

Letter to Senator Daschle on Cash Pensions - Slow to load, but worth the wait.

Job Separation Benefits Were Protected

Spencernet - September 20, 2000

A permanent job separation benefit provided under a pension plan constituted both an early retirement benefit and a retirement-type subsidy protected by ERISA Sec. 204(g) and therefore a plan amendment that eliminated the benefit violated ERISA. This was the decision of the Third Circuit U.S. Court of Appeals in Bellas v. CBS, Inc. and Westinghouse Pension Plan (No. 99-3775).

Harry Bellas was an employee of CBS and its predecessor, Westinghouse Electric Corporation, from 1964 until Dec. 31, 1997, when he was terminated due to lack of work. Prior to 1994, the Westinghouse Pension Plan provided permanent job separation benefits to employees meeting specified age and service requirements who were terminated as a result of a "permanent job separation," which was defined as "the termination of the employment of an employee through no fault of his own through lack of work." The monthly amount of the permanent job separation benefits depended upon an employee's age and length of service with the company.

On Jan. 1, 1994, the Westinghouse plan was amended to alter participants' entitlement to the permanent job separation benefits in two respects. First, the amendment made it more difficult for participants to qualify for the benefit after Jan. 1, 1997, by narrowing the definition of "permanent job separation" to include only a job movement, product line relocation, or location shutdown. Second, the amendment eliminated the permanent job separation benefit entirely for terminations on or after Sept. 1, 1998. At the time of his termination, Mr. Bellas would have qualified for the permanent job separation benefit under the pre-1994 version of the plan; however, as a result of the plan amendment, he no longer qualified for the benefit.

In 1998, Mr. Bellas filed suit against CBS and the Westinghouse Pension Plan in the U.S. District Court for the Western District of Pennsylvania, alleging that CBS impermissibly amended the pension plan by first narrowing, and then eliminating, the plan provision that provided special retirement benefits to senior employees terminated as a result of a "permanent job separation." According to Mr. Bellas, the plan amendment had the effect of eliminating or reducing an early retirement benefit or retirement-type subsidy in violation of ERISA Sec. 204(g). The district court granted summary judgment in favor of Mr. Bellas, and the Third Circuit affirmed that ruling.

The Third Circuit's Analysis

Initially, the Third Circuit cited ERISA Sec. 204(g)(2)(A), which prohibits plan amendments that eliminate or reduce an early retirement benefit or a retirement-type subsidy. The Third Circuit then observed that ERISA does not specifically define the terms "early retirement benefit" and "retirement-type subsidy," and that the federal courts have split over whether job separation benefits such as those provided under the Westinghouse plan are subject to the anti-cutback provisions of ERISA Sec. 204(g).

In rendering its decision, the Third Circuit relied on the Senate Report on the Retirement Equity Act of 1984, which added early retirement benefits and retirement-type subsidies to the list of benefits protected by ERISA Sec. 204(g). According to the court, "As an initial matter, the concept that all plant shutdown benefits, or any similar contingent benefit, cannot be a protected retirement-type subsidy runs contrary to the legislative history of section 204(g). As noted in the Senate Report, 'a subsidy that continues after retirement is generally to be considered a retirement-type subsidy.' The Senate Report considered only a plant shutdown benefit that does not continue after normal retirement age not to be a retirement-type subsidy. Thus, the Senate Report clearly suggests that plant shutdown benefits that continue after normal retirement age are retirement-type subsidies--a conclusion consistent with Congress' intended general rule that subsidies continuing past normal retirement age are to be considered retirement-type subsidies."

On appeal, the defendants argued that even if ERISA Sec. 204(g) protects contingent event benefits that continue beyond normal retirement age, such benefits cannot be considered accrued until after the contingent event has occurred. In rejecting that argument, the Third Circuit explained, "There is nothing in the language of section 204(g), or its legislative history, to suggest that a contingent event benefit accrues only upon the occurrence of the contingency. The plain language of the statute reveals that once a benefit is found to be a retirement-type subsidy, it is considered an accrued benefit."

Based on its analysis, the Third Circuit concluded, "We hold that unpredictable contingent event benefits that provide a benefit greater than the actuarially reduced normal retirement benefit are retirement-type subsidies, and therefore are accrued benefits under section 204(g), if the benefit continues beyond normal retirement age. Such benefits are accrued upon their creation rather than upon the occurrence of the unpredictable contingent event. Our result is consistent with both the language of section 204(g) and its legislative history."

Our Mortal Enemy: ERIC

Duke Energy Employee Advocate - September 20, 2000

If you are a working American with pension benefits, ERIC is your mortal enemy. Their goal is to destroy you financially. The pension money that they can siphon from your pocket goes straight to the large employer's pockets, minus a cut for the lobbyist, of course. ERIC stands for The ERISA Industry Committee. ERISA stands for The Employee Retirement Income Security Act. At first glance, the name seems to imply that ERIC might be an organization to aid employees. Whether this deception is intentional or incidental, the only help ERIC will do is to help themselves to your earned pension benefits. Under their name is the statement "Representing the Employee Benefits Interests of America's Largest Employers." That statement says it all: if they are representing the interests of America's largest employers, then they are certainly NOT representing your interest. Their game is simple; the more money that comes out of your pile, the more money that goes into the employer's pile, always with the obligatory lobbyist cut.

The lobbyists are making money, the employers are making even more money, why is everyone not happy? You know the answer to that one. You know where the money is coming from - your pocket!

Throughout history there have always been those who found working for their own money to be too hard. They found it to be much easier to plunder the money that others have worked for over their lifetime. This parasitical organization is alive and well today, but they are afraid. They realize that, day by day, more employees are catching onto their game. Congress will only play ball with ERIC until it starts costing them.

If each worker would make it unmistakably clear to the members of Congress that they will not tolerate ERIC dictating their retirement future, ERIC's influence would drop to near zero overnight!

ERIC is in pain and is howling. Let's make them howl even more.

On September 14, 2000, ERIC sent a letter to the Secretary of the Treasury. ERIC is pleading because they fear the pension industry may face real regulation. Any new regulation will come as a direct result of the pension plundering that has already taken place. Bank robbers do not want laws against robbing banks!

Do you want a good laugh? ERIC claims that they are writing because they are concerned that the Administration's proposals will hurt workers. They must have borrowed that one from the employers. Each time an employer takes something from an employee, it is always to help the employee. It is getting very hard to survive with all this "help" we are getting.

ERIC does not want employers to actually have to tell the employees how much money has been taken from them. What is their compelling reason for this? It would be "confusing and misleading."


Have you ever heard a more ludicrous, nonsensical statement? The pension revolt that has been going on for well over a year is because we want and need hybrid pension plans?

Here is another good one: "ERIC's members are committed to preserving a robust pension system that can adapt to changing times." "Changing times" is a code term for relieving employees of benefits. Anytime you hear rhetoric about changing times, some of your benefits are going out the window. They are going out the window and straight to the employer's bottom line.

ERIC says "The Administration's proposal is overkill and is not doable." The proposal is very doable. ERIC and the employers just do not WANT to do it. If the employers have to start coming clean on exactly how much retirement funds have been taken from employees, the employees who are now asleep, will rise up in protest. They already have just a little more protest than they want right now!

ERIC say disclosure is "complex and burdensome." The employee who lost 50 percent of his pension may have found it to be burdensome. Now, ERIC is crying because the employers may have to confess to exactly how much money has been taken. What will they ever do if the courts decide the money must be returned to the employees? What will they ever do if it is determined that criminal laws were broken in the pension raiding process?

ERIC does not want wear away to be eliminated. Wear away is the period that employees really lose money. It is the years that they will work and earn zero pension benefits!

ERIC does not want early retirement benefits reinstated. When an employee's early retirement subsidy is eliminated, that is when his retirement future is devastated. That is when he finds that all the company's retirement promises have been lies.

We need ALL of the Administration's proposals. We also need for ERIC to take a long walk off a short pier.

If you have a strong stomach, you can read ERIC's letter at the link below:

Stop Discriminatory Pension Provisions

September 19, 2000

Employees from IBM, Verizon and other companies are delivering a petition to Senate leaders to urge them not to legalize age discrimination in the Retirement Security and Savings Act (H.R. 1102), scheduled for a Senate vote in coming days.

The employees, and representatives from national and grassroots employee and retiree organizations, will hold a media briefing on Wednesday, September 20 at 3:00 p.m. in 332 Russell Senate Office Building to discuss why the cash balance provisions in the bill should be stopped and why an alternative amendment sponsored by Senator Harkin should be passed

The ad hoc coalition -- which includes the IBM Employees Benefits Action Coalition (IEBAC), the Alliance@IBM/ CWA, Verizon Employees, the Pension Rights Center, the Coalition for Retirement Security, AARP and the National Committee to Preserve Social Security and Medicare - has taken issue with both the substance of the bill and the process by which the provisions were adopted.

"The cash balance provisions were added at the eleventh hour without employee review or input," says Karen Friedman, the Director of the Pension Fairness Project of the Pension Rights Center. "These provisions will legitimize discriminatory practices and inadequately address the "wear-way" problem where companies effectively deny older workers the right to earn new benefits under the cash balance plan. These provisions must be stopped."

The ad hoc coalition is urging the Senate to strip the Retirement Security and Savings Act of the cash balance provisions and replace them instead with an amendment to be offered by Senator Tom Harkin (D-IA) that will more adequately protect workers interests.

Press Release on Cash Pensions

Cash Balance Pension Plans

Congressman Bernie Sanders - September 15, 2000

As you may know, I strongly believe that cash balance pension plans violate the pension age discrimination laws that are on the books.

Since 1985, despite large profits and growing surpluses in their pension funds, twenty percent of Fortune 500 companies and over 300 companies in all have slashed the retirement benefits that they promised their employees by imposing a cash balance plan. Many more companies are contemplating similar action.

Not only is this trend outrageous, it is also illegal under current law. Cash balance schemes violate age discrimination laws because they cut the accrual rate of pension benefits as a worker gets older. Workers should not have their pension benefits reduced just because of their age.

In fact, the Equal Employment Opportunity Commission has received over 800 complaints of age discrimination from employees at over 30 different companies as a result of cash balance pension plans.

I expect that many of you here today have a unique opportunity to do the right thing. You have the opportunity to protect millions of employees at IBM, AT&T, Bell Atlantic, CBS and others that have been negatively impacted by age discrimination as a result of a cash balance pension conversion. Some of you in this room may have the power to allow these workers the opportunity to choose which pension plan works best for them. I urge you to do so.

IBM employees received a surprising 28.4 percent of the vote in support of a stockholder resolution to restore their pension and retiree medical benefits. As you know, this was surprising because it is extremely rare for a stockholder resolution that is opposed by management to receive more than 3 percent of the vote. Large institutional investors that normally vote with management decided to vote with the employees on this issue because they felt it was the right thing to do. Some of you are here today, and I applaud you for your efforts.

As you know, the IRS has placed a defacto moratorium on tax determination letters for companies that have converted to cash balance plans.

The AARP, the Pension Rights Center and 60 members of Congress wrote to the EEOC, the IRS and the Treasury Department to make the case that all cash balance plans violate the age discrimination laws found in ERISA, the ADEA and the Internal Revenue Code.

I think the law is clearly on our side. That is what AARP thinks, that is what the Pension Rights Center thinks, and that is what 60 Members of Congress think. But, most importantly it is what millions of American employees believe. Ask a 39-year-old employee who has been working with IBM for 19 years who will be receiving a 50 percent reduction in retirement benefits as a result of a cash balance plan if he is not being discriminated against.

Unfortunately, the Senate will soon consider legislation that may attempt to allow companies to get away with age discrimination by converting to a cash balance plan. I believe this is wrong and I am fighting against it.

Cash balance schemes are nothing but a replay of the corporate pension raids we experienced during the 1980's. While these companies claim that they are converting to cash balance plans to attract younger workers into their workforce, the fact of the matter is that cash balance plans are intentional attempts to slash the pension benefits of older workers.

The reason why large corporations are targeting their older workers' pensions is easy to understand. Millions and millions of Americans in the so-called "baby boom" generation are rapidly approaching retirement age. Companies that reduce the pensions of older workers will thus realize tremendous cost savings when these people retire.

Companies claim that they are converting to cash balance schemes to attract a younger, more mobile workforce. But, worker mobility is not the rationale for converting to a cash balance plan, money is. As 11,000 people a day turn 50, which cash balance promoter Watson Wyatt claims will turn us into a "Nation of Floridas," employers are looking for any way possible to reduce older workers' promised benefits. This is outrageous.

But, what is even more outrageous is that they are not being honest to the employees whose pensions they are slashing. As Joseph Edmunds stated at a 1987 Conference of Consulting Actuaries, "It is easy to install a cash balance plan in place of a traditional defined benefit plan and cover up cutbacks in future benefits."

Congressman Sanders' Pension Page

Disclosure Obligations Under ERISA

Federal Register - September 14, 2000

SUMMARY: This document requests information from the public concerning disclosure obligations of fiduciaries of employee benefit plans governed by ERISA. A principal component of ERISA's regulatory scheme is its specific disclosure rules, which generally impose two types of obligations on plan administrators: (1) Obligations to disclose certain information to plan participants and beneficiaries automatically; and (2) obligations to disclose certain information upon a participant's or beneficiary's request. The Department of Labor solicits comments in this document regarding the effect on employee benefit plans and employers of recent rulings of the United States Supreme Court and federal circuit courts regarding the extent of an ERISA fiduciary's duty to disclose information to participants and beneficiaries in addition to the specific disclosure requirements imposed under ERISA. The Department of Labor has in the past expressed its views on this matter by filing amicus briefs in related court cases. It intends to use the information submitted in response to this document as a basis for determining whether it would be appropriate for the Department to take more general action on these issues, such as by proposing regulations or legislative amendments.

DATES: Written comments are requested to be submitted to the Department of Labor on or before January 12, 2001.

ADDRESSES: Comments (preferably, at least six copies) should be addressed to:

The Office of Regulations and Interpretations
Pension and Welfare Benefits Administration, Room N-5669
U.S. Department of Labor, Washington, D.C. 20210
Attention: Disclosure RFI.

All comments received will be available for public inspection at the Public Disclosure Room, Pension and Welfare Benefits Administration, U.S. Department of Labor, Room N-5638, 200 Constitution Avenue, NW, Washington, D.C. 20210.

(For more information, read the full notice by clicking the link below.)

Pension and Welfare Benefits Administration Request for Information Notice

Pension Revolt Catches Fire

AARP Bulletin - by Trish Nicholson - September, 2000

Longtime employees say they want their "just due."

A grass-roots movement is gathering steam as employees and retirees of some of the nation's largest corporations band together to fight an erosion of pension benefits.

Using the Internet to orchestrate their campaign, the activists charge that changes in pension plans are threatening retirement savings and security for millions of Americans.

They are calling for full disclosure of how these changes affect individuals' benefits. They're fighting against cuts in pensions and retirement medical benefits and demanding cost-of-living adjustments (COLAs) for retirees.

Moreover, they're taking their grievances to Congress, the courts, the media and sometimes even their companies' shareholder meetings.

"This is the beginning of a pension revolution in America," says Karen Friedman, director of the Pension Fairness Project at the Pension Rights Center, a nonprofit watchdog group in Washington. "This should be a warning to employers that employees will not sit by idly while companies slash their benefits in the name of global competition. Employees are going to organize ... and they are ultimately going to win." Employee activists from IBM made inroads when the Securities and Exchange Commission (SEC) overruled Big Blue's effort to bar stockholders from considering an employee-sponsored resolution at a shareholders meeting in Cleveland last spring.

The proposal called for giving all IBM employees a choice between the company's old and new pension plans and restoring cuts in retirement medical benefits.

Although no debate was allowed before the vote, the proposal garnered 28 percent of stockholder votes-well over the 3 percent needed to guarantee it a place on next year's agenda...

  • Janice Winston, 47, pigeonholes a U.S. senator on Capitol Hill to press for laws requiring companies to clearly explain how changes in pension plans specifically affect each employee. Bell Atlantic changed plans in 1996, when she was a 22-year employee, but it took her three years to decipher what the changes would mean to her retirement.

  • Helen Quirini, an 80-year-old General Electric retiree, faces management across a bargaining table, pleading for COLAs for GE pensioners. The fixed incomes of some elderly retirees have deteriorated because of inflation to below the poverty level, Quirini says, noting that members of GE's board of directors get annual pensions of $75,000.

  • Jim Matthews, 53, of Duke Energy joins activists from four other companies in meeting with high-level officials from the U.S. Departments of Labor and the Treasury. The July 25 session culminates in a press conference where a Labor Department official announces the agency will seek public comment on whether employees are getting sufficient information on how changes in pension plans affect.

At the heart of the activists' complaints is a corporate trend to replace traditional retirement plans with so-called "cash-balance" plans. More than 300 U.S. companies switched to these plans in the last few years, until the Internal Revenue Service in essence put a moratorium on in 1999, pending a federal investigation of whether such conversions discriminate against older employees.

Critics say that because benefits accrue differently under the new plans, midlife workers with about 20 years of tenure get the worst of both worlds when their companies switch. Some stand to lose 20 percent to 50 percent of the benefits they would have accrued under the traditional plans.

An AT&T employee, who asks not to be identified, tells the AARP Bulletin he had planned to retire at age 55 with an annuity he calculated at $68,000. With the company's conversion to a cash-balance plan, he figures his annuity will amount to no more than $38,000.

Burke Stinson, a spokesman for AT&T, says companies are moving away from a paternalistic philosophy of compensation: Businesses no longer assume that they know "how to take care of you . . . [rather] the enterprise is giving you money to take care of yourself." But Paul R. Edwards, chairman of the Coalition for Retirement Security, says, "If you lose half of your expected retirement benefits at age 50, you can't go to another corporation and make that up.

It's too late. It's over, Charlie. It's gone." The coalition is an umbrella advocacy organization representing more than 1 million employees and retirees nationwide. Its membership has more than doubled in just the last-year.

A group of IBM employees were the first to object publicly to a cash-balance conversion. The clamor began in May 1999, and four months later-days before a Senate committee hearing on the issue-IBM more than doubled the number of employees allowed to choose between the traditional and the cash-balance plans. Still, more than half of its U.S. employees were not given a choice. Other companies have made concessions, too:

In January, three years after Bell Atlantic instituted its cash-balance plan, management announced a new arrangement for 20,000 employees with 15 or more years of tenure: Each will receive the amount that would accrue either under the company's new plan or under a modified version of the old, whichever is greater.

And in April, General Electric gave its retirees their first pension increase in four years, although the company declined to institute regular COLAs.

Activists claim that in a long-running bull market, with pension funds earning high investment returns and largely overfunded, companies - using those funds to bolster their income statements.

James Leas, the engineer and lawyer who penned the IBM employees' shareholders resolution, is now calling on the SEC to enforce its directive requiring companies to explain fully in their annual reports how much of their reported income comes from pension funds.

Activists are keeping the pressure on through litigation as well. Employees at several companies have filed lawsuits charging employers with violations of the Employee Retirement Income Security Act (ERlSA). And the Equal Employment Opportunity Commission is investigating more than 700 claims alleging cash- balance conversions violate the Age Discrimination in Employment Act.

Meanwhile, activists are pushing a legislative agenda in Congress to beef up pension protections. Plan administrators should be required, for example, to provide participants with annual statements summarizing their accumulated benefits, says Janet Krueger, a spokeswoman for the IBM Employee Benefits Action Coalition (EBAC).

In July the House passed an amendment sponsored by Rep. Bernie Sanders, I-Vt., that would prohibit the IRS from awarding tax-exempt status to any pension plan that discriminates on the basis of age. And cash-balance critics are hoping that when Congress returns from its Labor Day recess, the Senate will take up legislation championed by Sen. Tom Harkin, D-Iowa, that would further curtail age discrimination in cash-balance conversions.

The ERlSA Industry Committee, which represents employers, says the House measure was based on an "erroneous belief" that cash-balance plans violate age discrimination laws.

But Sanders maintains that reducing workers' pensions as they get older is "not only illegal" but "absolutely immoral." While moral outrage keeps the movement burning, the Internet provides the means to organize. For workers whose companies are spread out at multiple sites across America, employee-sponsored Web sites have become-like the water coolers of yore-places where workers exchange unsanctioned information. "The Internet actually gave employees a way to get together and put tremendous pressure on the employer from all different fronts," says Norman Stein, a law professor at the University of Alabama. Without Web sites and e-mail, that would have been almost impossible, he says, because "the opportunities to do that at work are very limited, and the consequences are pretty extreme." "Before we had the Internet, what could you do, gripe to your office mate?" asks retired IBMer Lynda French, who developed the first employee Web site on cash-balance plans.

At least half a dozen pension rights groups now offer Web sites where members can study the issues, calculate their benefits, post messages, write openly or anonymously to corporate executives, issue press releases and weigh in with members of Congress and other policy-makers-all from the privacy of their home computers.

"We know how to use the Internet," says IEBAC's Krueger. "We built it, we can use it to pull people together."

Benefits Link

The link below is slow to load. It is a full color reproduction of the original AARP article:

Click the link below to see the letter that started it all:

Employee's Letter to the Department of Labor

Mr. Smith Goes to Washington

Spraying For Roaches - Part Two

Duke Energy Employee Advocate - 8/7/2000

Ellen Schultz is mixing some strong insecticide. When "The Wall Street Journal" published her article "Companies Find Host Of Subtle Ways To Pare Retirement Payouts," the APPWP was flushed out of the woodwork. It seems that they did not like the article.

"The Wall Street Journal" published "'Phased Retirement' Option for Workers Is Mainly a Boon for Their Employers," by Ellen Schultz, the same day. This article has flushed out more vermin! Watson-Wyatt appeared from some damp, dark place screaming and crying about the article. And just what business is Watson-Wyatt in? They sell management consulting. They sell cash balance pension conversions. They sell phased retirement plans. Watson-Wyatt, along with William M. Mercer, slid the knife into the backs of the IBM employees via the cash balance plan.

Were their toes stepped on? Their toes were stomped. Their main stock in trade is operating in the shadows and selling companies ways to secretly remove money from the employee benefits program. Now just how are they going to do that if Ms. Schultz keeps exposing their scams in "The Wall Street Journal"?

The whining from these groups with a vested interest in keeping employees in the dark and maintaining the status quo, is always what could be. Sure, cash balance plans could be good for employees. Phased retirement also could be a benefit to employees. But, in these cases, the companies would not be able to take huge sums of money out of the benefits program. We all know how these nifty new programs are usually implemented - to take the maximum amount from the employees. They could serve ice cream in Hades, and when these employer groups get there, they can look around for it!

Below is a link to the article that started Watson-Wyatt crying:

'Phased Retirement' Option for Workers Is Mainly a Boon for Their Employers

Spraying For Roaches

Duke Energy Employee Advocate - 8/4/2000

Ellen Schultz wrote a powerful article which was published July 27, 2000 in "The Wall Street Journal." "Companies Find Host Of Subtle Ways To Pare Retirement Payouts" revealed the truth of how some large companies have been looting from the employees for at least a decade. These companies have been reducing employee's benefits in every way possible. Until now, they have been successful, for the most part, in hiding their looting.

The hard hitting article was like strong roach spray. And sure enough, the roaches have started wobbling out of the woodwork! The first to stagger out was The Association of Private Pension and Welfare Plans (APPWP). This group is bought and paid for by large corporations. They did not like the article. There was just too much truth in it for them to tolerate. This group lives by operating in the shadows, back room deals, and cultivating the good old boy network. The truth will send them scurrying every time. Their job used to be a lot easier until the public became aware of the type of employee rip-offs this group promoted. The public is finding them out. People in Washington are finding them out. Their power is diminishing. They are reduced to sobbing when things do not go their way. APPWP probably really stands for "Agonizingly Poor People Without Pensions."

If there was any doubt about what a great article Ms. Schultz wrote, there is none now. The fact that the APPWP does not like it - means that the article hit home.

Hidden Crimes; Too Many Secrets

Benchmark Financial Services - August 1, 2000

Major Securities Fraud Bust Nets 120" and "Funds Rocked By Stock Scandal," were both headlines within the last month involving money managers and pension funds. It seems that every week in newspapers around the country, reports about improprieties and illegalities involving money managers and pension funds appear. While isolated incidents are reported, the investing public and the beneficiaries of the nation's pension funds seem unaware of just how widespread the abuses are. The financial press is partially at fault for seldom writing comprehensive stories tying current incidents to similar abuses in the past. But that's not where the bulk of the responsibility lies

Securities regulators, law enforcement agencies, pension fund executives and the money management industry itself, together, are responsible for the lack of public awareness of the dangers related to the management of the nation's retirement savings. There has been a concerted effort to conceal the wrongdoing from investors by everyone who might be held accountable, including pension trustees and plan administrators, pension staffs and money managers. And the regulators have let it happen.

As the practices of the regulatory agencies have become lax and predictable, the ability of money managers, including mutual fund managers, to manipulate information regarding their operations and performance has grown.

Today the largest money managers have access to powerful law firms, public relations specialists, industry lobby groups (the Investment Company Institute, in particular) and such cozy relations with regulators that they can be assured, except in the most blatantly mismanaged cases, that they can conceal any unethical or illegal practices in which they engage.

The largest money managers can literally control the information the investing public receives.

Sound unbelievable? Let me give you a typical example

A multi-billion dollar pension fund hires a well-known money manager to manage its assets. A trader employed by the manager discovers the senior portfolio manager handling the pension account has been involved in an illegal brokerage commission kick-back scheme. The trader reports the matter to his firm's director of compliance. The compliance director, a lawyer, patiently explains that as an employee of the manager there is little he can do other than discuss the matter with senior management-a small group which includes the guilty portfolio manager. He further explains that he is bound by the attorney-client privilege from disclosing information about his client to law enforcement. Finally, he reminds the trader that all employees of the manager have signed, as a condition of employment, a restrictive employment contract with heavy financial penalties for employees who say anything derogatory about the firm. He advises the trader to keep silent. The trader, afraid of losing his job and the money he has saved over the years, nevertheless takes the extraordinary step of anonymously reporting the matter to the pension fund. All's well that end's well? Hardly

The pension fund threatens suit; however, the manager offers to reimburse the fund for "its losses," if the fund agrees to a confidentiality provision as part of a settlement agreement. Pension officials, seeking both to avoid public embarrassment related to hiring the rogue manager and a speedy way to recoup fund losses that are difficult to quantify, agree to the settlement offer and confidentiality provision. The fund is reimbursed for what must be termed "uncertain" losses, because absent a formal investigation it is generally impossible to definitively establish the extent of the harm. Finally, as is often true in these cases, the fund continues to leave its money with the manager so as to avoid questions related to a termination. There is no notification of law enforcement. And when the Securities and Exchange Commission arrives within five years or so for its regularly scheduled inspection of the manager, the trader will either have been fired or learned to keep his mouth shut and any documents related to the incident will be withheld from disclosure to the regulator under the attorney-client privilege. The lawyers have done their job, hopefully the fund hasn't been hurt too badly and the manager and pension executives have all saved face. Unfortunately, the full extent of the loss is never established and any losses related to other illegal practices of the manager are left undiscovered. In other cases, none of the stolen money is ever recovered and the manager is quietly fired. Only in the rarest of cases does the manager both have to reimburse the fund and disclose the wrongdoing.

Under any likely scenario, the beneficiaries of the pension fund never learn they have been robbed and other investors that may have been victimized by the manager are never warned. The manager is free to continue to tout its unblemished reputation.

The problem is, it is in no one's interest that the fraud be publicly addressed, except the beneficiaries, of course.

Welcome to the real world of money management today. It's a world where the laws have been effectively undermined through a concerted effort by the parties to the wrongdoings, where the reality behind "reputable" money managers and "sophisticated" institutional pension fund investors is completely divorced from public perception and where the information the public receives is easily manipulated. As the percentage of the nation's population approaching retirement grows, the numbers that will be turning their eyes toward scrutinizing their retirement accounts will also grow. For many retirement savers it will be a rude awakening when they realize that the fiduciaries they hired or elected did not diligently fulfill their duties over the years.

Today the federal securities laws offer a lessening degree of protection to investors in mutual funds and money management firms and are more misleading to investors than ever.

The intent behind the Investment Company Act of 1940, which regulates mutual funds, and the Investment Advisers Act of 1940, which regulates money managers, was to provide investors with the important information they needed in order to determine whether to invest with a given manager and to judge the ongoing performance of their managers. These statutes are premised upon the notion that full disclosure of information regarding managers, including adverse information, is necessary for investors to make sound decisions regarding their money. In some cases, the laws require that disclosure be made directly to the investor or potential investor. In other instances only disclosure to the securities regulator is required-the public never learns.

For example, mutual fund "codes of ethics," internal policies regarding trading for personal profit by fund managers, while required by statute to be available for SEC review, until recently were not required to be shown to investors. Codes of ethics, required by law for the protection of investors, not required to be shown to investors? It never made any sense. Yet before the SEC changed the law last year, for almost thirty years no mutual fund company would provide a copy of its code to investors when asked. Why would the SEC permit this concealment? Because the SEC struck a compromise with the mutual fund industry to limit attention to the very real dangers personal trading by managers poses to clients.

Today violations of the personal trading rules by portfolio managers, such as front-running, which cause substantial monetary harm to investors, are still not required to be shown to investors. Why wouldn't the SEC require public disclosure of such wrongdoing by money managers? Records of wrongdoing by brokers involving theft, drunken driving, sexual abuse of children, assault, are all publicly available, much to the chagrin of the brokerage community. Why should money managers be treated any differently? Nondisclosure provides no benefit to investors; rather, it is the mutual fund companies themselves who benefit and they have secretly lobbied the SEC to keep the law unchanged. As a result, under current law it is virtually impossible for mutual fund investors to ever learn when their portfolio managers have engaged in such abuses. That is not to say violations of the personal trading rules are rare.

In our opinion, all records and documents money managers and mutual funds are required to keep under the federal securities laws for review by the SEC, should be made available to the public. The SEC should get out of the business of determining what information investors get to see and when.

All-too-often the SEC cooperates with managers to delay damaging disclosures that would cause a "run on the bank." The result is that investors are lulled into a false sense of safety, reassured that any misdeed by their manager was superficial and ancient history, and disreputable managers are permitted to continue fleecing the public.

The first step in providing investors with a more complete picture of money managers is to make public all records required by the federal securities laws. But we can go far beyond closing these "loopholes" in the Investment Company and Advisers Acts that permit illegalities and improprieties to remain concealed.

Today the SEC and the federal securities laws actually stand in the way of investors seeking accurate and complete information about the money managers they hire.

Sound too harsh? Technological advances permit disclosure far beyond what the laws require and have for quite some time. It didn't take the internet to pave the way; the internet only made possible on an hourly or daily basis what previously was possible weekly or monthly. Greater disclosure, if compelled by public outcry, could transform the money management business and prove the undoing of many managers. As a result, the money management industry is now clinging to the federal securities laws to shield it from curious investors. So much for laws that were enacted "for the protection of investors." But weaknesses in the federal securities laws are not solely responsible for the lack of investor awareness of money management illegalities.

Restrictive employment agreements crafted by law firms to protect their money management clients from nasty disclosures, have further undermined the effectiveness of the federal regulatory scheme.

Managers have grown increasingly bold in the scope of activities covered by their employment agreements and the coercive penalty provisions imbedded in them. These employment agreements have gone well beyond their original purposes of preventing portfolio managers from competing against their former employers. (Even the existence of a non-compete should be disclosed to clients because such an agreement may affect a client's ability to retain a portfolio manager upon leaving his firm and may result in substantial unnecessary transaction costs should the client terminate the firm.) Over time the SEC has ignored developments in the use of restrictive employment agreements, despite some well-known legal cases, and has allowed money managers through use of such agreements to undermine the law. These agreements are no longer limited to portfolio managers, but often include all senior management, such as marketers, in-house lawyers and compliance officers. They often prohibit the dissemination of any disparaging information, including information regarding illegal or unethical activity of the manager. Agreements may also prohibit the commission of any act that could be construed by the manager as "harmful" to the manager. Through the establishment of severe financial penalties for poorly defined "offenses," employees can be terrorized into believing that any act of conscience can result in financial ruin, loss of reputation and permanent unemployment.

In our opinion, the SEC should establish standards for the use of restrictive employment agreements by money managers.

Restrictive employment agreements should be required to expressly state that no penalties can be applied to an employee who reports unethical or illegal activity of the manager. Investors should also have access to such agreements in order to judge the intentions of the money manager/employer and the likelihood that violations may go unreported as a result of employees entering into the agreements.

However, restrictive employment agreements are not the only devices money managers use to hide their mistakes from investors. Employment agreements only silence employees. Money managers also regularly enter into confidential settlement agreements with institutional clients who have been victims of illegal or unethical manager conduct.

A confidential settlement agreement might involve misrepresentation of the credentials or identity of the portfolio manager, or using an undisclosed affiliated broker for all portfolio trades, or operating a hedge fund to the detriment of clients. Facts or occurrences such as these are important to investors in determining whether to hire a manager and should be disclosed. Yet frequently such violations go unreported because managers persuade their pension fund clients that either little harm has been done or that they can easily reimburse the client for any loss and that the matter is "not serious."

Because they have access to information unavailable to ordinary investors, the staffing to review such information and detect abuses, as well as the financial wherewithal to pursue wrongdoing, pension funds frequently enter into confidential settlements with managers. Once the matter has become the subject of a confidentiality agreement, the money manager will usually withhold it from regulators and law enforcement pursuant to the attorney-client privilege. Pensions entering into these agreements often don't realize the harm they are doing. The violations they have detected may only be the tip of the iceberg. There may be far more serious violations and/or the number of investors harmed may be far greater than the pension imagines. The manager may misrepresent or minimize the extent of the violations, or even be unaware of how widespread within his organization the problems may be.

In our opinion, money managers should be broadly prohibited from concealing in settlement agreements, information which, if disclosed, would be "material" to prospective investors.

Any agreement relating to matters such as compliance violations, misrepresentation, fraud, or an investment loss suffered by a client should be disclosed to the public. The Commission should send a clear message that parties entering into agreements to treat confidential, matters that should be disclosed under the securities laws, are themselves "aiding and abetting" violations of the law.

The SEC has ignored the effects of confidential settlement and restrictive employment agreements upon the money management industry for too long. These private agreements enable the money management industry to maintain the illusion of respectability it enjoys. Reputable managers who have nothing to hide should not oppose disclosure of such agreements and managers who are unwilling to disclose, do not deserve the public's blind trust. However, deep-pocketed managers need not go it alone in their quest to maintain an "illusion of respectability."

Today savvy money managers are using public relations firms to disseminate misleading information to the public-information the managers themselves are prohibited under the federal securities laws from advertising.

Testimonial messages mysteriously appear in online "chat rooms" and supportive "letters to the editor" appear in newspapers nationally whenever certain managers are openly criticized. Is it mere coincidence? Do these managers really have loyal clients strategically dispersed around the country ready to rally in their defense? Many large managers have discovered that they can employ public relations firms to accomplish indirectly what the federal securities laws prohibit them from doing directly, e.g., to misrepresent their investment performance or how they manage money or even to defend them against allegations of unethical conduct or criminal wrongdoing. This disturbing practice has not caught the attention of securities regulators to date. We all know that corporate America employs public relations firms for these purposes; however, public relations firms, when representing money managers subject to the federal securities laws, may cross the line and fraudulently misrepresent the manager to the public. As far as the public relations firm is concerned, all's fair in marketing and war. The conduct of public relations firms in representing money managers and public companies generally needs to be examined, including the instructions they receive from their clients.

This article is just the beginning of an exploration of the devices money managers and pensions use today to conceal illegalities and improprieties from investors and beneficiaries. The statutes governing the money management industry were drafted sixty years ago and always had "loopholes." In addition, despite efforts by regulators to keep pace with developments in the industry, managers have over the years skillfully found ways to circumvent the disclosure provisions of the federal securities laws. When necessary, managers have lobbied the SEC against improved disclosure; the Commission has become accustomed to weighing the interests of managers, including managers' privacy concerns, against those of investors. Whenever a compromise regarding manager disclosure obligations has been struck, investors have been the losers.

At this point in time, the cumulative body of secret information about the money management profession is truly staggering. Our informal survey suggests that all large pension funds and money managers have entered into agreements to conceal information from beneficiaries and investors. The practice of concealment has become routine and uncontroversial. Even the SEC no longer seriously questions its practice of withholding information about manager wrongdoing from investors. When you consider how vast this body of secrets is, you arrive at the conclusion that if all the secrets were told, a very different and far scarier portrait of the money management industry would emerge.

Pensions - Page 3 - 2000