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IBM Pension

I have a daughter in med school and she has worked in our local hospital. As a future doctor she is concerned about rising health costs and there is much active debate among the students and professors.

One reason is another example of "follow the money". Most technical advances are used to "add on" yet another costly test or procedure instead of being directed to productivity of providing lower cost medical services which is the key driver of business. Doctors have a motivation to make more money like everyone else but they can make more by selling a few Lexus instead of more Chevs so there is little motivation to make the average doctor call less expensive but a lot to add another test to the process. Unless the insurance companies put pressure on doctors to increase productivity and not restrict access there is no end to this since its more profitable to "keep us alive" indefinitely until our money is gone.

The other reason is that there is a federal law that mandates that anyone showing up at a hospital emergency room must be treated whether they have insurance or not.

This has lead to a dramatic escalation in ER attendance and costs. The current ER cost per visit in our local hospital is now over $1200. We have over 10 million illegals (almost 10% of Mexico and that figure is probably low ) in the USA now and going higher by the day. She worked with many people in the hospital with low wage jobs. They too use this loophole to get free treatment for minor illnesses like colds since they only have to pledge to "try" to pay back the hospital...and these people "work for" the hospital...there is no process to deduct this from their salary its all passed on to those who do have insurance or pay cash.

All that "free" treatment is an increasing part of the this double digit increase in health costs than now we as IBM retirees will have to pay. This is yet another cost of illegal immigration that our broken immigration system is "dumping" on the middle class for the advantage of greedy corporations and their "in the pocket" pols.

I have heard all the pols say that whatever "fix" for our broken borders we will not deport these illegals even after some date set in the future. What kind of mad logic is that? The message is clearly get "over the border somehow and you can stay as long as you want" and btw we will have an amnesty program periodically to make you citizens.

What can you do about it? Why not just go to the ER room now like these people do for any kind of minor problem and don’t tell them about your insurance. Some of you may laugh at this as being extreme...the day is coming and sooner than you think…when many of us will not have any other choice.

This is a comment on the Employee Advocate article “The IRS Looks at Executive Compensation.” It was made by retired actuary, Andy Lang:

They should begin by looking at the major management consulting firms with Executive Compensation practices. No outrageous executive comp ever occurred without these consultants helping.

And, coincidentally, these firms also happen to have as employees the vast majority of pension actuaries.

Or is it a coincidence?

The IRS Looks at Executive Compensation

(9/24/03) - I left IBM because seeing in the HR departments the abuse and discrimination that was going with the more senior employees. I also saw many records in abusing the pension plan that were duly earned by employees. I just could not take it anymore. I was not sleeping good at night knowing that I was part of a company that did not care about their aging employees.

(8/8/03) - Let IBM know your sick of their screwing around with our pensions! IBM lost the pension suit, Cooper vs IBM on ALL counts!

IBM, stop the goofy letters about appealing this case for the sake of IBM employees and America! Clean up this age discrimination pension mess now!

We want pension remedy NOW IBM! Not a time wasting, money wasting appeal!

I recall Gerstner responded to those who protested the pension reductions in 1999 to "Put it behind you and move on."

Now that the IBM won their case, IBMers need to tell MacDonald, Gertstrner, Palmisano and the other IBM "alibabas" to take their own advice: Don't appeal the verdict - "put it behind you and move on."

Kathi, thanks for posting this. I know a LOT of people who have sent you "cards and letters" of congratulations and many thank-you's for your longevity and courage in putting up the good fight against the (we know arrogant behemoth) IBM. So many are grateful for what you (and all others involved in making this lawsuit happen, including Janet Krueger!)have done.

Linda

> --- In ibmpension@yahoogroups.com, "kathicooper" wrote:

> I want to thank everyone that has supported this case.

> This is to everyone that has contacted me since Thursday:

> I am overwhelmed with calls (both my IBM line and my private line) and with e-mail
>(both my IBM ID and my personal ID). I am quite comfortable in saying I have heard
>from at least 1,000 of you…

Dad worked for IBM for 40 years. He built the first computer that IBM ever sold. He retired in 1989. He is in excellent health and thanks you for fighting the good fight.

My brother has worked for IBM for 27 years as a software engineer, and I have worked for IBM for 24 years as a hardware technician (we build the guts of the mainframe).

We are overjoyed with the decision (of the court in favor of employees’ pensions being returned). Thank you!

Scott G.

I got an interesting comment on the show from a staffer on Capitol Hill:

"As usual, Janet, you ruled! Way to go! I don't have to tell you what a fight we'll have on our hands when Congress gets back in session in September.

Look out for Portman-Cardin as the vehicle that every CEO in America will be looking at to legalize age discrimination in cash balance plans.

They may have to call in the Capitol Police again! Have a great weekend."

If you have a chance to talk to your representative and Senators this summer, tell them how important pension protection is, and let them know that you don't want them meddling with our right to a day in court!

Janet

(5/3/03) - Some people have wondered whether some of us working against cash balance plans have a persecution complex -- the government couldn't really be working with companies like IBM to retroactively legalize pension theft, could they???

It is enlightening to read through the web pages of Convington and Burling, the firm representing IBM in Cooper v IBM.

>> Regulatory Relief. We not only have helped clients make their way through the thicket of applicable legal requirements and defend against adverse litigation, but also have helped to secure significant regulatory relief that has removed many legal obstacles from that thicket. For example, on behalf of The ERISA Industry Committee, we helped to persuade the Treasury Department to modify many of the regulations issued under the Tax Reform Act of 1986 to accommodate legitimate business practices. In addition, on behalf of the same client, we successfully petitioned the Internal Revenue Service to expand and liberalize its self-correction programs, such as VCR and APRSC. <<

Also the last service listed at the very bottom:

>> legislative and rulemaking work, including delivering formal testimony and written comments for the record, making informal presentations to technical staff and key decisionmakers, and drafting suggested legislative and regulatory language. <<

As the proverbs said -- even if I do have a persecution complex, somebody might be following me!

Janet

(4/11/03) - The main focus of the proposed Treasury regulations is to change the age discrimination tests in ERISA law that the Treasury uses to test whether a pension plan discriminates against older workers.

The consultants and corporate representatives at the hearing, as well the treasury panel itself, spent most of their time talking about how to ensure that the new test accommodates all the 'good practices' companies have used in their conversions to cash balance and other hybrid pension designs. Some consultants even insisted that the new test must accommodate any new designs companies might invent in the future. One of them insisted that since no company would go out of its way to alienate its workers, even if it were perfectly legal, and since he has never seen a company with a plan design that discriminates against its workers, a general test that accommodates any kind of plan design would be best...

There was also a lot of discussion about whether it is legal for Treasury to define new age discrimination tests, and whether such tests would fit within Congress' original intent...

My remarks:

============

Treasury needs to take a step back and focus on what is actually happening in the real world -- in other words, look at what real companies are doing to their workers, and how the workers are reacting. It is clear to me that while traditional pension plans were 'employee retention' vehicles, meaning they encourage workers to stay with a company until they reach full retirement, the plan conversions are being set up to encourage workers to leave... It is outrageous that the Treasury would issue regulations that sanction giving tax preferences to companies for using a pension fund to make older workers quit early. While your tests might not show that these plans are discriminatory, shouldn't it be clear there is discrimination involved when thousands of older workers react by quitting their jobs and filing EEOC charges??? You said you talked to the EEOC about the regulations -- did you discuss the patterns to find out how many workers think they are being discriminated against, or did you discuss how to 'adjust' the rules so that EEOC could shut down all the charges and not be bothered with lengthy follow-up???

Most of the consultants talk in black and white terms about companies who convert from traditional pension plans to cash balance plans. They talk about 'wear away' not being a significant problem, because it isn't significant when averaged out over an employee's career... Here again, you need to take a look at the real world. IBM converted my pension FOUR times in the 90s -- each time my earned benefits came close to catching up to my frozen protected benefits, they changed the plan again... Older workers at IBM in the 90s, who thought their dedication to their company was earning them good pensions when they retired, were actually earning no benefits at all!!! Companies have threatened that if the compliance rules are too strict, they won't provide pension plans at all. You've suggested workers would rather sacrifice part of their pension than see it dropped entirely... But you're not paying attention -- the problem is that when workers THINK they are earning pension benefits, and in reality are not, they don't compensate by saving money for themselves. If a teenager comes to you for advice about sex, and you tell him if that if he does engage in sex he needs to at least do it safely, would you offer him a box of comdoms that have been sitting on the shelf for 30 years and are full of holes??? NO!!! You know he is FAR BETTER OFF if he KNOWS he doesn't have any protection...

Your job is to make sure the Treasury rules promote retirement SECURITY. Allowing companies to do anything they please, regardless of how it impacts the workers, does NOT fill that objective.

Some of the consultants have suggested that the proposed regulations need to be issued so that small and medium-sized companies will be able to offer cash balance plans to their workers. These regulations are not defining a good vehicle for them either... That is why the Treasury needs to withdraw the regulations, and let Congress do their job. Congress needs to invent a pension vehicle that would be affordable for smaller companies, and that would support both younger and older workers. The convoluted 500-page plans large companies have been implementing, that require annual support from high paid consultants and actuaries, and let them artificially pad their bottom lines, are NOT such a vehicle.

I offer you a fact sheet that covers my initial views on what a good cash balance law might be. Withdraw the regulations, and let Congress take over and do the work that needs to be done.

Thank you.

===========

Btw, the consultant who insisted that in all of his years of experience, he has never seen an actual pension plan that discriminates against older workers in the ways so many of the employees who spoke at the hearing were claiming, happens to be one of the lead attorneys working for IBM on Cooper v. IBM!!!

Janet

(4/11/03) - We arrived at the hearing with posters in hand. It was cold and rainy and they would not unlock the doors because there was not enough security. Everyone waited, us, attorneys, industry pros, press. Next, the police came and confiscated the signs then asked for our protest permit. We gave them the permit, but the signs had already been confiscated. OOPS... 30 minutes later, they finally opened the doors. Bags checked and body checked with handheld scanners.

The room was huge granite and gold and kind of reminded me of a palace. Industry and attorneys sat mostly on the right or center. Employees mostly on the left or center. (I wonder if that was a Freudian slip or what) Press everywhere and anywhere they wanted to be. We met a lot of nice reporters. Even went to eat with them.

Panel up front, on stage. Podium with a 10 minute timer to the left.

First was Congressional speakers. Miller, Sanders, and Emanuel. Emanuel is good, I liked him. They spoke about the Pension Protection Act they had just introduced in the House. (PLEASE GET YOUR REPS TO SIGN THIS TIME!)

First at bat was Beth Murphy. Give her the award of courage. Never done this before, she stepped right up to the plate and told them how it was. Super gal... Just super...

She was followed by Joyce Migdall. Again, told the truth, and it hit hard. A diminutive woman with guts.

Graff of the ASPA spoke (snoooooze)

John Vine spoke. He was the stiffest stiff there. He was so stiff, he looked like he could stand up straight in a coffin. Actually, he had a lot to say. I respected him and his speech. I don't agree with it, but it was good and I respect it. Try reading it sometime....

Linda Guyer was great. Told them how it was for us and defended us quite well. Thanks Linda and the Alliance...

Lofgren of WW next. Slick, Misleading as usual....

Mary Vogel spoke about the stay-at-home-moms. Truth is, is you are one, you might as well pack it in and get a job and forget about raising a family. She also questioned them on why they can't represent us. We pay taxes as well as corporations do!

Lazzaro Cutrone was super. He enjoyed himself up there, telling them his truth. Confident, bold remarks. He also networks with a lot of retirees. Very interesting person...

BTW, notice I am not mentioning the companies these employees may be from. That is because some do not want anyone to know.

Janice Winston traded places with Norman Stein. Norman is soooooo good. The panel really kept him a long time, asking tons of questions... Later down the speakers list, one of the industrialists said 'don't pay attention to those university professors...' (Norm is a university prof) GO NORM!

Janet Krueger asked a lot of questions, of which she got no answers... (Thank you, next please?)

Jane Banfield is a diminutive person, maybe 5 ft tall, if she takes in a deep breath. She grew to 6 feet during her speech, telling them her story...

Kathi Cooper showed some anger and turned over an exhibit dated 1990 from Faegre & Benson. This caused Hurb Forcier of Faegre & Benson to get rather miffed at her, later in the hearing.

Andrew Amante was super. A real veteran (yes, a real one) and he came to attention and told the panel how it was.

BTW, I would like to say that the panel was really great. They did listen to us. They did react. I watched them. Some are jerks and some are not. They were gracious and inquisitive. If there was only one thing that I would have improved upon, it would have been that they should have asked more questions of the employees. We were prepared. We were ready. I heard they did not question us, out of courtesy. I regret they didn't. It would have been OK to do so.

Back to the schedule...

Cissna of the Coalition to Preserve the Defined Benefit System spoke (nap time, eyes rolled back into my head...)

Towers Perrin spoke. It was right out of the 'how to say only good things about CB plans' manual.

Metras of Kodak spoke. She hung around a lot with Buck Consultants and the Covington & Burling gang. BTW, everyone is on a first name basis at the hearing. Even during the testimony, it was not unusual for them to say 'Mike says such n such, and Richard stated this n that...' Geez! A little too close if you ask me...

Sher of Buck Consultants spoke. He brought with him Terry! Terry is the mother of our plan (or was she the wicked witch of the west?) She was rather miffed about all this bruhaha and I don't think she quite understood why she had to go through all this stuff. She also has more candles on her birthday cake than she could possibly blow out. Still, I respected her. She demanded it.

Hewitt talked. Not bad, but again, right out of the 'how to talk only good about CB' book.

Norby and Gordon of the NRLN spoke. BLUE RIBBON WINNERS. They guys have been around long before ERISA was ever invented. They were sooooo good. They were kept a long time by the panel, asking many, many questions and getting in very good debate. Some of the attorneys that were seated were ready to jump up and take over the podium. You could see it in their red faces.

The AAA spoke (ho hummmm....) (are all actuaries really that boring? A = yes)

The American Benefits Council was very interesting. I expect to see a lot of their material show up in the revised regs. Not that I agreed with anything, but they were prepared and had a lot to demonstrate. They were also questioned at considerable length by the panel.

Stephen Bruce, Plaintiff Attorney, spoke. He was great! They worked him for about 20 mins and that was after his 10 minute testimony. He has CB pegged. I could just envision him doing this in front of the Supreme Court someday...

Certner of AARP spoke. He was good, but then so is AARP. They kept him up there for a good 15 mins too.

Hurbert Forcier of Faegre & Benson came to the podium a little PO'd at Kathi Cooper and told the panel to read her exhibit if they want to, but she was obviously an emotional woman.

Ed Fuller spoke. He is a large man with a heart even larger than life. He let them have it, with grace... He was excellent!

Richard Shea of Covington & Burling stated something like 'don't pay attention to the employees cause they don't necessarily tell the truth.' (Did I hear you just call us liars? If so, I'll meet you in the alley)

There were other industry pros, but they put me to sleep....

Breaks were short and lunch was over at the Ronald Reagan building every day. Suppers were fun!

We worked hard for three days. 3???? Yes, I said three days. The first day there, we met with Sanders, Miller, and Emanuel over in the Rayburn building for the kickoff of their Pension Protection Bill. (PLEASE GET YOUR REPS TO SIGN THIS TIME!)

Next, we met with Senator Durbin's staff over in the Dirksen building to discuss the parallel Senate Pension Protection Bill. (PLEASE GET YOUR SENATORS TO SIGN IT TOO!)

I've withheld a lot of 'stuff'. If anyone else wants to contribute, have at it....

I just called the Treasury. I asked for a transcript. They said it will be on-line beginning on Monday. This is the best way to do this. After it is online, please read it all yourself. This way, you can fully understand what was being dished out, what was really under consideration, and what fix was already in the pocket.

Re: Andy, are you speaking at the April 9 IRS hearing?

I will be on vacation in Italy from March 16 to April 10.

However, I will send my letter to the IRS and tell them not to allow corporations and actuaries off the hook on cash balance plans, explain why cash balance plans are so terrible, how to fix them and if they are interested, what must be done to do the major reform needed for our very broken private pension and retiree medical system.

I will make them an offer to appear before any and all committee's that deal with these areas after I return.

As a bonus I will briefly mention that Social Security and Medicare are not actuarially sound, how to fix them too, and make a similar offer.

Doing all of these things will, as I have said for years, be a huge positive not just for people in America but also for the world--the developed nations of the world ALL have huge problems with Social Security, most of them larger than the U.S.--and importantly for the economy and capitalism itself, and of course for democracy.

Changing these systems to individual accounts, aka, privatization, would do just the opposite. Turning over your retirement security to Wall Street and the insurance industry is not exactly the right thing to do, especially after we have seen what they can do in the Enron, WorldCom et al, disasters.

Copies of the letter will be available to the press and assorted other organizations.

Feel free to copy this post and send it to various groups with access to the media and the people, and congresspersons where it might do some good. The more the public knows that their retirement security is in grave jeopardy, and with it our democracy, the better the chances for serious reform.

For what it is worth, I am pessimistic about the prospects for reform right now, but not necessarily in a year or two, but only time will tell.

You guys deserve a great deal of credit for leading the pension revolution--and that is exactly what it is, you know.

There is, as I have said many times, aside from the use of weapons of mass destruction, no greater issue in the world today than these.

There is a train wreck headed our way--the world's way, as the developed world, the major democratic nations, are all getting older the same we are--the baby-boomers are closing in on retirement, and we are very close to going beyond the point of no return--what Malcolm Gladwell calls 'the tipping point' in his book by that name.

In reply to justa_bean_counter’s questions:

What can we do?

How do we get even more aggressive in getting the word out?

I'm open for creative ideas or strategies...

(12/25/02) - I don't know why, but the story of Rostenkowski and the seniors at the Copernicus Senior Citizens Center come to mind. Remember this one?

http://www.businessweek.com/chapter/mirage.htm

(12/19/02) – Interesting discussion on the term "Mobile Workforce," which apparently was created by Corporations to encourage and set the stage for workers to leave employment, or break employment at or before the 5 year vesting period. This fabricated icon "Mobile Workforce" started in the late 80's or at least I started noticing the term starting in the early 90's.

They thought the Baby Boomers wouldn't notice. Guess what, we did! That is when Corporate America slowly started engineering the "Assault on Pensions". The Workforce (aka common employees) did not come up with the "Mobile" designation, it was more likely fabricated in the board rooms of Corporate America with the help of accountants and actuaries in early 90's. They knew if they could get rid of people, on a constant basis, develop jobs/work that were geared in on the "move on" - on or before 5 years" (the national avg. I believe is still below 4 years). If those who moved on, could not find work, they could get them back anyway but usually the clock started all over again, vesting. Or as Courtault states... they don't get diddly if they don't vest. So, Courtault is right on... why aren't they addressing the vesting period if they truly cared about this so-called "Mobile Workforce" by lowering the vesting period to the national average or lower instead of leaving it at 5 years? Why don't they just vest on day #1 of their employment so they can take their little drab c-b with them? Because the corporations know that VERY FEW of these "mobile workforce" workers will ever draw a dime anyway (by design!).

"Mobile Work Force", corporate America just wants the Old Money set aside in the Defined Benefit Programs to boost profits without producing anything. Greed set in... let's convert the DB to a hybrid plan such as C-B -- goodness lower the earned benefits of the workers and get more "Pension Piggy Bank" revenue. The magic of accounting with Old Money. They didn't even have to be accountable and generate new revenue, when they could just go to the "Pension Piggy Bank" (Huge Piggy Bank) and get all they need to cook the books -- the more they could decrease the already earned benefits of the workers by tricky formulas and conversions, the more they could pump the bottom line without turning a hand to do their job of acquiring REAL revenue required for their companies to last past the tenure of one CEO. Deceitful to both workers and investors alike! "Mobile Workforce" is just a buzz word created for the benefit of corporate lobbying to excuse or give a bogus reason to the rip-off millions of workers already earned pensions using the new bogus icon "To help the "Mobile Workforce."

From one of the many activists who have gotten robbed on their Pension, comes this interesting Letter to the Editor on Napanews.com regarding Cheney, Halliburton and the enormous asbestos issue of a company he purchased when he was CEO of Halliburton.

I also saw the same interview and had the same impression, namely he slammed the lawyers but forget the millions of victims. This is what 'Tort reform' is all about.

Cheney Places Profits Over Lives

Friday, September 13, 2002

Dear editor,

I recently read an article in your paper regarding Vice President Dick Cheney and the comments he made on "Meet the Press" in regards to the amount of money Halliburton has had to pay for asbestos claims. Mr. Cheney was chief executive officer of Halliburton from 1995 to 2000 and acquired Dresser Industries, the primary target of asbestos claims, in 1998 for $7.7 billion.

Being the good businessman that he is, Mr. Cheney must have decided that the liability associated with asbestos claims was far outweighed by the potential profits to be made by Dresser Industries. Apparently the human cost doesn't count for much. Mr. Cheney's comments reflected his concern for the cost of asbestos claims for Halliburton and his disdain for the lawyers who pursue such claims, yet he made no mention of the victims even though the dangers of asbestos exposure were known decades before the public was made aware of these risks. I think his response reflects why so much of the public feels mistrust toward the business world. Asbestos is Mr. Cheney's Ford Pinto.

Many of us who live in the Napa and Vallejo area know well the devastation caused by asbestos exposure. Thousands of people were exposed to a particularly virulent type of asbestos at Mare Island and have suffered from asbestosis and plural mesothelioma, an incurable form of lung cancer. Further, these Mare Island workers brought that asbestos home on their clothes for their children and spouses to inhale.

According to this article, 214,000 asbestos claims have cost Halliburton $336 per claim in out-of-pocket expenses. My father died of plural mesothelioma in 1996. I watched his struggle with this disease and $336 does not compensate for his suffering or death. Mr. Cheney may not feel empathy for the victims of corporate greed and I don't feel much sympathy for Halliburton or other companies that make their profits by knowingly selling things that harm people.

I don't hold the vice president personally responsible for manufacturing and selling asbestos, but I do question his humanity. If Mr. Cheney helps make decisions about sending our young people off to war, I hope he will look at more than the bottom line.

Marilyn G. O'Connor

Napa

(8/18/02) - "Trust was sacrificed in too many corporate boardrooms on the alter of quick and illusory profits intended to generate astonishingly inappropriate levels of executive compensation."

- Senator John McCain (R-AZ) in a July 11 talk at the National Press Club, as reported from The Washington Spectator

(8/25/02) - Many firms have already hired a number of forensic accountants, the result of the Enron-scandals.

Methinks that soon there will be a number of opportunities for forensic actuaries--but only if we fix defined benefit pension plans first.

Here are the main things that need doing:

Fixing all of the problems:

1. Fix by statute the backloading in the PVABP and the Pure Tontine nature of the early retirement subsidies. You do the latter by changing laws to force the Early Retirement eligibility age to be out- of-service as well as in-service. Then fix the backloading by requiring every plan to use the EAN Actuarial liability to 'buy' the accrued benefit at each age for both the Normal Retirement benefit and the Early Retirement benefit.

2. Make actuaries accountable and their work transparent. Do this by

• Making public their work product, the annual actuarial valuation report and make these reports easily accessible online.

• Eliminating five of the six Actuarial Cost Methods, using only the Entry Age Normal Method for funding.

• Require that they append explanations of how they arrived at each key actuarial assumption to that report.

3. Replace FAS 87's method, The Projected Unit Credit Method, with EAN too and also replace their methodology with that used for funding.

4. Level the playing field between DB plans and 401(k) s, by allowing defined benefit plans to be employee contributory and the amount deductible from employee salary. The interest rate used for accumulating those employee contributions has to be the same as the rate used by the actuary for the long-term assumption used for funding and pension expense. Because we fixed the two Tontine-like issues in 1, the Employee-derived benefit attributable to employee contributions will be the correct proportion to the total accrued benefit, and the latter will also be in correct proportion to years of participating service.

5. Simplify the pension rules. Many of the complicated current rules were designed to 'fix' problems created by 1 (but didn't) and thus are not needed any longer.

6. Change by statute, the plan sponsor to the plan participants, rather than the corporation. The actuaries would then work for the plan participants directly and would have to deliver the valuation report to them, and the participants also will have much to say on whether any stock should be purchased of companies that are doing bad things. They would NOT, however, be making individual investment decisions. The plan participants will want the investment managers to become proactive in all of the corporate governance issues we read about daily. No more CEO pay that is 537 times as much as the average pay of the workforce (as of Year 2000--it was in the 40s in 1980), and their will be a great need for forensic actuaries by the investment managers too--and perhaps also by Wall Street firms.

The forensic actuaries will have to be not just very good but also ethical and besides, fixing capitalism and with it, democracy, is highly rewarding--isn't it?

I saw these in a column by Robert J. Samuelson in our local paper. He also writes for Newsweek, but I couldn't find the column. It may be hidden at msnbc.com somewhere...

EBITA - Earnings before I tricked the dumb Auditor.

EBIT - Earnings before Irregularities and Tampering.

CEO - Chief Embezzlement Officer.

CFO - Corporate Fraud Office.

EPS - Eventual Prison Sentence.

Maybe there isn't a problem after all -- according to our president, all the CEO's who are left are fully responsible and treat their employees with respect.... I guess that's why the heat is off, and we don't need any post-Enron reform legislation!

Janet

Bush: Companies Are Becoming More Responsible

(6/13/02) - WASHINGTON (Reuters) - More than six months after Enron Corp.'s collapse set back investor confidence, President Bush said on Thursday that U.S. companies were becoming more responsible in disclosing their assets and liabilities.

"If you're running your company, by the way, you're responsible for fully disclosing your assets and your liabilities. And...it's happening, it's happening," Bush told high-tech executives at a White House forum.

Bush made no mention of Enron, which filed for bankruptcy on Dec. 2 amid revelations of massive losses from off-the-books partnerships. The company was one of Bush's biggest campaign contributors.

Enron's bankruptcy and a stream of subsequent Wall Street scandals have shaken investor confidence.

In response, Bush proposed reforms aimed at making companies and their top executives more accountable.

On Wednesday, federal regulators proposed new rules that would require corporate CEOs to personally certify the accuracy of financial statements put out by their companies.

The proposal, which also calls on companies to conduct annual evaluations of their disclosure reporting procedures, was among the key provisions of Bush's 10-point plan to improve corporate responsibility.

Earlier on Thursday, corporate leaders told Bush they would help mobilize an "army of volunteers" to aid in the war on terrorism and to foster good deeds.

Bush praised the effort, adding: "There's been a lot of talk about corporate responsibility here in America, and there needs to be."

"People who run businesses need to do so in a way that treats their employees with respect and treats the communities in which they live with respect as well," Bush told the executives.

Pension plan sponsors have been enjoying the best of all possible worlds for most of the past decade.

That has ended with a big thud, soon to be reflected in the bottom lines of major corporations across America and then in the stock market. What goes around comes around.

That pension accounting is all screwed up there can be no doubt; however it all goes back to screwed up ERISA laws, and much of both can be laid at the feet of my fellow actuaries. They knew all along that ERISA’s rules designed to prevent 'backloading' in fact created it—big time--thus screwing early levers, and did nothing about it, save to exploit it for their clients.

It has ruined millions of employees plans for retirement, and has nearly ruined the defined benefits pension industry. Defined benefits plans, when done right and fixed, are one of the greatest inventions of the 20th century and needed today more than yesterday, and tomorrow more than today.

The good news is that it can be changed. The bad news is that it won't be any time soon--as long as an administration that is in the hip pocket of corporations is in power.

In the meantime, our Social Security, Medicare and retiree medical plans in private industry are all failing and it is because they are not actuarially sound, lacking both actuarial advance funding (along with getting the proper 'cost' it goes without saying) and laws with teeth to protect plan the assets and the plan participants--as ERISA was supposed to do, but alas didn't.

Again there is plenty of blame to go around, but where have the actuaries been?

Either working the other side--if they are insurance actuaries--or silent as little lambs if they are independent pension or health consulting actuaries. Don't want to tick off any clients, you know, or your management consulting bosses.

A relative handful are on the side of the angels.

I testified this morning at a HELP senate committee meeting held by Senator Wellstone in St. Paul. I was told I could only have 2 minutes, as the hearing time was up, but they let me take 5... Following is my recollection of what I said, but I was talking and not taking notes, so I may have included other points:

I'm Janet Krueger, a former IBM employee. I'd like to start by congratulating you, Senator Wellstone, for your new pension protection legislation (S1919); it is a small step, but a good one. I especially like the proposal for an office of pension participant advocacy, and hope it will help provide support when defined benefit pension plans are changed, not just focus on providing 401K advice.

I am VERY disappointed that almost none of the Enron coverage, in both Congress and by the media, has focused on the fact that those employees had a good pension plan in place, before they were subjected to a cash balance conversion in 1995. I wonder whether those employees failed to scream about the conversion because of lack of disclosure and understanding, or because they thought their 401Ks would grow high enough to take care of them; either way, if their promised pensions were still in place now, they wouldn't have near so serious a problem with their retirement security.

I would like to remind you that thousands of employees in this country have lost significant portions of both their promised pensions and promised retiree medical coverage, long before their employers filed for bankruptcy. In fact, companies like IBM, with massive surpluses in their pension funds, are slashing and withholding employee benefits seemingly only so they can pad their quarterly earnings reports and generate higher bonuses for the executives. IBM failed to grant retirees COLAs during the 90s when the returns on their pension funds were soaring. IBM is now charging high health insurance premiums to retirees who were promised life-time non-contributory benefits when they left the company; some of our IBM retirees now receive monthly health care premium bills in place of their pension checks! And IBM drastically reduced promised pensions for active employees through cash balance conversions. Clearly, Congress needs to focus on what corporations are doing with their pension plans LONG before they file for bankruptcy.

And before blissfully assuming that putting more ERISA-like protections on 401K plans will fix them, Congress needs to figure out why ERISA is NOT protecting America's defined pension plans. Must employees be forced into years of lawsuits before corporations will honor their pension promises? 140,000 IBM employees are now members of a class action lawsuit filed against IBM in 1999 because of their cash balance conversion -- we are concerned about whether laws and regulations will be retroactively changed in IBM's favor, long before we can reach a settlement.

I wonder whether, with all the focus on 401K plans and how much company stock employees are allowed to own, there are people behind the scenes in Washington still focused on retroactively legalizing cash balance plans.

I wonder whether someone at the treasury has been telling companies they'll 'take care of them' while the focus is diverted... Why else would so many major corporations be filing this month with the treasury for letters of determination for conversions they did back in the 90s?

I sympathize with the steel workers, with the Enron employees, with the Global Crossing employees. But please don't confine your focus to just what happens to workers whose employers file for bankruptcy.

I'd like to close with a constructive suggestion. I listened to discussions about making sure Enron employees are included as trustees during the Enron bankruptcy proceedings. That is a good and necessary suggestion; it brings to mind a different idea that has been bothering me for some time. Think about who has fiduciary responsibility for the trillions of dollars sitting in America's pension funds. Every other country in the world requires pension management boards to include employee representatives. Here in America, many pension funds are administered by corporate executives who receive bonuses based on how much pension surplus they can include in the corporate bottom line. In my mind, this creates just as big a conflict of interest as an Accounting firm who both audits a companies books and provides consulting services. Perhaps we could start to address a small piece of the problem if we required employees to have a voice in pension fund management?

Thank you for your time.

Apart from de minimus amounts, lump sums should never have been permitted by pension laws in the first place.

1. They are improperly priced by most pension actuaries, who tend to ignore the cost associated with them.

2. The cost has to do with considerably shortening the duration of the plan, which lowers the prospective investment returns. Since a lesser amount can be invested in stocks - stocks having long term returns a full 500 basis points above long bonds. 0.5% per year is HUGE when you are talking the long time horizons advance funded money can be invested in a typical defined benefits pension plan.

3. Additionally, when a company is in trouble, and begins laying off lots of people, such provisions can cause a run on the bank - the pension plan assets - often at precisely the same time the assets of the plan are often also way down. (Stocks and bonds historically have been positively correlated, but in recent years, because of the globalization of money, the speed of it throughout the world, and the much stronger linking of the feds interest rate policies with financial markets, they often move in almost complete lockstep. [Although not recently as Greenspan continues to lower interest rates to no avail - like a tug-of-war in which one side decides to suddenly start pushing]. And when you also have an economy that is hemorrhaging, as the U.S. economy is threatening to right now, due to Bush's economically insane 1.5 trillion dollar tax cut, and the enormous cost of the 9/11 disaster - around 100-300 billion dollars and maybe an ongoing 50-100 billion every year as far as the eye can see - you have the makings of a true disaster, because the correlations run to 1.0. Read the book by Lowenstein on Long-term Capital Funding if you want to see what can happen in the global financial markets when you have arrogant financial wizards who are not regulated, have zero transparency in their heavily leveraged investments, and what economists call an endogenous event, comes along. Sort of like many, many Enrons occurring simultaneously.

4. Lump-sums were originally lobbied in by employer special interest groups - like ERIC- backed by top executives, who saw a way to get their full benefits out and not ever be subject to PBGC limits. The CEOs and a handful of others have all the dough they want even without the full pensions they get from ERISA excess plans, nonqualified plans which not only make-up amounts over the caps for qualified defined benefits plans. This is an important part of what management consultants do and what Enrolled Actuaries help them do. It is often a collaborative effort with ERISA legal experts, often working for the management consulting firms, sometimes by specialized operations in major legal firms, but also with accountants - who are involved with making sure the GAAP accounting aspects are hidden enough from view to shareholders, and the tax aspects are well-understood, and deferred if possible, and of course the actuaries. The American Academy of Actuaries (AAA), The American Society of Pension Actuaries (ASPA), Canadian Institute of Actuaries (C.I.A.) and the Conference of Actuaries in Public Practice (CAPP) just announced a special education program on the highly complicated subject of Executive Compensation Plans on March 7-8, 2002, so that all pension and benefit actuaries can get up to speed on this.

In Polaroid's case, the chickens have come home to roost for the layer of execs right below the very top - most of whom probably didn’t have a clue.

If you want to attend that last conference, maybe I can arrange it (Just kidding - no outsiders allowed - sorry).

Better yet, maybe a copy of the transcripts can be made public - so that maybe a copy can be sent to members of the financial Press - like Ellen Schultz, to mention just one interested in this kind of stuff.

(This Is a Reply to: Msg 44033 by i_be_mad_as_heck )