www.DukeEmployees.com - Duke Energy Employee Advocate
Pensions - Page 2
well-meaning but without understanding." - Supreme Court Justice Louis D. Brandeis
Dumping Cash Balance PlansEmployee Advocate – www.DukeEmployees.com – December 14, 2004
Ellen E. Schultz reported in The Wall Street Journal that IBM is dumping its ill fated cash balance plan, at least for new hires. In 1999, IBM gave the usual corporate bluster about vigorously defending its cash balance pension plan.
But the very day before a Congressional pension hearing, IBM reduced the age to be grandfathered under the decent pension plan from 50 to 40. Then last year a federal court found the IBM cash balance plan to be illegal and inherently age discriminatory. This year, IBM made a $300 million settlements with some employees.
IBM must have figured out that the farther away from cash balance plans it stays, the better off it will be. New IBM hires will go into a 401(k) savings plan.
Why are only the new employees escaping the dreaded cash balance plans? That’s easy. Newly hired people have no pension assets built up that can be taken from them. Cash balance plans were carefully crafted to evade pension laws and separate employees from benefits already earned. The new hires have no pension money to be taken, so a cash balance plan is pointless, from a corporate viewpoint.
That is the very reason that no corporation has ever started a cash balance plan from scratch. The employees have no pension accruals to be taken, so there is no corporate incentive for a cash balance plan.
Then there is the matter of making the existing employees whole. If cash balance plans were eliminated for all employees, would IBM restore the money taken from them? That is a question that IBM does not want to entertain. That is why it is appealing the age discrimination portion of the pension lawsuit.
What about all of IBM’s claims about how great cash balance plans are? It was all propaganda to try to sell the plans to the employees. Not that the employees had any choice. They were forced into the plan. That is the way it works at most corporations converting to cash balance plans. They force employees into them. No employee volunteers to give part of his pension to the corporation.
Then there is the cash balance stigmatism. Workers regard executives that convert to cash balance plans as greedy, low-life, thieves, for obvious reasons.
Ms. Schultz wrote: “In changing its practice, IBM appears to be acknowledging that its cash-balance plan may not be quite as attractive to new workers as it had maintained.”
IBM has made over $4 billion off its cash balance plan since the conversion. That money did not come out of thin air. Some employees lost around fifty percent of there pension benefits with the conversion. It is really not too hard to see why corporations love cash balance plans and employees hate them. Employees hate cash balance plans and hate those who lied to them and took their pension money.
The Financial Accounting Standards Board (FASB) has proposed ending some of the cash balance corporate hanky panky. If implemented, corporations will have to report more realistic pension liabilities.
Cash balance plans were designed to be a windfall for corporations and to offer a bleak retirement future for workers.
The employee pension losses are no accident. Cash balance plans work exactly as designed. They discriminate against older employees. They take earned benefits from the employees and give them to the corporations. Executives are not shocked; they always knew this. They are only shocked because their multi-billion dollar scheme has been exposed. And the mere thought of having to return their ill gotten gains makes them break out in a cold sweat.
Bank of America Pension LawsuitEmployee Advocate – www.DukeEmployees.com – December 3, 2004
It is very fitting for Bank of America to be facing a class-action, cash balance pension lawsuit and a federal audit. After all, it got the cash balance scheme rolling in 1985. When other corporation saw employees losing their earned benefits, they were eager to join in the pension plunder.
The Charlotte Observer reported that the Bank of America pension was strange, even for a cash-balance pension plan. Employees could to put part of their money into fluctuating hypothetical investments. The lawsuit charges that Bank of America violated the law in order to profit at the employees’ expense.
The big selling point of cash balance plans was the supposed portability feature. It was said that employees could leave a company and take the cash balance with them. But that does not work everywhere. When an employee younger than 55 leaves the company, Duke Energy keeps their money until they turn 55. This could be 20 years or more. Duke only pays a low interest rate on the held funds. Duke gets to keep any excess money made from investing the employee’s money.
Cash balance plans are based on lies. Corporations wanted a way to dip into the employees’ pensions and these plans were the vehicles.
Millions of employees have been forced into cash balance plans. If these plans were any good, would it always be necessary to force people into them?
The Observer started getting warm when it stated: “Cash-balance plans also can help companies control the rising cost of funding pensions by reducing long-term debt and providing accounting gains.”
Only, taking pension money from employees is not just an incidental part of these plans. It is the sole reason the plans were devised. They offer ways to evade the pension laws. That is exactly why a federal court ruled the IBM cash balance plan to be illegal and age discriminatory.
PricewaterhouseCoopers helped design the plan for Bank of America. It is noteworthy that the accounting firm is facing its own class-action lawsuit. Will there be more class-action, cash balance lawsuit against other companies? It’s very possible!
Duke Energy and BellSouth were mentioned in the Observer as other large Charlotte, NC corporations with cash balance pension plans.
Broken Pension Promise LawsuitEmployee Advocate – www.DukeEmployees.com – November 25, 2004
The way things are going, employees need to retain an attorney the very day they start work. More and more workers are being forced to sue in order to collect the pension benefits that they were promised when hired. It’s great sport for the corporations; they are racking up billions of dollars in “found money.” They apparently do not mind a few lies being told and a tarnished reputation when this kind of money is at stake!
American Home Mortgage Holdings of Melville is being sued for breaking pension promises, according to New York Newsday. William Gregory Williams and Suzanne Brayman filed the lawsuit last week in New York State Supreme Court in Central Islip. Class-action status is being sought. The suit could cover 200 employees and $3 million to $5 million in lost pensions.
Employee Wins CIGNA Pension CaseEmployee Advocate – www.DukeEmployees.com – November 15, 2004
Sometimes good news comes in bunches. Ellen E. Schultz has reported more great news for employees who have lost money due to being forced into a cash balance pension plan. She wrote in The Wall Street Journal that CIGNA lost an appeal of wrongly forcing an older employee into a cash balance plan. As is typical with cash balance conversions, the employee lost significant pension money.
The federal court ruled that CIGNA retroactively prevented certain senior employees from qualifying for a "grandfather" clause. The clause would have protected them from the devastating pension losses caused by the cash balance conversion.
On the Depenbrock v. CIGNA Corp. ruling, Circuit Judge Max Rosenn wrote: "This case is a by-product of corporate America's recent effort to curb costs by ... scaling back the benefits provided under pension plans."
All the problems began in 1998 when CIGNA converted the retirement plan into a cash balance plan. Then CIGNA made retroactive pension rule changes that forced John Depenbrock into the cash balance plan, rather than being grandfathered under the old plan.
How much did the cash balance conversion cost really cost Mr. Depenbrock in dollars and cents? The court noted that one of CIGNA's actuaries estimated the loss to be $800,000, based on retirement at age 55! Keep in mind that this figure was provide by a CIGNA actuary. The cash balance pension losses are real.
The eight-hundred-thousand dollars represents the pension loss of just one employee. You can begin to see why corporations have been falling all over themselves to convert to these plans. They were very willing to close one eye to any illegalities.
Corporations come up with every defense imaginable when trying to justify taking pension money. What excuse did CIGNA have for applying a rule to Mr. Depenbrock that had not been implemented? CIGNA argued that it had planned to adopt the rehire rule!
Mr. Depenbrock sued Dec. 11, 2001. He made the reasonable request for CIGNA to produce the cash-balance plan documents. CIGNA argued against showing the documentation on how and why the $800,000 pension loss was suffered! CIGNA claimed attorney-client privilege.
Do you understand why there is so much ill feeling toward corporations and cash balance plans? An employee lost significant pension money because he was forced into a cash balance plan. He was forced into the plan because of a rule that did not exists. Even after being sued, CIGNA refused to provide any documentation to explain the loss!
A major ploy in cash balance conversions is keeping information hidden from employees. If you ask a question, you will receive gobbledygook for an answer. You will always be referred back to the original documentation. But this documentation never contains any useful information. It contains no hard data. It does not tell how the calculations were made. It does not even tell you how much money you lost. It is only a fluffy sales pitch, loaded with cartoons.
Even the original lawsuit could not get a straight answer out of CIGNA. It took the appeals court to get an admission that a $800,000 pension loss would be incurred.
The most amazing thing is that the lower court bought the CIGNA argument. It did not require that the documents be produced and ruled in favor of CIGNA.
The lower court's finding was criticized by the appeals court. The appeals court noted that the law doesn't allow companies to cut benefits retroactively.
A class-action age-discrimination lawsuit against CIGNA is pending.
In The Legal Intelligencer, Shannon P. Duffy called the ruling “an important win for plaintiffs in ERISA cases.” The ruling by the three-judge panel was unanimous.
Bank of America Pension LiesEmployee Advocate – www.DukeEmployees.com – November 12, 2004
Corporations and politicians have much in common, other than their sleeping arraignments, of course. Neither has learned that a big lie cannot be covered up by more lies. More lies have been told about cash balance plans than anything in recent memory. Here’s a good rule of thumb: The more money to be taken, the more lies told to get it.
Bank of America has the dubious distinction of pioneering cash balance plans, back in 1985. The plans have survived this long only by a campaign of confusion, distortion and deception. The plans were illegal from the inception, although many backdoor attempts have been made to legalize them. The last attempt was made by the Bush administration. An act of Congress has forbidden Bush from tampering with pensions – for now.
The almost amusing thing about cash balance plans is that corporations do not even have good lies to tell about them. Some lies cleverly mix in just enough truth to be almost believable. Not so with cash balance plans – their lies are stupid lies. They never make any sense no matter how many time they are repeated.
When executives are pressed about cash balance plans, they will invariably mumble something about the young, mobile employee. What sense does that make? Yet, that is supposed to explain everything. Employees are not younger or more mobile than they have ever been. The workforce will always be composed of employees of all ages. And job-hoppers have no doubt been around since prehistoric times!
Even if any of this were true, it would not justify taking away pension benefits that employees had already earned. Would it make any sense to take earned pension money from employees and hand it to other workers because they are labeled as young and mobile? It would make no sense! That’s not the way the scam works anyway; that only the implication. Most employees will lose with a cash balance conversion, it does not matter how young or mobile they are.
Surely, you say, someone must win with all of these cash balance conversions. And, you would be right. Only it’s not employees who win; it is always the corporations who win the pension money! The executives win, the actuarial firms win, and the “helpful” politicians win.
Think about it; no employee has ever demanded a cash balance plan. They are always forced onto them by corporations. That fact is all you really need to know to figure out which way the pension money will flow.
No corporation has ever implemented a cash balance plan from scratch. The big money is made by converting a decent pension plan into a cash balance plan. The money does not come out of nowhere; it comes from the employees’ future pension checks.
Corporations and their shill groups have told so many outrageous cash balance lies that they cannot stop now. Why don’t they just come clean? Because they do not want to give the money back to the rightful owners! They are hoping that something will happen – anything - so they will not have to make the wronged employees whole.
There is sweating going on in boardrooms across America. The directors had to have known that these plans were illegal. But they are accustomed to using their money, power, and political influence to get what they want. In short, they thought that they could get away with it. The potential take was enormous. They were willing to take big risks to break into the pension fund. Many corporations used cash balance plans to crack into the pension money. They just hoped no one would notice.
Bank of America got away with their cash balance smoke screen for a long time. But now a federal court is knocking on their door. The IRS is joining in by conducting an audit. The Securities and Exchange Commission is investigation the profits made off of pensions. It is truly wonderful when the plan comes together.
How can you tell if a corporate spokesperson is telling a lie? Generally, if their mouth is open, they are lying. The Associated Press reported that a Bank of America spokeswoman said "While we do not comment on pending litigation, we intend to defend ourselves vigorously against the claims."
That’s good. She could not even get one sentence out without telling a lie. She told the lie that no comment would be made on pending litigation and then proceed to comment on it. The “vigorous defense” line is a standard corporate knee-jerk reaction, as if that would frighten off the plaintiffs. Many corporations offer vigorous defenses, then make “vigorous settlements”!
BofA Cash Balance Plan LawsuitEmployee Advocate – www.DukeEmployees.com – November 10, 2004
Employees have blasted Bank of America with a cash balance pension plan lawsuit, according to The Wall Street Journal. Ellen E. Schultz reported that workers charged the bank with using a cash balance conversion as part of an "arbitrage scheme" to enrich itself at the expense of participants.
It is wonderful that employees are waking up to this unprecedented pension plunder. Too many have been denying the obvious for too long. Denial will not get back the pension benefits that you have already earned. A lawsuit just might.
Many corporations thought that they had gotten away clean with the employees’ pension money. They thought that all they had to do was admit to nothing and keep repeating their laughable spin. It’s not going to work anymore; too many people know the true nature of cash balance plans. The CEO’s and actuarial firms will never get the splattered egg back into its shell. They have been exposed and a considerable portion of the splattered egg is on their faces.
Bank of America outdid itself in devising an exceptionally convoluted cash balance conversion, involving hypothetical portfolios tracking in-house mutual funds managed by the bank.
But help is on the way for Bank of America. In addition to the federal courts helping the bank see the light, the Securities and Exchange Commission (SEC) has taken an interest in corporate pension manipulation. Not only that, but Reuters reports that the IRS is going to “help” Bank of America get its pension act together. Its 1998 and 1999 retirement plans tax returns will be audited!
Other corporation that have sought to profit by depriving employees of their earned pensions will also need help in getting their minds right. The federal courts, SEC, and IRS will no doubt be more that willing to provide them with help. Other help may also be on the way, but it would be premature to mention it just now.
Bank of America had a real deal for its employees. The bank profited on the pension fund, while the workers’ money was in “hypothetical” accounts, earning "virtual" returns! Employees were even encouraged to transfer 401 (k) funds into the pension plan in 1998 and 2000.
What defense does Bank of America have for it actions? The best a spokeswoman could do was to trot out the “mobile employee” tripe! What a joke. A child should be able to do better than that.
Cash balance plans have zero to do with helping the so called mobile employee. The plans only make the employees’ pension money mobile. The money migrates from the pension owners to the corporations. All the while, the companies enjoy nice tax breaks for stuffing their own pockets with the employees’ money. The mobile employee will be shot out the gate, with little pension, wondering what ever happened.
As usual, a vigorous defense was mentioned. Corporations have a two-part cash balance pension process. First, they grab employees by the ankles and shake them vigorously. Any pension money that falls out of the employees’ pockets goes to the executives. When the feds start knocking on the door, a vigorous defense is offered.
Pothier v. Bank of America Corp. was filed on June 30 in the Southern District of Illinois. Several dozen current and former directors of the bank were served with summons. The bank, its trustees, and PricewaterhouseCoopers were also named in the suit. The plan was designed by PricewaterhouseCoopers.
This is a historic lawsuit. BankAmerica Corp. was one of the first, if not the first, company to force its employees into a cash balance plan, in 1985. Don’t let the shifting bank name fool you. BankAmerica merged with NationsBank Corp. in 1998 and became Bank of America, based in Charlotte, N.C. If these employees are made whole, it will be starting at the beginning of the cash balance pension problem.
Allegations include: incorrect pension sum calculations, self-dealing, breach of fiduciary duty, age-discrimination, and violations involving party-in-interest. That’s a good start in describing cash balance plans.
The bank admitted that a lawsuit was filed in Connecticut against FleetBoston Financial Corp. on Sept. 29. Bank of America bought FleetBoston in April. This lawsuit charges that FleetBoston illegally converted to a cash balance plan without telling participants about the impact of the change.
Keeping employees in the dark is all part of the cash balance game. In fact, actuarial firm once used this as a selling point for cash balance plans. Corporation would be able to take money from the pension plan and the employees would never be able to figure out what happed.
But some employees were a little sharper that the average bear. With the aid of investigative reports by Ellen E. Schultz and expositions by retired actuary Andy Lang, the puzzle began to be pieced together. The corporations and actuarial firms are left stark naked, incoherently babbling something about a mobile employee.
Don’t look now, but the “mobile employee” is bearing down on the pension perpetrators. He is in a Mack® truck and the petal is to the metal.
No Pension Losses for Dick CheneyEmployee Advocate – www.DukeEmployees.com – October 18, 2004
Halliburton is certainly a company in the news. The only problem is that all of the news is always bad. In addition to all of Halliburton’s other money-grubbing ventures, it also wants the employees’ pensions. Mary Williams Walsh reported in the New York Times that former Halliburton employees are finding their pension benefits are smaller than what was promised to them.
Corporations designed pension plans that would keep employees tied to the company. It took ten years to become vested in these plans. If an employees left the company before retirement age, he would receive a mere pittance of a pension. The final five years is when employees were rewarded for 30 years or so of service.
Anything that a corporation could do to keep an employee from working those last five years was more money for the executives. If an employee was laid off, he could never receive the full pension. Ways were found to keep the employee and still deprive him of his full pension - mergers and spinoffs. A person may be on the same job for 30 years, but corporations can use a merger to destroy his pension.
A spinoff works the same way. Employees can be treated as if they resigned. They can be slid into pension plans with lower benefits. Early retirement subsidies can vanish. Hundreds of Halliburton employees found these things out the hard way – when they received their skimpy pension check.
Actuary Jeremy Gold said "This is a national problem."
Pension laws have supposedly protected earned pension benefits since 1974. In 1984, the law made it illegal to amend a plan to revoke early retirement subsidies when employees are close to claiming them. Mergers and spinoffs provide loopholes for unscrupulous corporations.
Karen Ferguson, director of the Pension Rights Center, said "The company cannot amend a plan to eliminate an early retirement subsidy. This is a glaring loophole in the law, and it is truly undercutting the retirement security of hundreds of thousands of people across the country."
A cash balance plan works much the same way; the early retirement subsidy vanishes.
Norman Stein, University of Alabama law professor, said that "hundreds and hundreds of companies" have taken advantage of divestitures to end their obligation to pay early retirement subsidies.
None other than VP Dick Cheney was the CEO during the pension wheeling and dealing. Employees gained from mergers were treated as if they had resigned. Dick Cheney did not bother to tell the affected employees that their pension accruals had stopped. Of course he has always been sort of secretive.
Not only were the employees not told that they were treated as terminated, they were told the exact opposite! A memo stated that the employees would "remain active participants" in the plan.
Bill Chamberlin was previously told he would receive about $60,000 but was offered just $28,000!
Of course CEO Dick Cheney got a better pension deal. He was too young to qualify for pension benefits when he left the company. But Cheney received a package worth millions of dollars anyway!
Think about that. Some employees received half of the pension benefits that they were entitled to. Dick Cheney was entitled to zero benefits, but received millions! A special vote of the board was all it took.
What could Halliburton possibly do for an encore? It tried to take back pension money from those who had already retired!
SEC Investigates Pension AccountingEmployee Advocate – www.DukeEmployees.com – October 18, 2004
Large corporations refuse to stop tampering with pensions. There is money in the pension plans and executives are eager to get their hands on it. They are obsessed with taking the pension money and do not seem to care how they get it. If the money cannot be taken outright, pension accounting games will be played to boost profits. Sometimes corporations will raid the pension plan and cook the books for good measure.
The Securities and Exchange Commission is investigating the pension and health benefits accounting of six large corporations, according to BusinessWeek and The Wall Street Journal. Earnings can easily be manipulated by tinkering with pension and health benefits calculations.
Pension plans are used to enhance the bottom line and increase executive bonuses. Pension plans do everything except what they were designed to do – provide employees with a decent income at retirement. When workers retire, they often find that they are holding a bag of empty promises.
When it benefits corporations to poor-mouth, pension accounting can be tweaked to make earnings look worse than they actually are. Pensions are really wonderful – for executives.
Another Pension Class Action SettlementEmployee Advocate – www.DukeEmployees.com – October 16, 2004
SmithKline Beecham Corp. will pay $5.2 million to settle an Employee Retirement Income Security Act (ERISA) class action suit, according to The Legal Intelligencer. The employees charged that they were denied pension benefits because of being improperly labeled as "temporary." Some employees had been working full time for years. Senior U.S. District Judge William H. Yohn Jr. must approve the settlement to 1,300 workers.
SmithKline argued that the statute of limitations had expired for the claims, but the court ruled that the case could proceed.
Corporations have an endless supply of methods to deprive employees of pension benefits. When they start squeezing employees, they typically do it in every way possible. First, some employees were denied any pension plan. Now they are thrown into the worst possible pension plan going – a cash balance plan.
There is a marked difference between a traditional pension plan and a cash balance plan. A traditional pension plan is like being in the middle of the ocean, aboard an ocean liner, in pleasant weather.
A cash balance plan is like being in the middle of the ocean - in a rubber raft – with a leak in it – during a storm – amid a shark feeding frenzy – with a tidal wave approaching! Lots of luck, pal.
So far, only the IBM cash balance plan has been ruled to be age discriminatory. But SmithKline’s cash balance plan has not been challenged in court – yet.
Question: How much pension restitution would have been received by these employees if they had not filed a lawsuit?
Bank Robbery 101Employee Advocate – www.DukeEmployees.com – October 11, 2004
Ellen E. Schultz noted in The Wall Street Journal that corporations have continued to convert to cash balance pensions, even though they are on shaky legal ground. Why would a corporation convert a solid pension plan into a tainted cash balance plan? The answer is greed. There were vast amounts of money in the various pension plans and the executives wanted it. They were willing to take risks to get. It is that simple.
The CEO’s figured that in the worst case, they would only have to give the money back to the employees. Even then, they might not have to give all the money back. It was a calculated business risk. Hey, no guts; no glory. Any thoughts of ethics or morality never entered the picture. The cash balance scam was all about taking pension money from the very beginning.
Corporations are not quite so smug since IBM’s cash balance plan was ruled to be illegal. IBM made the usual corporate bluster: the lawsuit had no merit, IBM would offer a vigorous defense, and making a settlement would destroy the company.
But now, IBM has already made two partial settlements and says the settlements will not affect its overfunded pension plan! IBM’s spin changes with the weather, or more precisely, the legal climate.
Ms. Schultz stated that cash balance plans “are frozen traditional pensions.” She wrote: “This frozen pension value is called the 'opening account balance.' " She added: “Many employers lowball the opening account balances.”
The earned pension value is frozen, but the opening account balance is for a lesser value! That is where employees lose the benefits that they have earned. That is where corporations reap the windfall pension “profits.” Yes, many corporations consider taking retirement money from employees a legitimate way to turn a profit.
For many employees, a cash balance conversion effectively terminates their pension plan. Their benefits are frozen and they will receive zero new pension benefits. They will be stuck in a “wear away” period until they leave the company. The beauty of the conversion, for corporations, is that they are able to evade the 50% IRS penalty on early termination profits.
Cash balance conversions do exactly what they were designed to do. Pension money is taken from employees, penalties are waived, and age discrimination laws are thwarted. That is why corporations have been falling all over themselves to convert to such plans.
No company has ever started a cash balance plan from scratch. They cannot take any money from employees that way. There must be a conversion from an existing plan for corporations to profit at employees’ expense.
Corporations banked on employees not being able to understand what happened to them. They figured any controversy would soon blow over. The corporations figured wrong. IBM employees sued and the conversion was found to be age discriminatory.
The corporate spin is that cash balance plans are all the rage and everybody is converting. That is a typical salesman’s tactic: “Everybody is doing it; you must do it also.” Even if everyone were converting to cash balance plans, it would not make the plans legal!
Ms. Schultz points out that, as of 2000, cash balance plans compose only 4% of all pension plans! But this 4% includes a quarter of the largest pension plans. These large corporations could afford to pay actuarial firms huge fees to find ways to get at the workers’ pension money.
Corporate shill groups warn that the IBM case is proof that cash-balance plans are at risk of extinction. Well, good! Cash balance plans should be extinct. They are abominations! Do not design something illegal and then cry when you get caught.
The Erisa Industry Committee (corporate lobbying group) said “This case will encourage costly and unpredictable litigation.” Wrong! It is the design and implementation of illegal, abusive, and age discriminatory cash balance plans that will open the litigation floodgates. The IBM case and all subsequence cases will only be correcting the cash balance injustice.
It is age discriminatory to have a pension with an accrual rate that declines with age. Corporations are now lobbying Congress to exempt cash-balance plans from age-discrimination rules, thus immunizing them from lawsuits.
It is an interesting concept. First, rob the bank. If you get caught, try to get bank robbery laws repealed!
Cash Balance Plans In the NewsEmployee Advocate – www.DukeEmployees.com – October 6, 2004
Cash balance pension plans have been getting a lot of press since IBM starting making partial settlements after losing its pension lawsuit. The reporters are getting better at reporting the facts, rather than the corporate spin.
Most reporters still do not realize the devastating effect a cash balance conversion has on an employee’s pension. The corporations know; the pension losses are the very reason for the conversions. The employees’ lost pensions are the executives’ gain!
The Invisible Pension DefaultEmployee Advocate – www.DukeEmployees.com – October 5, 2004
United Airlines has told the bankruptcy court that terminating all of its pension plans will be a "likely result," according to The Christian Science Monitor. It would be the biggest pension default in US history.
It would be the largest visible pension default. There is a huge pension default going on all around you right now. Some of the largest corporations are participating in this hidden pension default.
How does one hide a pension default? Corporations try to conceal the lost pension benefits through the use of cash balance conversions. The pension perpetrators bank on employees being a bit too dull to figure out what has happened. The pension grabbers also look to cash balance conversion to shield them from age discrimination laws.
When the IBM cash balance plan was ruled to be illegal and age discriminatory, a chill went through boardrooms all across America. The executives’ greatest fear had been realized. Cash balance plans had been exposed for what they are – a way to separate the workers from the pensions that they had earned. One question burned in the minds of CEO’s: “Will we have to give the money back?”
Executives schemed long and hard to get the employees’ pension money. They have it and they want to keep it. The last thing in the world they want to do is give it back. Why should employees get the pension that they were promised, when the money could be used to enrich the executives? Pension losses for many, mean yachts and penthouses for a few.
The United default would also strain the Pension Benefit Guaranty Corporation (PBGC). The PBGC could possibly have to go to Congress for a bailout. Employees have already paid for their pension through decades of labor. They may have to pay for it again through taxes. What a wonderful system.
Pilots could see pension reductions of 75 percent!
One employee had been promised a pension of $140,000 a year. It was cut to $90,000. If the PBGC has to take over the pension, it will become $28,000! The victim said "All of the benefits that I'd been promised during those 26 years have been erased by corporate American greed."
The pilots are not happy campers. Many gave up wage increases over the years for improved retirement packages. They earned the pension; it was part of their pay. But it is going up in smoke.
It is the same principle for cash balance pension losses. The pensions were never free. It often takes 30 to 40 years of work to build up a decent pension. Pension benefits are deferred salary. It is an age old problem. Some people cannot be trusted to pay the bill for what they have already received. If there is a way to weasel out of paying, the deadbeats will always find it.
Steve Derebey, spokesman for Air Line Pilots Association, said "It seems immoral that just because they happen to be in a legal situation, they can walk away from those obligations. Why this isn't a burning, blazing campaign issue is beyond me."
The Employee Advocate can answer that question. Pension theft is not a campaign issue because too few employees have complained to Congress about it. For each employee who takes action, hundreds more are content to wait for someone to save them.
Politics is a numbers game. Large numbers will always get what they want. The squeaking wheel will always get the grease.
Congress especially likes large numbers with dollar signs attached to them! The corporations do not have the numbers, but they do have the big bucks for campaign contributions. The money came from the labor of the employees. Executives use this money to buy legislation that is always slanted in their favor. The more politicians owned by corporations, the easier the game is to run. Silence will buy you more of the same.
How long will this go on? As long as the working people of America allow it, and not one minute longer! Have you complained to Congress about your pension losses? Are you going to vote in your own best interest this time?
Executives Watching Cash Balance CaseEmployee Advocate – www.DukeEmployees.com – October 4 2004
The News & Observer correctly noted that many corporations are closely watching the IBM cash balance plan lawsuit.
Writer Karin Rives stated: “The $320 million partial settlement that IBM reached with 140,000 workers over the company's pension plan likely made some executives nervous as they read the morning papers Thursday.”
Benson Rosen is a management professor and compensation expert at the University of North Carolina at Chapel Hill. He said "You have to either grandfather in certain people, or offer a cash settlement, which is, in essence, what IBM is ending up doing. The people who got caught in the transition need to be made whole. That's where IBM got into trouble."
The executives who pushed through cash balance conversions did not care if the plans were legal or not. They only knew that they wanted the employees’ pension money. They thought the corporations were too powerful to be questioned.
Lee Conrad, Alliance@IBM coordinator, said "What we're finally seeing is some justice for IBM employees who lost a lot of money through these rip-offs. We're still seeing how the age discrimination claim will play out, but we can see full justice around the corner."
Retiring Minds Want to KnowNew York Times – by Austan Goolsbee – October 1, 2004
Chicago — Even as I.B.M.'s pension difficulties make headlines - the company has agreed to pay current and former employees $320 million to settle some charges that changes to its plan discriminated against older workers - a more serious financial disaster looms for the pension system. Taxpayers could face an even larger bill from corporations' failure to put enough money into their pension funds.
Yet neither candidate for president even mentions the problem, and Congress has actually made it worse. The crisis concerns the Pension Benefit Guaranty Corporation, the federal agency that insures workers' pensions in case their employer defaults. The agency charges employers a premium for the insurance, and that money is supposed to cover its costs. The system is not supposed to cost taxpayers anything. But a dreadful lack of judgment, coupled with a new federal law, could leave the public with a $100 billion bill.
In the past two years, the agency has watched its net financial position deteriorate by $20 billion. Overall, corporate pension plans have some $450 billion less than they need to meet their commitments. While corporations are legally required to make these payments unless they declare bankruptcy and can prove they are under "severe financial distress," as much as $100 billion of this bill is owed by companies that are in financial trouble. Just this month, for example, United and US Airways, both of which are already in bankruptcy, announced plans to renege on their pension requirements.
Why doesn't the agency have the money to cover this shortfall? Fundamentally, it is an insurance company. Higher risk ought to mean higher prices; a regular sky diver, for example, pays higher life insurance premiums. But the pension agency doesn't work that way.
The agency's fees are unrelated to investment risk. It charges a fixed amount per corporation and an additional fee based on the amount its pension fund is underfinanced. United had about two-thirds of its pension fund in risky investments, including junk bonds and a Ghanaian gold-mining company. Yet if United had invested every dollar in United States Treasury bonds, it would have paid exactly the same premium to the pension agency.
Thus corporations have little incentive to invest workers' retirement savings wisely. If a bet wins big, a corporation can add that money to the pension plan and keep the funds it would otherwise have been required to contribute. If it loses big, the government will bail it out.
Congress is doing its best to make financial catastrophe more likely. In April, it passed a law that changed accounting rules to make it easier for companies to underfinance pensions. It also gave some companies in the two industries with the worst pension problems - airlines and steel - a two-year waiver from the usual requirement that they close their pension gaps with their own money and allowed them to defer some payments.
Unsurprisingly, they are taking advantage of the opportunity. Continental Airlines, for example, recently announced it would not make a contribution this year to its employees' pension plan. If these corporations declare bankruptcy and default on their pensions, the government bailout will need to be that much larger. According to the pension agency, this law could reduce company contributions by more than $80 billion.
Congress should not be making it easier for corporations to shirk their pension obligations - and neither President Bush nor Senator John Kerry should remain silent when they do. (While Mr. Bush signed the bill into law, neither Mr. Kerry nor his running mate, John Edwards, were present the day the bill passed in the Senate.) If Washington were truly concerned about workers, it would ensure that the pension agency remains solvent. One step in the right direction would be to have the agency charge higher premiums for corporations that make risky investments.
In the meantime, workers with old-style pensions should know that they are at risk of losing a great deal - a prospect that has become all too real for many employees in the airline industry, who frequently gave up wage increases in part for the promise of more generous pensions. Those pensions will be greatly reduced if the pension agency takes over.
It may be too late for many such employees to rescue their pensions. But it's not too late for Congress to act to ensure that employers, not taxpayers, pay more to protect the retirement of working Americans.
Austan Goolsbee is a professor of economics at the University of Chicago Graduate School of Business.
Another Pension Settlement by IBMEmployee Advocate – www.DukeEmployees.com – September 30, 2004
Wednesday, IBM agreed to get off of $300 million to partially settle the employee cash balance plan lawsuit, according to The Wall Street Journal. This money will go to older current and former employees who were victims of cash balance pension reductions of 20% to 40% or more. This settlement is on top of a $20 million partial settlement made earlier this month.
Generally, the more time an employee has with a company, the more money he will lose with a cash balance conversion – up to 50 percent of his earned pension! Yet, some corporations pretend to be mystified as to why workers have hit them with age discrimination charges. All the while, these same corporations seem to be in a contest to see how many millions of dollars they can stuff into the pockets of CEO’s.
IBM boasts that any payments will be made by its overfunded pension fund. IBM is not giving employees pension money. IBM is returning pension money taken from employees.
When corporations cite the reasons for cash balance conversions, they mention everything under the sun except the real reason for the conversion. Corporations never get around to mentioning the windfall they get at the expense of the workers! We are not talking nickels and dimes here. Andy Lang, retired actuary, says the cash balance pension scandal easily dwarfs the savings and loan scandal that occurred under another Bush administration.
At first IBM was going to appeal the ruling. Then it made a partial settlement. Now it has made another partial settlement. IBM may still appeal two points of the ruling that its cash balance plan is age discriminatory.
IBM was facing paying an additional $6.5 billion if it lost its appeal. Under a mutual agreement, IBM will have to pay no more than an additional $1.4 billion, if the appeal is lost. The $6.5 billion figure was an IBM estimate, not one set by the court.
Plaintiffs' Attorney Douglas R. Sprong said "We are confident the class will win any appeal, because under both the conversion formula and the cash-balance formula, older workers received less than their younger counterparts for no reason other than age."
Even the corporations say that cash balance conversions are designed to benefit the “young, mobile” employee. Why didn’t they just hold up a sign: “Please Sue Me For Age Discrimination”?
Corporation will tell anything but the truth about cash balance plans. They are not a great benefit to younger employees. Young employees also suffer a pension reduction in the conversion. The workers who actually come out ahead under a cash balance plan only gain pocket change. By giving some employees a pittance while hitting the senior employees hard, the big winner is (guess who) the corporation!
It has been predicted that a judgment against IBM will trigger a deluge of lawsuits against hundreds of other corporation who have helped themselves to their employees’ pensions. Corporations are trying to buy legislation that will save their bacon. How you vote this November has never been more important. If workers continue to put corporate shills in office, they can kiss their pensions goodbye. A vote for a corporate lapdog is a vote for no pension.
Try something new: Put people in office that will vote in your best interest, not the corporations!
An interesting point is that the IRS has never approved a cash balance conversion. Corporations were flocking to the plans anyway because of all of the money that could be taken from the employees. Now they want Congress to save them from having to give the money back.
The Bush administration has already tried to legalize pension age discrimination through Treasury regulations. Repeat: How you vote this November has never been more important.
IBM tried every trick in the book to avoid making any settlements. There was the matter of Treasury pension documents “doctored” by IBM lobbyist and sent to lawmakers. This incident is still under investigation by the Treasury Department.
Some lawmakers are against employees getting bilked out of their pensions. Rep. Bernie Sanders has led the fight for pension justice. His pension amendment was passed in the House last week. Its purpose is to bar the Bush administration from sullying the federal court ruling against IBM.
184 Democrats and 52 Republican voted for the amendment. Rep. Bernie Sanders could use some help in protection your pension. You can give him that help on election day.