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DukeEmployees.com - Duke Energy Employee Advocate

Pensions - Page 5 - 2003


"Accusers may investigate; those accused always obfuscate" - Employee Advocate


Prestigious Potomac Pension Plundering Party

Employee Advocate – DukeEmployees.com - September 22, 2003

Ellen E. Schultz and Theo Francis continue to expose the injustice of cash balance pension plans in The Wall Street Journal. One of their latest articles offers insight into the cozy relationships between pension regulators and the corporate lobbyists seeking favors.

The pandering continues on and off the clock, by day and by night. William F. Sweetnam Jr. is a Treasury Department lawyer. He is involved in drafting regulations for cash-balance pension plans. A party was thrown at his house to welcome new congressional staffers that worked on pension issues. Already, this looks like a good setup for a conflict of interest issue, or worse.

But look at who co-hosted the party. It was none other than Brian Graff, lobbyist for the American Society of Pension Actuaries (ASPA). Members of this group can make $500 per hour devising cash balance plans for corporations. All the CEO has to do is tell the actuary how much money he wants to take from the pension fund, and it is as good as done. Cash balance plans have been a gold mine for the American Society of Pension Actuaries. Is it any wonder that this group has lobbied in favor of such plans?

The corporations benefit from the vast sums of money taken from the employees’ pension fund. So, they can easily afford to hire lobbyists to promote cash balance plans. The regulators are in a position to benefits from the lobbying effort and political contributions. So, those on the take tend to vote in favor of these plans.

Everybody wins! Except the employees, of course. They ultimately furnish the billions of dollars that is spread amount the pension parasites. They do not furnish their retirement money willingly, but many corporation take it just the same.

How many times have you heard of employees demanding a cash balance pension plan? Workers never want these pension plans. The conversions are always forced upon them. Why are so many people scheming to force cash balance pension plans on employees that they do not want them? The answer is almost universal: MONEY!

Most individual employees do not have millions of dollars in their pension fund. But by taking $200,000 from one employee, $50,000 from another employee, and so forth, the total pension take can easily get into the billions of dollars, over the years. It is easy to see why the cash balance plan promoters are willing to spend lavishly to promote them. They know that whatever they spend will be a pittance compared to the potential pension take. Spending lavishly is no problem – as long as the money comes from someone else. In essence, employees are financing the privilege of losing their retirement income.

The “pension party” news is disturbing enough, but there is more. Some officials are opposed to cash balance plans, because of the pension losses suffered by employees. The few lawmakers and staffers who have the integrity not to be bought by the corporations, were not invited to the party. So, the pension party was, in effect, a “pension plundering party”!

Other invitees included corporate lobbyists from the ERISA Industry Committee and the American Benefits Council. These groups represent hundreds of large corporations that are salivating to get into the employees’ retirement money. Some corporations have already taken the pension money. They are lobbying now to legalize age discrimination in cash balance plans. They do not want to have to return the money to the rightful owners – the employees who earned it through many long years of labor. The pension raiders find exploiting gray pension areas and lobbying to legalize their witches’ brews, preferable to doing any actual work. Some of them gain millions of dollars from the labor of other people, and they never have to get their hands dirty.

There were more invitees to the pension plundering party. Lobbyists from the American Council of Life Insurers, Wall Street's Securities Industry Association, Davis & Harman and Groom Law Group, and Cigna Corp. The law firm is a lobbying arm for benefits consultants. Cigna is the defendant in a cash balance plan, age discrimination lawsuit!

You can begin to grasp what you are up against in attempting to claim the pension that you have earned and were promised for years. Mr. Sweetnam, who is drafting Treasury pension regulations, was partying with everyone who wanted to promote cash balance plans and make age discrimination legal.

Mr. Sweetnam, Treasury benefits tax counsel, tried to gloss over the implications of the party. He called the attendees “my friends.” Apparently, those opposed to cash balance plans, and not invited, are his enemies.

Mr. Graff, executive director of the ASPA, said “The pension community is certainly a relatively close-knit group ... because there aren't that many people with a great deal of technical pension expertise.”

That statement speaks volumes. The pension plunders knew that they could exploit esoteric regulations to take the pension fund money, and the employees would never know what hit them. Many lawmakers had little understanding of arcane pension law and regulations. Who would notice if Congress and government agencies were lobbied to make the all the rules tilt even more in favor of the corporations?

The timing of the pension plundering party was critical. The Treasury Department is on the verge of issuing cash balance pension plan regulations. These regulations could legalize age discrimination and even whitewash smaller cash balance payouts!

Corporations see the Treasury regulations as a way to possibly nullify an August federal court ruling that the IBM cash balance plan is illegal and age discriminatory. Also in August, Xerox lost an appeal of a federal ruling that it underpaid retirees by illegally reducing the cash balance payout.

All employees who stay with a corporation will lose with a cash balance plan. Some will lose 50% of their earned pension. They may have to work 10 extra years to make up the loss.

The Treasury has been in no hurry developing cash balance regulations; it has been working on them for 15 years! Many corporations were too greedy for pension fund money to wait on the regulations to be issued. These corporations converted to cash balance plans in the face of undefined regulations and a moratorium on approval of the plans by the IRS since 1999!

Corporation were confident that workers did not have a clue of the impending pension disaster. They were confident that they could grease enough palms to make the plans legal, after the fact. But investigative reporters, such as, Ellen E. Schultz and Theo Francis blew the whistle on cash balance skullduggery. Members of Congress, who are not on the corporate dole, have educated themselves about the hardships imposed upon employees by cash balance plans. Some employees have educated themselves about cash balance plans, to the point of becoming near experts. One worker actually became a pension expert. He studied actuarial science, to find out exactly how he was being ripped off. He shared what he had learned about the corruption of cash balance plans with a congressional committee.

Here is another disturbing fact about pension regulators. Many officials, now developing pension regulations, were previously employed by corporations as lobbyists or developers of cash balance plans! Even Treasury Secretary John Snow was once the CEO of a corporation that converted to a cash balance plan this year. The conversion by CSX was not deceitful as most conversions are. The conversion only affects newly hired employees. If employees are told about the cash balance plan up-front, they have a choice to accept it or accept other employment.

When employees are converted to a cash balance plan after years of service, it is too late to do anything about it, and too late to make up the losses. The conversion is where earned pension money flows from workers to corporate executives and their henchmen.

Mr. Sweetnam has a history of pension plundering. He joined Sunoco (then Sun) in 1989, during its conversion to a cash balance plan. He joined Towers Perrin in 1995. Towers Perrin is a benefits-consulting firm and major cash balance plan promoter. In 1998, he became majority tax counsel to the Senate Finance Committee. He supported cash balance plans in that position.

If it seem like it is hard to get a fair pension shake, there are very good reasons for it. The IRS also has a hand in devising pension regulations. Top IRS positions go to lawyers and experts with histories of representing corporations. This phenomena is not by accident; it is by design. A measure was adopted in the 1990’s to hire private-sector experts to reshape the agency. The problem is that workers’ pensions are being reshaped and resized. The CEOs’ take is also being reshaped and resized. Employee pensions are shrinking and CEO compensation is exploding.

Paul T. Shultz III, IRS director of employee plans rulings and agreements, once worked for Towers Perrin, and is an old cash balance hand. Thomas Terry, IRS senior technical adviser, once lobbied for corporations at the Groom Law Group. Corporate lobbying influence over the IRS has intensified over the years, according to some career staffers.

Until recently, Mark A. Weinberger oversaw the office that dealt with cash balance plans, as assistant Treasury secretary for tax policy. He was once a lobbyist for the Cash Balance Coalition. The Coalition was formed by Washington Council Ernst & Young, a lobbying firm.

Mr. Weinberger’s vacant Treasury position was filled by Pam Olson. She previously was the chairwoman of the American Bar Association's Section of Taxation. Benefits industry lawyers were members of the group.

Whatever happened to Mr. Weinberger? He bounced back to Ernst & Young, as a top tax official.

Treasury Spokesperson Tara Bradshaw objected to being questioned about the party.

Employees object to losing half of their pensions that they have worked for all of their lives.

Congressman George Miller’s Statement



Low-Ball Cash Balance Payouts

Employee Advocate – DukeEmployees.com - September 17, 2003

Cash balance plans offer such a great variety of ways to deprive workers of their earned pensions that it is no wonder that corporations have spent large sums of money lobbying to make them legal. If the plans were already legal, no lobbying would be required. If enough money is thrown at an illegal proposition, sometimes what was once illegal suddenly becomes legal. This happens through the magic of political contributions and huge lobbying campaigns.

Corporations stood to reap billions of dollars from the employees’ pension funds across America. That was ample motivation for corporations to spare no expense in an effort to make these abusive plans legal. If cash balance plans were legal, they would still be underhanded, unethical, deceptive rip-offs of employees’ pensions. But the average CEO is not overly concerned with ethics. His vision is always clouded by dollar signs.

All employees lose with a cash balance plan. Everyone loses their early retirement subsidy. The relatively young employee that could have once retired at age 51, will now have to work to age 65 to get the same pension. All employees lose everything that they were ever promised by the corporations.

There assorted dirty tricks that can be played on employees through the use of cash balance plans. The low-ball payout is a great opportunity for corporations to pay employees even less than their earned cash balance amount. What a racket! Some corporations reduce a decent, guaranteed retirement amount to a paltry cash balance amount. Employees may have to work an extra ten years to make up the difference. Then workers are further injured by using methods of calculating the payout that favors the corporation!

Ellen E. Schultz and Theo Francis covered this practice in a recent Wall Street Journal article. The low-ball cash balance payout is why employees sued Xerox. The employees won the case, but Xerox did not want to make restitution. Xerox appealed the case and lost. Xerox still did not want to make restitution to the employees. Xerox just lost another appeal attempt. The Seventh Circuit Court of Appeals refused to reconsider a decision that Xerox has not been paying retirees enough money. Xerox still has a death grip on the workers’ pension money.

The Treasury Department may issue guidelines on the proper way to calculate cash balance pension payouts. It is probably not too soon to start regulating cash balance plans; they have been around since 1985! Corporations are having a field day doing anything that they want with these plans. The IRS implemented a moratorium on approving these flaky plan in 1999. A federal court recently declared the IBM cash balance plan to be age discriminatory. So, now the Treasury decides that it may be time to issue regulations on how to calculate cash balance payouts.

Under the Bush administration, the Treasury has already tried to exempt these plans from age discrimination laws. The attempt was a flop. The House passed an amendment that the Treasury could not override the federal court’s decision. The amendment prohibits G. W. Bush from sticking his nose into the IBM cash balance litigation.

The new cash balance payout regulations could help employees obtain the legally required payout. Or, they could help corporations finish robbing the employees. Nothing can be taken for granted when dealing with cash balance plans and the snakes that promote them and profit from them.



IBM Admits Treasury Document Tampering

Employee Advocate – DukeEmployees.com - September 15, 2003

Ellen E. Schultz provided an update to the IBM “doctored” Treasury document report in The Wall Street Journal. An IBM employed lobbyist sent the bogus Treasury document to members of Congress. IBM is desperately trying to salvage their illegal, age discriminatory cash balance plan, by any means possible.

Tara Bradshaw, Treasury spokesperson, denied that the document was legitimate. Congressman Bernie Sanders questioned Treasury Secretary John Snow about the tampered document. Mr. Snow disavowed knowledge of any such document and said “It is certainly something I intend to look into.” Treasury spokesman Rob Nichols said that the Treasury Department’s Office of Inspector General is going to investigate the tainted document.

IBM lobbyists were trying to prevent an amendment by Congressman Sanders from passing. Mr. Sanders prevailed over the misinformation effort and the amendment passed. The amendment is to prevent the Treasury Department from undermining a federal court ruling that the IBM cash balance plan is illegal. IBM is attempting to use backdoor methods to overturn their resounding pension defeat.

Outraged IBM employees first thought that Susan Siemietkowski worked for a lobbying firm. But a visit to www.ibm.com proved that she is employed directly by IBM. Ms. Siemietkowski was listed as an IBM employee in 1998 by www.OpenSecrets.org. IBM spent over $5 million on lobbing in 1998 alone.

IBM tried claming up, but the situation did not go away. The faked document could not be written off as an act by a renegade contractor. Finally, a spokesman admitted that IBM "reformatted the document." The Washington Post reported that IBM is not going to be left out of the investigating. Spokesman Bill Hughes said that IBM is also investigating the incident. There could possibly be a slight conflict of interest in any investigation conducted by IBM. By a strange coincidence, every time a corporation, agency, or department investigates themselves, they always come out squeaky clean.

Accusers may investigate; those accused always obfuscate.

Congressman Sanders sent a letter to Treasury Secretary John Snow stating: “distribution of phony documents purporting to be from the Treasury Department goes beyond even the very loose ethical rules that lobbyists too often seem to follow in Washington.”

Look! Ripping-off employees’ pensions with an illegal cash balance plan was bad enough. But then, IBM chose to lie about the true nature of the pension conversion. Then, IBM tinkered around with a document purportedly from a federal agency. For the ultimate gaffe, IBM then sent the forged document to members of Congress!

Aren’t lobbyist supposed to be smooth operators? The phony Treasury document caper is the equivalent of regurgitating on the dinner table at the debutantes’ ball. The world awaits what IBM will do for an encore!

Previous related article:

The Lying Dogs of IBM



Cash Balance Cold Feet

Employee Advocate – DukeEmployees.com - September 13, 2003

The truth of the diabolical intent of most cash balance pension plans has been coming out for a number of years. But corporations, actuarial groups, and their lobbyists have been conducting a misinformation campaign to cloud the issue.

The IRS instated a moratorium on approving new plans in 1999. A federal court ruled that the IBM cash balance plan was age discriminatory. Thanks to Congressman Bernie Sanders, an amendment was passed by U.S. House of Representatives that could nullify any cash balance regulations the Treasury tries to implement. Anyone who has not caught on to the fact that cash balance plans are rotten to the core must have been sealed in a cave for the last several years.

Dow Jones News reports that even an actuarial firm employee is urging caution regarding cash balance plans. Bullheaded corporations have been implementing abusive cash balance plans in spite of the IRS moratorium. The Employee Advocate asked the IRS just what a letter of determination bought a corporation. The IRS spokesperson said that the letter was a form of “cheap insurance.” The letter verifies the plan is set up properly to comply with the IRS rules. The letter does NOT necessarily mean that the plans are legal! If the IRS is unwilling to issue cash balance letters of determination, that carry little legal weight, that should have told the corporations something!

Even the firm that devised the Duke Energy cash balance plan is getting cold feet. Jerrold Levy, Mercer Human Resource Consulting actuary, said “Companies are concerned about the court decision, that there might be elements of age discrimination in cash-balance plans in general. From a prudent business perspective, they feel they need more information before taking any more action.”

The promotion propaganda would have you believe that everybody is in cash balance plans. This is not so, according to Dallas Salisbury, president and CEO of the Employee Benefit Research Institute. He said that only about 20 percent of employees with private pensions are in cash balance plans.

David Certner, AARP federal affairs director, said “If the legality of cash-balance plans hadn't already been called into question with the IRS moratorium, the IBM decision has certainly made it clear that there's a huge legal cloud hanging over them. I would think it would be malpractice for a company to move forward with one.”

A cash balance conversion leaves some employees with the worst of both plans. The corporations pocket the difference.

Straight From the IRS



The Lying Dogs of IBM

Employee Advocate – DukeEmployees.com - September 11, 2003

Wall Street Journal reporter Ellen E. Schultz has been doing an excellent job of exposing cash balance plan crooks for years. Each pension exposé leaves the perpetrators with less plausible denial. Some have gone from “distorting the facts” to telling outrageous lies. Her latest article, written with Theo Francis, reveals that an IBM lobbyist has resorted to distributing forged documents, rather than accepting that IBM has been fully exposed for pension age discrimination. This is the type of thing that brought about a costly and completely unnecessary war.

The corporations and actuarial firms have been caught in so many pension lies that it looks like they would give it a rest. But no, they just keep telling bigger lies. Cash balance plans came into being by deception and distorting facts. Various attempts were made to sneak in an escape clause for the inherent age discrimination. Now that a federal court has ruled that the IBM cash balance plan is age discriminatory, the stops have been pulled out on all forms of skullduggery to justify the plans.

The inept management of IBM has earned it the undisputed position of poster child for greedy, corrupt, and clueless corporations. It will be extremely difficult for any corporation to plead ignorant to the illegalities of cash balance plans. When a corporation goes to great lengths to hide facts about a cash balance conversion, it is proof enough that it was fully aware of the questionable nature of the plan. When a corporation stoops to passing forged documents to Congress, that should be the final nail in its coffin. The age discriminatory nature of these plans were know by all who profited from them. They tried to force these pension atrocities on the American workforce by brute force. There were so many billions of dollars in the pension funds that all involved were willing to take a chance that maybe they could pull it off. Many people who would never consider stealing a loaf of bread simply cannot be trusted around a large sum of money.

The fact that there were billions of dollars in pension funds does not mean that all retirees would have been wealthy at retirement. The billions of pension dollars belonged to millions of Americans. If the total earned pension money had been dispersed, few retirees would have been living in the lap of luxury. Many retirees would have received very meger pensions. Now they will receive even less.

But when this pension money is concentrated in the hands of a relative few executives, the sums become staggering. The corporations broke the classic rule for parasites: “Don’t kill the host.” The corporate parasites tried to kill the employee/host, but the host is turning on them. The jig is up.

IBM has been running scared since their cash balance plan was declared illegal. It has been throwing money at lobbyists and buying full-page advertisement in the New York Times. IBM has been lobbying the Treasury to exempt cash balance plans from the age discrimination law. IBM is desperately seeking any way to nullify the federal court ruling.

Congressman Sanders, pension champion of all Americans, introduced an amendment to block such an underhanded move by the Treasury. Mr. Sanders said “The court found that IBM knew that older workers would lose up to 47% of their pensions under the cash-balance conversion. Now the Treasury is about to help employers make an end run around the courts and illegally cut pensions.”

There was sheer panic in the ranks of IBM management. Something had to be done – anything to thwart this amendment!

An IBM lobbyist rushes to the rescue of the corporations. Susan M. Siemietkowski sent a document to lawmakers’ purportedly authored by the Treasury Department. The document displayed the official Treasury letterhead. The problem was that it had been doctored to imply that the Treasury opposed the Sanders amendment. This juvenile attempt to sway Congress is an example of what some people will do when they feel the fires of hell breathing down their backs. For this crowd, the ultimate hell would be to have to give back their ill gotten pension gains. They will do anything to avoid this possibility – ANYTHING!

Just who said the Treasury document was a fake? Tara Bradshaw, Treasury spokesperson, said the agency did not issue the document and that it appeared to have been doctored.

Apparently, previous Treasury documents had been pieced together in an attempt to bolster the IBM position.

IBM declined to comment.

Good move. IBM has both feet in its mouth and its head in a guillotine. Every time an executive, spokesperson, or lobbyist opens their mouth IBM slips a little deeper in the cash balance quagmire. Perhaps it’s time for them to just shut up.

IBM has made world class gaffes, but it gets even better. The IBM lobbyist sent a document to lawmakers that included text from the mentioned newspaper ads. Electronic documents can often reveal incriminating information. This document listed Richard C. Shea as the creator. He is the cash balance plan Prince of Darkness. He tried to sneak in a cash balance age discrimination exemption when he worked for the Treasury. He then left the Treasury to peddle these plans. Mr. Shea, who is a lawyer at Covington and Burling, is defending IBM.

Mr. Shea denied writing the ad. He would not disclose whether he is working on the ad campaign.

Read the article below for more about Richard C. Shea:



Interesting Cash Balance Clarifications

Employee Advocate – DukeEmployees.com - September 9, 2003

September 6, The Washington Post made clarifications to articles published about the illegal IBM cash balance plan and the Xerox pension plan.

Regarding the August 1 IBM article: “David Speier of Watson Wyatt Worldwide is the ‘enrolled actuary’ of the IBM plan, meaning he signs official plan documents, and he and his firm receive fees from IBM.”

Regarding Xerox article: “Also, an Aug. 2 Business article, concerning Xerox Corp.'s pension plan but touching on the IBM case and quoting Richard C. Shea of Covington & Burling, should have noted that IBM is a client of Covington & Burling.”

If you have been following the cash balance developments for some time, you know who Richard C. Shea is. He used to work for the Treasury Department. He attempted to covertly slip wording into Treasury regulations that would exempt cash balance plans from age discrimination some years ago.

It is obvious that the promoters of cash balance plans knew that they were illegal from day one. Why else would they have gone through such contortions to have them exempted from the law? The wording that Mr. Shea tried to add to the Treasury regulations only made it to the preamble. He evidently felt his work was done, because he left the Treasury. Where did he go? He immediately joined Covington & Burling to sell cash balance plans.

The history of cash balance plans is like a mystery novel. The characters introduced early in the plot keep showing up at opportune places. Wall Street Journal reporter Ellen E. Schultz exposed Richard Shea in 1999.

The link below leads to earlier articles about Richard C. Shea:

Pension Skullduggery



All Companies Do Not Cheat Employees

Employee Advocate – DukeEmployees.com - September 4, 2003

The Boston Globe gave some examples of companies that did NOT rip-off employees during a cash balance plan conversion. Some corporations have been trying to sweep this issue under the rug for years. After a federal court ruled that the IBM cash balance plan was age discriminatory, these treacherous plans are fully exposed to the sunshine. The corporations that stole from the employees are in the damage control mode. The few companies that did not rob their employees have a right to gloat. They have the same gloating rights as the electric utilities that did not try to rip-off customers by lusting after deregulation.

State Street Corp. and Harvard University did not steal earned pension benefits from their employees. These companies tracked each employee’s benefits under the old and new plan. At retirement the worker receives the greater amount!

Regina Perris, Harvard's director of benefit services, said “We recognized what would happen to older people, so that's why we did it.”

The greedy corporations forced employees into receiving a lessor pension amount. They too knew that employees would lose pension benefits, but this was viewed as a good thing! It was tough on employees, but it meant big bucks for the executives!

Allmerica Financial gave employees their full earned pension benefits under the old plan. Plus, the employees received a supplement from the cash balance plan.

Lucent Technologies acted honorably. Existing employees kept the old plan. Newly hired employees went into the cash balance plan. The new employees could always turn down the job if the pension was unacceptable. After a person has worked for a company for twenty-five years, or so, it’s too late to turn down the job. They have already been ripped-off for decades. Employees feel that they are victims of fraud when they work for years for an agreed benefit and find out that the company has lied to them.

Watson Wyatt Worldwide, Mercer Human Resources Consulting, and other groups that took in huge sums of money peddling the plans are screaming in agony. They are throwing money at lobbyists. It is no wonder. What if the unscrupulous corporations are force to come clean and make restitution to the employees? What if corporations can convince a court that they were duped by these consulting groups? Now you see why they are sweating blood!

A lot of “suits” have profited at the expense of employees. And, not one of them wants to give back his ill gotten gains. Cash balance plans will be covered in business schools a hundred years from now. They will be under the heading “How Not to Run a Business.” If you are entitled to a corporate pension, this may be the biggest financial battle of your lifetime. Do not sleep through it!

Mary Ellen Signorille, senior staff attorney for AARP, said that discrimination “is inherent to a cash balance plan.”

The flaky cash balance plans were promoted by employers as a "portable" pension. But nothing is portable about it at Duke Energy. If an employee leaves the company before age 55, the cash balance amount stays with Duke. Only when the employee reaches age 55 will he receive his “portable” cash balance pension. In the meantime, Duke stands to profit off of the held pension. The interest paid on cash balance balances is meager. If Duke can invest the money and gain a nice return, it gets to keep the difference between the small amount of interest paid and the actual appreciation!

Corporations try to keep the actual pension losses hidden from employees. But court documents prove that some IBM employees lost almost 50 percent of their pension benefits!

Norman Stein, University of Alabama law professor, said the ruling may give the green light to other lawsuits against employers by older workers. He said “A lot of lawyers might've told employees who were upset there was nothing they could do. This suggests maybe there is.”

The employees’ unfailing champion in Congress is Representative Bernard Sanders. He has introduced legislation to protect the pensions of workers, and is going to offer more legislation today.

The link below leads to Mr. Sanders’ cash balance plan letter to Colleagues:

Protect the Pensions of American Workers



The Great American Pension-Fund Robbery

BusinessWeek – by Robert Kuttner - August 31, 2003

September 8, 2003 Issue

America's corporate pension system is said to be facing a perfect storm: Equities have taken a big hit (they are still way off their highs), and returns on bonds have plummeted, leaving pension funds with reduced earnings to pay benefits. In addition, corporate downsizing and lengthening life spans have left many companies, particularly in manufacturing, with a rising ratio of retirees to active workers. U.S. Treasury Under Secretary Peter R. Fisher has testified that pensions are underfunded by $300 billion -- far exceeding the resources of the government's Pension Benefit Guarantee Corp.

But if pensions are under water, the cause is less a perfect storm than a leaky boat ravaged by pirates. For more than a decade, corporate sponsors of pension plans have been systematically looting them. The great pension raid is of a piece with the other accounting deceptions of the 1990s, and it had the same motivation -- to boost reported earnings and stock prices.

Since the 1980s, many corporations have shifted from traditional defined-benefit plans to defined-contribution plans such as 401(k)s, which cap the company's liability and shift the risk to workers and retirees. But that shift is only the most visible part of the story. As of yearend 2002, some 42 million workers and retirees and $1.6 trillion dollars were still in traditional pension plans -- and these have been raided.

Among the favorite gimmicks for creative theft of pension assets:

  • Project an unrealistically high rate of return and claim that the plan is overfunded. Then reduce contributions to the plan and divert the plan's assets to fattening the bottom line. This maneuver allowed corporations to hype reported earnings by 10% to 15% during the 1990s, which in turn contributed to the same stock market bubble that supposedly justified the inflated rate of return. When the bubble burst, pension plans found themselves underfunded.

  • Convert from conventional plans to "cash-balance plans." This was invented by Bank of America in 1985 and widely imitated. Terminating a pension plan results in a large tax penalty, so consultants invented a hybrid that quacks like a 401(k) but doesn't trigger the penalty. The Internal Revenue Service went along with the fiction that a cash-balance plan, which reduces payouts, is not really a termination of the plan. The conversion creates imaginary individual accounts that pay a set rate of return. Companies then book their projected future savings as current earnings, thanks to a bizarre determination by the Financial Accounting Standards Board. On July 31, in response to a lawsuit by IBM workers, a federal judge ruled that such conversions constitute illegal age discrimination.

  • Redefine employees as independent contractors. In 2001, Allstate Corp., which had long distinguished itself by having an employee sales force with good benefits, converted some 6,400 longtime employees to independent contractors, shortchanging their pensions.

  • Sell off units that have older employees, who then lose their pension benefits. This sweetens the value of the deal. In 1998, Halliburton Co. acquired Dresser Industries Inc., then spun off its Dresser-Rand unit in 1999. Workers found themselves with pension benefits reduced by an estimated $25 million. (Dick Cheney got a generous severance and retirement package when he left, however).

  • Declare bankruptcy, but set up a special bankruptcy-proof pension plan for top executives as an off-the-books trust. Unlike a "qualified" pension plan, which produces tax breaks for the company, these special executive plans are funded in aftertax dollars that would otherwise go to shareholders. Enron Corp. did this. Last April, American Airlines Inc. tried it -- but relented and had to sacrifice Donald J. Carty, CEO of American parent AMR, after its unions went ballistic. In a bankruptcy, of course, employees can lose some or all benefits.

Once, pension plans were intended to induce loyalty and long service in workers. Now, big corporations and their executives seem to care about only one category of worker -- top managers, who loot the plans while protecting their own assets. Ordinary long-tenured employees are deemed liabilities.

The remedy for depleted pension funds is much tougher regulation. But the Bush Administration wants to weaken anti-discrimination rules to make it even easier for top executives to have one set of rules for employees and another for themselves. To solve the underfunding problem, the government should be forcing companies to disgorge money that was improperly diverted from plans to corporate bottom lines, thus making the plans whole. Instead, the Administration wants to allow companies to use more liberal accounting assumptions about rates of return.

It's fine to have an Administration that prides itself on being pro-business. But don't the tens of millions of employees who loyally serve Corporate America also count as part of business? Shouldn't their pensions be protected as well?

By Robert Kuttner



Pension Raiders are Getting Desperate

Employee Advocate – DukeEmployees.com - August 21, 2003

When the cash balance pension protest was just getting started good in 1999, the pension raiders looked on with smug amusement. The quest for pension justice was regarded as futile. Those that gained from raiding the employees’ pension funds thought that they had all their bases covered. They were confident that they had Congress, the judicial system, and all agencies under their control.

PlanSponsor, a magazine written for corporate pension fiduciaries, even regarded the fledgling attempts for pension justice as a benign diversion. The employees, striving to hold corporations to their written pension promises, were regarded as harmless gadflies, to be patronized. The magazine was so confident that nothing could possibly come from the employees’ efforts, that it even gave them space to express their objections to cash balance plans. In fact, the magazine published some very good articles about cash balance plans, as viewed from the employees’ perspective.

One would think that a corporate magazine and employees would be natural enemies. But employees were so overmatched by the corporations’ wealth and power that no one was willing to take them seriously. The employees were regarded as a tiny Chihuahua being sacrificed to train a pit bull to kill. The employees’ chances of victory were rated at zero.

The Chihuahua was underestimated.

The battle rages on, but the Chihuahua is still in the fight and is still drawing blood.

As more people became aware of the injustice of vanishing pensions, the employees gained more allies. The Equal Employment Opportunity Commission (EEOC) recognized a possible age discrimination violation. In 1999, the EEOC waived the age limitations and filing limitations for Duke Energy employees wishing to file cash balance age discrimination charges. Employees of many other corporations also filed age discrimination charges. These charges are still active.

Several bills to aid employees with lost pensions have been proposed in Congress. But so far, the corporate strangle hold on Congress has been too great for the bills to proceed. Several employee pension lawsuits were won, but the matter of age discrimination was unresolved.

On July 31, 2003, a federal court ruled that IBM practiced age discrimination in converting to a cash balance pension plan. The court further ruled that the previous IBM pension plan was age discriminatory. The very next day, Xerox employees won a cash balance plan case, involving lump sum calculations.

No one wants to wants to disregard the Chihuahua now, least of all the pit bull. The vicious pit bull and the spectators do not know what is happening, but things are not going as planned. The Chihuahua is cut, bruised, and bloodied, but is not backing off. He knew from the beginning that it would be mortal combat.

Corporations are no longer ignoring the employees’ protests. They do not want to give back the money, but are afraid that they may be forced to come clean and make restitution.

PlanSponsor no longer regards the pension battle as a tempest in a teapot. The magazine has become very defensive about cash balance plans. The magazine now blames the media because cash balance plans have fallen into discredit. The media is only reporting the truth that has been suppressed for years.

Cash balance plans were devised as a way to evade pension laws and take earned benefits from employees. Anything else said about these plans are smoke screens to hide the true intent. The Employee Advocate appreciates the many fine pension articles published by PlanSponsor in the past. But the magazine should realize that it is much too late to crank up the smoke screens now. Too many people know the truth.

The pit bull is bewildered and circling. The Chihuahua concentrates on his jugular vein...



Monkey Wrench in Cash Balance Plans

Employee Advocate – DukeEmployees.com - August 11, 2003

The Los Angeles Times published an excellent article by Kathy M. Kristof, which covered the IBM cash balance plan lawsuit. The conclusion was that the ruling of age discrimination will make it difficult for corporations to switch to such plans.

Executives cannot claim that they did not know that cash balance plans were shady. The IRS imposed a moratorium on approving these plans in 1999. That should have given anyone more than a clue that cash balance plans had a smell to them.

Bull-headed corporations went right on converting to these plans anyway. They ignored all the warning flags because there was so much pension money to be taken from the employees. Corporations followed each other, overpowered by the smell of free pension money. Consulting groups were also giving these plans the hard sell. They were making tons of money by telling corporations how they could also reap tons of money - from employees! Get-rich-quick schemes, all to often, end in disaster. The people who fall for the scams know that there is something fishy about them. But greed overrules their common sense.

Corporations chased these plans just as utilities chased electric deregulation, energy trading, and other Enron-like ventures. Duke Energy has the dubious distinction of having fallen for every easy money scheme going. If corporations were head by 13-year old CEO’s, such naivete could be overlooked. CEO’s are often paid millions of dollars for their experience and supposed business savvy. They are assumed to have the acumen not to fall for each and every scam going.

Ms. Kristof stated: “With help from a federal judge, Kathi Cooper has thrown a monkey wrench into the world of corporate pensions.”

U.S. District Judge G. Patrick Murphy ruled that IBM illegally discriminated against older workers with the 1999 cash balance pension conversion.

The corporations that rushed headlong into these flaky plans may also feel the brunt of this ruling. Corporate controlled groups, such as the ERISA Industry Committee, are squalling. Doug Baj, spokesman for the ERISA Industry Committee, said “Everybody is looking at this.” He knows the ruling “threatens to outlaw” other cash balance plans.

David Certner, director of federal affairs at AARP, said “This is a very significant ruling. This is a court saying what we have said all along — these plans discriminate against older workers”

Kathi Cooper said “There comes a time in your life when you realize you are out of runway. You have no alternatives.”

The corporations could well afford to meet their pensions obligations or they would have never offered them in the first place. CEO’s may get a 100% or a 200% bonus each year. No percentages like this ever went into pension plans for employees. A traditional pension plan may pay one and one-half percent of salary into the fund. That meger amount is not going to break anyone. Plus, corporations that offered pensions reduce the salary that they could have paid to cover the pension contributions. So, the pension funds did not cost the corporations anything extra.

Repeat: Corporations contributed money to pension funds that would have otherwise gone into salaries. In effect, pension plans were free for corporations. Not only were the pension funds free, but corporations actually made money off of them. These funds were invested and made so much money that they were said to be “overfunded.” Ways were found to report pension fund appreciation as corporate earnings. Now the corporations looked like they were doing better financially than they actually were. Rules were liberalized to allow corporations to spend the “overfunded” amounts in certain ways, such as providing benefits to retirees. Each time a corporations spent pension fund money instead of its own money, it was the same as earning that amount of money.

Employees used to have to work 10 years to become vested in the pension fund. If an employee left the company after nine and one-half years, he received zero in pension benefits. Think of the millions of employees that never worked the required 10-year vesting period. Corporations pocketed this money. These employees were penalized in salary for a pension benefit that they never would receive! If an employee worked the 10-year vesting period, but left the company before retirement age, he was heavily penalized.

Corporations had pension funds that cost them nothing. They were able to make money with it and make the business look stronger than it was. The corporations had a pretty good racket going with the old pension plans. One would think that they would have been happy with it. But in comes greed.

Corporations used to just terminate pension funds, pay off the employees, and cart off the excess funds. Some unscrupulous "investors" got this pension scam down to a science. They would borrow money, take over a company, terminate the pension, pay off the employees and the loan, sell the company and have a nice profit from the employees' pensions. Then they would do it again. Some had the audacity to threaten to take over a company unless they were paid not to! This is like paying a robber not to rob you.

To discourage this, a 50% penalty was imposed on the money that corporations took from pension plans. The penalty stopped that scam dead. But where big money is involved, unscrupulous people are always scheming. Cash balance plans were devised as a way for corporations to do what they always wanted to do with the pension money and not be subject to any penalties. The plans were a way to reduce corporate pension “liabilities,” without shutting down the original plan. The conversions were a windfall for corporations and a disaster for employees.

Cash balance plans are just as crooked as they sound. A huge sum of money was spent to get cash balance plans as far as they are today. That never made them legal. At last a federal court has ruled that cash balance plans are age discriminatory. Everyone knew it all along. Corporation just though that they could slip this one by.

Employees are sick of hearing the corporate excuses for cash balance plans. They know these plans have one purpose and one purpose only – to take the employees’ earned pensions from them! Employees do not want to hear any more “mobile employee” rhetoric. It is time for the guilty corporations to shut up and pay up.

In addition to IBM vs. Cooper, cash balance lawsuits have been filed against Xerox Corp., AT&T Corp., Cigna Corp., and other corporations.

Court filings showed that IBM expected to save $500 million a year with the cash balance plan. That is another way of saying that the employees were going to lose $500 a year in earned pension benefits!

Consultants and corporations sought to evade the pension laws by calling cash balance plans “hybrids.” The hybrid was a mixed breed of two types of funds in an attempt to evade the laws governing the pensions funds. Nice try, but the court did not buy it. Judge Murphy ruled that to maintain the tax and balance-sheet benefits of a traditional pension plan, the laws governing the plans must be obeyed!

Judge Murphy wrote: “This court will not perform legal legerdemain by dodging the detail requirements of ERISA in order to save IBM's 1999 plan."

A bending of the law is exactly what the corporations have been asking for. They want the law to be bent so they can keep the pension money illegally taken from employees.

Norman Stein, professor of law at the University of Alabama, said “What companies liked about cash-balance plans was that they thought the plans allowed them to pick and choose among the rules governing defined-contribution plans such as 401(k)s and traditional pensions.”

Oh, Yes! Corporations always want to pick and choose the laws that they will follow, if any.

IBM executives told the employees to “Get over it” in 1999. But it appears that IBM is not willing to get over it; IBM is appealing the ruling. The appeal will be heard by the same court that ruled in favor of the employees challenging the Xerox cash balance plan.

The Xerox case dealt with low ball cash balance calculations. (Cash balance plans gyp employees in every way possible!) Professor Stein feels that this could make it less likely that the IBM ruling will be overturned.

Mark Iwry, former Treasury official, said “Congress needs to step up and resolve this.”

Independent Congressman Bernie Sanders has offered legislation to solve the cash balance inequities, but each attempt has be thwarted by the Republican side of the House.

Corporate lobbyists are now crawling on Capitol Hill like ants. They want pension legislation, but they do not want legislation that will offer justice to employees. They want an act of Congress that will give the employees’ pensions to the corporations.

Joel Barkin, spokesman for Congressman Sanders, said “Now we are in a position of playing defense rather than offense — and that's helpful. Our focus now will be to make sure that Congress doesn't do anything to undermine this ruling.”

Every employee in America should follow this legislation. Any lawmaker who votes to give the employees’ pensions to the corporations should be voted out of office.



Ellen Exposes More Pension Lies

Employee Advocate – DukeEmployees.com - August 8, 2003

Ellen E. Schultz is still on a roll, exposing cash balance skullduggery in The Wall Street Journal. Her latest offering is 1999 e-mail between the plan sellers and IBM executives. The documents prove that IBM knew all along the damage the conversion would do to employees. They did not care in the slightest – IBM wanted the money!

IBM knew that many employees would not earn pension benefits for years. IBM knew that some would never earn another penny in pension benefits. IBM knew that some employees would lose almost half of the pension that they had earned.

These documents were exhibits in the pension court case last week, in which the employees trounced IBM. The ruling was that IBM committed age discrimination against employees.

Is there anyone who was so weak as to believe the corporations were telling the truth?

The corporations and their lackeys have told every lie conceivable to cover up the real purpose of cash balance conversions. The truth is that many corporations took the employees pension earning, and then lied about it. What is so bad is that they did not even tell good lies. They could not even come up with a believable lie. They never were able to offer plausible denial. Did they really think that no one would catch on?

David Speier, Watson Wyatt Worldwide consultant, stated “younger employees will benefit the most from [an] enhancement. On average, very young employees (in their 20s) could see their benefit double due to the enhancement, while a person who is in their early 40s might only see a 10% increase ... and older employees (over 45) will generally not be covered…As you can see, the enhancement is directly related to age. Young employees get the benefit and old employees do not.”

Scot Martin, from Mercer Human Resource Consulting, had a table that showed that 28,300 employees out of 138,600 would not earn new benefits for up to five years. Duke Energy employees can "thank" Mercer for devising their cash balance plan.

“Wearaway” is the time employees work for free, as far as pension benefits go. It can last many years. It is the time that the corporation wins and the employees lose.

In one example a 44-year employee lost 47 percent of their promised pension!

Employees have not been protesting these plans just for the fun of it. Real people are losing real pension money each day. Meanwhile, real CEO’s are gorging at a real money troughs and are getting real fat!


Pensions - Page 4 - 2003