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Who Ran Away With Your 401(k)?Employee Advocate - www.DukeEmployees.com - May 5, 2009
Who Ran Away With Your 401(k)?
How the boss absconded with your benefits.
By David Cay Johnston
John Snow won't have to worry about his retirement. When he left the csx railroad to become George W. Bush's second treasury secretary, he took with him a $2.5 million annual pension. The figure was based on 44 years of employment at csx, never mind that Snow had been there for only 25 (during which, incidentally, he brutally cut safety and maintenance, to the point where a jury awarded a widow $50 million in punitive damages after a derailment—money paid by the taxpayers because of a little-known law that insulated Snow and his company from the costs of his egregious judgment). That kind of boost is unheard of for the rank and file, but not at all uncommon for corporate executives and owners.
Snow's case is typical of the way corporate executives have, for the past 35 years, managed to gild their retirement benefits even as they hollowed out workers' pensions. It started with the 1974 Employee Retirement Income Security Act, the law ostensibly designed to ensure that workers could collect the retirement benefits they'd earned. erisa brought some important reforms—including establishing the federal Pension Benefit Guaranty Corporation (pbgc) to help workers whose pensions went bust—but it also was riddled with favors to business. And in the decades since, legions of lobbyists have helped create numerous new loopholes, exemptions, and special deals. The result is two separate and unequal pension systems: Executives get the equivalent of antebellum mansions, while workers get leaky shacks liable to collapse at the first harsh economic wind. Here are 10 of the key ways in which it happened. (Be warned: This stuff gets a bit technical. Washington is full of people who are very well paid to figure out insanely complex ways to take money from you and me.)
The Top Hat Club: In erisa, lawmakers put a cap on how much of an employee's pay companies could count in calculating his retirement benefits. The reasoning was solid: Congress let companies take a tax deduction for money they put in their pension plan, but didn't want to extend that taxpayer subsidy to the highest-paid workers. The cap rises with inflation; this year it amounts to $245,000. That is more than 99 percent of workers earn, but it is also far below what top executives are paid.
So to guarantee a retirement in keeping with the income they are accustomed to, executives have created their own plans, known appropriately enough as Top Hat plans. If you thought ceo pay was lavish, consider this: Most of the numbers you see reported don't include retirement benefits, even though they typically raise compensation by about a third. And since these funds are separate from the regular workers' pensions, executives have no personal motivation to safeguard the latter.
The government does not guarantee these executive benefits; in theory, if a company ends up in bankruptcy, creditors can take the money. But as Diana B. Henriques and I showed in a 1996 series for the New York Times, in practice executives get nearly every cent (and some even double their money) when their companies fail. The reason? Executives of bankrupt companies threaten to walk unless they get their pension money in full, but promise to stay and help rehabilitate the firm if their money is guaranteed.
The Tax Dodge: Contributions to pension plans are tax free, but companies have to pay taxes on the money they put into Top Hat plans—a cost that can amount to several billions over the years for a large firm. How do companies pay for that extra cost? First, they shortchange the rank and file by reducing their benefits. (Workers are often told their benefits must be cut because of competition; they just don't realize that the competitors are their own bosses.) Second, they buy tax shelters—depriving the Treasury of revenue that must be made up by the rest of us.
The Bonus Bonus: Under most pension plans, workers' benefits are calculated based on salary and years worked. However, a number of subtle rules tend to reduce these benefits—such as averaging pay for the last five years on the job, excluding overtime and bonuses, etc. For executives, it works exactly the opposite way: Benefits are maximized by counting only their highest-paid year, bonuses and supplemental pay are included, and so on. In calculating Snow's pension, for example, csx even counted the 250,000 shares of stock it gave him. Based on similarly generous pension rules, controversial ceo Jack Welch left General Electric in 2001 with a pension worth $9 million a year, and Lee Raymond retired as ceo of ExxonMobil in 2006 with a lump-sum pension payment of $98 million.
The Social Security Swindle: erisa allowed companies to reduce promised pension benefits by the equivalent of most of a worker's Social Security check. Thus, if a secretary were due a pension of $1,000 but could expect $732 in Social Security, she might receive as little as $400 from the pension fund. (Thanks to the Tax Reform Act of 1986, only half a pension can be taken away via the Social Security offset.)
Prudent Man's Hand: When you buy an annuity (which is essentially an individually financed pension plan), the insurance company that manages it will invest primarily in high-quality, safe corporate bonds. Had Congress held to this sound accounting principle, few pension plans would be in trouble today. But instead, Congress in 1974 created a "prudent man test" for plan managers, who were expected simply to look to what others in their field were doing. Soon, plans were falling over each other chasing the higher returns to be found in stocks and even hedge funds; at the same time, pension lobbyists worked to kill laws limiting pension investments in stocks.
The Phantom of the Pension Fund: In erisa, Congress allowed companies to treat their own estimates of how much their pension investments would earn as if they had actually earned that much, even when the true returns were much smaller. Thus, a company can estimate that it will earn 8 percent, actually make 3 percent, yet still value its pension plan as if it had made the higher amount. In theory, this process, known as "smoothing," is supposed to account for fluctuations in asset valuations over time. In practice, it means that pension plans can become filled with phantom assets. At one point in 2004, the New York Times reported, the entire net worth of General Motors was accounted for by these imaginary investment gains in its pension plans. (The fanciful accounting practice has since been limited somewhat.)
Under erisa, if a plan had $1 in assets for each dollar owed in benefits, no more tax-deductible money could be put in. (In 2006, that ceiling was changed to $1.50.) So when the stock market was riding high, companies would stop making pension contributions even though they were flush with profit and could afford to put money aside. In the '80s and '90s, some big firms like General Electric, ibm, and US Steel went years without adding a dime to their pension plans because the soaring stock market made the funds appear flush. Then the inevitable cyclical declines came, leaving some plans deep in the hole—and with the economy weakened, companies claimed they couldn't afford make-up contributions.
The Boehner Bungle: Under the 2006 Pension Protection Act, a misleadingly named law sponsored by Rep. John Boehner (R-Ohio), now the House Republican leader, companies can convert single-employer plans to multi-employer plans. A little-noticed side effect: If those pension plans fail, the maximum government guarantee is no longer $1,000-plus per week, but about $250 per week. Public disclosure is limited, so it's hard to tell how many companies have done this.
40 Is the New 60: Since 1985, more and more companies have switched from traditional "guaranteed benefit" pensions to a new system, called a cash balance plan, that is a mixture of the traditional pension and a 401(k)-type plan. A cash balance plan typically costs a company about 20 percent less than a traditional pension plan and can cost workers 40 and older half their expected retirement benefits. Yet the federal courts have rejected claims by ibm employees and others that this amounts to illegal age discrimination.
The Deep Freeze: Once upon a time, only troubled companies shut down their pension plans. But in the last decade, ibm, Neiman Marcus, and many other healthy companies have done effectively the same thing by freezing their plans, meaning that employees' benefits will not go up no matter how long they work for the company. Other companies, including Alcoa, Nissan North America, and Lockheed Martin, have kept their plans going but barred new hires from joining, while others yet (such as DuPont) cut newly accrued retirement benefits by as much as two-thirds.
The Coming Bailout: In February 2008, just as the stock market was beginning to tank, the three-person board of the pbgc (Labor Secretary Elaine Chao, Treasury Secretary Henry Paulson, and Commerce Secretary Carlos Gutierrez) ordered the agency's staff to sell some of its bond holdings and buy stocks and hedge funds instead. Fortunately, that didn't happen. Still, as of last September 30 the guaranty corporation owed $11.2 billion more to workers in failed pension plans than it had available to pay them. And while the feds could simply boost employer premiums to the pbgc to make up for the shortfall, a likelier outcome is a taxpayer bailout if (or when) more plans fail. At least this time the money will go to elderly people who did nothing to bring on their misfortune.
Back when Congress created the contemporary pension system, the idea was that workers' benefits (which are really just wages deferred to old age) should be guaranteed even if their employers failed. Executives' benefits, meanwhile, were supposed to be risky, tied to their companies' fortunes.
What we now have is the opposite. Nearly 44 million workers are at risk of not being paid the benefits they are due. But few executives will miss out on their golden years.
Penetrating News For Pension PlunderersEmployee Advocate – www.DukeEmployees.com – March 5, 2007
The latest cash balance ruling is bad news for the corporations that cleaned out the pension accounts, according to Employee Benefit News, March, 2007 issue. Lynn Gresham reported on the Dec. 12 summary judgment issued by Judge Shira Scheindlin, of the U.S. District Court for the Southern District of New York, in favor of Citigroup employees. The ruling maintained that Citigroup's "Citibuilder" cash balance plan, implemented in January, 2000, is illegal on multiple counts.
Five cash balance pension cases have been decided in the 2nd Circuit. In three of those cases, the cash balance plans were found to be illegal.
Attorney Terry Price said "The trend of the decisions involving older hybrid plans is not favorable for employers. It is not only plan-related age discrimination claims that have sometimes won the day for plaintiffs. It also is plaintiffs going after hybrid plans on accrued benefit and conversion-related notice issues that appears to have gained better traction… No court of appeals decision has so far given hybrid plans a diagnosis of complete wellness."
CEO’s Profited From Cash Balance ConversionsEmployee Advocate – www.DukeEmployees.com – January 22, 2007
On August 17, 2006, Massachusetts School of Law Dean Lawrence R. Velvel posted this update to his previous comments on the IBM pension case. These comments were posted on VelvelOnNationalAffairs.com and represent his personal views.
Update On The IBM Pension Case
Thursday, August 17, 2006
From: Dean Lawrence R. Velvel
I wish to briefly bring you further up to date, as it were, about events discussed in two recent blogs.
The first is the August 11th posting which assailed the Seventh Circuit’s plutocratic opinion in the IBM pension case. That blog explained how the opinion written by The Reactionary Easterbrook allowed older American workers to get screwed over by a dishonest and unfair change in their pensions (a dishonest, unfair change away from the type of pensions that federal judges like The Reactionary Easterbrook have.) The blog also fit the dishonest change into the broader picture of how American workers, who suffer loss of jobs and loss of pensions, have been getting screwed over by big business, while high executives who run their companies into disaster, even bankruptcy, get rewarded by huge salaries, stock options, golden parachutes and the like.
Yesterday, however, The Wall Street Journal -- not exactly a fount of left wing liberalism or socialism, as one repeatedly points out -- carried an article showing that the change in pensions exemplified in the IBM case is even worse than one realized. The change, which screws over persons who have worked for a company for 20 or 30 years, is adopted, of course, to lower companies’ costs at the expense of the workers. According to the Journal, researchers at Cornell, Colorado and the University of California at Irvine have found that, in the years when pensions were changed and employees screwed over, “incentive compensation for the chief executive officers” of the culprit companies jumped dramatically. “For example, filings show that when Cooper Tire & Rubber Co. converted its pension to a cash balance plan in 2002, the CEO’s incentive pay rose to $1.5 million -- the highest level in a decade -- from $702,000 the year before. After a similar move by Clorox Co. in 1996, the incentive compensation for G. Craig Sullivan, its chief executive, jumped to $5.6 million from $961,000 the year before.” On “average incentive compensation for the chief executive officers jumped to about four times salary in the year of the pension cut, from about three times salary the year before. Companies that didn’t change their pensions saw little change.”
But this is not all. It seems that, just a few days before The Reactionary Easterbrook rendered his awful decision, “Congress approved a measure that would deem cash-balance plans legal. While the [Easterbrook] ruling will be appealed, and the bill has yet to be signed into law by President Bush, employer groups say the recent actions are a green light for employers to change their pensions.”
So what we have goes even beyond what was discussed in the prior blog. What we have, indeed, is a situation in which the pensions desperately needed and relied on by average workers are cut dramatically so that highly paid executives can make even more money -- can make millions more -- and Congress (as well as the Seventh Circuit) has approved this. It’s another example of the rich getting richer on the backs of the middle class and the poor, while the Congressional hacks who are paid off, bought and sold by big business (as if this were the Gilded Age -- well, maybe it is) approve this monstrous result…
The link below is to Mr. Velvel’s original comments on the IBM pension case:
Supreme Court Declines to Hear IBM Pension CaseEmployee Advocate – www.DukeEmployees.com – January 17, 2007
On Tuesday, The Supreme Court declined to hear an employee appeal in Cooper v. IBM, 06-760, according to the Associated Press. The Court also chose not to hear Saville v. IBM, 06-407, a retaliation case.
IRS Cash Balance Plan UpdateEmployee Advocate – www.DukeEmployees.com – January 1, 2007
On December 21, the IRS announced a change in policy regarding cash balance pension conversions. In 1999, the IRS received a huge volume of complaints against cash balance plan conversions. These complaints led the IRS to declare a moratorium on processing applications from corporations for cash balance plan determination letters.
Some corporations, including Duke Energy, had obtained favorable IRS letters of determination prior to the 1999 moratorium. Duke Energy executives even cited the favorable IRS letter of determination as proof that Duke’s cash balance conversions was legal.
Just what is an IRS favorable letter of determination? The Employee Advocate called the IRS Hotline in 1999 and asked the question. The IRS representative said the letter was a form of "cheap insurance" that companies considering cash balance plans could apply for. These letters never guaranteed the cash balance plans were legal. In fact, the IRS moratorium on the letters was to allow time to resolve several issues, including the impact of cash balance conversions on older employees.
Since the Pension Protection Act is now law, the IRS will resume processing the backlog of approximately 1,200 letter of determination applications. If the older cash balance conversions were held to the standards of the new law, few if any, would be legal. The new law declared most of the pension robbing provisions of cash balance conversions to be illegal.
The fact that the IRS refused to issue cash balance plan letters of determination for over seven years should have been a red flag that there were legal problems with these plans. Why did so many corporation convert to the plans anyway? The answer is simple: GREED. With the chance to take hundreds of millions of dollars from the employees’ future pensions, they were willing to take the gamble.
The Pension Protection Act is only retroactive to June 29, 2005. The only way for employees to seek justice for pension losses from older conversions is in the federal courts.
AARP Files Brief in IBM Pension CaseEmployee Advocate – www.DukeEmployees.com – December 24, 2006
Friday, AARP weighed in on the IBM pension lawsuit by filing a friend of the court brief with the U. S. Supreme Court. AARP offered a number of compelling reasons why it is appropriate for The Supreme Court to review the case.
Citigroup Cash Balance Plan is Age DiscriminatoryEmployee Advocate – www.DukeEmployees.com – December 14, 2006
A federal district court judge has ruled another cash balance pension plan to be age discriminatory, according to Business Insurance. Tuesday, the Citigroup cash balance plan was found to discriminate against older workers.
Judge Shira A. Scheindlin of the U.S. District Court for the Southern District of New York wrote: "cash balance plans are not age-neutral."
Cash Balance Plans are Age DiscriminatoryEmployee Advocate – www.DukeEmployees.com – November 13, 2006, 2006
NEW YORK—A federal judge in a case involving JPMorgan Chase & Co.’s cash balance plan has rejected a landmark federal appeals court decision that cash balance pension plans do not discriminate against older employees.
When cash balance plan benefits are expressed as a retirement-age annuity, an older employee who started working at the same time as a younger employee will receive a smaller benefit, which is age discrimination, Judge Harold Baer Jr. of the U.S. District Court for the Southern District of New York ruled Monday.
Judge Baer’s decision, which rejected JPMorgan Chase’s motion to dismiss the age discrimination charge, is the first to go against employers since the 7th U.S. Circuit Court of Appeals in Chicago ruled in August that the plans do not discriminate against older employees.
More than 1,000 U.S. employers sponsor cash balance plans.
Since the appellate court ruling, which involved IBM Corp.’s cash balance plan, at least two other district court judges—including one in the same judicial district as Judge Baer—have dismissed cash balance plan age discrimination charges, with both judges citing the appeals court ruling in their opinions.
Some cash balance plan supporters had hoped that the reasoning of the appeals court in the IBM case would persuade many other courts considering the issue that the plans are not age discriminatory. The appeals court had ruled that the plans are age neutral since the benefit and interest credits employees earn are not based on age.
But Judge Baer rejected that analysis. "It is immaterial that the terms of the plan appear age neutral. Despite the fact that every employee receives pay credits based on their completed years of service and the same interest rate is applied to each employee’s account balance, that is not the yardstick by which to test, not the means to avoid, age discrimination results," Judge Baer ruled.
What matters, Judge Baer ruled, is a "simple arithmetic." When converting employees’ account balances to a retirement age annuity, that conversion results in a smaller benefit for older employees because they have fewer years in which to earn interest, he ruled.
Judge Baer’s ruling sets the stage for a future decision by the 2nd U.S. Circuit Court of Appeals. In four decisions, including Judge Baer’s, lower courts in the 2nd Circuit have split on the age discrimination issue.
"The decisive action will be in the 2nd Circuit and in other appeals courts," said Larry Sher, a principal and director of retirement policy at Buck Consultants L.L.C. in New York.
A spokesman for New York-based JPMorgan Chase, which is the nation’s third-largest bank, declined to comment.
Chase Cash Balance Plan Ruled Age DiscriminatoryEmployee Advocate – www.DukeEmployees.com – November 1, 2006, 2006
The Pension Rights Center reported that the JP Morgan Chase Cash Balance Plan has been ruled age discriminatory. On October 30, 2006, the U.S. District Court for the Southern District of New York ruled in favor of the employees.
Charges included that the summary plan description was not adequate and did not fully explain the 1997 cash balance plan conversion.
Cash Balance Plans are Not Off the HookEmployee Advocate – www.DukeEmployees.com – October 3, 2006
There was a royal battle in Congress over whether the 2006 pension legislation would be retroactive or not. Corporations being sued for confiscating employees’ pensions wanted Congress to save them by retroactively legalizing cash balance plans. These corporations paid hordes of lobbyists to grease the wheels of Congress toward favorable legislation.
Many in Congress are very attuned to anything that lobbyists want. House Majority Leader John Boehner tried to deliver what the lobbyists and corporations wanted. North Carolina Senators Elizabeth Dole and Richard Burr also tried to get the corporations off the hook. But they failed.
The pension bill is retroactive, but only to June 29, 2005. This will not save the companies now facing cash balance plan lawsuits. An extremely important point is that the legalized cash balance plans are completely different animals than the plans tied up in federal court.
According to the Pension Rights Center, the Pension Protection Act of 2006:
So, the old cash balance plans are not legalized. And, if they were new plans, they would fail to meet the qualifications to be legal!
Being robbed by cash balance wearaway of pension benefits, including the early retirement subsidy, is the very thing that employees have complained about all along. If employees had been credited the full amount of their vested pension benefits on the day of conversion, there would have likely been few complaints and no lawsuits. Instead of crediting the full account value, only a portion was credited to the opening cash balance amount. In many cases, the opening cash balance amount was only half of the employees’ vested pension value.
This reduced cash balance amount was then placed in a phony account and paid phony interest to make it look as if the employee was actually accruing new pension benefits. The wearaway is the seven years, ten years, or whatever it takes for the phony account to equal the frozen value of the old pension plan. Only then does the employee actually accrue any new pension benefits.
Since corporations will not be able to use the new, legal cash balance plans to clean out vested pension benefits, they will now offer little attraction for them. Freezing pension plans is already becoming the favored way to reduce employees’ pensions.
Since 1985, corporations have used cash balance plans to take staggering amounts of money from pension plans. But employees caught on to them. And finally, Congress caught on to the injustice of cash balance pension plans.
The Abominable IBM Pension RulingEmployee Advocate – www.DukeEmployees.com – September 19, 2006
These comments were posted on VelvelOnNationalAffairs.com by Massachusetts School of Law Dean Lawrence R. Velvel, August 11, 2006. He noted that his comments represent his personal views.
As readers of this blog know, my view is that honesty is a supreme virtue, maybe the supreme virtue, because other virtues (e.g., competence) depend upon it. Correlatively, the dishonesty of our political and everyday lives strikes me as the supreme defect from which we suffer, because it leads to so many other problems.
Perhaps less known to readers is that my regard for the federal judiciary is very low. It is extremely unhappy to be compelled to believe that the Warren Court, the Court which existed from 1954-1968, was an aberration, was the only even half way liberal or progressive court in 230 years of Supreme Courts. It is equally unhappy to think that we were unable to depend in advance on the Supreme Court to curb an Executive which has repeatedly sought the kind of power Hindenburg ceded to Hitler in 1932, and still cannot depend on the Supreme Court to curb the Executive because the Court has thus far, in a cowardly way, only put its toe into the water, has given little in the way of specifics, has not dealt with the vast majority of the problems raised by the Bush/Cheney Hitlerian grab for power, and because the Supreme Court, like the lower federal courts too, is increasingly filled with right wing reactionaries, lately ones appointed by Bush, who may yet appoint more (and certainly will appoint many more reactimaries in the lower courts). Nor can we depend on the Senate to stop this since, with the help given to Republicans by conservative Democrats such as Joe I (It’s All About Me) Lieberman, the Senate has shown itself incapable of stopping the right wing takeover of the judiciary.
I don’t usually write about the semi-obscenity called the federal judiciary. Maybe this is because, after 40 years of watching the obscenity to one degree or another -- sometimes as a participant or close observer, sometimes intermittently -- its misconduct bores me, the more so since it’s expectable. Maybe it’s because the courts try to hide their misconduct in stilted writing and jargon that only a lawyer could love and in layer upon layer of logical complexities. Whatever the reason, this blogger does not write much about the abysmal federal judiciary.
There is, however, a junction at times between the dishonesty one reviles and the federal judiciary about which one rarely writes. This junction arises, for instance, when judges or Justices make up or virtually make up their own facts, when lawyers who worked on a case thus say they don’t recognize their case in a court’s opinion. Tony D’Amato of Northwestern University Law School has written about this. I have too. So have others. It is not a terribly infrequent occurrence. It is a technique of simple dishonesty that judges use to arrive at decisions they wish in advance to arrive at. If you want a simple analogous example from the political world that will make this really easy to understand, think WMDs -- that is, think the Bush/Cheney false claims about WMDs, false claims, invented facts, put forth to enable Bush/Cheney/Rumsfeld to accomplish their heart’s desire of invading Iraq.
Another example of the junction between dishonesty and the federal judiciary arises when courts allow parties to get away with dishonesty, sometimes truly gross dishonesty, and sometimes, by the way, make up facts in order to allow a party to get away with dishonesty -- a phenomenon which conjoins courts’ own dishonesty with allowing parties to get away with being dishonest.
My favorite all time example of allowing dishonesty was perpetrated roughly 40 years ago by a Second Circuit Court of Appeals judge named Henry Friendly. Henry Friendly was next to God in the pantheon created by the Harvard and other fancy pants lawyers of my generation. Or maybe he was above God. As a student he apparently had gotten one of the highest grade point averages (maybe even the highest GPA) anyone ever got at the Harvard Law School. He was regarded by his law clerks as a brilliant and wonderful man. (I was once, around 1970, in a meeting with him about a draft of a book on Presidential war powers written by a then Columbia Law School professor, later federal judge and top State Department lawyer, named Abe Sofaer; it was clear in the meeting that Friendly was in fact a very smart guy. But Friendly got it in mind once that the SEC had made a terrible mistake in charging some then unknown capitalist with crooked conduct of one sort or another. So he wrote an opinion in which he twisted and turned and invented and rationalized in the interest of supposedly showing why this character had been unjustly charged and was not guilty. The problem was: in a few years this character became infamous for the scope and nature of his dishonesty, and has been on the lam now for over 30 years, I think. His name is Robert Vesco.
Nice going, Henry. Way to let dishonesty off the hook.
Well, that is my all time favorite; perhaps in part because I was probably one of the few who said early-on that Friendly’s opinion was a pile of you know what.
But there are, of course, many other opinions that are themselves dishonest or reward the dishonesty of parties. Last year I wrote about the Arthur Andersen case, in which the Supreme Court wrote a ridiculous opinion letting Arthur Andersen off the hook for its dishonest misconduct. (The post is dated June 20, 2005, and is printed at p. 460 of Blogs From The Liberal Standpoint: 2004-2005.) I also wrote about the judicial approval of the government’s dishonest screwing over of soldiers who were told and thought they had signed up for the reserves for only a one year trial, but later were told that the fine print had them hooked for several years and so they were going to be sent to Iraq. (This post is dated December 6, 2004 and appears at p. 14 of Blogs From The Liberal Standpoint: 2004-2005.) And just a few days ago a case was decided by the Seventh Circuit Court of Appeals which rewarded dishonest misconduct being widely practiced in the corporate world.
Although I do not follow the federal courts closely these days, one has the subjective impression that there are some names that regularly seem to come up in the newspapers when one of the federal appellate courts delivers a particularly right wing, retrograde, or anti-civil liberties opinion. The names of two deep dyed conservatives judges spring to mind: the widely-thought-brilliant Frank Easterbrook of the Seventh Circuit, who with Richard Posner was long thought the intellectual star of that Circuit, and the name of political hack, friend – and - associate-of-Jesse Helms, Judge David Sentelle of the District of Columbia Court of Appeals. Thus it is that, just a few days ago, Easterbrook delivered an opinion that allows huge companies all over the country -- hundreds of them -- and smaller ones too, to dishonestly screw millions of older workers out of major portions of the pensions they expected to have when they retired. It is not enough, you see, that people who worked for a company for 20 or 30 years suddenly found themselves out of a job. Nor is it enough that companies’ pension plans for workers weren’t funded, or were funded with company stock that declined terribly in value, so that, while top executives escaped with tens of millions in golden parachutes or funded pensions, or stock options worth millions for bringing companies out of bankruptcy, ordinary workers found themselves with little or nothing by way of pensions when companies fell on hard times or went bust.
No, none of this was enough. So it was also necessary to screw workers by changing the nature of their pension plans after they had put in 20 or 30 years at a company, so that they would get a much smaller pension than they had been promised or been counting on, plans that could well have been the reason for staying at a company for such a long period of time.
This cheating, this defrauding, of older workers was accomplished by companies switching from so-called traditional types of pension plans to so-called cash balance pension plans. It is not worthwhile here to delve into the exact mathematical methods by which the switch in plans accomplished the fraud upon older workers; the accounting, the mathematics, the terminology are all far too complicated to make such an exercise fruitful here. Suffice to say that nobody, but nobody, denies that they ended up with pensions smaller, often much smaller, than they had been promised or were relying on. The Wall Street Journal -- not exactly a font of left wing liberalism -- said in its article on Easterbrook’s opinion (involving a tiny company called IBM, no less) that older workers “can end up with pensions that are 20% to 50% lower.” That’s right: the switch in plans approved by Easterbrook can cost older workers, who may have been at a company for decades, 20 to 50 percent of the pension they expected to receive and had sometimes worked for decades to get. This is what Easterbrook approved. He was joined by two other judges, one of whom is Daniel Manion. Manion was widely reviled as a reactionary -- his father Clarence, one notes, the Dean of Notre Dame Law School, had been a founder of the John Birch Society -- and he was a legal hack -- more than 40 law school deans said he was unfit for the job when he was nominated to the bench by Reagan 20 years ago, was supported by John R. Bolton -- yes, that John R. Bolton, who is now Ambassador to the U.N. -- and won only by dint of a 49 to 49 tie vote in the Senate, with Vice President George Bush casting a 50th vote in his favor. These, then, are the kinds of life tenured, amply pensioned judges (with pensions much like the ones they have let workers be screwed out of) who are allowing millions of ordinary workers to be deprived of desperately needed money that they worked decades to receive: a rank (even if brainy) conservative like Easterbrook and a reactionary hack like Manion. Revolution, anyone?
You know, it used to be said of Earl Warren that the question he would ask in a case was, “Is it fair?” You don’t think Easterbrook asked whether it was fair, do you? One would never expect a life tenured, amply pensioned, deeply-conservative, elitist federal judge to ask that question, would one? You don’t think he even asked if it was honest for companies to promise workers a given level of pension, for which the workers then worked for years, for decades, and to then withdraw the promise to the workers when they got older and could not start over again, do you? Of course, not.
Well, then, what did the brilliant Easterbrook say to justify this dishonest -- it is dishonest to obtain labor for decades by a promise and to then withdraw the promise - - screwing over of workers. Well, what he said does not bear repetition, is not worth the pain either of the writer trying to write it or the reader trying to understand it. But basically Easterbrook wrote a very complex opinion purporting to prove that the change from a traditional to a form of cash balance plan did not constitute age discrimination against older workers, but instead “is age-neutral” even though older workers were getting screwed in ways that would never occur to younger workers who are far closer to their starting dates than their ending dates. To ostensibly prove age-neutrality he sought to display intellectual pyrotechnics through complicated, often mathematical, discussions of the time value of money, imputed credits, interest rates, defined-benefit plans versus defined-contribution plans, benefit accruals, and other true arcana. But to quote Easterbrook himself when speaking somewhat snippily about arguments made by the older workers, “[all] of these propositions [may be] correct, and [all] of them are irrelevant.” The only relevant points are two that Easterbrook, his buddy Manion and a third judge chose to ignore, chose not even to mention or discuss: (1) The change in pension plans by IBM and hundreds of other companies was grossly unfair to older workers, who had no option to stay with the old plan and consequently lost a major share of pensions they had worked for for years. (By the way, isn’t this discrepancy between older and younger workers, with older ones losing promised benefits and younger ones not losing them, age discrimination in itself?) And (2) it was sheer dishonesty to promise people certain pension benefits, to use the promise to obtain their work for decades, and to then welsh on the promise and cheat the people.
Supreme Court May be the Next StopEmployee Advocate – www.DukeEmployees.com – September 6, 2006
The Supreme Court may be the next stop for the IBM Pension Case, according to the Associated Press. Sept. 1, the Seventh Circuit Court of Appeals in Chicago denied a petition "en banc." The petition requested a review by the full court.
Pension fighter Janet Krueger posted on IBM Pension: “the next step is a request for certiorari by the U.S. Supreme Court. Our team has 90 days to file the petition.”
IBM Age-Bias Lawsuit ReinstatedEmployee Advocate – www.DukeEmployees.com – September 2, 2006
Thursday, a federal appeals court reinstated an age-bias lawsuit against IBM, according to Mercury News. The unanimous decision by the 9th U.S. Circuit Court of Appeals ruled that IBM’s waiver and release was not “written in a manner calculated to be understood.”
Approximately 225 former IBM employees filed the suit in 2003. This is the second such case to be overturned by a federal appeals court.
Attorney Jeffrey Young said “This will allow tens of thousands of employees potentially to sue the company for age discrimination.”
Laid-off employees are typically forced to sign a waiver and release form or forfeit the severance package. The waiver and release usually prohibits the employee from suing the company for any reason. Employees need to know that if the waiver and release is illegal, it is not binding!
IBM Employees Ask for Pension Case ReviewEmployee Advocate – www.DukeEmployees.com – August 29, 2006
The Journal News reported that plaintiffs in the IBM cash balance pension case have asked for a review by the entire slate of judges. The "en banc" petition was made after a federal appeals court panel overturned the IBM age discrimination ruling.
Pension fighter, Janet Krueger, said "We'd really like it if they would agree to a rehearing. We think the law is on our side if they would be willing to do that."
If the en banc petition is denied, the case may be appealed directly to the Supreme Court. Experts have long predicted that the case would end up in the Supreme Court because neither side would be willing to take a loss.
The 'Pension Protection' Act of 2006Employee Advocate – www.DukeEmployees.com – August 17, 2006
THE PENSION PROTECTION ACT OF 2006
WASHINGTON – President Bush signed H.R. 4, the Pension Protection Act of 2006, into law today. The following is a statement from Karen Ferguson, director of the Pension Rights Center.
“The so-called ‘Pension Protection Act of 2006’ is a great disappointment. It wipes out key protections for workers and moves retirement policy in the wrong direction. The Act increases the likelihood that companies will jettison secure pension plans in favor of insecure do-it-yourself savings arrangements. This does not bode well for future retirement security.
“The Act allows pension plans to cut pensions for truck drivers, construction workers and other rank-and-file workers. It allows plans to avoid government scrutiny of conflicted transactions. It irresponsibly raises the federal budget deficit by making permanent unneeded increases in savings-plan tax breaks that primarily benefit higher paid employees.
“The Act does contain a few token provisions that benefit women who become widowed or divorced and lower income workers who can afford to put money into savings plans. It eliminates the worst age-discriminatory practices in cash balance conversions, but will still lead to broken pension promises.
“The best that can be said for the Pension Protection Act of 2006 is that it could have been even worse.”
Workers Suffer, Yet Many Refuse to VoteEmployee Advocate – www.DukeEmployees.com – August 17, 2006
This article by Froma Harrop was published by The Providence Journal on August 6, 2006. Heed the message for you own sake. Employees continue to suffer pension loses for a reason. There is something that you can do about it!
"As Workers' Pensions Wither, Those for Executives Flourish: Companies Run Up Big IOUs, Mostly Obscured, to Grant Bosses a Lucrative Benefit." This headline comes to us not from the communist Daily Worker but the orderly pages of The Wall Street Journal, the chronicler of capitalism -- or, as it used to market itself, "The Daily Diary of the American Dream."
It's not news that American executives have put ordinary workers' benefits on a diet while they go for a fourth helping. What makes this redistribution of corporate wealth special is its brazen and unblushing quality. We are not talking here about some stock-option deal where the top guys are rewarded for increasing shareholder value. In this case, the money gushing into the executive suite is simply being siphoned through holes drilled in the workers' paychecks. Here's an example, courtesy of The Wall Street Journal:
General Motors has long complained that its "legacy costs" have made the automaker dangerously uncompetitive. By "legacy costs," it means the health benefits and pensions that it promised its workers and retirees. In an effort to ease those "burdens," GM recently announced it would end pensions for 42,000 of its salaried employees.
But guess what The Journal discovered. It found that the fund for those middle-class pensions was actually bulging with $9 billion more than was needed to honor them. The real problem, it turns out, was GM's executive pensions, which management had been supersizing even as it demanded cuts from the lower-downs. GM's executive- pension obligations, we learn, are $1.4 billion.
General Motors is not the only company to have built up extravagant pension deals for the privileged few. Executive-pension liabilities have hit $3.5 billion at General Electric, $1.8 billion at AT&T, and $1.3 billion at Exxon Mobil and at IBM. "," The Journal reports.
Clearly, the workers whose pension plans have been frozen aren't the only ones losing out. These unfunded executive pensions drain away earnings that are supposed to be going to the stockholders.
Many companies, of course, are genuinely in trouble, because they haven't saved enough money to pay promised benefits. But even these situations present opportunity for stiffing the workers and enriching the top executives: It's called a Chapter 11 bankruptcy.
Under this part of the bankruptcy code, a company can say that it's broke but keep operating while it arranges a new schedule for repaying its debt. The way the law is written, banks can be made whole but the workers are another matter. Companies can simply forget about the pensions they were supposed to pay their workers.
Enter the vulture capitalist. A Wall Street investor named Wilbur Ross showed up to buy LTV Steel after a Chapter 11 bankruptcy had relieved it of pension and health obligations -- and after the union had granted the company major wage concessions. Ross bought the machinery and buildings for a song. He then rehired 3,000 LTV workers (already stripped of their previous benefits). The investor did much the same at four other bankrupt steel companies, and eventually sold them all at a profit of over $2 billion.
You have to wonder about a country that lets these things happen to its workers and then gives massive tax cuts to the likes of Wilbur Ross. But you also have to wonder about the workers themselves.
It's painful to observe a growing serf mentality among ordinary Americans. Working folk seem afraid to complain about greedy executives or tax cuts for the rich, lest some big-money politician accuse them of waging "class warfare." They fall sway to right-wingers on the radio, who tell them to get on their hands and knees and thank Wilbur Ross for giving them a job.
Workers should understand that this doesn't have to be. The rules of this unfair game are made in Washington. And until they change the rule-makers, nothing will get better for them.
Rep. Bernie Sanders Fights for PensionsEmployee Advocate – www.DukeEmployees.com – August 15, 2006
On Aug. 7, a federal appeals court overturned a lower court decision and ruled that IBM did not discriminate against older workers when it changed to a cash-balance pension plan. The appeals court remanded the original decision back to the lower court, directing it to rule in favor of IBM.
This decision is a travesty, made even worse by IBM's claims that the company has been "vindicated." The ruling, plus recent attempts in Congress to gut pension protections, highlights the importance of voting for Rep. Bernie Sanders as Vermont's next senator. Sanders has been out front supporting workers since the cash balance conversion scheme was first announced, and has remained steady in his opposition to all efforts to slash our pensions. Nobody can doubt that his voice will be heard in the Senate, supporting those of us who work for a living. This should be a wake-up call to people that what is needed is fewer Republicans in Congress, not more. Single-party rule must come to an end. Under no circumstances should anyone vote for any Republican running for any office in this year's election.
Ralph J. Montefusco
Cash Balance Plans Equal Smaller PensionsEmployee Advocate – www.DukeEmployees.com – August 14, 2006
Coming Soon to a Workplace Near You...
Is a pension change coming to your workplace? If you're one of the roughly 18 million employees in the private sector still covered by a traditional pension plan, the odds that your employer will change to a "cash balance" pension plan have just increased.
These new-style pensions have been controversial because when employers switch to them, the pensions of older workers are reduced -- in some cases significantly. This has led to lawsuits and proposed legislation to slow the plans' spread, causing some employers to hesitate about changing.
But last week, a federal appeals court ruled that International Business Machines' cash-balance pension didn't violate age-discrimination laws. Just days before that, Congress approved a measure that would deem cash-balance plans legal. While the ruling will be appealed, and the bill has yet to be signed into law by President Bush, employer groups say the recent actions are a green light for employers to change their pensions.
Current retirees aren't affected. Here's what workers need to know:
What's a cash-balance plan?
Cash-balance plans are pensions in which you have a hypothetical account that grows by an annual credit, say 3% of your pay, each year, plus interest. When you leave your job, you usually can roll the amount into an individual retirement account or cash it out. If you're joining a company with a cash-balance plan, the mechanics are simple. But if you're at a company that switches from a traditional pension, things can get complex.
What happens to my pension when it's changed to a cash-balance pension?
Most traditional pensions are designed so that if you work a full career at a company, the pension will replace about a quarter of your pay when you retire. While formulas vary, a plan might give you an annual benefit starting at age 65 equal to 1.5% of pay for each year of service. So, if you've worked 20 years at the company, and your average salary was $50,000, that's a pension of $15,000 a year (.015 x $50,000 x 20).
When your employer converts to a cash-balance formula, the first thing it does is freeze the pension you've earned under the old formula. (This means it doesn't grow any more.) Your employer then calculates what this frozen pension would be worth if it were paid out in a lump sum of cash. This frozen pension value becomes the "opening account balance," which will grow with future contributions and interest.
Note that it's only a virtual, or hypothetical, account. The pension plan hasn't changed -- it's the same pool of money, which your employer funds and manages. A cash-balance "plan" is simply the same old pension plan, with a new formula for determining your benefit.
How can a cash-balance plan reduce my pension?
Traditional pension benefits build up fastest in the later years, so as much as half of a person's pension may be earned in the final five years on the job. When this older formula is frozen and the employee's pension grows only with the annual credits and interest, the pension in retirement can be 20% to 40% lower than if the prior formula had remained in place.
And your pension can be reduced even further. Some companies lowball the opening account balances, giving someone an "account" worth, say, $100,000, even if the frozen pension is worth $120,000. As a result, you'd have to wait until your annual pay credits and interest build your "account" back up to $120,000 before you'd begin building any additional pension.
This is one reason older employees complain of age discrimination; the good news is that the bill Congress passed would ban some of the more abusive practices.
Are cash-balance plans better for younger workers and job-hoppers?
Fans say cash-balance pension plans are better for younger and more mobile workers because these workers can build up a better benefit than under traditional pensions, and take it with them when they leave. But last year, the Government Accountability Office concluded that most workers -- regardless of age -- get lower retirement benefits when their employers switch from traditional pension plans to cash-balance plans.
What's more, as with other kinds of pensions, people must remain on the job for five years before they're "vested" in the benefit; otherwise they get nothing when they leave. The GAO says more than one-third of workers in both traditional and cash-balance plans fail to vest, making cash-balance plans no better for job-hoppers than traditional pensions.
As for portability, most companies automatically cash out pensions with values below $5,000, effectively already giving young mobile workers pension portability.
Why do employers change to cash-balance plans?
Companies can save money and boost profits. Under accounting rules, companies calculate how much they expect to pay out in pensions over the lives of their employees -- including amounts workers haven't earned yet -- and then reflect that amount as a liability on their books. Changing to a cash-balance plan reduces a company's pension obligation, and the savings get added to earnings. Most companies that have adopted cash-balance plans have large, older work forces.
If the pension is underfunded, the pension cut can make the plan suddenly better funded, or even fully funded, which means the company won't have to add money.
What steps can I take if my pension is converted?
About half of employers provide a transition period to protect older workers, such as letting them stay under the prior formula for a time, often five years.
But some older workers choose the cash-balance option, because they like the idea of taking their pension in a lump sum. This is almost always a bad deal. Not only will your pension growth slow, but you could be cutting your pension in another way as well: Lump sums can be worth less than what you could get if you choose to take a monthly pension at retirement age -- especially if you're in your late 40s to late 50s and have been at the company for many years.
Before you decide, demand to see the value of your pension in all possible forms: not just the cash-balance account, but the pension you'd get at age 65 if you chose to remain in the old plan, and that value if converted to a lump sum.
Remember, your employer can still cut a cash-balance pension. In coming years, it can reduce the annual pay credit, or even freeze the plan. Sears Holdings and Verizon Communications froze their cash-balance plans this year. So you need to save as much as you can in a 401(k) or elsewhere.
The Pension PiñataEmployee Advocate – www.DukeEmployees.com – August 14, 2006
There are a lot of goodies in the pension reform bill that Congress recently sent to the White House for President Bush’s signature. But it is important not to confuse something-for-everyone with balance. The bill is an almost perfect example of Congress’s inability to do anything good without tacking on some bad accommodation for special interests.
For instance, the bill sets reasonably strict funding requirements and higher insurance premiums for traditional corporate pensions. That’s good. The most important mission of pension reform is to protect employees from being shortchanged and taxpayers from having to foot the bill for pension defaults. But in response to intense lobbying, Congress also carved out some big exceptions for ailing airlines, notably Northwest and Delta. That opens the door for other companies and industries to demand special treatment. And by creating the perception of an uneven playing field, the bill could provide yet another excuse for companies that want to get out of the pension business completely.
While voters may imagine that “pension reform” involves doing something to stop the disappearance of traditional pension plans, it means no such thing. Healthy companies are increasingly curtailing their pensions, having concluded that they are not needed to attract or retain suitable employees. There is probably little Congress could do to stop the trend, even if it wanted to.
The bill did begin to tackle a more solvable problem: how to make sure that increasingly popular 401(k) plans cover more people. But again, each step forward seems to have been linked to a step back.
A set of groundbreaking provisions clears the way for employers to automatically enroll employees in their companies’ 401(k)’s, unless they specifically request to opt out. That is good because it is likely to increase savings significantly, especially among low- and middle-income workers.
But the bill also imperils savers by allowing for potentially biased investment advice. Previous law quite sensibly banned mutual fund companies from offering advice if their funds were among an employee’s 401(k) options, but it did not give employers a legally sanctioned way to provide such advice. For the new bill, some senators had proposed protections for employers to hire qualified independent advisers. Unfortunately, at the behest of securities industry campaign donors, the House majority leader, John Boehner, fought hard for basically lifting the ban, and won.
In a similar vein, the bill strengthens the saver’s credit, a tax incentive to help low-income people save for retirement (good), at a cost of about $10 billion through 2016. But it fails to extend the credit to some 50 million workers whose incomes are so low that they do not pay income taxes. The omission is all the more appalling given that the bill permanently increases, at a cost of about $36 billion through 2016, the already lofty before-tax amounts that high earners can stash each year in their I.R.A.’s and 401(k) accounts (bad). Raising the contribution limits benefits only 6 percent of all households, mostly those making more than $100,000.
Lawmakers have trumpeted the pension bill mainly because they have done so little that can conceivably be bragged about this year. But once it is signed, the new law will require careful monitoring to ensure that its special interest giveaways do not trump the public interest. And clearly, there is more work to do to help Americans who need to save for retirement.
Effort to Retroactively Legalize Cash PensionsEmployee Advocate – www.DukeEmployees.com – August 13, 2006
Below are the words of National Retiree Legislative Network (NRLN) President Jim Norby on Rep. Boehner’s attempt to retroactively legalize cash balance plans:
The business community-with the support of House Majority Leader Boehner-tried mightily but failed to retroactively legalize cash-balance conversions and the benefit "wearaway" it often inflicts on older workers. This would have negated lawsuits by retirees in several NRLN associations. The NRLN played a leading role in beating back any retroactive legalization -- and in preserving the Senate protections against "wearaway" for future cash balance conversions.
The Bad Pension BillEmployee Advocate – www.DukeEmployees.com – August 12, 2006
Thursday, August 10, 2006
SEATTLE POST-INTELLIGENCER EDITORIAL BOARD
A few days before Congress voted on pension reform, we had a suggestion: "Just go home." We figured doing nothing was better than a poorly crafted law. This is where we say, "We told you so."
President Bush is expected to sign the pension reform legislation into law this week.
Karen Ferguson, director of the Pension Rights Center, said Congress considered the measure for two years and yet enacted the 900-page bill without "serious debate" or considering amendments to improve it.
So what got included? Hold your nose: There's $50 million for Montana's Going to the Sun Highway; defense contractors get a three-year grace period before dealing with their underfunded pensions; and, of course, airlines get a 10-year catch-up period (along with an airline caterer).
Even worse, the bill doesn't do enough to balance a $450 billion shortfall in pension funding, nor will it prevent companies from using bankruptcy courts to dodge their pension obligations. It even permits sleight-of-hand accounting.
The bill is not completely awful -- it does encourage employers to automatically enroll workers in 401(k) savings programs.
"While the bill contains a handful of positive provisions that help some workers," Ferguson said, "it also contains provisions that allow plans to break pension promises, and, rather than strengthen the private pension system, are likely to weaken it."
And guess who will end up with the final bill for all this malarkey? Why ask? Just write a check.
Pension Reform: Just go homeEmployee Advocate – www.DukeEmployees.com – August 12, 2006
Friday, July 28, 2006
SEATTLE POST-INTELLIGENCER EDITORIAL BOARD
Congress is nearing its summer recess.
There are two ways of looking at this: The first is that we hired this bunch of yahoos to work for the people and there are still chores to do. On the other hand, it can also be argued that the sooner this bunch leaves Washington, D.C., the better.
Consider the complex legislative plans to protect pensions. There is a general agreement about the urgent need to reform the process for funding private pensions for more than 44 million workers. It's estimated those pensions are underfunded by about $450 billion -- and the federal Pension Benefit Guaranty Corp. is running a deficit of more than $22 billion.
The Senate wasted its time trying to make this a tax-cutting bill. The House, to its credit, has been focused on keeping the bill about pension changes.
But is nothing better than something?
"If Congress simply made no changes to the law, then U.S. companies would be required to pay $1.24 trillion into their pension plans over the next 10 years, and the PBGC's deficit would increase by an estimated $12.8 billion over the same time period," Rep. George Miller, D-Calif., ranking minority member of the House committee, said this week. That compares with several evolving GOP plans that could decrease employer contributions when companies dump their plan on the pension agency.
This may seem outlandish, but the test of any pension reform ought to be an increased revenue stream. But logic doesn't always fly in D.C.
Coincidental IBM Pension Win?Employee Advocate – www.DukeEmployees.com – August 8, 2006
The Seventh Circuit Court of Appeals ruled in favor of IBM’s cash balance plan on Monday, according to the Associated Press.
Lead plaintiff, Kathi Cooper, is not willing to play dead. She said "I don't consider this a dead end…I do not consider this fight over."
The ruling does seem to be a little more than coincidental, coming on the heels of new cash balance plans being legalized by Congress!
Sham LegislationEmployee Advocate – www.DukeEmployees.com – August 1, 2006
The two bills passed by the House last Friday and Saturday reflect a single Republican electoral strategy.
Representatives want to appear to have accomplished something when they face voters during their five-week summer break, which starts today, and at the same time keep campaign donations flowing from special-interest constituents who are well aware that a great deal was left to do.
One of the bills was a pension reform measure. The other was a grab bag that contains three main items: an extension of the expired tax credit for corporate research; a $2.10 an hour increase in the minimum wage, to be phased in over three years; and a multibillion-dollar estate-tax cut. That’s the deal House Republicans are really offering — a few more dollars for 6.6 million working Americans; billions more for some 8,000 of the wealthiest families.
It is cynical in the extreme. Extending the research tax credit is noncontroversial, yet pressing. A minimum wage increase is compelling — morally, politically and financially — but Republicans generally oppose it. And the estate-tax cut has already failed to pass the Senate twice this summer. So House Republicans linked it to the research credit and the minimum wage, hoping to flip a handful of senators from both parties who have voted against estate-tax cuts in the past. Democrats who vote against the estate tax, Republicans think, can be painted as voting against a higher minimum wage.
This is an attempt at extortion. There is no way to justify providing yet another enormous tax shelter to the nation’s wealthiest heirs in the face of huge budget deficits, growing income inequality and looming government obligations for Social Security and Medicare.
As for the House’s pension bill, it is not the overhaul that Congress has long been promising. The promised bill would have meshed House and Senate versions of pension reform into a single bill that would have almost certainly passed each chamber. But the conference was fatally derailed last Thursday when House Republican negotiators, including the majority leader, John Boehner, refused to attend a meeting called by Senate Republicans to settle a few remaining differences. Mr. Boehner and his followers avoided having to vote — and lose — on items that other negotiators wanted in the final bill.
Once they had scuttled the talks, House leaders acted unilaterally, presenting a new pension bill on Friday. They said the new bill contained the provisions that had previously been agreed upon. But that remains to be seen, since the 900-page tome was passed within hours. It will be up to the senators to vet the bill. If they see fit to amend it, the negotiations will have to start all over again.
The Senate has one week before its summer recess. As the senators struggle to produce decent legislation from the House’s sham bills, Americans will see the truth: their representatives in the House went on vacation without doing their job.
The Pension Bill ReeksEmployee Advocate – www.DukeEmployees.com – July 26, 2006
Like most legislation proposed under the Bush administration, the pension bill is loaded with booby traps. The rhetoric is always about “strengthening pensions for American workers.” But the current administration owes no allegiance to American workers. The current administration’s only goal is to get American corporations off the hook for their pension obligations to employees.
The Republicans even attempted to throw estate tax cuts into the bill!
The bill is touted to give “new legal status” to cash balance plans. The illegal plans will magically become legal, to the delight of the corporate pension connivers.
Cash balance plans were designed to evade pension protections provided under ERISA laws. The rogue actuaries and executives always knew that Congress would bail them out if they were caught in the act.
Rep. George Miller, one of the few good guys, said ``Congress has a responsibility to act to preserve the private pension system and save the retirement nest eggs of Americans who have worked a lifetime to build a secure retirement for themselves. But the proposals under discussion now will worsen the very problem that Congress is supposed to be fixing.''
Karen Friedman, of the Pension Rights Center, said "Without any debate, they're changing accrual rules that have been in place for 30 years -- not only for cash-balance plans but for all other pension plans. The legislation is a Pandora's Box."
Some feel the bill will encourage age discrimination in pensions. But more correctly, the bill will encourage more age discrimination in pensions. Millions of employees have already suffered age discrimination due to cash balance conversions.
If the bill does not retroactively legalize cash balance plans, it will not be because of a lack of effort by Rep. John Boehner. In December, Boehner and five fellow Republicans signed a letter to colleagues, praising cash balance plans! The title was “Hybrid Pension Plans Strengthen & Enhance Retirement Security for Working Americans.”
But cash balance plans only offer retirement misery for employees, big fees for actuaries, and big bonuses for executives. Touting cash balance plans can reap big political donations from corporations.
According to Reuters, Sen. Trent Lott said "If they don't get it right there won't be (an agreement) because I won't sign it. There are a couple of areas we're trying to clarify and frankly I'm tired of trying to clarify it."
No pension law tampering would be favorable to more legislation rigged to further enrich corporate executives at the expense of retirees. Meaningful pension reform could be pursued next year – after a much needed congressional house cleaning in November. If the voters put the same clowns back into office, then they deserve what they get.
CEO Gives Up Part of Excessive PensionEmployee Advocate – www.DukeEmployees.com – July 6, 2006
Nortel CEO Mike Zafirovski has volunteered to give up 29 percent cut to his special lifetime annual pension benefit, according to Reuters. Don’t worry; he will not be sleeping in a cardboard box. Instead of getting yearly pension payments of a half million dollars, he will get $355,000.
The CEO said "All other terms and conditions of the special lifetime annual pension benefit remain the same."
What about the employees’ pensions? They will be getting less pension benefits also, only their losses will be force fed to them. Not only will employees get reduced pensions, but 1,100 of them were laid off.
The way these things usually work is the employees lose benefits and the executives lose nothing. Often the executives get big bonuses for cutting the workers pensions. Sometimes pension reductions effectively take benefits that employees have already earned.
Some corporations reduce pensions because of financial difficulties. Other corporations are making more money than ever when they take the employees’ pension benefits. Their only motivation is pure greed.
Gridlock Can be GoodEmployee Advocate – www.DukeEmployees.com – June 30, 2006
House Majority Leader John Boehner, the new Tom DeLay, has made a lot of bold legislative predictions. It's just that he never seems to know what he is talking about. His goal was to push through the retroactive legalization of cash balance plans. There is only one reason why he and his corporate lobbyists owners want the plans legalized – because they are ILLEGAL now!
But Boehner had to admit that Congress was probably not going to change the law to suite the lobbyists. Then he predicted that the “pension reform” bill would be passed before July Fourth. In no time he was eating his words and saying that it would not likely pass as he predicted. It’s now official that once again Boehner was just babbling.
Thursday, Boehner told Reuters that lawmakers could not agree on a definition of which pension plans are at risk of defaulting. So, they worked on cash balance plans, multi-employer plans, rules on investment advice, prohibited transactions, and airline relief.
When asked if anything had been resolved, Boehner said "Not really, no."
The negotiators have worked on the pension bill since March and have accomplished nothing. But sometimes gridlock is good. No pension legislation is better than a bill written by Boehner and his hoard of lobbyists handlers!
$11.75 Million Pension SettlementEmployee Advocate – www.DukeEmployees.com – June 29, 2006
Tuesday, a $11.75 million pension settlement was approved for former Kmart employees, according to the Associated Press. The lawsuit charged that executives acted improperly by investing money in Kmart stock after the company filed bankruptcy. The stock is now worthless.
CEO Charles Conaway and other former executives and directors were sued in March 2002.
A Yugo for a Rolls-RoyceEmployee Advocate – www.DukeEmployees.com – June 28, 2006
In Newsweek, Jane Bryant Quinn listed some of the many problems of destroying traditional pension plans. Corporations feel it is okay to raid pension plans, as long as they contribute a few dollars to 401 (k) plans. It is NOT okay!
The 401 (k) contributions typically do not compensate employees for the value of their lost pensions. What if someone stole your Rolls-Royce and left you a Yugo to replace it? Would you be overwhelmed with gratitude because the thief left you a less valuable replacement? You would more likely want your Rolls-Royce back and the criminal in prison.
Employees are not happy about losing pensions of value, just because they have been replaced by substandard plans. But that’s the name of the game. Corporations only change pension plans so they can take money out of them.
Also, trading a pension plan that cannot be outlived for one that can be lost in one day is not a good deal for most workers.
Who knows what monstrosity Congress will create in the name of “pension reform”? But today’s problems are the fault of Congress. Congress let corporations get by with putting skimpy amounts into their pension plans for years.
Kevin Wagner of Watson Wyatt, mentioned that traditional pension plans earn more on their investments than a typical 401 (k) due to better management and lower expenses. He said "We're moving from an efficient retirement system to a less efficient one."
Watson Wyatt should know. It helped devise the IBM cash balance plan.
It was also mentioned that top executives are keeping their pensions, AND reaping bigger payoffs.