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Letters - Page Two

"Statistics are no substitute for judgment." - Henry Clay

Open Letter to Lou Gerstner

Duke Energy Employee Advocate - April 13, 2001

IBM Employees and retirees are signing the open letter below. They have well over four hundred signatures and counting. Do the charges in the letter seem vaguely familiar to you?

April 5, 2001
Mr. Louis V. Gerstner
Chief Executive Officer
International Business Machines Corporation
New Orchard Road
Armonk, New York 10504

Dear Mr. Gerstner:

At the stockholder meeting last year you said that the massive cuts in our retirement benefits were necessary to remain "competitive in the marketplace." We are deeply disturbed, therefore, that since IBM slashed the pensions and revoked lifetime medical of thousands of employees, one individual at IBM raked in $176 million. This same person has unexercised stock options that are estimated to be worth more than $500 million. In other words, rather than saving the company money, there has simply been an enormous shift of resources from tens of thousands of workers to one person. Mr. Gerstner, that person is you.

We do not write this letter lightly. We have been loyal to IBM. We have always worked hard and long hours. Our pensions and retirement medical are not yours to reduce, they are our earned deferred compensation.

We are especially concerned because the new pension and limited medical insurance are particularly a problem for lower-paid workers.

We would like to remind you that the increase in profit IBM reports from slashing our pensions is purely an accounting rule treatment. By law none of the pension trust fund money can be transferred to IBM. By law, it can only be used for retirees. Yet IBM has found an ingenious way to use the pension trust fund, not to help IBM, or even to help the stockholders, but exclusively to enrich IBM executives.

Here is how the executive enrichment scheme works: (1) IBM executive incentive compensation is determined by profit. (2) An accounting rule requires IBM to boost the profit report to the extent the pension fund has a surplus. (3) IBM increased that surplus by slashing pensions with a forced cash balance plan conversion. Thus, slashing the pensions increased the pension fund surplus, and that increased the profit reported under the accounting rule. That profit boost helped you meet a profit target and take millions of dollars of company money for yourself under IBM's executive incentive compensation program. Other executives also got millions, as reported in the proxy booklet.

Analysts and institutional investors discount the puffed up profit from the accounting rule, so stockholders see no rise in stock price from these manipulations. The only ones to benefit from slashing pensions are those, like you, who receive executive incentive compensation. That is why all the institutional investor advisory services urged support for the employee-sponsored stockholder resolution last year, and why it won 28.4% of the vote, the largest vote ever for an IBM stockholder resolution.

You say that slashing our pensions and retirement medical was to make the company more competitive. No one believes that. It seriously hurt IBM. The real purpose was to give you and other executives yet more millions.

The pension fund accounting rule profit in 2000 was a record high of $1266 million, up 58% from the $799 million reported in 1999. 15.7% of IBM's after-tax earnings were pension fund accounting rule profit. The pension trust fund has become IBM's fastest growing profit center though the profit is only a vapor profit since no money is transferred to IBM.

The pension fund is overflowing. IBM could use the $69 billion pension trust, with its $10 billion surplus, for competitive advantage. IBM could spend the money to provide for retirees instead of hoarding it to boost executive compensation. This proper use would help attract and retain talented employees.

All this money remains in the pension fund and can rightfully be used for no other purpose than to provide retirement benefits. You can use the surplus to restore all the benefits to IBM employees without any cost to the IBM company because the money is already there in the pension fund. The accounting rule manipulation game to boost executive pay should stop now and executives should focus attention on actual company operations. Restoring the earned employee benefits should be an immediate priority.

Thank you for your attention to this important matter. We look forward to receiving your response.

GAO Writes Harkin - March 23, 2001

The General Accounting Office in a March 21 letter to Sen. Tom Harkin, D-Iowa, said a sentence in the preamble of 1991 final regs on cash balance plans may have contributed to an "increase in the number of cash balance plans adopted by employers."

According to the report, a sentence was inserted in the preamble of the final regs as a "last-minute addition" and indicated that the IRS would not regard cash balance plans as age discriminatory.

Harkin requested that the GAO examine the circumstances around the addition of the sentence to determine if Treasury acted according to normal operating procedures, and whether the department violated either the Administrative Procedure Act (APA) or a requirement of the Omnibus Budget and Reconciliation Act of 1986 (OBRA '86) that it consult with the Department of Labor and the Equal Employment Opportunity Commission (EEOC).

The GAO concluded that there was nothing "improper about the inclusion of the preamble sentence" and that Treasury followed its normal procedures. "The sentence reflected the agency's views at the time," the report says. "We also found that Treasury's addition of the sentence did not violate APA or OBRA '86 requirements."

However, the GAO did find that under the circumstances, Treasury should not have "opined on whether cash balance plans were age discriminatory in a public manner without having coordinated that position with DOL and EEOC." As a result, the preamble sentence may have misled the public and practitioners into believing the sentence reflected the coordinated views of all three of the responsible agencies, the report states.

How a Single Sentence By IRS Paved the Way To Cash-Balance Plans

Portland General Electric Employee

Duke Energy Employee Advocate - February 23, 2001

Permission to post letter and use name granted.

Wyn Triska
PO Box 1518
Estacada, Oregon 97023

February 18, 2001

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

RE: DOL Pension and Welfare Benefits Administration Disclosure Obligations Under ERISA

Thank you for the opportunity to comment on this subject.

I repair and design control systems for Portland General Electric, an electric utility in Oregon and a subsidiary of Enron corporation. This is a closed shop utility with IBEW local 125 representing employees.

On January 1, 1999, employees born after January 2, 1957 were converted from their defined benefit plan to a new "cash balance" plan.

The company and Union both backed the pension changes, which also included an enhanced retirement and cash out option for those retiring under the old defined benefit plan by 2003. Although relatively few employees benefited from this, the Union's pension negotiator, Dary Ebright, was one of them.

This change was approved by the union membership because they were told that no employee would be financially hurt by the change, and that there were positive benefits such as greater "portability".

Before the pension changes were approved, I compared the two pension plans and found that middle-aged employees were being taken to the cleaners. My Union ignored me. Two days before the election that approved the pension change, Ebright admitted I was correct. But he remained silent, and just before the election the Union sent out a notice warning employees to ignore a pension comparison with "great amounts of supposed losses".

On December 16, 1998 PGE sent a notice that: "fulfills the Company's legal requirement with regard to Section 204(h) of the Employee Retiree Income Security Act of 1974 (ERISA)."

'Portland General will automatically establish a cash balance "account" for you under the Pension Plan. Your December 31, 1998 pension benefit will be converted to a cash value which will be your opening account balance. Your cash balance account will be credited annually with interest, but no other amounts will be credited to your account. Your cash balance account will be available for distribution in either annuity or lump sum form. Also effective January 1 1999, Portland General will begin making contributions to the Savings Plan equal to 5% of your annual base pay, regardless of whether you make any employee contributions to the Savings Plan. You also will be eligible for 100% employer matching contributions on any employee contributions you make in excess of 5% and up to 10% of your base pay. The effect of these changes is to significantly decrease the rate of future growth of your Pension Plan benefit, and to significantly increase the potential future rate of Portland General contributions to your Savings Plan account.'

There is absolutely no way to evaluate the net effect of "significantly decrease the rate of future growth of your Pension Plan benefit" and "significantly increase the potential future rate of Portland General contributions to your Savings Plan account." The wording of their last sentence keeps intact the impression that the significant increase balances the significant decrease, yielding no financial loss.

Employees forced into the "cash balance" plan were also mailed a worksheet where they could project out their balance one year. However, those employees that have an option to switch to the new plan were sent detailed worksheets to project either plan until retirement.

The same worksheets could have been sent to everyone. Why did PGE go to extra effort to keep middle-aged employees forced into the cash balance plan from finding out they'll have to work longer, save more or plan retirement differently?

Furthermore, both PGE and the Union have refused to allow me to review the pension comparisons that were used as a basis for contract negotiations.

It's ironic that thieves are thrown in jail, except for corporations that steal millions, in which case the thieves get bonuses.


Wyn Triska

cc: Internal Revenue Service
Equal Employment Opportunity Commission
Ellen Schultz, Wall Street Journal
Senator Gordon Smith
Senator Ron Wyden
Representative David Wu
Representative Greg Walden
Representative Earl Blemenauer
Representative Peter DeFazio
Representative Darlene Hooley

Don Shuper Weighs In With the DOL

Employee Advocate - - January 28, 2001

(Excerpts from a letter by a Boeing retiree. Permission to post and use name granted.)

Donald W Shuper

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

Thank you for this opportunity to provide an employee's/retiree's perspective relative to actions of the Plan Administrator, the content of plan information provided, and the all too common stonewalling relative to disclosure of required information and documents for ERISA qualified pension and savings plans.

Personal experiences relating to [ lack of ] disclosure in my dealings with the Boeing Company:

  1. Actuarial reports. [Personal]
    A few years ago, I contacted the Pension Plan Actuary at Towers Perrin, and requested actuarial information. The actuary refused, claiming per contract with Boeing they could not disclose. Contacted Boeing and requested information. After 4 months of letters and non- answers, I finally got an answer from legal:

    “Additionally, you requested documents containing actuarial information relating to the number of active, retired, and inactive participants, average pension benefits, assumptions by age, and supporting tables. It is our view that the Plan Administrator is not required to provide participants with actuarial valuation reports or supporting documentation because those materials do not set forth rules or procedures used in the operation or maintenance of the Plan and do not contain any information used in calculating a participant's benefit. Controlling legal decisions (see, for example, Board of Trustees v. Weinstein 107 F.3d 139 (2d Cir. 1997)) support our position. Accordingly, we will not provide that information.

    "Very truly yours,
    Douglas P Kight Counsel"

    Comment: Boeing is in the 9th circuit, so the legal decision quoted was not controlling. The above is an excellent example of misdirection by a authoritative but non-responsible source. Also, my understanding of ERISA is that the actuary also has fiduciary responsibility to the plan participants.

  2. Results of DOL Audit. [Personal]
    In December, many Boeing employees and retirees received a small check from the Boeing 401K Plan (VIP) and a very short explanation. As a former participant, my note said: "...a recent audit has identified the need for an earnings adjustment to certain accounts from Jan 1, 1995, to Oct 31, 1997..." A phone number was provided for questions. When I called, I was told that the money was from a "settlement with the DOL..." While I did get a fair explanation about a problem with timing of deposits, when I asked for a copy of the settlement, I was told it was not public, would not be furnished to me, contained proprietary information, etc. When I suggested that as a plan participant, I was owed such a document on request, I was again refused. When I suggested contacting the Plan Administrator, I was told instead to send it directly to the "manager" who would handle my note anyway.

    Comment: Any settlement made by the DOL is PUBLIC and can be made available under a FOIA request to DOL. However it MUST be made available to plan participants by request. But under current laws, unless I directly contact the Plan administrator with such a request, it will be ignored. As a "clerk" answering my questions, the person has no responsibility or accountability for his/her answers, but can be fired for "volunteering information not authorized by management..." Usually, when calling again, the answer is: “sorry, but that was a new person who..." Using non- management "clerks" to handle these issues is a common way of ducking responsibility and misleading employees.

  3. Legal Notice and Plan Documents . [ Personal and by others.]
    Boeing recently sent out the “standard” legal notice relating to submittal of Plans and amendments to the IRS for review of tax qualifications. I'm sure the notice meets the minimum legal requirements. However, the company has done everything possible to discourage employees and retirees from getting the documents in a timely fashion so that they can contact the DOL and IRS within the time limits required. These legal notices are typical sent out at the last minute, giving about 3 weeks or less for employees to respond.

    A: Retirees were not sent such a notice, and therefore have no way of knowing that the IRS/DOL is looking for comments. Apparently the Boeing argument is that since the amendments do not effect current retiree benefits, they are not involved. Yet I and other retirees have every reason to believe that they have not always administered the plan in accordance with previous plans, amendments and changes. In fact, Boeing recently admitted as much.

    Typically, when amendments are made, the previous amendments are dropped, so that no easy way to find earlier plan documents is available, and unless you know exactly what to ask for, they are not furnished e.g. “you didn't ask about that” being a typical response. what is needed is a listing or summary of all previous amendments and a short related description of the amendment, what it does/affects, and why.

    B: The location of the documents supposedly available is given in such a manner that a personal trip to a specific building and if lucky, a room number is necessary to get any information, including copying costs, etc. No phone number, mail stop, names, organization information is given. HR/personnel people do not have any information or authority to help employees obtain such documents. Below is a typical example of a location listing, followed by a post on the internet as to what happened when someone tried to get the documents at a such a location:

    Boeing Philadelphia Building 3-28
    Industrial Hwy. PA Route 291
    Ridley Park, Pennsylvania
    The Boeing Company Building 2.25, Office 11C8
    7755 East Marginal Way South Seattle, Washington

    And from a public post on a bulletin board. [This typical problem was also confirmed to me privately]:

    “I went to the address given on the legal notice, the room was locked, and the person gone for three weeks or so the note on the door said. Wake up everybody! Boeing is lying to us. I don't know what the rules of the game are, I don't even know what the game is! (I think it may be called screw the employee).”

  4. Plan Administrator Games [ Compilation from others, including myself ]
    Boeing [and other companies] seem to think the identity of the "Plan Administrator" should be kept secret. In various SPD and other public documents, the Plan Administrator is called the Retirement Plan Committee, Employee Benefits Committee or simply Plan Administrator.

    Here is the response given when someone asked about [paraphrased] the Boeing Director of Benefits:

    Q. "...who are the Plan Administrator(s)...?"

    A. "...the term Plan administrators is unfamiliar to me..." [exact ]

    The very same Director of Benefits is the same person who has signed for several years on the line labeled Plan Administrator in Form 5500 and is also a graduate lawyer, but apparently not counsel to Boeing.

    From 1997 Form 5500:
    Signature of Plan Administrator (N.B.C.) July 28 1998
    Name of Individual Signing above: N. B. Cannon, Secretary, Employee Benefits Plans Committee.

    The above are but a few examples of the various methods Boeing uses to discourage employees from getting the facts, asking questions, and subverting the intention of existing disclosure requirements by meeting the absolute minimum legal standards.

    Thank you for the opportunity to provide a sample of the various ways Boeing slides around disclosure issues.

Donald W Shuper

Another Letter to The Department of Labor

Duke Energy Employee Advocate - January 27, 2001

(Name and address)

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

January 27, 2001


Thank you for reopening the request for comments on the disclosure obligation of fiduciaries of employee benefit plans governed by ERISA and extending the deadline for submission. Most employees simply do not read the Federal Register and were not aware of the request for comments. The employees who were aware of the request, attempted to inform the other employees. Realistically, even with the submission extension, most employees will never be aware of the request for comments. Each letter submitted will undoubtedly represent the feeling of hundreds of other employees.

I have personally talked with a great number of Duke Energy employees about the cash balance pension conversion of 1997. Based on these conversations, well over ninety percent of the employees purely hate the cash balance plan.

Employees had zero input into a decision that will adversely affect them for the rest of their lives. Duke Energy broke decades old retirement promises made to them. Employees were never given the full facts of the conversion. Pension questions were jokingly dismissed. Duke Energy had the nerve to present the conversion as a benefit to employees. A few cartoons were given to explain complex financial maneuvers. It was well after the conversion before any hard numbers were given, and these were woefully inadequate. The company repeatedly refused to give any detailed financial data. Their attitude was: “we know best.” Early retirement promises were actually “deferred compensation.” The company took full credit for this promised compensation, going as far as to send out annual statements itemizing them. The company also took full advantage of the tax benefits for this promised compensation. Employees labored for years to meet the requirements for the deferred compensation, and the company emphatically promised that they would receive it. To take away this earned, promised compensation after twenty-five years, amounts to white collar theft. It was not an accident, a miscalculation, or an oversight. Quite the opposite, the conversion was deliberately planned, calculated to benefit the company, and to financially harm employees. Then the damaging data was concealed. It is still concealed. One attorney, who repeatedly requested conversion information, said that all the data was never disclosed.

One employee complained to an executive about his pension losses. The executive replied: “Those of us who were between forty-eight and fifty-three when the program went into effect got screwed.” Such was the cavalier attitude of senior management to the plight of the employees. This executive reaped over a million dollars last year by exercising stock options, so his cash balance loss was reimbursed. The CEO received $337,100.00 in 1998, as a “supplemental credit” to his “executive cash balance plan.” Money only flowed out of the employees retirement plans. A plant manager said that he did not understand the conversion. He said that he believed that their was only one person in the company who did understand it!


Letter to The Department of Labor

Duke Energy Employee Advocate - January 4, 2001

(Name and address)

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


As an employee of Duke Energy Corporation, I am writing about their cash balance pension conversion of 1997. From start to finish, the conversion was an exercise in deceiving employees. We received everything from Duke Energy except the truth. The basic questions that were asked from day one, have gone unanswered four years later! The company’s attitude seemed to be that if they stonewalled us long enough, we would just forget about it. Duke Energy could not have been more wrong.

Employees received a presentation about the pension conversion that lasted about an hour. Many of those giving the presentation seemed to know as little about the new plan as the employees. All the details were glossed over. Instead of detailed plan information in black and white, we received “cartoon books,” containing very little useful information.

The reasons given for the conversion were so ludicrous, that they were evidently purchased from William M. Mercer, along with the plan. One of the reasons given was “employees did not value the old plan.” That is an outrageous lie. Many employees remained with Duke Energy because of the pension promises that were made to them when they were hired. We were promised an early retirement benefit, allowing us to retire from ages 51 to 55. We were promised health insurance coverage after we retired. Employees relied on these retirement promises for over a quarter of a century. They were all taken away with the stroke of a pen.

Duke Energy never told the employees that they “might” receive these benefits or that they “possibly could” receive these benefits. We were emphatically promised these benefits, year after year. The company sent annual statements to our homes, itemizing just how much retirement income we would receive from ages 51 to 55, if we would just continue to work for them. We received these figures each year, in black and white: Stay X numbers of years and you will receive X numbers of dollars per month in retirement benefits for life. These statements were titled “Your Security” and “Your Hidden Paycheck.” They were not titled “Duke Energy’s Lies” or “Not Worth The Paper Written On.” The cash balance conversion culminated 30 years of deception by Duke Energy. One cannot promise something for 30 years and suddenly forget about it. No, it was a cold, calculated, deliberate deception to gain 30 years of labor from the employees and scam them out of their earned retirement benefits.

Duke Energy was definitely remiss in performing their fiduciary duty to the employees. Even more damming, they attempted to mislead employees by hiding, misrepresenting, and distorting the facts of the conversion. Even four years after the conversion, many employees know little more about what happen to them than the first day of the conversion announcement! Those of us who have obtained more knowledge of the conversion, had to pursue that knowledge outside of Duke Energy. All we received from the company were platitudes and non-answers.

Employees were outraged by their laughably small opening cash balances. Everyone wanted to know just how that amount was derived. Four years later, they would still like to know. One employee was told “We could tell you, but you would not understand it.” The company’s answer was essentially “We now have your pension money, so buzz off.” Even ERISA attorneys and actuaries were not able to comprehend just how Duke Energy came up with their figures.

I was able to obtain information about the conversion that was produced by Duke Energy. It was produced by Duke Energy, but not obtained from them. The company, to my knowledge, did not let the employees know that this information existed. I received it from a benevolent source outside the company! Even with all this scrounging for pension information, key pieces of data are still missing. I charge that Duke Energy never intended for the employees to understand the conversion. Vital financial information was willfully concealed from the employees.

The thing that I particularly resented about the conversion was the way the company arbitrarily cut off some employee’s benefits. Employees age 50 at the conversion could have a choice between the old and new plan. If you were a day younger that 50, the door was slammed right in your face! The company arbitrarily decided how much retirement money each employee would be deprived of based on age. This led many employees to file age discrimination charges with the Equal Employment Opportunity Commission. These charges are still under investigation.

With the benefit of hindsight, it is clear that Duke Energy used the employees retirement fund to finance a worldwide acquisition spree. A matter of months after the conversion, the company bought Pan Energy and began a process of buying companies worldwide, which has not abated yet. The whole pension conversion has smacked of deceit, deception, and a misinformation Champaign. It will be a matter for the courts to decided if the line was crossed to outright fraud and racketeering.

Sadly, the events described are not isolated to Duke Energy Corporation. Many companies across America have inflicted similar or worse damage to their employees. Only the federal government has the power to stop such blatant money grabs. I ask you on behalf of Duke Energy employees, and employees of all companies, to put an end to the cash balance disgrace. Thank you for receiving these comments.


Letters - Page One