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"Some men are alive only because it is against the law to kill them" - Ed Howe

Andy Lang’s C-B Pension IRS Letter – March 14, 2003

Here is my letter to the IRS. Feel free to distribute it where ever it might do some good.

March 13, 2003

Internal Revenue Service
POB 7604
CC: ITA: RU (Reg-209500-86, Reg-164464-02), RIN 1545-BA10, 1545-BB79
Ben Franklin Station
Washington, DC 20044

Dear Sir or Madam:

My name is Andy Lang and I am a pension actuary. I am a Fellow of The Society of Actuaries (FSA) and a Member of the American Academy of Actuaries (MAAA). My comments here, however, are solely my own. I have more than 40 years of actuarial experience, most of it as a pension actuary, from the beginnings of their great growth period, 1961 to 1980, to the beginnings of their current-day near collapse, in the 1980s.

I left the pension consulting industry in 1990, as a Principal (shareholder) at Towers Perrin, then the world's largest management consulting firm in the world specializing in human resources, and the largest single employer of actuaries.

I left because I could no longer stand to watch any more employees get screwed out of benefits due to flaws in ERISA affecting the traditional defined benefit pension plans. These flaws first began to be exploited beginning in the early 1980s, and the problems have never been fixed. Laws and regulations keep getting passed which try and deal with the symptoms of the problem without ever dealing with the problem itself, driving more nails in the coffin of the DB system.

I first became aware of the full extent of what cash balance plans were doing to people when I read a front page article in the Wall Street Journal by Ellen Schultz a few years ago. From information from prior Enrolled Actuaries (EA) Meetings, she cited specific actuaries as having pulled the wool over plan participants eye's with these conversions, and then laughing about it.

I have thoroughly investigated it, including getting some old EA Meetings transcripts out and reading the sessions on CB plans. These were before the national notoriety of these systems became known, so the actuaries speak openly, believing no one will ever know what they are discussing behind closed doors.


I believe that most cash balance pension plans are illegal, violating both ADEA, The Age Discrimination in Employment Act, as well as certain technical provisions of our highly complex pension laws. Those who orchestrated them are immoral and unethical.

These proposed regulations supposedly fixing the CB problems do not. Instead, they perpetuate them.

Moreover, you cannot fix them without major league pension reform of the underlying flawed laws. This should not be left up to staff writers of regulations, as it will take outside expertise and considerable time. Rather Congress needs to do it in an open and fully transparent forum where the public can see what our elected representatives are doing--much like what happened back in 1974 when ERISA was constructed. Then we did not have the technology to check on what is going on, or to provide input, as we do now.

CB plans have been done by more than 300 corporations, a veritable Who's Who of American giants. They have destroyed the retirement prospects of several million people, many of them older employees who have little prospect of recovery. Many individuals have seen their pension benefits reduced by as much as 75%. The aggregate losses are staggering--well into the many tens of billions of dollars in benefits that companies have reneged. There are literally hundreds of ongoing lawsuits and hundreds of thousands, if not millions, of complaints to various government agencies and members of Congress.

Most CB plans were done surreptitiously, often with misleading or inadequate communications, without giving employees adequate personal information upon which to make appropriate decisions involving a lot of money, that is, when they give employees any choice at all.

There is a reason for this. They cannot do this openly and honestly without an open rebellion by the workforce.


Here is what they do.

First, they screw older participants two ways:

1. They remove the early retirement subsidy right before retirement in many cases--something that can easily be worth as much to a participant as the normal retirement benefit. This is one of those two major flawed ERISA laws. I notice that the proposed regulations continue to permit this; and

2. They reduce or eliminate future benefit accruals sharply, which again, due to the other major ERISA flaw, had a worth--a present value--that is extremely backloaded, and thus can easily be worth 50% of an employees total career benefit. The proposed regulations do little to fix this.

However, they also screw younger employees by converting the plan from a final-pay related pension plan to a career-pay one. This reduces the future benefit by 40% of more.

They do this by the old time-honored twin financial slight-of-hand, relying on the average employee's ignorance of both historical asset class returns and the powerful importance of compound interest.

They credit the hypothetical employee accounts with absurdly low interest, Treasury Bill Rates or those plus 1% or so. Historically, T-Bill rates have been from 0.5 to1.0% above inflation, or since 1926, about 3.5 to 4.0% per year. This is not nearly high enough to get a decent retirement benefit.

Importantly, the typical large DB plan has earned well over 9% for the last two decades--and this is after the recent debacle in the stock market. Pension actuaries typically use long term expected rates in that vicinity in their pension calculations. An increase of one percent can reduce plan costs by 15%.

The combination means that employers are making lots of dough from the misery of their own employees. It also means the typical annual pay rate credits of say 4-5% on these hypothetical accounts costs considerably less to the employer that that. Just another way to flimflam the workforce.

Yes, they do increase slightly, the amount of the present value a younger employee gets should he terminate, but it is of short duration. However, typically it does not take long before the new amounts are less than the old plan (because of the switch to a career pay plan). Also, please keep in mind that the old plan had this awful backloading of the present values to begin with.

The way sponsors have done CB plans is awful for plan participants, both older and younger employees and awful for corporations and their shareholders too, in the long term. They are also terrible for America and it's economy. They can rightly be termed a major swindle, with serious consequences for the nation.


Ironically, however, done right they can fix the seriously flawed tontine-like flawed laws that have existed in ERISA since 1974, and which have cost defined benefit pension plan participants over one trillion dollars to date. That makes these flaws, including CB plan conversions, the source of the largest single financial scandal in US history. It is a full five times the one in second place, the S&L scandal of the 1980s, and more than 30 times the Enron bankruptcy.

Pension consulting actuaries working for a handful of the very large management consulting firms that dominate the actuarial and human resource consulting for Fortune 1000 companies, are the ones that have orchestrated these plans. Specifically these are Enrolled Actuaries who legally are supposed to be working on behalf of plan participants in doing the annual actuarial valuation work, but by extension, they also do all of the design work for these plans.

The conflicts of interest they have are every bit as great as those in the recent accounting scandals and account for why these things have occurred. For example, the management consulting firms they work for also do Executive Compensation. Indeed the wildly excessive compensation for American CEOs began in that industry. They also have the benefit communication services that are often used to flimflam the employees during these complicated CB conversions. Sometimes those communication services also are used to make sure that selected key senior executives are made whole once the CB conversions slash their retirement benefits.

I do not intend to let them off the hook, nor those who have assisted them.

There has been a pension revolution taking place over the past 5 years or so, led by seniors who have become fed up with these rip-offs, and begun by IBM employees who helped create the Internet. The emergence of internet technology permits angry citizens to overcome time and distance to band together, talk about and learn what took place, and those who have been doing bad things had better understand that.

In this regard, CB plans go all the way back to 1985 when Bank America first put one in. After being in legal controversy and limbo for many years, in the early 90s, an insider in the IRS sent an unauthorized memo out 'permitting' CB plans to go forward. They proliferated after that.

Let the word go forth, that this kind of nonsense is no longer going to be possible without everyone knowing about it.

I am pleased to be a part of that revolution.


At the time ERISA was created in 1974, it followed several years of huge pension scandals with thousands of people descending on Congress. It was the largest set of laws ever enacted and took several years to do. While it was a good initial effort, those laws need serious revision, as parts of them have been exploited big time.

If we fix them right, we can also do vast simplification. This can mean that defined benefit pension plans can grow again, as opposed to declining, as they have been for two decades.

Defined benefit pension plans, after all, when done right, are the most efficient way to deliver pension benefits to large groups of people so that no one gets left behind--far better than defined contribution plans. They are also far and away the least expensive--more than 40% cheaper than defined contribution plans, for example--due to the higher returns professional money managers get, and the much smaller investment fees.

Also the money's invested typically are more efficiently employed economically, than say individual investors, the former usually using investment practices and techniques that cannot possibly be employed by the vast majority of individuals. They do not have affordable access to them, much less have the time and knowledge to master their intricacies, nor can they accept the risk that goes along with them.

As part of that process, we need to reform the IRS funding rules, as well as the pension accounting rules. Both of these have served to help create some of the Enron type scandals we are all so familiar with.

In reforming ERISA first, I believe we can also make the accounting rules more similar to the funding ones, including some key actuarial assumptions--and wouldn't that be a win-win for everyone concerned?


Here are a few additional thoughts:

1. The present value of accrued benefit backloading problems affecting both normal retirement and early retirement need fixing. You do this by replacing Act Sec 204(b)(1) and Act Sec.1012(a) of ERISA (IRS Code Sec. 411(b)(1)(a)-(C) ) with a new section that removes this awful backloading of the present values and replaces it with one that makes the accrued benefit equal to the deferred annual annuity one gets from using the past service liability at any point in time under the Entry Age Normal Actuarial Cost Method (EANACM) and converting it using the identical assumptions used in the Method itself. Do the same thing for the early retirement benefit, including any early retirement subsidy. This levels out the present values, dividing both the normal retirement and the early retirement benefits in the exact fair manner between the past and the future service. This would be in accordance with pay, if it is a pay related formula, or in accordance with service if it is not, thus fixing the backloading problem. It is the only mathematically correct and fair way to do it. Also remove the section 401(h) which allows 'surplus' to be siphoned off from the plan and used for health purposes. Plan 'surplus' is not surplus in the sense that it is not necessary. It is a natural part of the actuarial funding process and taking it weakens the future viability of the plan.

2. Enrolled pension actuaries have great ERISA responsibilities. It is time we held them accountable. Some of the main things to do in this regard are:

a. Make the IRS required annual actuarial valuation report public and readily accessible online. The Schedule B of Form 5500 does not come even close to cutting it. Make sure it is complete also, not truncated as is sometimes done for unions, and make sure it also contains the accounting calculations (presently the FAS 87 /FAS 88 calculations) and not just the IRS minimum funding requirement calculations.

b. Eliminate five of the six permissible IRS actuarial cost methods, retaining only the one that makes the most sense: The Entry Age Actuarial Cost Method. Would you permit accountants to have six GAAP methodologies to select from in doing their annual financial statements?

c. Require that the Enrolled Actuary append to the annual actuarial valuation report brief summaries of how they arrived at each key actuarial assumption and, if any changes are made from the prior year, why.

d. Require that the EA get from the plan sponsor a summary of the long-term investment strategy and asset allocation. The EA must then explain how this strategy was used, along with the plan's actual investment experience, in arriving at the long-term investment assumption used for both IRS minimum funding and for pension expense.

e. Require that each actuarial assumption be individually realistic--no offsetting assumptions should be permissible. This is the computer age, remember?

f. If the plan offers a lump sum, the EA must show how he lowered the long-term interest assumption to account for the shorter time horizon for investments.

3. Ask the FASB to revise FAS 87 and 88 in light of the above and in the simplified IRS funding rules which should be part of the revisions in 5 below. For example, ask that they change the actuarial cost method currently used for pension expense under FAS 87 from the Projected Unit Credit to the Entry Age Normal; use a similar methodology for pension expense as is used for IRS funding purposes; require that the long-term interest assumption used for calculating pension liabilities for funding be the one also used for calculating similar pension liabilities for expense purposes (replacing the 'discount rate'); make sure there are no loopholes allowing plan sponsors to recapture pension surplus of otherwise harm plan participants during corporate reorganizations or acquisition/divestitures.

4. Make sure that adequate annual detailed and individualized disclosure is provided for each participant. This includes the amount of the pension at normal and early retirement and at other relevant points during his career and the amount of lump sums if that is offered. If a plan change occurs, a similar detailed statement must be provided showing the before and after situation. The only exception would be if the Plan Administrator can certify that the participant has not been materially affected.

5. Simplify the pension laws and regulation. This should be able to be done in a major way because of the foregoing changes. Massive rules and relations have been passed for two decades that complicated things and never addressed or corrected the basic underlying problems. It is the major carrot for doing the foregoing things.


I will not be available for the April 10 [hearing date changed to April 9, 2003] public hearings on these proposed regulations as I will be in Italy on vacation. However, I would be pleased to meet with any group after I return.

One last thing.

I also know what is wrong with the other major defined benefit systems, all of them also failing: Social Security, Medicare and retiree medical plans.

None of these systems are true DB plans, lacking both actuarial advance funding and strong laws with teeth to protect the plan assets and the accrued benefit of workers.

Actuarial advance funding not only makes demographic changes a relatively minor element, but also in time will lower the costs by two-thirds and they will be very stable too.

It will also be great for the economy and help create major oversight to prevent corporate malfeasance. In fact these changes might just save capitalism and with it, democracy.

Actuarial advance funding was invented in 1916 by the first consulting actuary, George Buck, and has been widely and successfully used all this time. In fact Congress finally required that it be used but alas only for all corporate defined benefit pension plans in 1974 with ERISA.

The same reasons for using it in 1916 apply today for all DB plans, even retiree medical ones.

Perhaps we can talk about that too.

In the meantime you might want to read my posts on all of these issues on the Society of Actuaries forum, They go into this in far more detail.

Andrew C. Lang FSA, MAAA
1426 Springton Lane
West Chester, PA 19380

Proposed Pension Regulations Letter

Employee Advocate – – March 10, 2003

Employee Letter to the IRS

CC:ITA:RU (REG-209500-86)
Room 5226
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

Thank you for accepting proposed cash balance pension regulations comments. I urge that the proposed regulations NOT be implemented. The regulations would rewrite existing laws prohibiting pension age discrimination.

Large corporations have schemed and lobbied for years for a way to confiscate employees' pensions. In 1991 the IRS issued proposed pension regulations. A sentence mysteriously appeared that was not in the draft version. The sentence was a “Get Out of Jail Free” card for age discrimination in cash balance plans.

The sentence stated that a plan's accrual features "will not cause a cash balance plan to fail to satisfy the requirement of section 411(b)(1)(H)."

The questionable sentence made the final draft, but only in the preamble. Still, companies greedy to claim their employee’s pensions, ran with the sentence and started implementing cash balance pension plans. These plans have only caused turmoil and strife!

One month after the sentence was sneaked in, the Treasury associate benefits tax counsel, left his job. He joined a law firm that sold cash balance plan advice! Ellen E. Schultz reported the whole affair in a 1999 “Wall Street Journal” article.

The dubious method used exempt cash balance plans from age discrimination left the plans on shaky legal ground. The legality of these plans was so murky that the IRS issued a moratorium on their approval in 1999. Corporations kept throwing money at lobbyists and politicians in an effort to make the plans legal.

The latest ploy is to legalize age discrimination in cash balance plans, after the fact, through regulations! Many existing plans, illegally implemented, would then enjoy safe harbor. And, the flood gates would be opened for an onslaught of new cash balance plans.

There is pending legislation in Congress that would solve the cash balance problems, and more being introduced. Congressman Sanders announced that he intends to introduce legislation requiring the members of Congress to convert to cash balance plans if the regulations are approved. Some members of Congress would then lose one-half, or more, of their earned pensions if converted to a cash balance plan! He said "If they think a cash-balance plan is good enough for American workers, why don't they convert their own pensions?" (The New York Times, 3/9/03)

Congressman Sanders, along with over 200 members of the Senate and House, wrote President Bush, asking that the pension proposals be withdrawn. It is up to Congress to solve the cash balance problem. The Treasury Department does not need to interlope in the matter of pension age discrimination.

Congressman Sanders also has a bill requiring corporations to let each worker choose whether to keep the old plan or go with the cash-balance plan. If such legislation is passed, over ninety percent of the cash balance controversy would be resolved, overnight.

Realistically, It is highly unlikely that Congress will vote in cash balance pension plans for themselves. No one ever wants a cash balance conversion for themselves; they only want them for “other” people! A group of actuaries, who design cash balance plans, even refused to accept such a plan – when it applied to them! They only design them for “other” people. When pensions are converted, executives are not stuck with the same plan as employees. They typically have an “executive cash balance plan.” Cash balance plans are only for those who never have a voice or a choice in the matter.

Those who tout cash balance plans are like the moonshiner who distills his product through automobile radiators. He only makes it to sell. Under no circumstances would he ever consume his own product. He knows it’s potentially deadly, but the practice racks up profits faster. Cash balance plans are all about making the maximum amount of money for the plan producers, sellers, and implementers. No thought is ever given to the employees who must suffer the end results and provide the profits for everyone else!

So, all the people who are promoting the virtues of cash balance plans never want the plans to apply to themselves. They always want the plans to be applied to others. Executives benefit from the money extracted from the employees' pension benefits (reduced liability). They reward themselves with large bonuses for their dirty deeds.

Members of Congress benefit from heavy contributions made by corporations to buy their support in legalizing these plans.

Consulting firms make money peddling the cash balance conversions to corporations, often selling them as a way to take money from the pension plan!

Actuaries make money devising these pension schemes. They can make $500 per hour, or so.

Again, those promoting the plans are making money off of the employees being forced into these plans. And, the cash balance promoters always want the plans to apply to other people.

If cash balance plans are so great, why has no company ever implemented one from scratch? There would be no point in it if a pension plan did not already exist that could be pilfered! It is always through the “conversion” to a cash balance plan that employees lose promised benefits. Then the whole cash balance supply chain profits handsomely from the misery of the employees left with little pension benefits.

When a number of employees from various corporations and myself met with Treasury and Labor Department officials in 2000, all parties were shocked at the revelations. We were shocked to learn that large employer lobbying groups had convinced the Washington officials that the cash balance plan differences had been settled between the companies and employees! Nothing could have been further from the truth. The cash balance contentions were not settled then and they are not settled now! And, the proposed regulations certainly will never solve them.

The Washington officials were likewise shocked when employees revealed how cash balance plans were really implemented. The meeting ran into overtime, as the officials wanted to know of all the misrepresentations that had been made to employees. Treasury Benefits Tax Counsel J. Mark Iwry postponed meetings in the Capitol to learn more about the unethical distortions made by the corporations.

A comment period was set up to allow employees to give their side of the cash balance conversions. But the problems of cash balance conversions have yet to be resolved. Those Washington officials are now gone due to “regime change.”

The current Washington regime is not noted for having an overwhelming concern for anyone other than CEO’s. The current proposed regulations to rubber stamp the plans and legalize age discrimination is not an acceptable resolution.

Mr. Iwry made this statement concerning the proposed regulations "The switch to a cash-balance plan is tantamount to a pension pay cut for older workers unless they get adequate transition protection…Many would say that the proposed regulation has set the bar too low." (The New York Times, 12/16/02)

Norman Stein, pension expert and professor of law at the University of Alabama, favors a Congressional resolution: "By the time things are all litigated out, it could be the court would do more than these regulations, but the fact that these regulations are now out will make courts pull back. If the regulations weren't issued, ultimately the question of the validity of cash-balance plans would have been thrown to Congress. And even with a Republican Congress, I think better stuff would have come out of Congress than would have come out of these regulations." (St. Louis Post-Dispatch, 2/1/03)

Mr. Stein also said "Twenty years ago, it was very common for large companies to basically use surplus plan assets to help their employees keep up with inflation. [But today, their policy is] this is all we promised you ... so this is all you get." (Pittsburgh Post-Gazette, 8/20/01)

But the problem is that employees are not even getting what they were promised. Most cash balance conversions are used to take as much benefits from the employees as possible.

Mr. Stein exposed the whole sham with these statements: "Most cash-balance plans have been designed to hurt older employees. [So after years of having] a plan that is not good for young people when they're young, when they get older they get a plan that's not good for older people. And companies are often cleverly misleading about this.

"It used to be that pension plans were viewed as belonging to the people covered by them. The new ideology is that this money belongs to the company and its stockholders, or its management. If the employees want it, there has to be warfare for them to get it. This has had a devastating effect on retirement policy." (The New York Times, 10/1/00)

Mr. Stein further stated about the loses caused by cash balance plans: “you might find the pot of gold at the end of the rainbow looted just before you get there.” (News Week, 1/20/03 issue)

Cash balance plans were blasted again by Mr. Stein: "I think the law is pretty clear that almost every cash balance is structurally defective." (Union-Tribune, 12/29/02)

Andrew Lang, with 29 years of actuary experience, recognizes the dangers of poorly converted cash balance plans. He explained that the plans allow employers to grab benefits without paying the termination penalty: “First of all, the cash balance conversion allows companies to get rid of early retirement subsidies. Then, the conversion brings the same cost savings as a plan termination.” (Plan Sponsor, September 2000 issue)

Treasury Secretary John Snow will get $2.47 million a year for life in retirement benefits. He was given pension credit for nineteen years that he did not even work for CSX Corp. If he is a party to approving any regulations that will deprive Americans of their earned pensions, the backlash will haunt him until the day he leaves office.

(CC: To senators and congressman.)

Enron Employee Letter to the IRS - by Wyn Triska - February 17, 2003

Internal Revenue Service
POB 7604
CC:ITA:RU (REG-209500-86) Room 5226
Ben Franklin Station
Washington, DC 20044

Dear IRS:

I've had the severe pleasure of being both the recipient of "cash-balance" pension conversion and working for Enron, where my company stock (that I could not sell) went down the drain. With this in mind, I strongly urge you not to approve the recently proposed regulations allowing cash-balance conversions, without regard for the harm they do to long-term employees.

These conversions have a history of drastically reducing benefits for middle-aged workers. Opening the door to this is tantamount to changing the rules in the middle of the game. At retirement age I'll have less than I would with my old pension, less than a younger worker who starts out with the new cash-balance plan, and less than I would have if a cash-balance plan had been in place when I was hired. There is no reset button to start the game over.

The pension conversion takes advantage of the difference in accrual patterns to transfer wealth from the employee to the employer. I've followed this issue closely and have never heard of a mandatory conversion where employees did not lose future pension benefits. Deception is also a hallmark of mandatory pension conversions. In my case, the required 204(h) notice implied that the cut in future benefits was more than balanced by "potential" future gains -- especially when taken in the context of verbal propaganda at the time.

There is nothing inherently wrong with the cash-balance concept. It is the conversion process that is deliberately flawed. Cash-balance is likely better for those who change employers frequently and younger employees. However, middle-aged employees converted from traditional pensions cannot go back and reap the benefits of cash-balance. Instead, they are left with the greatest weakness in the traditional pension: values which accumulate very slowly while young and in middle-age, then accelerate rapidly as retirement age approaches. Taking advantage of this by terminating employees before they vest or are close to retirement age is an old trick. Age discrimination laws and shorter vesting times were the eventual response of our government to assure that the lure of a future pension was not a phony promise used to take advantage of the employee. The proposed regulations appear to forget the intent of these laws, and favor a narrow interpretation that benefits only those who try to get around them.

Despite the rhetoric about the so-called "mobile workforce" and attracting younger workers, the underlying motivation is a transfer of wealth to the employer. Ask yourself: what percentage of the mandatory cash-balance conversions resulted in corporate profits and pension losses? Nearly 100 percent. Profits are good and large profits are better, but not when earned using Machiavelli's code of ethics.

Wyn Triska

cc: President George W. Bush
Senator Gordon Smith
Senator Ron Wyden
Congressman Earl Blumenauer

Lynda French’s IRS Letter

Lynda French – February 1, 2003

January 26, 2003
Internal Revenue Service
POB 7604
CC:ITA:RU (REG-209500-86) Room 5226
Ben Franklin Station
Washington, DC 20044

Dear Sir or Madam:

I strongly urge you NOT to approve the recently proposed regulations to allow pension conversions to cash balance plans without regard for the harm such a conversion can do to long-term employees.

These conversions have a history of reducing benefits for older workers by 50% or more. Opening the door to corporations to allow this treatment of older workers should not be allowed. Older workers cannot make up the 20, 25 or 30 years of time they have dedicated to their employer, to make up the shortfall that they would suffer in these conversions.

Due to the IBM Pension Equity (1995) and Cash Balance (1999) conversions and plan amendments and all the reductions in IBM employees earned retirement benefits from 1974 (when I started work for IBM) through February 1, 2000 when I took "early retirement" because I felt I was forced to leave --aka "constructively discharged" -- in order to try to preserve what little was left of my earned retirement pension before further degradation of my earned benefits occurred. These proposed changes to regulations is a good example of a new rip-off for those nearing retirement. It is shameful that our administration and government would be supporting and pushing for such regulatory changes. I thought our government was here to serve "the people" of our country (not limited to the corporate upper echelon).

Older workers have already seen their future security reduced by the cancellation of retirement medical plans, and by the erosion of their 401K investments. Our government should not allow and support further threats to retirement that could lead to poverty or bankruptcy in old age.

I urge you to not approve these regulations, and by copy to my Senators and Representatives, ask for their support as well.


Lynda P. French, IBM Retiree

Congressional Pension Letter to Bush

Congress – January 31, 2003

This letter was signed by over 200 House and Senate members

Congress of the United States
House of Representatives
Washington, DC 20515

The Honorable George W. Bush
President of the United States
1600 Pennsylvania Avenue, N. W.
Washington, DC 20500

January 31, 2003

Dear President Bush:

We are writing to strongly urge you to withdraw proposed Treasury Department regulations regarding cash balance pension plans and to issue new regulations that will prohibit profitable companies from reducing the pension benefits of existing employees or retirees by converting to age-discriminatory cash balance plans. (Federal Register December 11, 2002, Internal Revenue Service, 26 CFR Part 1, REG-209500-86, REG-164464-02, RIN 1545-BA10,1545-BB79.)

According to the General Accounting Office, annual pension benefits of older employees can drop by as much as 50 percent after a company converts from a traditional defined benefit plan to a cash balance plan. Large companies favor the conversion because they can save hundreds of millions of dollars a year in pension costs. Delta Airlines, for example, recently announced it would save $500 million per year by switching to a cash balance plan. In the late 1990s, IBM initially estimated it would save $200 million per year by switching to a cash balance plan. IBM, A T&T, and Verizon are among the 300 to 700 large companies that have already converted to a cash balance pension plan. An additional 300 companies had been waiting for IRS approval of their conversion plans even before the regulatory change was announced. Thousands of companies employing millions of people would be eligible to convert their pension plans under the proposed regulations.

Switching to a cash balance plan in mid-stream has the greatest negative effect on older employees who have worked for many years with one company and plan to continue to work for additional years for the same employer.

As you know, in September 1999, the IRS issued a moratorium on issuing letters of approval to companies for pension plan conversions because of age discrimination concerns. There are over 800 age discrimination complaints currently pending before the EEOC based on cash balance conversions. The 1999 moratorium has nearly stopped the flow of companies converting to cash balance plans.

The recently proposed regulations would create an incentive for thousands of companies to convert to cash balance plans by providing legal protection against claims of age bias by older employees. The regulations would result in millions of older employees losing a significant portion of the annual pension they had been promised by their employer and had come to rely upon as part of their retirement planning.

We urge you to direct the Treasury Department to immediately withdraw these proposed regulations and instead issue regulations that provide for the protection of older employees’ pensions.

At a time when millions of employees are still reeling from significant losses to their 401(k) retirement plans because of corporate scandals and the ongoing weakness in the stock market, we believe these regulations represent another serious blow to the retirement security of hard working Americans who have played by the rules in their companies only to see the rules of the game for rank and file employees change midway through their careers.

Re-opening the floodgates for cash balance conversions will destroy what is left of our private pension retirement system. This is a devastating step that your Administration need not and should not allow.

We deeply appreciate your attention to the concerns that we are expressing on behalf of the millions of employees who will depend on their pensions for a secure retirement. We look forward to working with you to protect the pension security of America’s workers.


Bernard Sanders, Member of Congress, George Miller, MC, Tom Harkin, United States Senate, Barbara Boxer, USS, Tom Daschle, USS, Nancy Pelosi, MC, Edward Kennedy, USS, Paul Sarbanes, USS, Carl Levin, USS, Christopher Dodd, USS, Charles Schumer, USS, Dianne Feinstein, USS, Jon Corzine, USS, James Jeffords, USS, Mark Dayton, USS, Patrick Leahy, USS, Barbara Mikulski, USS, Russell Feingold, USS, Hillary Rodham Clinton, USS, Maurice Hinchey, MC, John McHugh, MC, John Dingell, MC, David Obey, MC, Barney Frank, MC, Tom Lantos, MC, Paul Kanjorski, MC, Lloyd Doggett, MC, Robert Andrews, MC, Jane Harman, MC, David Price, MC, Gene Green, MC, Lucille Roybal-Allard, MC, Rodney Alexander, MC, James Clyburn, MC, David Scott, MC, Ike Skelton, MC, Ed Pastor, MC, Adam Smith, MC, Gil Gutknecht, MC, Ron Kind, MC, James T. Walsh, MC, Nick Lampson, MC, Jay Inslee, MC, Sherwood Boehlert, MC, Rahm Emanuel, MC, Madeleine Bordallo, MC, Rob Simmons, MC, Soloman Ortiz, MC, Sanford Bishop, MC, Gregory Meeks, MC, Steve Israel, MC, Kendrick Meek, MC, Steny Hoyer, MC, Bob Etheridge, MC, Arthur Davis, MC, Ruben Hinojosa, MC, Mike Thompson, MC, Brad Miller, MC, Max Sandlin, MC, Dutch C.A. Ruppersberger, MC, Anibal Acevedo-Vila, MC, Adam Schiff, MC, Sander Levin, MC, Michael Honda, MC, Melvin L. Watt, MC, Lincoln Davis, MC, Marion Berry, MC, Jim Cooper, MC, Frank W. Ballance, Jr., MC, Shelley Berkley, MC, Chris Bell, MC, Dennis A. Cardoza, MC, Jack Quinn, MC, Nick J. Rahall, II, MC, Michael R. McNulty, MC, Richard Gephardt, MC, Timothy Bishop, MC, Karen McCarthy, MC, Raul Grijalva, MC, Stephen Lynch, MC, Ciro Rodriguez, MC, Bart Gordon, MC, Mike Ross, MC, John Spratt, MC, Robert Menendez, MC, Virgil Goode, Jr., MC, Denise Majette, MC, Maxine Waters, MC, Nita Lowey, MC, Jim Moran, MC, Charles Gonzalez, MC, Joseph Hoeffel, MC, Jerry Costello, MC, Sheila Jackson-Lee, MC, Harold Ford, Jr., MC, Bobby Rush, MC, Tom Udall, MC, Timothy Ryan, MC, Thomas Allen, MC, Elijah Cummings, MC, Michael Michaud, MC, Norman Dicks, MC, Robert Brady, MC, Eddie Bernice Johnson, MC, Jim Davis, MC, Linda Sanchez, MC, Vic Snyder, MC, William Jefferson, MC, Tim Holden, MC, Diane Watson, MC, Carolyn Maloney, MC, Lane Evans, MC, Jesse Jackson, Jr., MC, Robert Wexler, MC, Anthony Weiner, MC, Betty McCollum, MC, William Lipinski, MC, Peter Visclosky, MC, Anna Eshoo, MC, Steven Rothman, MC, Darlene Hooley, MC, Nydia Velazquez, MC, Martin Olav Sabo, MC, Gene Taylor, MC, Ted Strickland, MC, Danny Davis, MC, Loretta Sanchez, MC, Chaka Fattah, MC, Grace Napolitano, MC, John Lewis, MC, Martin Meehan, MC, Bart Stupak, MC, Ellen Tauscher, MC, Chris Van Hollen, MC, Zoe Lofgren, MC, Edward Markey, MC, Collin Peterson, MC, Henry Waxman, MC, Michael Capuano, MC, Diana DeGette, MC, Jerrold Nadler, MC, Bill Pascrell, MC, Albert Russell Wynn, MC, Joseph Crowley, MC, Gary Ackerman, MC, Carolyn McCarthy, MC, Gerald Kleczka, MC, John Murtha, MC, Donald Payne, MC, Louise McIntosh Slaughter, MC, Tammy Baldwin, MC, John Conyers, MC, Susan Davis, MC, Neil Abercrombie, MC, Mike McIntyre, MC, Fortney Pete Stark, MC, Hilda Solis, MC, Bob Filner, MC, Alcee Hastings, MC, John Tierney, MC, Jose Serrano, MC, James Langevin, MC, Frank Pallone, MC, Earl Blumenauer, MC, Juanita Millender-McDonald, MC, Barbara Lee, MC, Lynn Woolsey, MC, Robert Scott, MC, Rush Holt, MC, James McGovern, MC, Stephanie Tubbs Jones, MC, John Olver, MC, Lois Capps, MC, Sam Farr, MC, Corrine Brown, MC, Dale Kildee, MC, Patrick Kennedy, MC, William Delahunt, MC, Edolphus Towns, MC, Joe Baca, MC, Eliot Engel, MC, Silvestre Reyes, MC, William Lacy Clay, MC, Michael Doyle, MC, Carolyn Kilpatrick, MC, Sherrod Brown, MC, Luis Gutierrez, MC, Janice Schakowsky, MC, Howard Berman, MC, Bennie Thompson, MC, Julia Carson, MC, Mark Udall, MC, Rosa DeLauro, MC, Peter DeFazio, MC, Martin Frost, MC, Marcy Kaptur, MC, Dennis Kucinich, MC, Major Owens, MC, Peter Deutsch, MC, Eleanor Holmes Norton, MC, James Oberstar, MC, Jim McDermott, MC, Rick Larson, MC, Donna Christensen, MC, John D. Rockefeller IV, USS, Maria Cantwell, USS, Jack Reed, USS, Harry Reid, USS, Daniel Akaka, USS, Richard Durbin, USS, Frank Lautenberg, USS, Debbie Stabenow, USS, Christopher Smith, MC, Daniel Inouye, USS, Alan Mollohan, MC, Bill Nelson, USS, Ed Case, MC

New Duke Retiree

Employee Advocate – - January 2, 2003

Message Received from a New Duke Retiree

I am a new Duke retiree today, 1/1/03. It wasn't my decision to retire at this time, but it is better than straight lay off. My retiree medical and dental insurance will be almost 4 times what I paid as an active employee. Just read the note about the person that recently retired and said his insurance doubled.

This would be horrible for retirees to look forward to on fixed incomes. Perhaps I could get it cheaper if I shop around. Thanks for the newsletter.

Duke Retirees Screwed Again!

Duke Retirees Screwed Again!

Employee Advocate – – December 31, 2002

This message was received from a Duke retiree

Good old Duke does it again to retirees. I retired last year with 32 years service and my health insurance premiums almost doubled this year. Priory's greed is going to ruin the company.

Executive Mutiny Against Greed

Sanders' IRS Pension Letter

Employee Advocate – – October 25, 2002

This letter was sent to the Commissioner of the IRS and National Taxpayer Advocate by Congressman Sanders. It was signed by over 116 members of Congress.

October 24, 2002

The Honorable Charles O. Rossotti, Commissioner
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

The Honorable Nina E. Olson
National Taxpayer Advocate
1111 Constitution Avenue, N.W.
Washington, DC 20224

Dear Commissioner Rossotti and Ms. Olson:

We are writing to urge the Internal Revenue Service (IRS) to take immediate action and issue guidance to enforce all of the pension laws, regulations and notices that are on the books to prevent companies from illegally slashing the pension benefits of American workers and retirees as a result of cash balance conversions. Specifically, we urge you to enforce IRS Notice 96-8 issued on January 18, 1996; and section 411(b)(1)(H)(i) and section 411(d)(6) of the Internal Revenue Code of 1986.

Last July, 308 House Members voted in favor of the Sanders-Gutknecht-Hinchey-George Miller amendment to prevent the IRS from using any funding that would be in violation of the pension age discrimination laws and pension provisions already on the books. This amendment passed in light of a disturbing report published by the Department of Labor's (DOL) Office of Inspector General (OIG). The report found that a number of companies are illegally slashing the retirement benefits of their employees by between $85 million and $199 million each year by shifting to cash balance pension plans. Even worse, the OIG found that the federal government was not enforcing the pension laws and regulations that are on the books pertaining to cash balance pension conversions. It is our understanding that corporations are lobbying the IRS behind the scenes to gut or even eliminate altogether federal regulations designed to protect the pensions of workers. We urge you not to give in to these corporate lobbyists and stand up for workers and retirees who have seen their pensions slashed by as much as 50% as a result of cash balance conversions.

Since this amendment passed, a U.S. District court recently ruled that Xerox illegally slashed the pensions of 13,000 of their employees through shifting to a cash balance plan by more than $280 million. This is the third court ruling in favor of employees who have seen their pensions slashed as a result of a cash balance pension conversion. Earlier, the Eleventh Circuit Court of Appeals ruled that Georgia Pacific illegally slashed the pensions of their workers by shifting to cash balance plans by over $50 million. In addition, the Second Circuit Court of Appeals ruled that the Bank of Boston illegally slashed the pensions of 8,000 of their employees by at least $7 million.

These cash balance pension raids must be put to a stop. American workers and retirees need the IRS to start enforcing the pension laws and regulations that are on the books. If the IRS had done its job, these court cases could have been prevented, and workers and retirees would be receiving millions of dollars in increased pension benefits instead of spending years in litigation. The DOL Inspector General issued its report in March 2002. The Department of Labor requested an opinion on the IG's finding on February 7, 2002. The House of Representatives spoke in July. The IRS can no longer sit on the sidelines while the pensions of American workers are being illegally slashed. The IRS must report to the Department of Labor and Congress and enforce the pension laws and regulations that are intended to protect workers' promised pensions.

Bernard Sanders
Member of Congress

Pension Letter to President Bush

Employee Advocate – – October 21, 2002

President George W. Bush
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

October 21, 2002

President Bush:

Congratulations on taking a stand to protect the promised pensions of working Americans. The 401 (k) issues that you have addressed are all very important.

However, the reason for the most devastating pension losses for most employees has been largely ignored – the cash balance pension conversion. Millions of workers have lost up to half of their promised pensions due to very questionable tactics.

It is obvious that these plans were designed solely to extract pension money from employees. Many management consulting firms sold these plans as just that – a way to take money from pension plans.

At least one member of The Society of Actuaries, Andrew Lang, has gone public to expose the dark purpose of cash balance conversions. Other experts, such as Norman Stein, University of Alabama School of Law, have questioned the legality of cash balance pension conversions.

Evidently, The Equal Employment Opportunity Commission was also very skeptical of these pension conversions. In 1999, the EEOC exempted Duke Energy employees from the age limits for filing a cash balance age discrimination charge.

Over 1,000 such charges have been filed with the EEOC by employees of various corporations. These charges have been languishing, with no apparent action being taking against the offending companies.

I have been told that the new chairperson of the EEOC, Cari M. Dominguez, favors mediation over litigation. This is one case that mediation will accomplish nothing. The companies that have confiscated millions of dollars in pension money from employees will never settle without legal action. The companies have every reason to stonewall and have zero incentive to reach a voluntary settlement.

If you are truly interested in pension justice, please encourage EEOC Chair Dominguez to file lawsuits against all companies named in cash balance age discrimination charges.

The cash balance problem did not occur overnight. It is the result of years of scheming by various individuals and organizations. The problem will never be rectified by timid methods. A resolution will only be brought about by decisive legal action at the federal level. Thank you.

More Rules to Protect 401(k) Plans


Employee Advocate – December 22, 2001

E-mail received. Permission to post granted.

Please refer this e-mail to someone who cares. In November 1998 my Father-in-law, Irving Morgan, a retiree from Duke Power Company, died. He had group life insurance from the company and the claim was promptly paid. The clerk was very nice and helpful. All insurance was transferred to my Mother-in-law (life and health). We continued to pay the insurance premiums until she died in April of 1999. When I tried to file the life insurance claim of $2500 I was told that she didn't have insurance. I asked to speak to the former clerk only to learn that she was no longer with the company. I was told that when my Father-in-law died, the insurance died with him. You have a lot of employees who depend on the little bit of insurance that is provided. I had to finish paying for my Mother-in-law's funeral with a credit card.

My Mother-in-law may not have been important to a large company like Duke Energy, but she was to us. I am glad she was not around to see how her family was treated by the company that she was so proud of.

I even asked my attorney to check on the issue, but there was not enough money at stake to have him pursue it. He said that he was ignored by your company and no one would respond to his calls or letters.

Whoever is responsible for decisions (or non-decisions) like this, please wish him or her a Merry Christmas and warn them to get individual insurance; because when that person dies, the insurance dies with him.(or does this just happen to unimportant people?)

Just in case someone does care and takes time to look up the record, I believe you will find that she did ,in fact, have insurance but some clerk was too lazy to put forth the effort for a measly $2500. Yes, I paid the credit card bill, but, who cares.

Her name was Annie Mae Houston Morgan, and she lived with my wife and me at 3816 Rivermont Drive in Durham, North Carolina. 27712. I would appreciate any assistance I could receive.

Bipartisan Patient Protection Act

Letter From Senator John Edwards - August 3, 2001

For the past two years, I have been an active member of a bipartisan team of senators and representatives pushing for meaningful law to protect patients. Just this past June, the Senate overwhelmingly voted 59 to 36 to pass the Bipartisan Patient Protection Act, strong and far-reaching patient protection legislation that I sponsored with Senator John McCain.

On Thursday, the House passed a bill favored by President Bush that would weaken the patient protections I fought so hard for in the Senate. The differences between their bill and ours are simple: their version protects HMOs; our bill protects patients. Their version overturns already existing state laws to protect patients; our bill keeps strong state patient protection laws in place. Their version makes it too difficult for patients who've been denied care by an HMO to take that HMO to court; our bill ends the special, privileged status that gives HMOs legal immunity.

I'll continue to talk about the important differences between the Patient Protection Act that passed the Senate and the bill to protect HMOs that passed the House on NBC's Meet the Press this Sunday morning. Please check your local listing for show time.

I'll also be interviewed next Monday and Tuesday on CNN's "Inside Politics," which airs from 5-6 p.m. EST.

Rein in the Cost of Prescribed Drugs

New York Times - Congressman Sanders - July 25, 2001

To the Editor:

Re "Despite High Hopes, Drug Plan May Be Disappointing to Elderly" (front page, July 22):

Congress will not be able to create an effective prescription-drug benefit unless we develop a mechanism to lower the outrageously high cost of prescription drugs. That will not be easy at a time when the pharmaceutical industry is spending hundreds of millions on campaign contributions and lobbying to protect its huge profits and shield the obscene salaries and benefit packages earned by its chief executives.

The Republican proposals represent only the drug companies' interests. Yet even under Senator Bob Graham's Democratic proposal, the elderly would still pay more for their prescriptions than they would if they crossed the border into Canada and bought their medicine there. Congress must act now to lower the cost of prescription drugs in this country.

Bernard Sanders

Washington, July 23, 2001

The writer, independent of Vermont, is a member of the House.

IBM Misleads Washington Post Reporter

Duke Energy Employee Advocate - April 27, 2001

Below is the letter that James Marc Leas, IBM employee and attorney, sent to the Securities and Exchange Commission. Although this letter deals strictly with IBM, read it carefully. The tactics that companies use to take pension money from employees, through cash balance plans, are almost universal.

37 Butler Drive
S. Burlington, VT 05403
April 21, 2001

Laura Simone Unger, Acting Chairman, SEC
Catherine T. Dixon, Chief Counsel, Division of Corporation Finance
United States Securities and Exchange Commission
Washington, DC 20549

Re: IBM misleads Washington Post reporter to minimize link to Executive Compensation

Dear Ms. Unger and Ms. Dixon:

IBM insisted to a reporter for the Washington Post (see article by Kathleen Day on the first page of the Business section in the Washington Post Wednesday, April 18, 2001) that "the pension plan's surplus boosted profits by less than $250 million last year."

Through its statements to this reporter IBM misled readers, including IBM shareholders. The $250 million is less than a quarter the figure IBM gave in the Management Discussion section of IBM's own annual report. The annual report states on page 57, "for the year ended December 31, 2000, the company realized cost and expense reductions of $1,171 million due to the funded status of its pension plans."

The "funded status of its pension plans" refers to the $10 billion surplus IBM's pension trust fund enjoys, in part because IBM slashed pension obligation for employees with a cash balance plan conversion. The $1,171 million is entered in IBM's books as negative expense so all of it adds to company profit, not just $250 million.

None of this money is transferred to IBM. It all remains in the pension trust fund. This is purely an accounting treatment. The $1,171 million profit from the pension fund accounting rule provided 15% of IBM's total after-tax profit report for year 2000. In my view it is an illusionary vapor profit since it all remains in the pension trust fund and cannot be transferred to IBM.

Executive incentive compensation depends on the total report of profit--including the $1,171 million accounting rule illusionary profit. The illusionary profit helps executives reach a profit target required for them to receive any executive incentive compensation.

Executives are the only ones to benefit from slashing pensions. Stockholders do not benefit since analysts and institutional investors discount the illusionary vapor profit.

Because of the pension fund surplus, IBM has not spent any money on pensions in six years so the company could save no money by slashing pensions. Because the surplus money cannot be taken out of the pension trust fund to be used for any purpose other than retiree pay, there is no other purpose in slashing pensions than to build the surplus so as to report a higher profit so as to boost executive incentive compensation. IBM deceived the reporter by insisting on the $250 million figure in order to make this connection seem de minimus.

Last year IBM entirely omitted mention of this boost to profit from the Management Discussion section of the annual report. I wrote to the SEC last year asking that the SEC tell IBM to describe the profit boost in the management discussion section as mandated by a letter from the SEC Chief Accountant, Lynn Turner. I now ask that the SEC require IBM to tell the stockholders the same thing through its statements to reporters that it is finally telling stockholders through the management discussion section of the annual report.

I would ask the SEC to tell IBM that it should not mislead reporters whose articles go out to stockholders. IBM should make crystal clear to reporters that (1) the profit boost was the $1,171 figure in the management discussion section of the annual report; (2) none of this money is transferred to IBM from the pension trust fund; (3) IBM pays no taxes on the accounting rule boost to profit since it receives no actual money from the pension trust fund. I would further ask that the SEC consider requiring IBM to disclose that executives stand to gain personally by getting millions of dollars of real company money for themselves based in part on the boost to profit from the pension fund accounting rule.

Two thousand IBM employees and retirees have signed on to an open letter to IBM Chairman Lou Gerstner describing this pension fund scheme to enrich executives. Employees and retirees are beginning to understand that they will be impoverished when they are old and most in need, not to make IBM more competitive, not to help IBM in any way, but only so that Mr. Gerstner can rake in yet more millions for himself. Certainly while votes are being taken on an employee sponsored IBM stockholder resolution on pension and retirement medical IBM should not be permitted to mislead a Washington Post reporter about information relevant to that vote by insisting on numbers much lower than contained in IBM's annual report.

I would be happy to discuss this with you at your earliest convenience. Please feel free to give me a call. Thank you very much for your Attention to this matter.


James Marc Leas

802 864-1575
802 769-9824 (at IBM)

cc Stuart Moskowitz, IBM Senior Counsel

Attached in mailed version: Washington Post article by Kathleen Day, "IBM Workers Continue to Fight Pension Changes," April 28, 2001, Business Section, page 1.

Letters - Page 2