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Letters - Page 6

April 9, 2008

Dear Senator:

Enclosed please find a letter that the Pension Rights Center sent today to Secretary of the Treasury Henry M. Paulson Jr. asking that he withdraw Revenue Ruling 2008-7, which legitimizes the unfair practice of "wearaway" in cash balance conversions that occurred before the enactment of the Pension Protection Act of 2006 (PPA).

Thanks to your leadership, the PPA's cash balance provisions were carefully designed to take into account the interests of employers and employees. In exchange for legitimizing cash balance plans in the future, the PPA provided important employee protections, such as eliminating the practice of wearaway in cash balance conversions that took place after the effective date of the law. As you recall, Congress left the question of the legality of past conversions to the courts.

Revenue Ruling 2008-7 ignores the intent of Congress by seeking to legalize the practice of pre-PPA wearaway. In so doing, the Ruling could undermine lawsuits brought by hundreds of thousands of employees from such companies as AT&T, CIGNA, Southern California Gas Company, FleetBoston, and Chemical Bank. These lawsuits represent the employees' only hopes for restoring the devastating losses caused by the unlawful wearaway of their pension benefits.

We are asking that the Secretary of the Treasury withdraw the Revenue Ruling, and direct the Internal Revenue Service to delay issuing determination letters for plans that used wearaway formulas in their cash balance conversions until the courts have made a final determination of the issues. In the alternative, we propose the reinstitution of the moratorium on cash balance conversions until the completion of a regulatory proceeding that would allow the views of employees to be heard.

Again, we are grateful for your leadership on this issue, and hope that you will act to ensure that the employees' pensions are protected. If you or your staff have questions, please feel free to call us at (202) 296-3776.

Sincerely,

Karen W. Ferguson Director

Oppose Cash Balance Plan Legalization!

This note was received from a former Duke Energy employee who offers some sage advice:

As a former Duke employee, it makes me sick as to how the Duke Energy employees are getting shafted. It is time that they considered obtaining union representation, just as the Cinergy workers did. Any employee who wants more information on union representation should contact:

Rick Ellis
IBEW International representative for organizing
phone: 423-894-9095
cell: 423-321-2336

Please post this information on your website. I have spoken to Mr. Ellis in the past and he is most interested in talking to Duke workers. Thanks for your attention to this matter.

Phone numbers posted with permission from Mr. Ellis of the IBEW 10th District.

An open letter to Senators Elizabeth Dole and Richard Burr:

As one of your NC constituents I am seriously concerned about upcoming pension legislation supported by you in both houses of Congress which could seriously hurt working people in our state, including myself.

As we've seen, profitable companies such as IBM are weakening the pension system as much as they legally can. At this point in time, we need to strengthen ERISA pension protections, not weaken them. Why then have you signed a letter on ERIC's web site supporting corporations like IBM over retirees? The company did not vote for you; companies can't vote! NC people will decide if you are re-elected in 2008 and 2010, respectively.

I would like to ask that you ensure the following:

1) Early retirement subsidies, once vested, and especially once being collected, need to be fully protected. They are not extra bonus monies...gifts from a company. THEY ARE DEFERRED INCOME ALREADY EARNED--NOT A GIFT THAT CAN BE TAKEN AWAY FROM A COMPANY.

2) Plans that are underfunded need to be fixed by forcing companies to increase their contributions to those plans, NOT by forcing them to cut benefits to current and future retirees.

3) Do not reduce the size of a lump sum distribution that can be offered in place of a promised annuity by using an ultra-high discount interest rate, and make sure the promised annuity stays an option. If the company cuts a pie into two choices...I should be able to pick the slice! It is the only way a company will offer two options fairly...CUT TWO OPTIONS EVENLY...then I choose, NOT THE COMPANY.

4) Strengthen plan termination rules so that excess funds have to be used for the sole benefit of plan participants and cannot be returned to the company or to the corporate executives.

I was pleased to see that neither the house or the senate bill retroactively legalizes cash balance conversions. I would be quite upset if I lost a large share of the Cooper settlement because Congress retroactively legalized what IBM did. If Congress must legalize cash balance conversions, they should include all of the protections for employees that are in the senate bill.

Thank you for your time and attention to this critical matter to your constituents who are drawing pensions from employers like IBM, UPS, Duke Energy, Verizon, and even state & city governments in NC.

Elizabeth Dole and Richard Burr Against Pensions

To: The Honorable John Boehner, House Majority Leader
From: 40 Ordinary People Whose Pensions Will Be Cut in Half

Congratulations on your ascent to Majority Leader, and the best of luck to you. Please allow us the honor of a friendly debate about pension reform. We are an informal group of ordinary people who chipped in to buy this ad. We are terrified of losing 50% of our pensions, due to your amendment to the Pension Protection Act.

Mr. Boehner, you've stated that pension reform is a top priority. We are very afraid of what's being sold as reform. You talk about tightening rules to ensure companies save enough money to honor their financial obligations to employees. Yet, your amendment makes it unnecessary for companies to honor their financial obligations to employees.

People can lose pensions when the company goes bankrupt. But now, for the first time in history, we can lose retirement benefits already earned, even when our company is racking up huge profits. Earned pension monies protected by law will no longer be protected if the Boehner amendment to HR2830 is allowed to stand.

Mr. Boehner, how many of your constituents’ families will be made poorer because of your terrible law? We don't believe a pension freeze is theft. But when Congress passes a law letting corporations default on the debt they've already incurred to us – that's just robbery with a fountain pen. If we pay you enough in campaign contributions, could you pass a law letting us pay only 50% of our mortgage to the bank? Speaking of campaign cash, Bloomberg reported March 20 that "UPS Uses Political Clout to Press for Cuts in Pension Benefits". The Center for Responsive Politics reports that you took $76,700 from UPS – you are the fifth-largest recipient of UPS campaign donations, out of 535 U.S. lawmakers.

To us, this looks like you’re selling us out:

On lines 18 to 23 of page 179 of your amendment, the language cashes out our pension at 50 cents on the dollar.

The remaining 50% goes right to the corporate bottom line, fattening the bonuses of corporate managers – who just gave you $76,700. Please understand this has the appearance of more than coincidence.

Mr. Boehner, the lobbyists' interests are well-represented, with all that money. Please take the time to listen to some ordinary people. Don’t give us that tired old argument – “We either have to cut some earned pensions in half, or we can’t pay anybody.” That logic is the classic fallacy of the false dilemma – claiming there are only two options, when in fact there is a third option:

Profitable companies can pay what they owe to their workers.

Mr. Boehner, we're frightened that your amendment will ruin us, especially when coupled with the provision allowing diversion of pension funds to other purposes – this opens a clear path for companies to steal our pension. We don't have $76,000 to give you. We are unable to give you a good deal on a place to live, like the Washington apartment you rent from lobbyists. Yet we implore you - please listen to us, and withdraw your larcenous amendment:

Do not legalize pension cash-outs at 50 cents on the dollar.

Do not retroactively legalize illegal cash balance conversions.

Until we can change your mind, we must be wary of what's sold as reform – This Trojan horse could hide the biggest pension heist in history.

Respectfully, 40 Ordinary People Whose Pensions Will Be Cut in Half

John Boehner is Death to Pensions

December 12, 2005

The Honorable Louie Gohmert
508 Cannon House Office Building
Washington, DC 20515-4301

Dear Representative Gohmert:

The Pension Rights Center, the nation’s only consumer rights group working solely to protect and promote the pension rights of American workers and their families, is writing to express our concerns about specific provisions of the Pension Protection Act of 2005, H.R. 2830, that will undermine the retirement security of American workers. In particular, we oppose provisions that will legitimize controversial cash balance plans without protecting older employees against substantial losses, as well as “Red Zone” pension cutback provisions that will allow certain multiemployer plans to eliminate already-earned early retirement benefits for older employees. We also oppose provisions that would weaken important fiduciary standards under federal private pension law and that would promote conflicted investment advice. Finally, we question the wisdom of provisions that would make certain costly tax breaks for savings plans permanent despite the absence of evidence that they have benefited any but the wealthiest Americans.

CASH BALANCE PLANS: Thousands of older employees have found their benefits slashed – by as much as 50 percent – when their companies have switched from secure traditional defined benefit plans to new hybrid cash balance plans. These older employees – from such companies as AT&T, Duke Energy, Sempra, CIGNA, Bank of America and IBM – were told if they worked hard and remained loyal to their companies, they would be rewarded with generous pensions typically based on all their years of work and final earnings (often payable before age 65 in the form of subsidized early retirement benefits). When companies switched to cash balance plans midstream, these older employees found their benefits cut dramatically and their dreams of a comfortable retirement shattered.

Since 1999, more than 1000 individuals have filed complaints with the EEOC and tens of thousands more filed class action lawsuits, challenging the legality of this practice. The biggest of the cases, the landmark U.S. District Court case, Kathi Cooper v. IBM, found that cash balance plans violate age discrimination laws. In his written opinion, the judge in this case declared unequivocally that IBM switched to the cash balance plans to save $500 million over ten years and said that the company was “aware of the age discrimination issues that would come with the new cash balance formula.” The Pension Protection Act of 2005, rather than protecting workers’ pensions, would legitimize cash balance plans in a way that would lead to future losses for older employees.

To address the concerns of workers, the House bill should include transition protections for older employees when a company moves from a traditional defined benefit plan to a cash balance plan. (A recent Government Accountability Office study shows that unless companies provide transition protections, older employees always lose out in these conversions). The Pension Rights Center also believes that H.R. 2830 should include protections against a controversial practice called “wearaway” that occurs when employers freeze the benefits of older employees so they cannot earn any new benefits under the cash balance plan.

RED ZONE PROVISIONS: Under current law, a pension plan cannot change the rules to eliminate pension benefits already earned by workers. But the House bill would do just that. The so-called “Red Zone” provisions would allow certain multiemployer plans to eliminate “subsidized early retirement benefits” that have been earned by older employees and retirees. This practice is akin to someone working for several years and then the employer saying, “Sorry we’re not paying your wages.” The fact is these benefits have already been earned – and employees have made concessions and have given up wages with the expectation of receiving these benefits. This provision would affect hundreds of thousands truck-drivers, ironworkers, laborers, pipe fitters, dock workers and hospital workers. There are other ways to shore up funding in multiemployer plans – cutting the benefits of workers should not be one of them.

WEAKING OF FIDUCIARY PROTECTIONS FOR WORKERS: In 1974, when Congress passed ERISA, policymakers recognized the temptation for pension managers to misuse pension assets and included strict fiduciary rules to ensure that pension assets must be invested exclusively for the benefit of workers and retirees – not to enrich the investment managers. If passed, the Pension Protection Act of 2005 would reduce these critical fiduciary protections. According to a recent New York Times article, the House provisions would allow hedge funds – funds that manage billions of dollars in pension assets – to exempt themselves from fiduciary standards meant to stop conflicts of interest. At a time when Congress is working to strengthen pension plan funding, weakening fiduciary standards is counterproductive and could lead to the endangerment of employees’ pension plans.

INVESTMENT ADVICE: The investment advice provisions in H.R. 2830 would permit financial institutions – such as banks, mutual funds and insurance companies – to provide investment advice about their own investment products -- while potentially promoting products that are in the best interest of the financial institutions – and not the investor. The bill would exempt financial institutions from rules aimed at preventing them from providing conflicted advice. While encouraging investment advice is an honorable goal, the bill’s provisions would promote tainted – not reliable – advice.

EGGTRA PROVISIONS: The Center opposes making permanent the increased amounts that individuals can shelter from taxes in retirement savings plans such as 401(k) plans and IRAs. Only about 5 percent of those participating in 401(k) plans can afford to contribute the current maximum of $14,000 in 401(k) plans. While these costly provisions do enable wealthy individuals to shelter more money from income taxes, there is no evidence that they have expanded retirement coverage for the millions of Americans at the lower end of the wage scale. Also, at a time of deep public concern about adequate funding for Homeland Security, Medicare and the war in Iraq, Congress should not rush to spend billions more of taxpayer dollars by encouraging plans that provide benefits primarily to higher earners. To encourage savings among those who most need tax advantages, the SAVERS Credit should be made permanent AND refundable.

While we would support reforms that truly strengthen the nation’s private retirement system, we are concerned that enactment of provisions such as these will do more harm than good. We urge you to remove these provisions from the bill before the House Floor vote.

Sincerely,

Karen W. Ferguson, Director

Karen D. Friedman, Policy Director

The ‘Pension Reform’ Bill