An Impassioned Letter From A Retired Actuary
[Sep 2000]

[Sep 2000]

Dear Friend:

I am a retired pension actuary who left the consulting industry back in 1990 because of the great harm it was doing to plan participants. I was a Principal (shareholder) in the largest human resource firm in the world at that time, one that had more large Fortune 500 clients than any other: Towers Perrin.

I left because of serious flaws in pension laws that enabled pension plan sponsors to take out billions of dollars in 'surpluses' from pension plans during the 80s and then in the 90s as well. Even worse, they also created higher surpluses by reducing benefits and terminating employees. They first did this with younger employees, and when they ran out of these they went after middle managers and finally older employees. All of these terminated employees got less than they should have, due to flaws in pension laws--flaws that some plan sponsors knew about and exploited shamelessly.

This adversely affected tens of millions of employees in thousands of companies.

I am coming to you now to ask for your support in signing a petition located on http://www.e-thepeople.com/affiliates/national/index.CFM?PC=PETFV1&PETID=429958.

This petition will be hand-delivered to Senator Roth soon. Senator Roth is about to sign a bill that contains some terribly damaging Trojan horse legislation that will do great harm to more than 30 million American employees and tens of millions of retirees of defined benefit pension plans. This is in addition to the great harm that has already taken place for two decades now.

There are currently many lawsuits under way that claim that age discrimination has taken place with respect to a certain type of defined benefit pension plan, called a cash balance plan. These plans purport to be good for plan participants, but instead take away early retirement benefits from older employees, by using a loophole in the law.

These benefits are extremely valuable to employees, amounting to half or more of the value of their retirement benefit--in some cases amounting to hundreds of thousands of dollars--preventing them from retiring as promised by their employers for decades.

In addition, many cash balance plans harm younger employees as well, by reducing their benefits should they have the audacity to stay and be a loyal employee.

They do all of this surreptitiously, by communicating that these hybrid plans are actually good for them--all the while increasing stock options and other executive perks, at a time in which defined benefit pension plans are enjoying record-breaking surpluses, which have the perverse effect of increasing corporate earnings--also done without full disclosure to the investment analysts community, which of course enhances the value of senior executive stock options.

More than 300 companies have converted to cash balance pension plans, going back to 1985. Their names read like a Who's Who of American Corporations. They are often the same ones who pay their top people scandalous amounts of compensation, often hidden from view with Executive Retirement plans, or stock options (which do not get recorded as a company expense, thanks to heavy duty lobbying by those companies) and assorted other stratagems.

They almost always use outside 'independent' human resource executive compensation consultants, often working for the very same firms that brought us the pension scandals. Total CEO compensation in the US has increased sharply in the last two decades from 30 times the average compensation of employees in the company to over 300 times the average. These amounts are far in excess of any other comparable firms anywhere in the world and have been criticized by such noteworthy people such as Warren Buffet, perhaps the best investor of the 20th century and by the SEC Chairman, Arthur Levitt, among many.

Every time employees get downsized, usually for sins committed by the CEO and the Board of Directors, a curious thing happens: the CEOs compensation increases in nearly perfect negative correlation. Then, when the company gets into big trouble due to a continuation of these sins, the Board then rewards them a second time with enormous Golden Parachutes, as if they are paupers and paying them tens of millions of dollars (hundreds in some cases) was not enough.

HR 1102 was the House bill that contained these Trojan horse pension provisions. This bill increases tax advantages for individual accounts (which benefit primarily high paid individuals), but then takes away the legal rights of some 30 million defined benefit pension participants, through so-called 'minor technical adjustments' to the ERISA.

ERISA is The Employee Retirement Income Security Act, an act passed in 1974 that was supposed to protect employees. One of those minor technical adjustments allow companies that are currently being sued to completely escape the lawsuits which are well under way. Others perpetuate the same flaws in ERISA, that caused me to leave the consulting industry, and even make those flaws extend to other areas, such as when companies merge!

The Roth bill--the Senate version of HR 1102, is known as the Portman-Cardin Bill, and modifies to some extent the tax giveaway in 1102, but continues to contain many of these 'minor technical adjustments that adversely affects one third of American workers in major ways. There are other similar bills that are being packaged as good for pensioners and people, but do the same thing to defined benefit pension plan participants.

These bills, regardless of their names, have been 'positioned' by their promoters in Congress, as pension legislation that benefits employees. Regardless of their name, I want to assure you they do nothing of the kind. They are a perfect example of what has been happening all too often for two decades now, screw the vast majority of employees, benefit the high paid and also, importantly, benefit the retail sector of the financial service industry enormously, who in turn funds those same members of Congress.

This is a vicious cycle that will continue forever if something is not done.

In fact, it is Wall Street's wet dream--as is privatization of Social Security, and for the very same reason; the commissions, fees and transaction costs will be a huge windfall for those firms.

Converting Joe Six-pack ,and the youth of America into speculative day traders for their retirement, is the goal. It accounts for why mutual fund fees have escalated to more than 4% of the amount invested, and why these high fees have actually increased enormously in recent years, despite the huge increase in stock investing, counter to the usual rules of supply and demand. That 4% is some 20-70 times as much as typical institutional investors charge for large defined benefit pension plans.

According to the Wall Street Journal, Friday, September 15, a number of major financial service industry companies, have launched a major campaign to get their investors to inundate Congress with phony letters of support for these bills. This is the main reason why so many members of Congress have supported these bills. These firms include Fidelity Investments (The largest Mutual Fund firm in the world), Merrill Lynch (The largest brokerage firm in the world), and Charles Schwab, a major brokerage firm.

Others in the industry, such as a spokesperson for Vanguard Mutual Funds have said, "We don't think it's appropriate to approach our shareholders in this manner." Vanguard is the second largest Mutual Fund organization in the world. Vanguard's former Chairman, John Bogle invented the highly popular index fund concept and who has been a long-time critic of the very high fees exacted in that industry and who brought very low fees to Vanguard's funds.

The AARP (formerly the American Association of Retired Persons) has spoken against these bills and also have an excellent article by Trish Nicholson in their September/October Bulletin along with an article highly critical of privatization of Social Security.

Karen Ferguson, Director of the Pension Rights Center, and long-time tireless supporter of pension plan participants, also has spoken out against it and against cash balance plans.

Ditto for Paul Edwards, head of The Coalition for Retirement Security, a group that represents some 5 million people. Paul has been invited to give a talk in Washington DC to several thousand employees of The World Bank whose are very interested in this movement to secure the rights of defined benefit plan participants. Many of these employees do not have any pension plans, while others are in one, but have serious reservations about the security of the promises made.

Investigative news reporters for many newspapers and major news organization have been highly critical of this cash balance fiasco for almost three years now. These include the LA Times, Newsday (LI), the Washington Post, the Poughkeepsie Journal, the Arizona Business Gazette, the Associated Press and many others.

But most of all, a woman reporter for the Wall Street Journal has written about them in several dozen articles beginning in 1998. Her name is Ellen Schultz and she has won two prestigious investigative journalistic awards for her work in this area, exposing what has been happening and why. No small thing for something that is a highly complex subject and a scandal that that has been growing like mushrooms for two decades now--in the dark and with plenty of horse manure piled on.

President Clinton, Hillary Clinton, Vice-President and Presidential candidate Gore, Senator Tom Harkin (D-Iowa) and Rep. Bernie Sanders (I-VT), Senator Jeffords (R-VT) among many, have all spoken out publicly against cash balance plans.

If you want to see how much Bernie thinks of these rip-offs visit his web site: http://www.house.gov/bernie/statements/2000-09-15-.html.

Rick Lazio, I note, is one of the sponsors of 1102.

More than 100 members of congress have expressed outrage over cash balance plans and oppose 1102 and its spawn. More than a year ago they called for an investigation of cash balance pension plans, including retirement consultants and actuaries. This last group has special responsibility under ERISA, which made the actuary responsible for representing plan participants. Based on statements they themselves have made, and left in writing and on tape, long before this scandal came to light, it would seem that some have forgotten those responsibilities. Plan design changes of the cash balance type cannot take place without significant help from actuaries.

Several investigations by various government agencies are well under way.

Then there are the many heroes of this still unfolding story. They include many intrepid ex-IBMers like Janet Kruger (MI), who founded IBEAC (IBM Employee Action Coalition), a high performer for IBM who got hosed to the tune of several hundred thousand dollars with continued pension cutbacks over nearly a decade. She also lost major retiree medical benefits, another, but related issue. Her work opposing these plans has been steady, ferocious and totally focused, doing it all in her spare time as she works full time. She knows well how to use the Internet, having worked on how to use it for years. This stands in direct contrast to the Chairman of IBM, Lou Gerstner, who actually bragged a number of years ago when he was named Chairman, that he didn't know how to use a computer.

They include Lynda French, an early retiree from IBM, who got tired of fighting IBM and feared even more losses unless she left--or retribution even. Her website, http://www.cashpensions.com, is a wonder of information about this scandal; and literally a cast of thousands all over America, many of whom still work there and need to disguise their names under anonymous monikers like, Tally Ho, Rip-off, catharsis99, cb loser, amblue, ibmslave, bluegeezer, amiscrewed, alwaysontheroad4bigblue, and some who have recently left IBM,like x ibmer, xboulder ibm and so forth.

As a direct result of this scandal, IBM is currently hemorrhaging employees and has difficulty attracting new ones.

These people all supply both technical help and help in finding information on the net regarding the various issues involved. They also receive help from other employees of other major companies who also have been cash balanced--many of whom also have set up similar websites and Yahoo forums.

The IBM Yahoo forum, which enables them to communicate about the details, is the most popular information-rich Yahoo forum, among many thousands of such forums. http://clubs.yahoo.com/clubs/ibmpension.

They helped me set up a parallel forum for education purposes, on both cash balance plans and on Social Security: http://clubs.yahoo.com/clubs/andylang.

As for me, I want to see real major league pension reform of the defined benefit industry---giving better protection to the employees and fixing the major loopholes. I want to see the provisions of these pension reform bills that refer to 'improvements to defined benefit plans' removed and considered separately as a comprehensive reform of ERISA--reform long overdue. This will not happen now in the latter stages of a fierce and major presidential campaign, but next year, hopefully, can happen under a new Congress and a new administration next year.

See my posts 22-30 in my forum for an outline of the main things that need doing.

*****

Summary

I need your help! So does America.

This is part of the biggest scandal in US history, dwarfing the one in second place, the S&L scandal.

That one took 'only' two hundred billion dollars from the public. This one is many times that, involving by my rough estimate, perhaps a trillion dollars and continuing on into a $4 trillion dollar defined benefit industry, the largest lump of money in the world.

Both the S&L scandal and this pension one, by the way, began in the early 80s, no coincidence at all. I was there and saw them both happen--and I saw the pension one nearly destroy one of the great inventions of the 20th century, the defined benefit pension plan.

Unlike the S&L scandal, this one involves one of the most fundamental and important security systems we have--retirement.

We are all growing older, and all developed nations in the world also are aging, and all have serious pension problems. Fixing this part of our three-legged retirement system is vital.

The first thing I ask you to do is this: Go to your window, open it wide, lean out and say at the top of your voice: "I'm mad as hell and I'm not going to take it any more!

Then, very calmly, do these things:

1. Sign in and sign the petition against this enormous rip off. http://www.e-thepeople.com/affiliates/national/index.CFM?PC=PETFV1&PETID=429958. Do it today!

2. Phone and e-mail your congressional representatives and tell them you strongly oppose this legislation, so long as it contains these hidden Trojan horse fixes on defined benefit pensions.

3. Do your homework and find out about all of this using the URLs I have given you here. Then, if you have time, also send letters. It is important you do this in the next week as there is some indication that President Clinton might sign a modified version of this, as the Trojan horse pieces are deeply buried, use legalistic jargon, and have not received all the press notoriety they should.

4. Get involved permanently, even if you are not in a defined benefit pension plan. You are paying much higher taxes due to major tax breaks given to corporations for decades in order to sponsor these plans. So it affects you even if you don't think it does.

5. Remember: This election is the most important one in my lifetime so hold our reps and our Presidential candidates accountable and responsible, just as they always are telling us we should be.

And hold them all morally so, in addition. We hear a lot about morality these days. Is there anything more immoral than allowing and even helping companies to take away material benefits to millions of older employees and then lie to them, rewarding the top folks egregiously as they do it?

Keep in mind that our Congress has one of the richest defined benefit plans on the face of the earth and are not even in Social Security! But then they do not need it. Remind them of that and that we are paying for their benefits.

One last thing: remember the old adage, when good people remain silent, evil triumphs.

Thanks a lot!

Andy Lang andylang@erols.com