Here are a series of correspondence from/to J S Lamb. It follows a letter from Brian Stevens to his MP, The Rte. Hon Sir Peter Lloyd.

Sir Peter wrote to Jim Lamb asking for further details. Here is Jim Lamb's reply to Sir Peter.

Dave Mitchell wrote to Jim Lamb regarding some of the points raised in his letter. Subsequent correspondence is appended.

Contents

1. Letter from Jim Lamb to Sir Peter Lloyd MP
2. Dave Mitchell to Jim Lamb [1]
3. Reply from Jim Lamb to Dave Mitchell [1]
4. Dave Mitchell to Jim Lamb [2] - 29 November
5. Reply from Jim Lamb to Dave Mitchell [2] - 9 December

3 October 2000

The Rt. Hon Sir Peter Lloyd MP
House of Commons

Dear Sir Peter

Thank you for your letter of 27 September 2000 concerning the IBM Pension Plan and the issues raised in Mr B Stevens' letter of 11 September, which you enclosed.

First let me make it clear that there are no planned changes to the IBM Pension Plan. The last changes to the Plan were made in 1997. These changes did not cause any detriment to the accrued rights of any members of the Plan including those members in receipt of a pension.

The IBM Pension Plan is managed by a Corporate Trustee, IBM United Kingdom Pensions Trust Limited, strictly in line with the terms of the Trust Deed and Rules. The Trustee is made up of 4 member elected Trustee Directors, two of whom are retirees in receipt of a pension, 3 independent Trustee Directors with a wealth of experience in Pension matters, and 5 IBM executives, of whom I am one. All meetings of the Trustee Board are attended by the scheme actuary and the external legal advisor to the scheme. The Trustee and IBM have and will continue to act strictly in line with pensions legislation. Both the Trustee and IBM take the best professional advice available to them and act in accordance with that advice. The Plan is underwritten by IBM and you can be assured that IBM will continue to meet all its obligations with regard to the provision of pensions for current, deferred and retired members. The manner in which the IBM Plan is administered and the Mirror Group "fiasco", with which Mr Stevens seeks to draw a comparison, are worlds apart.

The changes that were made in 1997 were that the defined benefit section of the Plan was closed to new members and, with the agreement of the Trustee, a defined contribution section was opened. This was initiated by IBM because it felt that the cost of a defined contribution arrangement was more predictable, more in line with competitive practice and more affordable. You will appreciate that pensions are just one element of the compensation package and IBM found that prospective and current employees were putting a greater value on current salary and benefit levels than they were on future pensions. Instead of opening the new defined contribution section, IBM of course had the option of continuing to introduce more employees into the defined benefit section of the Plan. The option chosen placed less financial demands on the fund, and therefore there has been no "raiding" of the Plan funds as suggested by Mr Stevens, whose benefits were fully protected.

Mr Stevens points out, that IBM grants ex gratia increases to pensions in payment from time to time. These increases have generally been at 70% of the movement in the Retail Price Index since the prior increase for service prior to April 1997. For service after this date limited price indexation is granted annually in April. The most recent increase has just been made in October 2000 at the 70% level, 12 months after the prior increase.

The IBM Pension Plan is currently in surplus and as is normal practice the scheme actuary has recommended that IBM may take a contributions "holiday", which it is taking. However, this Pension Plan surplus may well be temporary in nature and changes in investment returns may well result in this surplus disappearing. The existence of the surplus does cause pensioners, understandably, to feel that pension improvements over and above the above ex gratia increase should be granted. IBM always has and will continue to carefully consider requests from the Trustee to improve pensions, however, IBM also has to have regard to its commercial and competitive position when deciding upon these matters.

I trust, Sir Peter, that this response to your letter will have assured you that there is no "scandal"; that the IBM Pension Plan is well managed that IBM and the Trustee at all times act within pensions legislation; respect their duties to all members of the Plan; and remain alert to the competitive environment.

If you would like to discuss these matters further or have a general update on IBM I would be delighted to arrange and host a visit for you to IBM at North Harbour, Portsmouth.

Your sincerely

J S Lamb

Dave Mitchell to Jim Lamb [1]

Monday November 6th 2000

Dear Mr Lamb,

I have been made aware of the letter, dated 3rd October 2000, that you wrote to The Rt. Hon Sir Peter Lloyd MP. As one of the group of IBM Pension Fund members who are currently complaining to the Pensions Ombudsman about the actions of IBM and the Trustee, I feel I must draw attention to the misleading impression your letter conveys. In particular you have chosen not to mention several important facts that would serve to weaken your case.

In contradiction to the points you make in the second paragraph of your letter, changes were made to the Plan after 1997:

1. specifically the Trust Deeds were amended in February 2000
2. these changes were not mentioned in the Annual Report published in April and have never been officially made known to members
3. the sole purpose of these changes was an attempt to retrospectively legalize the way the C Plan surplus had been used to benefit IBM at the expense of the members and to ensure that it could continue to do so in future
4. a complaint has been made that these changes breach Section 67.2 of the 1995 Pensions Act

You focus on IBM's taking a pension holiday from its contributions to the C Plan, a matter which all of us accept as perfectly right and proper and is not at issue at all. By contrast you completely fail to mention the use of the C Plan surplus to fund IBM's contributions to the M Plan which:

1. did cause a detriment to the accrued rights of existing members of the C Plan, by reducing the chance of the surplus being distributed to them
2. was of sufficient concern to one IBM-appointed trustee that he resigned because of it
3. was of sufficient concern to the trustees in general that they have taken legal advice on the matter several times - the February 2000 changes to the Trust Deeds were specifically made on the recommendation of a QC to reduce that concern
4. is very similar to the action taken by the Barclays Bank trustees, ruled as maladministration by the Pensions Ombudsman in March of this year
5. since C Plan was a contributory plan, the current surplus was partially derived from member's contributions from salary

I am not surprised you failed to mention this concern of the trustees for it has never been officially communicated to the scheme members either.

You don't mention that since 1997 IBM has failed to pay any employer contributions to the M Plan, in contravention of the 1997 Trust Deeds, relying instead on the transfer from the surplus in the C Plan. Complaints have already been made to OPAS and the Scheme Auditors about the legality of this.

Your letter implies that IBM's actions have been beyond reproach when:

1. there has been a global action by the IBM Corporation with regard to pension funds. In seeking to improve its financial position at the expense of employees and pensioners, specific and highly controversial actions have occurred in the USA and in South Africa as well as the UK.
2. in the USA, IBM's actions have been widely publicized and condemned by respected journals, including the Wall Street Journal
3. resolutions complaining about IBM's actions with regard to its US Pension Fund surplus have been put forward at recent IBM stockholder meetings and are being tabled for the next one
4. in South Africa in 1998, following an attempt to close the pension fund and pocket its R250-million surplus, the board of directors was confronted by angry shareholders who tabled a vote of no confidence in them for their actions
5. unlike most major UK companies, IBM has not backdated Limited Price Indexation to service prior to April 1997, despite the large surplus in the fund. The company has claimed that 'the cost of this action is prohibitive'. Because of actions such as this, a survey in Occupational Pensions showed that instead of being among the leaders as it was a few years ago, IBM is now near the bottom of the league of major companies as far as Pension Benefits are concerned.
6. it's not an exaggeration to describe these actions as 'raiding' - many press articles have used this term or worse to describe IBM's actions with regard to pensions

A reader of your letter might be surprised to learn that many complaints have been sent by pensioners and employees to OPAS and have been judged by that independent body to be of sufficient merit to be forwarded to the Pension Ombudsman who is currently investigating the matter. OPAS certainly believe that IBM has a case to answer, but your letter doesn't mention a single one of the points at issue, let alone answer them.

We believe that the current composition of the Trustee leads to a conflict of interest, that this conflict has resulted in decisions being taken which are purely in IBM's interest and that as a result the board no longer has the confidence of many of its members. Your description of its constitution fails to mention that one of the 'independent Trustee Directors with a wealth of experience in Pension matters' is the chief executive of British Airways Pensions Investment Management Limited. I presume that it is pure coincidence that BA was until recently intent on using the surplus in their Final Salary scheme to subsidise their ailing Money Purchase scheme along very similar lines to IBM's. That decision was reversed only after intense and sustained pressure from its members.

You also fail to mention that two of the '5 IBM executives' acting as Trustee Directors are senior financial executives from the parent US corporation who are there to represent IBM's global interests. Were there not enough suitable candidates in IBM UK?

You end by saying that 'there is no "scandal"; that the IBM Pension Plan is well managed, that IBM and the Trustee at all times act within pensions legislation and respect their duties to all members of the Plan'. This may be what you want Sir Peter to think, but it's a view that is not shared by many of the members, nor is it well supported by the facts.

So far the complainants have deliberately chosen not to publicise these matters because of our desire not to damage the public image of IBM. You might find it difficult to believe that we could be so charitable to IBM, given the mean-spirited decision-making that characterizes those in charge of IBM's human resources policies these days, but I assure you that it's true. When The Times newspaper recently published an article on the subject, the reporter contacted one of us and was asked not to publicise the web site and to confine himself to reporting the bare facts of the complaint, which he did. While letters have been written to the Pension Services Manager, to OPAS, and to MPs, there has been no campaign of letter writing to the Press, the Consumers' Association or TV's WatchDog programme.

The actions of senior IBM management concerned with pension matters, such as your letter to Sir Peter and the note sent by Paul Rodgers, UK Director of Human Resources to all UK employees, might make us consider changing our approach. Both make no attempt to address the real issues but merely offer bland assurances that everything is well. I do not wish to see a repeat in the UK media of the sort of public battle that has followed IBM's treatment of its pensioners in the USA and South Africa, and I'm sure you don't either. I would respectfully suggest that if you want to avoid it you might be more honest and open in your replies to third parties.

Yours sincerely

David Mitchell

cc. The Rt. Hon Sir Peter Lloyd MP

Reply from Jim Lamb to Dave Mitchell [1]

Dear Mr Mitchell,

When I wrote to Sir Peter Lloyd MP I assured him " that there is no 'scandal'; that the IBM Pension Plan is well managed; that IBM and the Trustee at all times act within Pensions legislation, respect their duties to all members of the Plan and remain alert to the competitive environment".

I wrote this because I believe it to be true. I understand that a number of pensioners are raising some specific issues and this is a cause of considerable concern to me. However, I trust that the most recent discretionary increase to pensions in payment and the judgement handed down in the Barclays Bank case will have somewhat allayed pensioners' concerns.

IBM continues to value its employees as its greatest asset. IBM pensioners through their years of loyal service to IBM have an entitlement to their pension. You can be assured that IBM has not, and will not, act in any way that puts that entitlement at risk.

Yours sincerely

Dave Mitchell to Jim Lamb [2]

November 29th 2000

Dear Mr Lamb,

Thank you for your reply to my letter, even though it fails to answer or indeed even mention any of the points I raised.

In your letter you say "I wrote this because I believe it to be true". It would be disturbing if it were otherwise - a director of IBM should hardly write a letter to an MP saying things that he does not believe to be true, so I feel I should take your words at face value. I find myself in a quandary however.

I know that you have been a trustee director since the middle of 1994. That means that you must know the detailed circumstances that led to the resignation of Barry Morley. You must have seen his presentations to the board alleging that IBM was not exercising an adequate duty of care and that the trustee was not acting in the best interest of the members. You must know that even Sir Edwin Nixon has complained to Mr Gerstner about these issues. You must know of the conflict of interest between the objectives (and hence remuneration) of Jeffrey Serkes and Tom Cadigan and those of the Trustee and that they did not abstain from decisions where these conflicts arose. You must be aware of the storm of protest that has followed IBM's treatment of its US pension plan members. You must have read about the long-drawn out and mean-spirited battle it has fought with the elected members of its South African pension trust.

You must know all these things, and no doubt many secrets that I do not, and yet you can still write what you wrote.

You write that you "trust that the most recent discretionary increase to pensions in payment and the judgement handed down in the Barclays Bank case will have somewhat allayed pensioners' concerns". I am afraid that you have completely misjudged both the strength and depth of those concerns.

I can understand your relief at the Barclay's decision. If it had gone the other way, or indeed if it is overturned in the Court of Appeal, IBM would stand little chance of winning a case against the Pensions Ombudsman. As it is there are sufficient points of difference between the two cases to make us feel confident we still have the law on our side. In addition to the complaint from Mike Cawley that is currently with the Ombudsman there are several others already lodged with OPAS (my own list of twenty complaints for example).

In any case, much as you might like it to be so, this is not just a matter of the letter of the law. It's as much about honour and duty, about loyalty and trust. Let me just remind you of the difference between IBM's actions recently and those of the more distant past.

In June 1980, IBM awarded pensioners a 15% increase, approximately 94% of the increase in RPI. Between June 1990 and April 1994, IBM's ex-gratia increases were sufficient to match 100% of the change in RPI. What's more, IBM had to contribute large sums to the fund in order to meet those increases.

Since 1997 the story has been very different. IBM has put not a penny into the fund. The fund has a considerable surplus. Annual increases in RPI have been well below 5%. And what has IBM done? It has reluctantly agreed to increases of 70% of RPI, so that an IBM pension has fallen by approximately 4% over the period. It's true that the latest increase comes just a year after the last one but a cynic might argue that that's entirely due to the recent burst of complaints. In any case IBM's delays in awarding increases over the last five years have more than saved the cost of the latest increase.

Changes such as this have resulted in IBM UK's pension provisions, which were ranked among the top dozen companies just a few years ago, being ranked near the bottom of the league table now.

You write that "IBM continues to value its employees as its greatest asset". True, but to the greedy, assets are there to be exploited or stripped. I'm afraid that I see, in IBM's treatment of its pensioners and pension funds, the unacceptable face of corporate greed. What's more, I believe that unless things change, in the end so will IBM's customers and stockholders, as well as the public at large and IBM, like Microsoft, will reap the result of putting profit before everything else.

So far you have chosen to brush aside concerns, to pretend that everything is fine and that IBM can be trusted to do what is best. That's your choice. For my part, I won't be happy until the board of trustees is made up of people with a better sense of where their duty lies.

Yours sincerely

David Mitchell

Reply from Jim Lamb to Dave Mitchell [2]

Dear Mr Mitchell,

I acknowledge receipt of your letter dated 29 November 2000, the content of which I have noted.

Webmaster note: This is the FULL text of Jim's reply.

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