Newsletter No 12

14 August 2002

 

A request: If you are an "E-mail Buddy", please print this newsletter and give it to your buddy.

 

The public situation with respect to the complaints and the Ombudsman is unchanged.  Ombudsman investigations are confidential but it is probably OK to say that non-output is not the result of inaction.  Exchanges between the Ombudsman's Office and the complainants and respondents continue to happen.   We can make no prediction about when there will be a determination.

 

Some complainants and at least one MP continue to suggest that all the IBM complaints should be dealt with in an integrated and complementary manner, as opposed to the fragmented, serial way they are being administered now.  There is no evidence of a change of heart in the Ombudsman's Office. 

 

This newsletter occurs in conjunction with a change of website address, from that which you are used to, to www.amipp.org.uk .    The old address will continue to function but eventually all new material will appear only at the new address.  If you are not reading from the new website we suggest you click to that new website, bookmark it, and find the copy of this newsletter that is there. 

 

There are two main reasons for the new site; reducing the dependence on the GPSU site, and expanding the role of the website.   Up until now our website has been provided by the Webmaster, at his expense, as a corner in a website he established for his commercial purposes.  The community developing that corner feels it would be unreasonable to continue forever, with an expanding website, in this mode.  One good by-product is that the new URL is a bit more memorable.   The AMIPP bit stands for the Association of Members of IBM UK Pension Plans, which is now funding our website.

 

The other factor is the increasing range of topics showing up on the message board and in the media as concerns:

 

- Active members have concerns about what is pensionable pay.  (The deeds specify what is currently pensionable but it seems that any pay with a fluctuating element could be made non-pensionable.)

 

-  Final salary plan actives are concerned that their scheme may close.

 

-  Deferred members do not get a vote in trustee elections.  The motivating of the trust, when it comes to keeping the list of deferred members up to date, is uncertain.  (The regulatory body Opra has ruled that members need not be told about changes, even when the changes potentially affect them, when the trust does not have their current addresses.  Such members could be told of scheme changes because it is possible to mail to them using just their National Insurance number.)

 

- M-plan members are not immediately affected by whether the funding for their scheme comes from IBM or from the reserves of the Final Salary scheme, but they have other concerns. The Final Salary scheme is better for members than the M-plan.   One measure of this is what the actuary calculates as the nominal company contribution rate.  (This is what the actual company contribution rate would need to be without the effect of unexpectedly good investment performance making "contribution holidays" possible.)  The company's contribution rate for the M-plan is little more than a third of the nominal contribution rate for the ongoing Final Salary scheme.

 

- M-planners, amongst others, may be concerned at their position in the pecking order if the pension plans are wound up, which can happen even when the company is solvent.

 

In short, the Armonk headquarters' drive to cheapen pensions, with a lowered concern for the employee, ethics, and the "pension promise", is bearing down on us all. 

 

In case that is unduly negative we emphasise, as we do for all the website, that before you take any action on the basis of what you read here you should do your own fact-finding and calculations.   

 

There are several external events that deserve comment - the conflict-of-interest and accounting malaise that has surfaced in the U.S., the slump in share values, the Sandler report on saving, and the Pickering report on pensions. 

 

One effect of what has surfaced is a change of public perception.  Views of the corporate abuse of power, which a year ago might have been belittled as "commie-talk", are now mainstream.  A New York Times editorial put it succinctly - " Enron was only the well-publicized tip of a large iceberg."   The Cycles of Financial Scandal.  Pension accounting concerns, which might a year ago have seemed to be of interest only to a few members trying to get resolutions put at annual meetings, are now espoused by big names in the financial world.  "I am referring to the legal, but improper, accounting methods used by chief executives to inflate reported earnings" says Warren Buffett in Who Really Cooks the Books?   A year ago, dwelling on the IBM CEO's personal take might have been put down as envy, or an irrelevance.  Now such behaviour is more widely recognised as damaging greed.  Alan Greenspan, chairman of America's central bank, talks of "infectious greed" and how "too many corporate executives sought ways to harvest" stock market gains.

 

You may feel some small satisfaction that previous newsletters have provided early warnings, but we need to remember that awareness by itself cures nothing. 

 

There are analogies between accounting and actuarial calculations.   Both produce results that are only loosely connected to real world values, and the results are easily manipulated by changing assumptions that go into the calculation.  What one has to judge is where the IBM UK pension scheme, which is accounted for under US accounting rules, and controlled from Armonk, sits in relation to US events.

 

You also have to judge the effects of conflicts of interest.  In most financial affairs there are regulations that recognise conflicts of interest - so for Arthur Anderson the rules should have prevented improper interactions between its role as accountant and its role as adviser.  Although the regulations didn't succeed, the presence of such rules offers some comfort that is not present in the UK pensions setup, where conflicts of interest are simply deemed to have no effect.

 

Analysis of the effect of share prices on the funding and benefits of our pensions is not on our website yet because the 2001 Members' Report is only just becoming available.   There will be an article later on this.   The status of the Minimum Funding Requirement, which is intended to give some protection to our pensions if the scheme terminates, will also be discussed.

 

The figures for IBM in general have led some experienced commentators to postulate the unthinkable - one article forecasts that IBM might "do a Wang".  IBM's Bad News  Wang was a once very successful IT company that is no more.  Nabisco, a biscuit company that Lou Gerstner managed in the past, suffered an analogous fate - it is now owned by what once was a competitor.

 

The damage that has been done to IBM could be regarded as unlucky.   Since 1995 IBM has gambled $47.6 billion on buying back its own shares.  This allowed the executives to launder their share options (i.e. convert them from having a possible value associated with IBM into real assets not associated with IBM) at a high price.  It would also have been good for IBM, if IBM shares had risen in value longterm.  As things stand the shares are worth less than the price they were bought at.  So the cost of Lou Gerstner to IBM is not just the roughly $1B that he will take away personally, it is another several billion from the (IBM) share purchases made under his buyback policy. 

 

The Sandler report http://www.hm-treasury.gov.uk/Documents/Financial_Services/Savings/fin_sav_sand.cfm is about savings.  Everyone seems agreed that savers want something understandable, reliable, and rewarding.  (Do you remember the days when index-linked National Savings returned several percent over inflation, untaxed?)   The Sandler report is very technical in parts but the main thesis is that simplicity will encourage savings.  The media reaction accepts that but doubts it is enough.  The public has learned a lesson over the past decade, and is no longer so willing to trust that those who accept our money (or our work) now, while promising benefits decades later, will deliver on the bargain.  The IBM pensions affair is an example of what has undermined trust and confidence.

 

The Pickering Report http://www.dwp.gov.uk/publications/dwp/2002/pickering/report.pdf has a lot of content and will be the basis for new legislation, now expected to come into force in 2007.  There will be a Green paper from the government, probably in November.  That will be the government's view, but the all-party Commons Select Committee on Work and Pensions is also holding an enquiry into pensions.  As we mentioned in a previous newsletter,  AMIPP is a member of the Confederation of Occupational Pensioners Associations (COPAS), and COPAS will be providing input to the Select Committee in the form the committee has requested.  So there is a path for opinion, albeit one that you do not control, from the message board on this website to the Westminster focal point.  Please use it.

 

There are no legal points in this newsletter on the narrow issue of introducing the M-plan.  The papers have reported on the case of the man who bought a mansion and found that, between the time he admired it and the sale completion, the owner had removed hundreds of tonnes of irreplaceable flagstones.  The court ordered the return of the flagstones, although they were no words about them in the contract.  The judges said that "Common decency and common sense" suggested the law should "give the purchaser what he had been led to think he was getting".  Will the Ombudsman decide that common law requires IBM to provide the expected pension, which we bought with our work?  

 

There are also pertinent cases that have not been resolved in court.   In one case moves by the employees to bring a case against closing a scheme were sufficient to make the company withdraw the plan to close.  In another similar case, the employees have put up £50 per head to fund legal action.  In theory one of the employees could have taken the matter to the Ombudsman, but it seems collectively they chose legal action instead. (The Ombudsman cannot take "class actions" where a lot of people are affected by similar but not identical circumstances.)

 

Finally, a word about the upcoming elections for Member Elected Directors of the Trust board.  By the time of this newsletter you will have received a copy of the election timetable (if you are entitled to vote).  It is not too soon to be thinking about whether you want to be a candidate.  The Webmaster is offering space on the web for candidates to put their biographical details, and anything else that is reasonable.  There are no rules that ban canvassing or electioneering during this election. 

 

If you plan to be a candidate the Webmaster would like to hear from you, whether or not you use the web space.  We would particularly like to hear from actives (M-plan or otherwise).   Actually, we would like to hear more from actives whether they are candidates or not.  As it stands, the website does not sufficiently show the influence of actives.

 

Yours sincerely

 

AMIPP, the Association of Members of IBM UK Pension Plans