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Labor Outcry on Capitol Hill: CWA Weighs in on Pension Reform
The collapse of Enron — at $63.4 billion the largest corporate bankruptcy in history — effectively wiped out the retirement savings of 20,000 employees who were invested in company stock, and fears of more Enrons have sent the stock market into a tailspin.
As congressional committees began hearings to determine who is responsible, auditors scurried to the shredding machines, one Enron executive took his own life and the vice president of the United States attempted to invoke executive privilege regarding documents and secret meetings with Enron and other energy companies.
On Feb. 4, as lawmakers and the media continued to peel away false statements and cover-ups, the House Energy and Commerce Committee was scheduled to hear the voluntary testimony of Kenneth Lay. The former Enron chairman backed out, though he was later subpoenaed following the release of a scathing report suggesting that Enron executives made hundreds of millions of dollars from off-the-books partnerships used to conceal the energy giant’s massive debt; that they responded inadequately to signs that Enron was collapsing and that they may have profited illegally by selling their own stock while telling workers and shareholders that the company was in fine shape.
On that same day CWA took its own stand in the halls of Congress, joining the AFL-CIO, several of its affiliates and other managers of pension funds that lost $1.5 billion through investments in Enron, formerly the seventh-largest of all U.S. corporations.
Federal Accountability
At a press briefing on Capitol Hill, officials from the Council of Institutional Investors called upon Securities and Exchange Commission Chairman Harvey Pitt to recuse himself from all decisions involving Enron, because prior to his appointment he represented Enron’s auditor, the Arthur Andersen company, as its attorney.
Representing CWA, Bill Boarman, vice president for the union’s Printing Sector and chairman of the CWA/International Typographical Union Negotiated Pension Plan, assured reporters that the union has taken steps to ensure secure retirements for all workers covered by its pension funds.
He pointed out that as an investor in Sunbeam Corp., which ultimately filed for bankruptcy after 1998 when its stock worth $52 a share plummeted by 84 percent, the CWA/ITU plan became a lead plaintiff in a class action suit alleging financial fraud by Arthur Andersen, also Sunbeam’s auditor, and Sunbeam’s former CEO Albert J. Dunlap. The plaintiffs won settlements of $110 million from Andersen and $15 million from Dunlap.
“We depend on these auditors to make investments on behalf of workers, and we cannot make wise decisions if their work is not good,” Boarman said. “If you don’t have good corporate governance, you’re going to have more Enrons.”
The CWA/ITU Negotiated Pension Plan, covering 28,000 CWA/ITU members and CWA local union staff, manages $1.2 billion in assets. Its investment in Enron was minimal, mainly through holdings in the Standard and Poor Index Fund, a moderate-risk investment that serves as a benchmark for other stock mutual funds.
The CWA Pension Fund for staff and employees, the IUE-CWA Multi-Employer Pension Fund and a number of public sector pension funds in New York, New Jersey, California and other states where CWA has members, are also represented by the Council.
The Council, whose members manage $2 trillion in pension investments, released copies of letters to the SEC from members including AFL-CIO Secretary-Treasurer Richard Trumka, calling upon the agency to conduct a full and thorough investigation into Enron and to take action to ensure that workers are never again exposed to the kind of risk that destroyed the retirement security of so many.
The Council put forth a number of reform proposals to ensure auditor independence, better auditor oversight including criminal prosecution against irresponsible accounting firms, and tougher standards of independence for corporate boards of directors.
On Feb. 13, the SEC proposed new rules to force corporations to disclose additional financial information more promptly and requiring the agency to post companies’ SEC filings on its web site. The SEC also would require companies to inform investors about top executives’ stock trades, waivers of corporate ethics rules and changes in accounting policies. The proposed rules also state that companies must report changes in credit ratings, major write-offs and restructuring charges, and major new or lost customers or contracts. The SEC expects to release the rules, still in the formative stage, within two months.
Both the Council and the AFL-CIO are lobbying Congress as well, pressing for reforms that dovetail closely with CWA’s objectives.
Goals for Secure Retirement
CWA members who for a time worked for Global Crossing have taken some loss in their 401(k) pension plans, (see story page 9), Tyco stock has plummeted precipitously and allegations of financial mismanagement have been raised against IBM, Microsoft and even corporate darling GE. But overall, said CWA Research Economist Robert Patrician, CWA members’ current retirement vehicles are safe because of the way they are structured.
Most members participate in defined benefit pension plans which guarantee them a certain amount of money when they retire, often calculated as a percentage of salary over their final, highest-paid years of service. Some workers also own company stock through participation in 401(k) plans or direct stock purchases. But for most workers, stock ownership is supplemental and not a primary source of retirement income, pointed out Patrician, a specialist on pension issues.
Patrician serves on the Department of Labor’s ERISA Advisory Council, a board of 15 employer and employee representatives and employee benefits specialists who advise the Secretary of Labor concerning the Employment Retirement Income Security Act of 1974, the law that regulates how workers’ retirement funds are invested. DOL regulates pension plans in the private sector and is conducting its own investigation into the Enron scandal. The department is seeking, through court action if necessary, to remove Enron officials who oversee that company’s pension plan and replace them with independent experts.
CWA has developed five principles for a fair and just retirement, which the union is pursuing in legislation, through shareholder resolutions and in collective bargaining:
Congressional Reform
Legislation that embodies many of CWA’s and the Council’s principles is making its way through the House and Senate, CWA Legislative Representative Rosie Torres said.
Rep. George Miller of California, ranking Democrat on the House Education and the Workforce Committee, has introduced the Employee Pension Freedom Act of 2002 (H.R. 3657), co-sponsored by Rep. Charles Rangel of New York, ranking Democrat on the House Ways and Means Committee, and 63 other representatives.
The Miller bill would amend ERISA to:
CWA and the AFL-CIO also have been working closely with Sen. Edward M. Kennedy (D-Mass.), chairman of the full HELP Committee, who is drafting comprehensive legislation to give workers a greater voice and control in their pension and retirement plan investments. Among other provisions, the Kennedy measure would allow employers to make 401(k) matching contributions in company stock or offer company stock as an investment option but not both.
Additional pension reform legislation has been introduced or proposed by Reps. Rob Andrews (D-N.J.), Peter Deutsch (D-Fla.) and Michael Oxley (R-Ohio), and Sens. Barbara Boxer (D-Calif.) and Jon Corzine (D-N.J.), among others.
Watching Big Blue
Industry analysts are keeping a close watch on IBM, as questions continue to be raised about the accounting practices of the nation’s top corporations.
“IBM is bound to be a regulatory target,” writes Mike Tarsala of CBS.MarketWatch.com. “For all his success in slashing costs, restoring company pride and saving IBM from near extinction, Big Blue has been dogged during CEO Lou Gerstner’s tenure by repeated questions surrounding the make-up of its earnings.”
CWA and Alliance@IBM/Local 1701 more than a year ago brought to congressional attention IBM’s tactic of declaring as company earnings profits made by pension fund investments that exceeded its retirement plan liabilities.
“Like IBM employees, Enron employees were subject to a forced conversion from a traditional, defined benefit pension plan to a ‘cash balance’ plan during the late 1990s. Such conversions usually result in a 20 percent to 50 percent reduction in final pension benefits,” said Garrett Lanzy, chair of Local 1701’s legislative committee.
The Local has orchestrated a letter-writing campaign to urge members of Congress to make sure pension reform legislation does not permit “wear-away” of existing pension benefits or retroactively legalize conversions that would invalidate cases making their way through the courts.
Meanwhile, the AFL-CIO’s e-activist network has taken on a campaign to generate thousands of emails and faxes to new Enron CEO Stephen Cooper demanding full severance packages for thousands of Enron workers laid off as a result of the company’s bankruptcy. To participate, set your browser for www.aflcio.org. See “Take Action” and follow links to the Enron campaign.
As congressional committees began hearings to determine who is responsible, auditors scurried to the shredding machines, one Enron executive took his own life and the vice president of the United States attempted to invoke executive privilege regarding documents and secret meetings with Enron and other energy companies.
On Feb. 4, as lawmakers and the media continued to peel away false statements and cover-ups, the House Energy and Commerce Committee was scheduled to hear the voluntary testimony of Kenneth Lay. The former Enron chairman backed out, though he was later subpoenaed following the release of a scathing report suggesting that Enron executives made hundreds of millions of dollars from off-the-books partnerships used to conceal the energy giant’s massive debt; that they responded inadequately to signs that Enron was collapsing and that they may have profited illegally by selling their own stock while telling workers and shareholders that the company was in fine shape.
On that same day CWA took its own stand in the halls of Congress, joining the AFL-CIO, several of its affiliates and other managers of pension funds that lost $1.5 billion through investments in Enron, formerly the seventh-largest of all U.S. corporations.
Federal Accountability
At a press briefing on Capitol Hill, officials from the Council of Institutional Investors called upon Securities and Exchange Commission Chairman Harvey Pitt to recuse himself from all decisions involving Enron, because prior to his appointment he represented Enron’s auditor, the Arthur Andersen company, as its attorney.
Representing CWA, Bill Boarman, vice president for the union’s Printing Sector and chairman of the CWA/International Typographical Union Negotiated Pension Plan, assured reporters that the union has taken steps to ensure secure retirements for all workers covered by its pension funds.
He pointed out that as an investor in Sunbeam Corp., which ultimately filed for bankruptcy after 1998 when its stock worth $52 a share plummeted by 84 percent, the CWA/ITU plan became a lead plaintiff in a class action suit alleging financial fraud by Arthur Andersen, also Sunbeam’s auditor, and Sunbeam’s former CEO Albert J. Dunlap. The plaintiffs won settlements of $110 million from Andersen and $15 million from Dunlap.
“We depend on these auditors to make investments on behalf of workers, and we cannot make wise decisions if their work is not good,” Boarman said. “If you don’t have good corporate governance, you’re going to have more Enrons.”
The CWA/ITU Negotiated Pension Plan, covering 28,000 CWA/ITU members and CWA local union staff, manages $1.2 billion in assets. Its investment in Enron was minimal, mainly through holdings in the Standard and Poor Index Fund, a moderate-risk investment that serves as a benchmark for other stock mutual funds.
The CWA Pension Fund for staff and employees, the IUE-CWA Multi-Employer Pension Fund and a number of public sector pension funds in New York, New Jersey, California and other states where CWA has members, are also represented by the Council.
The Council, whose members manage $2 trillion in pension investments, released copies of letters to the SEC from members including AFL-CIO Secretary-Treasurer Richard Trumka, calling upon the agency to conduct a full and thorough investigation into Enron and to take action to ensure that workers are never again exposed to the kind of risk that destroyed the retirement security of so many.
The Council put forth a number of reform proposals to ensure auditor independence, better auditor oversight including criminal prosecution against irresponsible accounting firms, and tougher standards of independence for corporate boards of directors.
On Feb. 13, the SEC proposed new rules to force corporations to disclose additional financial information more promptly and requiring the agency to post companies’ SEC filings on its web site. The SEC also would require companies to inform investors about top executives’ stock trades, waivers of corporate ethics rules and changes in accounting policies. The proposed rules also state that companies must report changes in credit ratings, major write-offs and restructuring charges, and major new or lost customers or contracts. The SEC expects to release the rules, still in the formative stage, within two months.
Both the Council and the AFL-CIO are lobbying Congress as well, pressing for reforms that dovetail closely with CWA’s objectives.
Goals for Secure Retirement
CWA members who for a time worked for Global Crossing have taken some loss in their 401(k) pension plans, (see story page 9), Tyco stock has plummeted precipitously and allegations of financial mismanagement have been raised against IBM, Microsoft and even corporate darling GE. But overall, said CWA Research Economist Robert Patrician, CWA members’ current retirement vehicles are safe because of the way they are structured.
Most members participate in defined benefit pension plans which guarantee them a certain amount of money when they retire, often calculated as a percentage of salary over their final, highest-paid years of service. Some workers also own company stock through participation in 401(k) plans or direct stock purchases. But for most workers, stock ownership is supplemental and not a primary source of retirement income, pointed out Patrician, a specialist on pension issues.
Patrician serves on the Department of Labor’s ERISA Advisory Council, a board of 15 employer and employee representatives and employee benefits specialists who advise the Secretary of Labor concerning the Employment Retirement Income Security Act of 1974, the law that regulates how workers’ retirement funds are invested. DOL regulates pension plans in the private sector and is conducting its own investigation into the Enron scandal. The department is seeking, through court action if necessary, to remove Enron officials who oversee that company’s pension plan and replace them with independent experts.
CWA has developed five principles for a fair and just retirement, which the union is pursuing in legislation, through shareholder resolutions and in collective bargaining:
- Pension benefits should assure that retirees can, throughout their retirement, maintain a standard of living that at least equals the standard they had achieved just prior to retirement. No retiree should live in poverty at any time during retirement.
- Social Security and Medicare must provide guaranteed benefits. The benefits must be reliable, secure and fairly financed.
- Other sources of retirement income, including employer sponsored savings plans and 401(k) plans, must be fairly financed and serve to supplement, but not replace, an adequate pension and Social Security.
- Retiree health benefits, in addition to Medicare, must be considered an essential component of retirement security. Retiree income must be protected from erosion due to increased health costs associated with longevity.
- Pension funds must be used exclusively for the benefit of plan participants.
Congressional Reform
Legislation that embodies many of CWA’s and the Council’s principles is making its way through the House and Senate, CWA Legislative Representative Rosie Torres said.
Rep. George Miller of California, ranking Democrat on the House Education and the Workforce Committee, has introduced the Employee Pension Freedom Act of 2002 (H.R. 3657), co-sponsored by Rep. Charles Rangel of New York, ranking Democrat on the House Ways and Means Committee, and 63 other representatives.
The Miller bill would amend ERISA to:
- Ensure that workers are provided accurate and adequate information about their pension benefits and any employer stock holdings in their pension plan.
- Provide vested workers the right to diversify employer contributions and not be forced to hold employer stock or be subject to unfair holding requirements.
- Require employers to provide adequate notice before access to funds will be “locked down,” limit any lockdowns to no more than 10 business days, and
- In the event the retirement funds of employees are misused, provide employees meaningful access to the Labor Department and the courts to recover any losses.
CWA and the AFL-CIO also have been working closely with Sen. Edward M. Kennedy (D-Mass.), chairman of the full HELP Committee, who is drafting comprehensive legislation to give workers a greater voice and control in their pension and retirement plan investments. Among other provisions, the Kennedy measure would allow employers to make 401(k) matching contributions in company stock or offer company stock as an investment option but not both.
Additional pension reform legislation has been introduced or proposed by Reps. Rob Andrews (D-N.J.), Peter Deutsch (D-Fla.) and Michael Oxley (R-Ohio), and Sens. Barbara Boxer (D-Calif.) and Jon Corzine (D-N.J.), among others.
Watching Big Blue
Industry analysts are keeping a close watch on IBM, as questions continue to be raised about the accounting practices of the nation’s top corporations.
“IBM is bound to be a regulatory target,” writes Mike Tarsala of CBS.MarketWatch.com. “For all his success in slashing costs, restoring company pride and saving IBM from near extinction, Big Blue has been dogged during CEO Lou Gerstner’s tenure by repeated questions surrounding the make-up of its earnings.”
CWA and Alliance@IBM/Local 1701 more than a year ago brought to congressional attention IBM’s tactic of declaring as company earnings profits made by pension fund investments that exceeded its retirement plan liabilities.
“Like IBM employees, Enron employees were subject to a forced conversion from a traditional, defined benefit pension plan to a ‘cash balance’ plan during the late 1990s. Such conversions usually result in a 20 percent to 50 percent reduction in final pension benefits,” said Garrett Lanzy, chair of Local 1701’s legislative committee.
The Local has orchestrated a letter-writing campaign to urge members of Congress to make sure pension reform legislation does not permit “wear-away” of existing pension benefits or retroactively legalize conversions that would invalidate cases making their way through the courts.
Meanwhile, the AFL-CIO’s e-activist network has taken on a campaign to generate thousands of emails and faxes to new Enron CEO Stephen Cooper demanding full severance packages for thousands of Enron workers laid off as a result of the company’s bankruptcy. To participate, set your browser for www.aflcio.org. See “Take Action” and follow links to the Enron campaign.