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A SPECIAL ANNEX NEWSFLASH

Analysis of Proposed Pension Plan Law Changes

Money Can Buy Longer Life

Capitol Hill Panel's Finding Underscores Key Message: Money Can Buy Better Health and Longer Life

PHOENIX, May 6 - Can money buy better health and a longer life?  You bet you!  White collar employees have a longer life expectancy than blue collar workers.  Higher paid executives live not just better, but also longer, than the people earning lower wages.

Nor are these some self-serving claims by a pharmaceutical company and or a health care provider.  These conclusions were spelled out loudly and clearly by none other but the House of Representatives' chairman of the actuarial panel that is considering some proposed changes to the nation's pension fund laws.

A bill pending in the House of Representatives would allow businesses with union workers to reduce their company pension obligations by billions of dollars, because statistics show that most blue-collar workers do not live as long as other Americans.

The measure would allow companies to assume that their blue-collar workers will on average die sooner than pension plans now assume they will. So companies, not having to plan to pay future blue-collar pensions as long as they now do, would not be required to put aside as much pension money as government regulations now require them to do.

But the leader of a panel that developed the actuarial data on which the new provision is based said he had written to the Treasury Department, which regulates pension funds, to express concern that the data were being misapplied.  Here's an excerpt from a May 6 New York Times story on that topic:

Edwin C. Hustead, chairman of the actuarial panel, said in an interview he was concerned that the data were being used in an improper way. White-collar workers are shown by statistics to live longer, he said, but the bill would not require companies to factor that into their pension calculations. If it were included, unionized companies with largely white-collar workers would have to set aside more to fulfill their promises to retirees in the future.

In addition, Mr. Hustead said workers' pay had been shown to be a more powerful predictor of life expectancy than whether a worker was blue collar or white collar, but the bill did not recognize that higher-paid workers live longer and therefore require longer pension payouts. Many auto workers and airline pilots are classified as blue collar in the bill, because they are covered by collective bargaining agreements, even though they are highly paid.

Mr. Hustead also said that the "data showed that money has such power to lengthen human life that it more than offsets the blue-collar life-shortening effect."

After spending five years collecting and analyzing data for the new mortality table, Mr. Hustead warned that his panel's findings seemed at risk of being used in a "curious" and "arbitrary" way. He said in an interview that he had not received any response from the Treasury.

Big Business and Big Labor in Cahoots

It is not surprising, of course, that Big Business supported the proposed changes.  The Erisa Industry Committee, which represents large companies, helped with the bill but was primarily interested in supporting another measure on the interest rates used in pension calculations, said Janice Gregory, a vice president of the committee, according to the Times.

But the fact that the United Auto Workers wrote a letter in support of the provision, according to people with ties to Congress, may raise some eyebrows.  The UAW supported the measure supposedly in hopes that the money that companies would save from pensions could be used for higher wages.  But any time you see Big Business and Big Labor tooting the same horn, chances are their employees/union members may end up with the short end of the stick.  

In this case, it means employees counting on "safe" retirement income could end up with underfunded or no pension funds at all.  The Times also noted that, "with most pension plans now underfunded, Mr. Hustead and some other actuaries fear that a reduction in contributions could increase the risk of defaults, at a time when companies are already defaulting on their pension plans at a greatly accelerated rate."

We've also noted in our latest Annex Bulletin on the IBM 2002 Annual Report that, "a small consolation to IBM employees may be that Big Blue’s pension fund managers weren’t alone in misreading the market tea leaves" (see “Shrunk by the Marketplace: IBM Pension Fund Woes”, Apr 17).

At least IBM management is doing something about it.  At the end of 2002, the company pumped about $4 billion into its underfunded pension fund.  Of course, that was not enough offset the excess of obligations over the fund's assets that mushroomed by about $24 billion since 1999.  But it did show that the new Armonk leaders care about its employees' future.  And that they were prepared to put real money into it, rather than engage in some actuarial gimmicks, such as the proposed changes supported by some Big Business and Big Labor organizations.

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2003: “Shrunk by the Marketplace” (Apr 17), “Turnaround Continues...” (Apr 15), “Start of a Real Turnaround?” (Jan 17).

2002: “Gerstner: The Untold Story”  (Dec 27), "Gerstner Spills the Beans" (Dec 13), "On a Wing and a Prayer" (Oct 21), "IBM-PwC Tie the Knot" (Oct 2), "Half or Double Trouble?" (Aug 12), Wall Street/Main Street Chasm (June 25), “Wall Street Casino,” (June 21), Big Blue Salami (June 19), "Looming IBM Layoffs" (May 14), "IBM 5-Yr Forecast: From Here to Eternity?" (Apr 2002),  “Tough Times, Soft Deals,” (Apr 25, 2002), “Gerstner’s Legacy: Good Manager, Poor Entrepreneur” (Jan 2002), IBM Pension Plan Vapors: Where Did $17 Billion Go? (Mar 2002), "Sir Lou OutLayed Lay!" (Apr 1, 2002).

A selection from prior years: Is IBM Cheating on Taxes, Annex Bulletin 99-17 (May 1999),  IBM 5-year Forecast 2001: An Unenviable Legacy (June 2001) "Break Up IBM!" (Mar. 1996), Fortune on IBM (June 15, 2000), “Smoke and Mirrors Galore,” July 2000), "Slam Dunk of Bunk" (Jan 2000), Annex Bulletin 98-14 ("Wag the Big Blue Dog"), Armonk's Fudge Factory (Apr. 9, 1999)Where Armonk Meets Wall Street, Greed Breeds Incest (November 1998)Stock Buybacks Questioned: Is IBM Mortgaging Its Future Again?, 97-18 (4/29/97),  "Some Insiders Cashed In On IBM Stock's Rise, Buybacks" 97-22, 7/27/97,  Djurdjevic’s Forbes column, "Is Big Blue Back?," 6/10/97;  “Executive Suite: How Sweet!,” (July 1997), "Gerstner: Best Years Are Behind", Aug. 10, 1999), "IBM's Best Years Are 3-4 Decades Behind Us" (July 1999), "Lou's Lair vs. Bill's Loft" (June 1999),  "Corporate Cabbage Patch Dolls," 98-39, 10/31/98; Djurdjevic’s Chronicles magazine October 1998 column, "Wall Street Boom; Main Street Doom", “Louis XIX of Armonk,” (Aug. 1996), "Mountain Shook, Mouse Was Born" (Mar. 25, 1994), “A Nice Guy Who Lost His Compass” (Jan 26, 1993), “Akers: The Last Emperor?” June 1991), Industry Stratification Trend (Mar. 30, 1990) etc.]

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Volume XIX, Annex Newsflash No. 2003-06
May 6, 2003

Editor: Bob Djurdjevic
Published by Annex Research, Inc.
e-mail: annex@djurdjevic.com

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