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A Single Person Could Swing an Election
Electronic Systems' Weaknesses May Be Countered With Audits, Report Suggests
By Zachary A. Goldfarb
Special to The Washington Post
Wednesday, June 28, 2006; A07
To determine what it would take to hack a U.S. election, a team of
cybersecurity experts turned to a fictional battleground state called
Pennasota and a fictional gubernatorial race between Tom Jefferson and
Johnny Adams. It's the year 2007, and the state uses electronic voting
machines.
Jefferson was forecast to win the race by about 80,000 votes, or 2.3
percent of the vote. Adams's conspirators thought, "How easily can we
manipulate the election results?"
The experts thought about all the ways to do it. And they concluded in a
report issued yesterday that it would take only one person, with a
sophisticated technical knowledge and timely access to the software that
runs the voting machines, to change the outcome.
The report, which was unveiled at a Capitol Hill news conference by New
York University's Brennan Center for Justice and billed as the most
authoritative to date, tackles some of the most contentious questions about
the security of electronic voting.
The report concluded that the three major electronic voting systems in
use have significant security and reliability vulnerabilities. But it added
that most of these vulnerabilities can be overcome by auditing printed
voting records to spot irregularities. And while 26 states require paper
records of votes, fewer than half of those require regular audits.
"With electronic voting systems, there are certain attacks that can reach
enough voting machines . . . that you could affect the outcome of the
statewide election," said Lawrence D. Norden, associate counsel of the
Brennan Center.
With billions of dollars of support from the federal government, states
have replaced outdated voting machines in recent years with optical scan
ballot and touch-screen machines. Activists, including prominent computer
scientists, have complained for years that these machines are not secure
against tampering. But electronic voting machines are also much easier to
use for disabled people and those who do not speak English.
Voting machine vendors have dismissed many of the concerns, saying they
are theoretical and do not reflect the real-life experience of running
elections, such as how machines are kept in a secure environment.
"It just isn't the piece of equipment," said David Bear, a spokesman for
Diebold Election Systems, one of the country's largest vendors. "It's all
the elements of an election environment that make for a secure election."
"This report is based on speculation rather than an examination of the
record. To date, voting systems have not been successfully attacked in a
live election," said Bob Cohen, a spokesman for the Election Technology
Council, a voting machine vendors' trade group. "The purported
vulnerabilities presented in this study, while interesting in theory, would
be extremely difficult to exploit."
At yesterday's news conference, the push for more secure electronic
voting machines, which has been popular largely on the left side of the
political spectrum since the contested outcome of the 2000 presidential
election in Florida, picked up some high-profile support from the other
side.
Republican Reps. Tom Cole (Okla.) and Thomas M. Davis III (Va.), chairman
of the House Government Reform Committee, joined Rep. Rush D. Holt (D-N.J.)
in calling for a law that would set strict requirements for electronic
voting machines. Howard Schmidt, former chief of security at
Microsoft and President Bush's former cybersecurity adviser, also
endorsed the Brennan report.
"It's not a question of 'if,' it's a question of 'when,' " Davis said of
an attempt to manipulate election results.
© 2006 The
Washington Post Company |
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Jon Tester is a large,
broad-shouldered and strapping man who wears his hair in a by-the-book
military buzz-cut, flat-top style. He is the sort of man, if met in a local
saloon, one would hope to be a "happy" drinker and not a brawler. His figure
is that imposing. Considering his background in agriculture and the fact
that Montana is his home, it would be easy to assume him to be the
stereotypical Republican. That, however, would be a mistake.
This rather imposing figure has
warm eyes and seemingly, too, a quick wit. More than that, Tester is
true-blue and one-hundred-percent Democrat. There may be room for today's
Progressives to disagree with Tester on a few issues like coal-gasification,
but not much else.
Tester met his GOP rival and
Abramoff pal, Republican Senator Burns, Sunday night for the first debate.
Of the two men, the Missoulian reported, "If Sunday’s debate proved
anything, it might be that Burns represents a status quo, with a focus on
immediate fixes to immediate problems. Tester, on the other hand, emerged as
a source of newly creative energy, focusing on long-term solutions
consistent with a big-picture vision."
Burns busied himself babbling
the Rove scripted catchphrases like can't "cut and run" from Iraq and must
"stay the course".
Tester on the other hand said of
the Iraq War, "we obviously need an exit strategy" and made a no-bones point
that America entered the Iraqi field, "under false pretenses"
On energy independence Burns
pointed to drilling for more oil in places like ANWR, which Tester quickly
called "short-term" thinking. Tester said ANWR's benefits wouldn't last past
5 years and, too, the American people wouldn't actually see any of the oil
produced as most would be sold overseas. Tester insisted the future wasn't
in short-term thinking, but rather in long-term energy independence through
renewable resources. Tester pointed out the fact that the nation's energy
crisis didn't occur over night and that people like Burns who have been in
Washington for years, had plenty of time before our current crisis to
address the issue and they and Burns failed to do so.
When Burns tried to blame
"obstructionist Democrats" for the Republican Senate's failures, Tester
quickly instructed his adversary and the Montana audience that, "Your Party,
Republicans, control the Senate, the House, the White House, and the
Courts," how can Democrats be to blame for governmental failures?
Tester proved to be the kind of
Democrat, Progressives have been seeking: He has great command of the issues
and unyielding confidence in his ability to communicate his perspective in a
direct, commonsense manner. And, most importantly, John Tester isn't afraid
to hit back when a Republican attempts to distort his position and values.
When Burns went on the
offensive, Tester made quick work of neutralizing and then offering a better
alternative. In his finest moment of going on the offensive following a
Republican attack, when Burns pulled out the tired old "tax and spend" line,
Tester fired back, "I think that's very sad, I am of the belief that you
take care of yourself, and you don't pass your debts onto your kids." Tester
pointed to the manner in which Republicans have given large tax-cuts to
their wealthy donors, while selling America's debt and, therefore, future to
the Chinese.
Tester more than held his own
against Burns, he overwhelmed Abramoff's favorite GOP Senator with facts and
a powerful "stand-your-ground" offensive whenever the Republican took a
cheap shot. Still, Tester's debate didn't end after the people went home.
Later his spokesman said, "There’s a reason Sen. Burns has been ducking
debates with Jon Tester. Burns is in over his head debating a real Montana
farmer who represents Montana families and not Washington lobbyists."
If Progressives have truly
reached their limit with wishy-washy, fretful, and Rove intimidated
Democrats, Jon Tester is a man they can all get behind and support.
More on Tester from Others
David Sirota
''[A]s I saw when I was at
Tester's announcement speech last year, and I learned in talking with Tester
during the campaign, this is a guy who clearly and unabashedly represents
the populist wing of his party. His victory will likely send yet more
shockwaves through the increasingly insulated and isolated Democratic
Establishment in Washington.''
Ed in Montana at Daily Kos on Debate
''Burns responds that weapons of
mass destruction, such as mustard gas in artillery shells have been found in
Iraq (this week's sound bite direct from Rick Santorum!) and that Saddam
Hussein was a bad man that used poison gas on his own people.
''Tester quickly hits back with
'Senator you know that a few 15 year old shells of mustard gas weren't the
reason we were told to invade Iraq. The imminent threat of Saddam's nuclear
weapons program was the reason we went into Iraq. No sign of nuclear weapons
have been found.'''
Copyright © 2005 Progressive Daily Beacon |
Dennis Persica
June 28, 2006
Dennis Persica is a staff writer and editor at The
Times-Picayune newspaper in New Orleans. He has worked at the daily
newspaper for the last 20 years.
To paraphrase Alice’s walrus, the time has come to talk
of scary things.
The New York Times has
spurred the anger of the Bush administration by reporting on a program
to monitor international banking transactions as part of the government’s
counterterrorism program. Critics argue this is the equivalent of reporting
on troop movements or disclosing the existence of secret weaponry. You don’t
have to look too hard online to find posters of the World War II “loose
lips sink ships” variety that pretty much blame the Times for
the deaths of American soldiers.
The National Review urged the administration to revoke the
Times’ White House credentials. U.S. Rep Peter King, R-N.Y., said the
Times should be brought up on
charges of treason.
The current climate leads me to ponder a what-if scenario. One that I
hope is as far-fetched as I believe it to be. But imagine the possibility
suggested by the recent rhetorical attacks and threats of prosecution.
What if the U.S. Attorney’s office in New York—bolstered by a cadre of
federal marshals or FBI agents—entered the offices of The New York Times,
looking to rummage through the paper’s files and computers either to find
the source of the leaks for the banking story or to make sure the Times
isn’t about to publish another story allegedly damaging to national
security?
In raising this possibility, I am not suggesting the administration would
do this to shut down all news media and establish an authoritarian regime.
Let’s just assume the government has good intentions—guarding the nation’s
security—when it orders the raid. But historians and polemicists of all
political stripes know that since the dawn of humanity the road to
catastrophe has often been paved with good intentions.
Far-fetched? Remember, we are talking about an administration that has
angered even some members of its own party in Congress with its
my-way-or-the-highway approach. Republicans screamed the loudest when the
FBI raided the office of Democratic Rep. William Jefferson (who,
coincidentally, is my congressman). Critics say this administration has
seized the powers of the imperial presidency and expanded them farther than
ever before. There are echoes of the Cold War here, when we were engaged in
a similar debate: To defeat the totalitarians of the Eastern Bloc, do we
have to become more like them or can we win without sacrificing our
democratic soul?
Conservatives have long warned citizens to be careful about what powers
we allow the central government to arrogate because we’ll likely never
recover what we’ve given up. Yet conservatives—and some not-so-conservative
people—are up in arms over the fact that The New York Times and
other newspapers have revealed major federal spying programs.
Consider the implications of this hypothetical scenario: Agents search
the files inside The New York Times building. Perhaps some of those
files are carted out; maybe even computer drives are taken. Such a scenario
would make the Pentagon Papers dispute look like a minor disagreement among
gentlemen. In that case, the government tried to stop the Times and
other newspapers from printing a particular story. A raid, on the other
hand, would shut down the entire paper. If it wanted to get really tough,
the government could treat the Times as an enemy collaborator, seal
off its headquarters and move toward seizing its assets.
Meanwhile, the administration could count on a portion of the blogosphere—as
well as talk radio and cable TV personalities—to cheer on the raid.
Sure, other journalists would be outraged. But what could they do besides
write a few editorials and columns? Perhaps a small majority of the
American public would think the government had overstepped its bounds as
well. But what can they do outside of expressing their opinions? Remember,
we are talking about the power of the federal government arrayed against
that of the press and the people. While the latter may win in the end, their
victory will be a long time coming—if it comes at all. And there’s reason to
be skeptical about the likelihood of ultimate victory. After all, the
federal government has an arsenal of weapons—both figuratively and
literally. And to be honest, I’ve never quite bought into the notion that
the pen is mightier than the sword. Or the M16.
Since the days of Spiro Agnew’s “effete corps,” the press has been
portrayed—with some success—as a liberal elite with a political axe to
grind. Many of us in the media view these barbs as an occupational hazard.
We are accustomed to being criticized for doing our jobs, so we tend to
ignore the criticism if it strikes us as baseless.
But in recent years, the criticism has taken on an ominous tone. There
are the famous statements by Ann Coulter about how Timothy McVeigh or the
9/11 plotters should have targeted The New York Times building.
There was the ad I saw recently linking to a conservative website for t-shirts
that featured a noose and some comment about journalists that I’ve
since forgotten. I haven’t forgotten the implication, however.
This is more than just an attack on perceived bias; this is demonization.
Journalists have now been caricatured as a group of people who are siding
with a fanatical, barbaric enemy. Once Americans believe that, it then
becomes easy to support our arrest.
Those who would grant the Bush administration extraordinary powers today
must ask themselves whether they would be comfortable with the same
authority in the hands of a President Clinton (Bill or Hillary), a President
Kerry or a President Gore. That is one test of whether the grant of a
certain power is a good idea: Are you comfortable with the government having
that power no matter who is at the helm?
Let’s hope
this scenario of raids on news outlets is nothing more than conjecture; one
that can exist only in some made-up Bizarro World—a dark, hellish Wonderland
of a society lacking the freedoms its leaders proclaim to uphold—and nothing
that could ever happen in this America, our America.
© 2006
TomPaine.com
(
A Project of The
Institute for America's Future ) |
Paul Waldman
June 28, 2006
Paul Waldman is a senior fellow at Media
Matters for America and the author of the new book, Being Right is
Not Enough: What Progressives Can Learn From Conservative Success, just
released by John Wiley & Sons. The views expressed here are his own.
As we head toward yet another election in which the
Republican case to the voters will be, “We’re strong and they’re weak,” it’s
worth noting just how many times we’ve seen this drama played out. While
it’s easy to see this argument as just being about the Iraq war, or just
about national security, in fact it goes much deeper. These arguments delve
into the psychology of voters and the officials they elect, and the
political effects of our continuously evolving ideas about gender.
Time magazine’s Joe Klein, in his continuing quest to become the
GOP’s favorite columnist, recently took the occasion of the president’s
latest super-secret trip to Iraq to inform his readers that George W. Bush
is one red-hot hunk of man meat. Admiring the fact that at one point Bush
stepped into his plane’s cockpit, Klein noted that:
George W. Bush's body language—let's call it the full jaunty—was
reminiscent of his last, infamous cockpit trip, onto the deck of the U.S.S.
Abraham Lincoln in May 2003 to announce the ‘end’ of major combat
operations in Iraq, beneath a mission accomplished sign. His public language
is more cautious than it used to be, but he seemed downright frothy in a
private session with the congressional leadership after his press conference
... Bush had reason, finally, to strut.
Jaunty, frothy, strutting—is he the leader of the free world, or a
Chippendale’s dancer?
It certainly brought one back to those heady “Mission Accomplished” days.
Just after the mother of all photo-ops in May 2003, former Dan Quayle
speechwriter Lisa Schiffren wrote an embarrassing column in
the Wall Street Journal pronouncing Bush “really hot. Also
presidential, of course. Not to mention credible as commander in chief. But
mostly ‘hot,’ as in virile, sexy and powerful.”
And it wasn’t just the ladies who were ruminating on the majesty of Bush in
his flight suit. Ex-felon G. Gordon Liddy waxed rhapsodic on "Hardball"
about how Bush's parachute harness “makes the best of his manly
characteristic. You go run those—run that stuff again of him walking across
there with the parachute. He has just won every woman's vote in the United
States of America. You know, all those women who say size doesn't
count—they're all liars. Check that out.” I picture the crew in the studio
glancing at each other uncomfortably as Liddy went off on this riff.
Actual reporters may have been more restrained in their comments, but there
is no mistaking their admiration for Bush’s testosterone levels. How many
times have we heard reporters speak of Bush’s “swagger” or his “muscular”
foreign policy?
In response to Klein’s column, the blogger Digby posed
a question:
Bubba was female friendly (if you know what I mean) and was the object of
a great deal of derisive coverage for his tomcat vibe by the priggish D.C.
press. What worked in his favor out in the country—his smarts ’n sexual
charisma—made the Washington media squirm like a bunch of little old ladies
caught by accident at a Marilyn Manson concert. And then along came the
codpiece and they all fell in love. Wassup with that?
The answer, to put it bluntly, is that people like Joe Klein are weenies.
If they’re going to develop a man-crush, it’s not going to be on a sensitive
new-age guy like Clinton; it’s going to be on somebody whose feet are
planted in a traditional conception of manliness. The object of their
man-crush will be someone who’s rough ’n ready, who knows how to give a
steely gaze to a tinhorn terrorist, who thinks facts are for wimps and
who’ll smack reporters around and make them like it.
Or at least someone who can play the part. With the possible exception of
Teddy Roosevelt, no president in our history has worked as hard to convince
the voters that he’s a real man as George W. Bush. With the fervor of the
converted, Bush went whole-hog in working to create his cowboy persona. And
it is just that—a persona—one carefully constructed in advance of the 2000
campaign. The ranch in Crawford was purchased in 1999 so that Bush could
have a place to go and clear brush for the cameras. (Just wondering, hasn’t
all the brush been cleared by now? Where’s all that brush coming from?) And
when he pulls on the jeans, the boots, the belt buckle, and the hat, he’s
playing dress-up with the enthusiasm of a six-year-old girl donning her
first princess costume.
In contrast, Bill Clinton’s sexuality didn’t come from the clothes he wore
or the way he puffed out his chest. Clinton’s was a contemporary sexuality,
one that wasn’t afraid to get choked up, even shed a tear, with the
knowledge that it would make the ladies melt. He felt your pain, and before
you knew it you were letting him feel some other things, too. Those who have
met Clinton in person often say he has an almost hypnotic effect, that
within a few seconds he’s able to create a bubble of intense connection
around the two of you, and suddenly you feel like you’re incredibly
important to him.
Bush has a certain charisma, but it is of an entirely different sort. It’s
more distant, one that says not, “I want to kiss you,” but, “Check me
out—aren’t I cool?” He wants us to watch him while he struts. And the likes
of Joe Klein have been gazing on in admiration for Bush’s entire time in
public life.
There is no doubt that Bush’s particular brand of manliness has yielded
political benefit. His entire 2004 campaign was built around the idea that
he was strong and John Kerry was weak. The most important television ad of
that campaign was “Ashley’s Story” (paid for by a conservative “527” group),
in which the girl named in the title, whose mother was killed on 9/11, is
emotionally closed until the strong and powerful father figure Bush comes to
town and gathers her up in his arms. “He’s the most powerful man in the
world,” says Ashley, “and all he wants to do is make sure I’m safe.” Who’s
your daddy?
And the White House guards the image carefully. On that trip to Iraq, aides
Dan Bartlett and Tony Snow were photographed in flak jackets and helmets
during the helicopter ride between the Baghdad airport and the American
embassy
looking somewhat less than studly . Bush was wearing the gear too, but
administration aides begged photographers not to take any pictures of the
commander in chief in a less-than-heroic pose, and the photographers
assented.
All this is happening at a time when the culture is awash in visions of
hyper-masculinity born of anti-feminist backlash (even if “The Man Show” is
no longer on the air). Not only are humor titles like “The Alphabet of
Manliness” and “I Hope They Serve Beer In Hell” flying off the shelves, but
Harvard professor Harvey Mansfield even offered up “Manliness,” an attempt
to build a serious case for men’s superiority—which ended up being the
funniest book of the bunch. In the 1950s, a man who pushed nothing but paper
on the job would come home to watch Matt Dillon stare down a bad guy on
“Gunsmoke” (at one point in 1959 there were two dozen westerns on prime-time
television). Today, the guy who spends all day staring at a computer screen
settles into his couch for some Ultimate Fighting, telling himself that he
could do pretty well if he ever had to go one-on-one in the ring.
No one exemplifies this desire for neo-macho legitimacy more than the
president himself, whose guy’s guy act may stem from feelings of inadequacy
regarding his father. (I realize I’m veering into Maureen Dowd’s turf here,
but what the heck.) While Poppy was a star athlete, Dubya was a cheerleader.
Poppy was a war hero, and Dubya didn’t bother to show up for training in the
“Champagne Unit” of the Texas Air Guard. And though the son once challenged
the father to go “mano a mano” after getting scolded for driving drunk, one
suspects Dubya would have gotten his ass handed to him.
Nonetheless we’ve come a long way since Ed Muskie’s 1972 presidential
campaign imploded after he shed tears while defending his wife’s honor from
Republican attacks. Male politicians are now allowed to cry (just a
little—no sobbing), and nobody likes
giving a fatherly hug more than the president. But rest assured, the
Republicans will undertake a campaign of feminization against whomever the
Democrats nominate in 2008, just as they have against pretty much every
Democratic nominee going back to the 1960s. (Of course, there’s one
potential candidate whom they can’t accuse of being a girl, because, well,
she is one. But that’s another story.)
The Democrats could, of course, stoop to the Republicans’ level. If someone
is desperately trying to prove he’s a man, nothing will drive him crazy
quicker than making fun of him for failing. So they could say Bill Frist
throws like a girl, or Rudy Giuliani
likes to dress up in women’s clothes , or Mitt Romney looks like he
spends a little too much time on personal grooming, if you know what I mean.
It isn’t necessary to be that crass, but it is vital for Democrats to
prepare themselves for the arguments Republicans will make and be ready to
hit back. When Ronald Reagan joked in 1984 that he would arm wrestle Walter
Mondale any time, Mondale responded, “The issue that worries Americans is
not arm wrestling but the need for arms control.” Even Democrats probably
said, “Sheesh, what a wimp.” When you get challenged that directly, the best
response may be to shine a light on what the other side is doing. Democrats
should have been talking for years about how insecure Bush seems about his
masculinity.
But more importantly, they need to understand why the charge of weakness so
often sticks. Some in Congress believed that if they voted for the Iraq war,
they’d look strong. How do they look now? Like a bunch of pushovers who
didn’t have the guts to stand up to George W. Bush. An image of strength
doesn’t come from voting like you think a hawk would vote. It comes from
being willing to take political risks for the sake of principle. It comes
from not apologizing for what you believe in. It comes from not being afraid
to alienate some voters, particularly those who aren’t going to vote for you
anyway.
For too
long, Democrats have been gripped by fear—fear of being called weak, fear of
losing votes in the South, fear of their own shadows. If they can get over
that and start showing some courage, the charges Republicans throw at them
will bounce right off.
© 2006
TomPaine.com
(
A Project of The
Institute for America's Future ) |
|
WSJ: Report Proves Exec Payouts At Root Of America's Pension Crisis
By David Sirota
In Hostile Takeover, I note that the Wall Street Journal's Ellen
Schultz is, arguably, the best journalist working today. And in the last
week (stories attached), she has produced some of the most important
reporting in the last few years, singlehandedly blowing away all the
rhetoric about what's destroying America's pension system that's coming from
Corporate America and their bought off cronies in government.
The public is led to believe that companies are slashing workers' pensions
and backing out of their retirement promises to workers because these
companies face a cash squeeze caused by the market. But in a major
investigative report (attached), Schultz points out that an "analysis of
corporate filings reveals that executive benefits are playing a large and
hidden role in the declining health of America's pensions." The key findings
are stunning:
- Boosted by
surging pay and rich formulas, executive pension obligations exceed $1
billion at some companies. Besides GM, they include General Electric Co. (a
$3.5 billion liability); AT&T Inc. ($1.8 billion); Exxon Mobil Corp. and
International Business Machines Corp. (about $1.3 billion each); and Bank of
America Corp. and Pfizer Inc. (about $1.1 billion apiece).
-
Benefits for executives now account for a significant share of pension
obligations in the U.S., an average of 8% at the companies above. Sometimes
a company's obligation for a single executive's pension approaches $100
million.
-
These liabilities are largely hidden, because corporations don't distinguish
them from overall pension obligations in their federal financial filings.
- As
a result, the savings that companies make by curtailing pensions for regular
retirees -- which have totaled billions of dollars in recent years -- can
mask a rising cost of benefits for executives.
-
Executive pensions, even when they won't be paid till years from now, drag
down earnings today. And they do so in a way that's disproportionate to
their size, because they aren't funded with dedicated assets.
Schultz goes on to show how many of the
big companies that are slashing workers' pension are using the savings to
add to executives' pension plans. And, in a sidebar story (also
attached), Schultz also documents how so-called "deferred compensation"
plans are making the situation even worse. You may remember these schemes
from when Halliburton handed over millions of dollars in "deferred
compensation" Dick Cheney at the same time the company filed lawsuits
against its own retirees in order to cut retirees' benefits.
According to Schultz, these deferred compensation schemes are a key factor
in "creating huge and typically unfunded corporate liabilities" -
liabilities that are then used to justify more cuts to workers' pensions.
Because of this abuse, at many companies the total obligation to a handful
of executives approaches the total obligations to tens of thousands of
workers. For instance, "General Electric's total unfunded liabilities for
executives -- deferred comp plus pensions -- equals more than 15% as much as
its total retirement liability for more than 500,000 workers and retirees."
At Countrywide Financial Corp, "executive-retirement liability -- pensions
plus deferred comp -- at the end of last year stood at $340 million - not
far from its $373 million obligation for 25,915 ordinary workers and
retirees. " And at Comcast, "an executive-retirement liability of $469
million exceeds the pension obligation for other employees, which is $194
million."
Faced with all of this, Congress has deliberately done nothing. Bought and
paid for by the executives who are running off with billions, lawmakers
allow these schemes to expand in secret - largely hidden from the investors,
stockholders and employees who are getting screwed. Meanwhile, most
reporters give the public a he-said-she-said account of the burgeoning
retirement security crisis, leading us to believe that massive pension
cutbacks are just a force of nature that cannot be stopped, rather than the
unsurprising outcome of specific policy choices by greedy executives and the
politicians in their back pocket.
Thankfully, there are a few people out there like Ellen Schultz who digs
deeper than the rhetoric and lets us know what's really going on (Her work
was an incredible resource for me in writing Hostile Takeover's
chapter on pensions). The more such information gets out, the more we really
see what's going on: a vicious class war being waged by elites in government
and business who are doing everything they can to bleed America dry.
***********************
http://online.wsj.com/article_email/SB115103062578188438-lMyQjAxMDE2NTIxODAyMzgwWj.html
As Workers' Pensions Wither, Those
for Executives Flourish
Companies Run Up Big IOUs, Mostly Obscured, to Grant Bosses a Lucrative
Benefit
By ELLEN E.
SCHULTZ and THEO FRANCIS
June 23,
2006; Page A1
To help explain its deep slump, General Motors Corp. often cites "legacy
costs," including pensions for its giant U.S. work force. In its latest
annual report, GM wrote: "Our extensive pension and [post-employment]
obligations to retirees are a competitive disadvantage for us." Early this
year, GM announced it was ending pensions for 42,000 workers.
But there's a twist to the auto maker's pension situation: The pension plans
for its rank-and-file U.S. workers are overstuffed with cash, containing
about $9 billion more than is needed to meet their obligations for years to
come.
Another of GM's pension programs, however, saddles the company with a
liability of $1.4 billion. These pensions are for its executives.
This is the pension squeeze companies aren't talking about: Even as many
reduce, freeze or eliminate pensions for workers -- complaining of the costs
-- their executives are building up ever-bigger pensions, causing the
companies' financial obligations for them to balloon.
Companies disclose little about any of this. But a Wall Street Journal
analysis of corporate filings reveals that executive benefits are playing a
large and hidden role in the declining health of America's pensions. Among
the findings:
• Boosted by surging pay and rich formulas, executive pension obligations
exceed $1 billion at some companies. Besides GM, they include General
Electric Co. (a $3.5 billion liability); AT&T Inc. ($1.8 billion); Exxon
Mobil Corp. and International Business Machines Corp. (about $1.3 billion
each); and Bank of America Corp. and Pfizer Inc. (about $1.1 billion
apiece).
• Benefits for executives now account for a significant share of pension
obligations in the U.S., an average of 8% at the companies above. Sometimes
a company's obligation for a single executive's pension approaches $100
million.
• These liabilities are largely hidden, because corporations don't
distinguish them from overall pension obligations in their federal financial
filings.
• As a result, the savings that companies make by curtailing pensions for
regular retirees -- which have totaled billions of dollars in recent years
-- can mask a rising cost of benefits for executives.
• Executive pensions, even when they won't be paid till years from now, drag
down earnings today. And they do so in a way that's disproportionate to
their size, because they aren't funded with dedicated assets.
One reason executive pensions have grown so large is that they are linked to
ballooning overall executive compensation. Companies often design retirement
payouts to replace a percentage of what a person earns while active.
But for executives, the percentage of pay replaced is itself higher.
Compensation committees often aim for a pension that replaces 60% to 100% of
a top executive's compensation. It's 20% to 35% for lower-level employees.
David Dorman was chief executive of AT&T Corp. from 2002 until its merger
with SBC Communications in November. He left in January. His total of five
years at AT&T earned him a yearly pension of $2.1 million. That will replace
60% of his annual salary and bonus in his final three years.
By contrast, former AT&T accountant Ralph Colotti's $28,800 annual pension
replaces 33% of his final pay. He was at the company for 33 years.
Mr. Colotti's pension was held down by a change AT&T made in 1998 in the
formula used to calculate pensions. The switch had the effect of freezing
pension growth for older workers like him. The 55-year-old now works at
another company with a pension plan. "Working here another 10 years won't
make up for what my old pension would have been" without AT&T's change in
formula, he said.
AT&T described its retirement benefits as excellent and said a pension on
the scale of Mr. Colotti's is good in the telecommunications industry. Mr.
Dorman's richer deal is "reasonable, customary and comparable to what
similarly sized companies offer," AT&T said. A spokeswoman noted that "in
any industry, senior executives are almost always provided with enhanced
levels of benefits as a way to recruit and retain the best talent and the
best leadership possible to lead the company."
In percentage of pay replaced, Pfizer's chairman and CEO, Henry McKinnell,
does best of all. His future $6.5 million-a-year pension will replace 100%
of his current salary and bonus.
Cutting Back
Even as executives' pensions grow, many companies are curtailing those for
the rank and file. In one move, hundreds of employers, including Boeing Co.,
Xerox Corp. and Electronic Data Systems Corp., have switched to pension
formulas known as "cash balance" plans. One effect is to slow the growth of
older workers' pensions or halt it altogether. That's what happened to Mr.
Colotti at AT&T.
Other companies, including Verizon Communications Inc., Unisys Corp. and
Sears Holdings Corp., are freezing their pension plans for some workers. A
freeze leaves intact pensions already earned but prevents any further growth
during a worker's career.
Some employers have added pensions for executives at about the same time as
they limited those for others. McKesson Corp. established a special pension
plan for its executives in 1995 and froze those of other workers two years
later. McKesson didn't respond to requests for comment.
Allied Waste Industries Inc. froze pensions for certain salaried workers in
1999. Among those affected was Brad Green, then a safety official at a
business Allied Waste had acquired.
Although he never expected his pension to be big, said Mr. Green, 45, the
freeze meant any future growth "was basically just wiped out with the stroke
of a pen."
Four years later, Allied adopted a pension plan that covers 10 executives.
It did so "to provide a competitive recruitment and retention benefit," said
Allied's treasurer, Michael Burnett. He noted that the plan that was frozen
had come from a company Allied acquired.
Mr. Burnett added that all employees have a 401(k), a savings plan to which
they can contribute from their own earnings. Many companies, including
Allied, match part of employee contributions.
Companies that restrict regular pension plans often point to the 401(k),
some noting that they've enhanced their match of contributions. Unlike
pension plans, 401(k) plans don't create a corporate debt or liability,
since employees provide most of the assets and firms are typically free to
halt any contributions of their own.
Companies generally are also free to alter, freeze or end regular employees'
pension plans, unless a union contract is involved. But executive pensions
often are protected from management interference by employment or other
contracts.
By
curtailing pensions for regular workers, large companies have reduced
pension obligations to them by billions of dollars in recent years. So
pension obligations to regular workers are stable or shrinking at many
companies while those for executives rise. At BellSouth Corp., for example,
the obligations for pensions for ordinary workers have edged down 3% since
2000. The liability for pensions for executives is up 89% over the same
period. A BellSouth spokesman noted that, like many executive pensions, the
benefit could be lost in the event the company becomes insolvent.
The promise of any pension becomes a corporate obligation. Although the
payments are in the future, the promise means the company has a liability
now. And a number can be put on it.
Figuring the Bill
Pfizer's promise to pay Mr. McKinnell $6.5 million a year for life in
retirement equals an $83 million liability for Pfizer today, federal filings
by the drug maker show. Pfizer defends Mr. McKinnell's pension as fair.
When Edward Whitacre, chairman and CEO of AT&T Inc., turns 65 in November,
he'll be entitled to a pension of $5.4 million a year for life, plus an
$18.8 million lump sum. For this, AT&T's liability today is $84.4 million,
according to an actuarial estimate done for the Journal by Katt & Co. of
Mattawan, Mich. AT&T said Mr. Whitacre's pension reflects four decades of
service and 15 years of "very, very strong and visionary management" as
chief of the company, which was called SBC much of that time.
UnitedHealth Group Inc. Chairman and CEO William McGuire will get a $5.1
million annual pension after he retires, plus a further $6.4 million at
retirement. The result is a UnitedHealth liability of about $90 million,
according to two actuaries. UnitedHealth declined to comment on their
estimate. In the wake of recent criticism of Dr. McGuire's pay -- which
includes $1.6 billion in unrealized stock-option gains as of the end of last
year -- the managed-care company has capped his pension benefit, a
spokeswoman said.
Pension Pyramid
Companies sometimes offer several tiers of pensions for the highly paid. The
structure at IBM illustrates this.
Its
chairman and CEO, Samuel Palmisano, is due a yearly pension of about $4.7
million in retirement after age 60. He's now 54. IBM's liability today for
this is about $50.3 million, according to an estimate by Katt & Co.
Another IBM pension plan, which last year covered eligible executives
earning $351,000 or more, had a $204 million liability at year-end, company
filings show. And for a third plan covering a broader group of the
well-paid, IBM had obligations totaling $1.1 billion. IBM declined to say
how many are covered by these plans, saying only that it is "thousands."
To put the figures in perspective: The liability for IBM's regular U.S.
pension plan, covering 254,000 workers and retirees, was $46.4 billion at
the end of 2005.
An IBM spokesman described the estimate of its liability for Mr. Palmisano's
pension as high but declined to provide another figure. He said Mr.
Palmisano's pension from 32 years at the company will replace about 45% of
his compensation, which the spokesman called below average for heads of
major companies.
A result of these trends is that executive pensions make up a significant
portion of total pension liabilities at many companies: 12% at Exxon Mobil
and Pfizer; 9% at Metlife Inc. and Bank of America; 19% at Federated
Department Stores Inc.; 58% at insurer Aflac Inc.
At some companies, the only people who have pensions at all are executives.
At Nordstrom Inc., the nearly 30,000 ordinary employees don't get pensions.
But 45 executives do. Another retailer, Dillard's Inc., also provides
pensions only to certain officers. Neither had any comment.
Companies' retirement liabilities for their executives have also grown
through another little-noticed trend: Over recent years, an increasing
portion of executives' pay has been postponed, via pension and
deferred-compensation plans, rather than given in current paychecks. (See
adjoining article.)
Out of Sight
Even if a company's liability for executives' pensions totals hundreds of
millions of dollars, its employees and shareholders may never know.
Companies don't have to report this obligation separately in federal
financial filings. A few specify it in a footnote, and some provide clues
that make it possible to derive the figure.
The minimal disclosure dates from the late 1980s, when companies first were
required to report pension liabilities but were allowed to aggregate all of
them. At the time, distinguishing executive pensions was less of an issue
because they were smaller. When they ballooned along with executive pay in
the 1990s and 2000s, the rules didn't change. Most employers have continued
to blend pension figures together. Wall Street Journal publisher Dow Jones &
Co. said it hasn't broken out executive-pension figures but will "re-examine
whether to do so going forward."
When they do mention executive pensions in filings, companies often use
terms that only pension-industry insiders would recognize. Time Warner
Inc.'s filings include -- as part of a category called "other, primarily
general and administrative obligations" -- a footnote reference to "unfunded
defined benefit pension plans." Those are executive pensions.
Lumping
pensions together can also give a false impression of the security of
ordinary workers' plan. Someone browsing Time Warner's filings might think
its pensions for regular employees were underfunded by 7%. This impression
would be illusory.
The pension plan for regular Time Warner employees has more assets set aside
in it than the plan needs to pay benefits well into the future. The
shortfall is due entirely to a plan for highly paid employees. That one has
a $305 million unfunded liability.
A
spokeswoman for Time Warner said the company's elite pensions cover more
than just a small number of top executives but declined to say how many. She
said Time Warner goes "to great lengths to make complex information
accessible to the average investor."
A Debt and Its Cost
Perhaps the most significant effect of the limited disclosure is to make it
difficult, or impossible, to evaluate company statements about their
retirement burdens and the need to cut benefits. To see this, it's necessary
to understand a bit about how pensions are accounted for.
Pension plans, whether for executives or for others, are obligations to pay.
In other words, they're debts. And like any debt, they have what amounts to
a carrying cost. That carrying cost is part of a company's pension expense.
In the case of pensions for regular employees, the expense is partly or
wholly offset by investment returns on money the company set aside in the
pension plan when it "funded" it.
Executive
pension plans are different. They're normally left unfunded. They have no
assets set aside in them. That means there is no investment income to blunt
the expense. The result is that obligations for executive pensions create
far more expense for an employer, dollar-for-dollar, than pensions for
regular workers.
A company's pension expense is something it has to subtract from its
earnings each quarter. The cost of executive pensions, having no investment
income to cushion it, hits the bottom line with full force.
An Outsize Impact
In Pfizer's overall U.S. pension obligation of about $9 billion, executive
pensions account for about one dollar in eight. Yet the pension expense they
generate is proportionately far larger -- equal to more than half as much as
that from pensions for regular employees and retirees, who are much more
numerous. The executive plans cover 4,200 people. The regular plans cover
more than 100,000. Pfizer had no comment on this.
At AT&T Inc., the pension liability for executives was a modest 3.8% of the
company's total pension obligation at the end of last year. Yet these
promises to 1,000 or so highly paid people generated more than 45% of AT&T's
pension expense. The expense for them came to $113 million last year, and
reduced AT&T's 2005 earnings by that amount.
The other 55% of pension expense? It covered 189,000 regular employees.
AT&T's controller, John Stephens, confirmed that executive pensions cause a
bigger drag on earnings, per dollar of liability, than pensions for others.
He added that AT&T, like some other companies, has informally earmarked an
undisclosed amount of assets for paying executive pensions in the future.
But while these assets earn investment returns, they don't lower pension
expense, because the assets aren't irrevocably dedicated to this purpose.
The executive pension plan, in other words, isn't funded.
Why don't companies just fund executive pensions? Chalk it up to taxes.
Contributions that companies make to regular pension plans are
tax-deductible and grow tax-free. Congress set that rule to encourage
employers to provide pensions for the rank and file. But a company that
contributes assets to an executive pension plan gets no tax break. In fact,
there's a tax penalty: Money contributed to such a plan is considered
current compensation to the executives, and they owe personal taxes for it.
There's often another reason executive pensions are more costly. The expense
of regular pensions can be offset not just by investment returns on the
assets but also by gains that result when companies cut benefits.
Cutting a benefit naturally cancels part of an employer's liability. Under
accounting rules, a canceled liability equates to a gain. That gain reduces
pension expense from the regular workers' plan. So thanks both to investment
returns and to gains from cutting benefits, regular pension plans are less
costly than those for executives.
Whose Expense?
These accounting effects may sound technical but they matter, because
companies that curtail ordinary workers' benefits often cite their pension
"costs" or "expense" as the reason.
In January,
IBM said it will freeze the pensions of all U.S. employees and executives.
The move reduced its pension liability by $775 million. IBM cited pension
costs, volatility, and unpredictability. It didn't mention that a quarter of
its U.S. pension expense last year resulted from pensions for several
thousand of its highest-paid people.
The numbers: $134 million of pension expense was for the well-paid; $381
million was for all active and retired employees, more than a quarter of a
million people. An IBM spokesman confirmed the numbers but said the expense
for its executive plans came to only about 1% of pretax earnings from
continuing operations.
Lucent Technologies Inc. has pointed to retiree benefits as a burden and has
cut benefits in a number of ways. For instance, for various retirees in
recent years, Lucent has used a less-generous pension formula; eliminated
dental and spousal medical coverage and death benefits; and raised retiree
health-insurance premiums. In a recent filing, the Murray Hill, N.J.,
telecom-equipment firm said, "Lucent's pension and postretirement benefits
plans are large...and also costly."
Yet the pension plans for regular Lucent employees and retirees, who number
about 230,000, are overfunded. In fact, they're so full of cash that the
investment return on their assets not only erases the pension plan's expense
-- it adds to earnings. In the fiscal year ended last Sept. 30, these
pension-plan assets pumped $973 million into Lucent's bottom line,
accounting for about 82% of the company's profit.
They would have pumped in still more, save for an unfunded pension plan for
Lucent's highest-paid people, which had a liability of approximately $422
million last year. Lucent confirmed that pensions for its executives and
those earning more than $210,000 in 2005 reduced net income. It declined to
say by how much. A spokeswoman said Lucent follows U.S. pension accounting
and disclosure rules and that if the expense for retiree medical plans were
subtracted, its overall retirement benefits contributed $718 million to
income.
GM's Retirees
When General Motors cites retiree costs, the giant auto maker has a point:
It owed nearly 700,000 U.S. workers and retirees pensions that totaled $87.8
billion at the end of last year.
But $95.3
billion had already been set aside to pay those benefits when due.
All of these assets are earning investment returns, which offset the
pensions' expense. GM lost $10.6 billion in 2005. But deep as its losses
have been, they would have been far worse without the more than $10 billion
per year in investment income that the GM pension plan for the rank and file
generates.
The pension plan for GM executives is another matter. Unfunded to the tune
of $1.4 billion, it detracts from GM's bottom line each year.
Just how much is a mystery, because GM doesn't break out the figure. It said
executive pensions are "a very small portion of our overall expense" but
declined to give the figure.
Earlier
this year, GM announced it would freeze the pensions of its 42,000 salaried
workers starting next January, as well as of those 5,200 highly paid
employees. The freeze of the executive pensions will cut GM's pension
liability by $60 million, while its freeze of salaried workers will yield a
far bigger reduction, $1.6 billion.
A spokeswoman for GM said its concerns about its pension plans have eased,
though the company remains concerned about retiree health-care costs. With
the pension freeze and improved returns on its pension assets, including
billions of dollars GM has contributed to the plans in recent years, "I
would say pension really is not a problem any more," the spokeswoman said.
She said that GM has no fixed obligation to pay the executive benefits and
could renege at any time, although she called such a move unlikely.
GM has often said its U.S. pension plans added about $800 to the cost of
each car made in the U.S. in 2004. It declines to say how much was due to
executive pensions.
*********************************
http://online.wsj.com/article_email/SB115103370166088532-lMyQjAxMDE2NTIxODAyMzgzWj.html
Deferring Compensation Also Creates A
Company Debt to Executives
By THEO FRANCIS and ELLEN E. SCHULTZ
June 23,
2006; Page A8
Besides pensions, most large companies owe their executives another
retirement debt: deferred compensation. While that might seem unlike an
executive pension, it's similar in critical ways.
Deferred-compensation plans let executives put off receiving large chunks of
their salary and bonus until retirement. The plans have often let executives
defer other pay as well, such as gains from exercising stock options. The
deferred sums grow tax-free. Sometimes they increase at an above-market
interest rate guaranteed by the company. Some companies also add to the
balances with contributions from time to time.
"Deferred-comp" plans are similar to pensions in that they represent money a
company must pay in the future for work done today. As a result, the plans
are liabilities for the companies -- that is, debts. The carrying cost of
this debt is something that companies must deduct from their earnings each
quarter.
Deferred-comp plans resemble executive pensions, in particular, because they
often aren't "funded." That is, companies usually don't lock away assets in
the plans to pay the money when due. So deferred-comp plans affect company
profits in much the same way as executive pensions do: by reducing them.
Although deferred-comp plans are sometimes likened to 401(k) accounts, there
is a key difference: 401(k) plans don't create a corporate debt or
liability. That's because employees fund them with money from their pay, and
companies that choose to match part of the contributions are free to stop
any time.
Deferred-comp plans, however, create huge (and typically unfunded) corporate
liabilities. General Electric Co.'s liability for deferred compensation is
$2.4 billion. Its total unfunded liabilities for executives -- deferred comp
plus pensions -- equals more than 15% as much as its total retirement
liability for more than 500,000 workers and retirees. GE said the
executive-retirement liabilities aren't significant for a company as big as
GE, whose stock-market value is about $350 billion.
At some companies, executive-retirement liabilities are almost as big as the
IOU for pensions of regular workers, who are far more numerous. Countrywide
Financial Corp.'s executive-retirement liability -- pensions plus deferred
comp -- at the end of last year stood at $340 million. That was not far from
its $373 million obligation for 25,915 ordinary workers and retirees.
Countrywide said $35 million of the executive liability was for pensions,
the rest for deferred comp.
At one company, Comcast Corp., an executive-retirement liability of $469
million exceeds the pension obligation for other employees, which is $194
million.
The two were almost equal in 2003. But then Comcast froze two pension plans
for certain salaried workers. The freeze cut its debt to these employees.
Comcast's deferred-comp liability lowered its earnings by $40 million last
year, which was five times as much as the drag on earnings from the frozen
pension plans for salaried workers.
Comcast
said the frozen plans aren't a core part of its retirement benefits because
they arrived via an acquisition. "A 401(k) is our primary retirement savings
vehicle for our employees, not a pension," the company said.
--------------------
 David
Sirota is the author of the book Hostile Takeover, released in May of 2006.
© 2006 Working Assets. |
Donle’s Daily Dispatches
