- By Stephen Kiernan -- Free Press Staff Writer

The IBM Corp. plant in Essex has won a federal contract worth up to $60 million a year for the next 10 years.

The contract, which will be announced today by Sen. Patrick Leahy, D-Vt., establishes IBM's Vermont factory as the primary source for computer chip technology for the Department of Defense through 2014.

"This contract shows that IBM in Essex is very much a player, very much an important plant," Leahy said.

IBM officials said the contract would not lead directly to new jobs, but provided increased stability for the plant.

"This contract is an example of our strategy to expand by making chips for other companies and targeting customers with new applications," IBM spokesman Jeff Couture said.

"Anything with longevity built into it, like this 10-year contract, is also good for the stability of the facility," Couture said.

Under the contract, the Defense Department will coordinate and prioritize its many chip demands through a central office or gatekeeper, said J.P. Dowd, legislative director for Leahy in Washington. Then the department will look to IBM's Vermont location to meet those needs, he said.

Other IBM sites might take part in the contract later, Dowd said, but "Essex is where the technology is right now that the Department of Defense is comfortable with."

The distinction matters, officials said, because IBM has been investing in a new factory in East Fishkill, N.Y., which has taken over from Essex Junction as the site for making chips using the company's most advanced technology.

"We are targeting applications that are advanced in how they are used, but that don't need the most advanced chip technology." Couture said of the Vermont site.

He declined to identify defense applications, "due to the nature of the customer."

Couture said the contract would not spark a round of hiring at IBM. "But what makes your operation cost effective is when you can bring in contracts like this, to fill your manufacturing line and keep people busy."

IBM officials said they appreciated Leahy's role in delivering the contract.

"The IBM Burlington team is excited to be chosen," John DiToro, IBM vice president and the senior executive in Essex Junction said in a news release, "and we appreciate the strong support of Sen. Leahy in making it possible."

The agreement resulted from language Leahy inserted in the 2004 defense appropriations bill. Leahy was a member of the House-Senate conference committee on the bill, which the president signed into law at the end of September.

"There was a lot of back and forth," Leahy said. "I've spent months talking with both the Department of Defense and IBM, and we had to pass specific legislation on this."

The law identifies IBM as the source for future defense chip needs, thereby avoiding a competitive bidding process.

Leahy's staffers said a sole source contract was permissible because only IBM Burlington could deliver what the Defense Department needs.

"What IBM has up in Essex is truly, truly cutting edge microelectronics capacity, unique technology and capacity, and that is what the Department of Defense needs," Dowd said.

It helped, too, that IBM is an American company in an industry in which Asian manufacturers are major players, Couture said. A U.S. company meets the Defense Department's desire to have a domestic source for its technology, and eliminates its concerns about the protection of intellectual property in the hands of foreign firms, he said.

The region's business community hailed the contract as a sign of strong cooperation between government and industry.

"Whether you agree with Pat Leahy's politics or not, this contract points out the advantages of having a senator with seniority in Washington," said Harlan Sylvester, senior vice president of the Smith Barney brokerage in South Burlington and chairman of the Governor's Council of Economic Advisors.
Contact Stephen Kiernan at 660-1861 or at skiernan@bfp.burlingtonfreepress.com

IBM in Vermont

IBM is Vermont's largest private employer with about 6,200 people based at the company's microelectronics plant in Essex Junction. Due to the persistent slowdown in the technology industry, the site has seen several rounds of jobs cuts since late 2001, when the plant population was 8,500.
^new ( Display, modify, or delete resource in a separate tab or window.)

- By Brian Tumulty -- Gannett News Service

IBM illegally discriminated against 140,000 employees on the basis of age when it made changes to its pension plan in 1995 and 1999, a federal judge said in a ruling made public Thursday.

The groundbreaking decision is the first from a federal court to consider age discrimination in connection with pensions known as cash balance plans and pension credit formula plans. These plans covered an estimated 7.1 million workers and retirees at 1,231 employers nationwide, according to the federal Pension Benefit Guaranty Corp.

Because of IBM's changes, as employees grow closer to age 65, the annual increase in their monthly pension declines, said U.S. District Judge G. Patrick Murphy of the Southern District of Illinois in his ruling.

"IBM, like many other corporate plan sponsors, proceeded with open eyes and was fully informed of the consequences of the litigation that was sure to come," he wrote. Federal age discrimination laws cover all employees age 40 or older.

Lawyers who represented IBM employees cautioned that each pension plan is different and other companies might have avoided IBM's pitfalls.

"Plans have to be evaluated individually," said Doug Sprong, one of the employees' attorneys. However, he said the decision should be cause for companies to review their retirement plans for compliance with the law.

IBM spokeswoman Kendra Collins said the company "disagrees with the district court's ruling and we believe we will prevail on appeal. I would say to call our plan age discriminatory makes no sense."

The American Benefits Council, a trade group representing employers, warned that the decision was a negative signal to employers that provide guaranteed pensions.

Murphy also ruled against IBM on two other age discrimination issues:

-- The opening account balances for employees on the date of the 1999 conversion, which represented a lump sum of pension benefits they had previously earned.

-- And the so-called wear-away period when many long-tenured employees would accrue no increase in benefits beyond that opening balance.

Unlike traditional pensions, where longtime employees accrue most of their retirement as they near age 65, pension-credit and cash-balance plans smooth out the accumulation of benefits so younger employees with less time at a company gain a greater share of the benefit pie earlier in their careers.

James Klein, president of the American Benefits Council, said the court ruling could motivate some companies to terminate their pension plans.

The judge noted that the 1995 pension changes were successful in reducing what had been a generous early retirement benefit, and by the close of 1997 the pension trust fund had a surplus of $8 billion. Even so, IBM opted to further reduce pension benefits in 1999 at an annual savings that would reach almost $500 million in 2009.

The pension savings boosted the company's profits and represented 7 percent of the company's earnings in 1997.

IBM workers hail ruling on pension plans

IBM workers and others in Vermont welcomed the ruling by a federal judge in Illinois on Thursday that IBM Corp. had illegally discriminated against 140,000 employees on the basis of age when it changed its pension plans in 1995 and 1999.

"This was a great victory for IBM employees and for millions of employees at other companies which will probably think twice before they switch to other plans and rip off their employees," James Leas said Friday.

Leas is an attorney in South Burlington and a former IBM employee who helped spearhead the fight against the pension plan switch both in Vermont and nationally.

IBM vowed to appeal the ruling, saying the company did not discriminate.

"This is a situation where a few have spoiled it for millions of U.S. workers," said J. Randall MacDonald, IBM senior vice president, human resources, in a news release.

IBM's Vermont plant in Essex Junction employs 7,000 people who design, make and test computer chips for electronics. The plant became a hotbed in the battle over the pension plan issue, which also allowed the long-spurned unions to gain a foothold.

Under the old plan, retirees received some portion of their accrued pension if they quit before they became eligible, but they received the full amount only after age 55 or 30 years with IBM. IBM and other companies switched to a more portable cash balance plan that accrues retirement benefits for workers evenly over the years.

U.S. District Judge G. Patrick Murphy estimated IBM's switch decreased some older workers' potential retirement payout by 47 percent.

Employees banded together to protest the switch in a lawsuit filed in U.S. District Court in the Southern District of Illinois, saying the change discriminated against older workers. Murphy ruled in their favor Thursday.

Under the court's interpretation of the law, every cash balance plan in the country is illegal, said IBM spokeswoman Kendra Collins in Armonk, N.Y. "We strongly disagree with this ruling," she said.

The company said its benefits remain among the most generous in the computer industry, and the changes were necessary to meet the needs of a highly mobile work force in which workers rarely spend their careers with one company.

Friday, the Vermont plant's executives distributed a memo that blasted the ruling and promised to fight to the end.

"The note was almost a slap in the face. It almost seemed like it should have been directed to stockholders," said Paul Sala, who works in Global Services in Vermont. "Everyone in the halls is talking about how inappropriate it was."

Sala, who has 20 years with IBM, supported the new cash balance plan, but criticized the way IBM made the switch. The 44-year-old would have lost 40 percent of his pension if he had not just made the cutoff when IBM reconsidered and allowed some of its older workers to keep the old plan.

"It is a good plan for new employees, but when they did the conversion it was the older workers who lost their value in their portfolio," Sala said. "That was wrong."

He did not believe the verdict would have much impact on other companies that also switched over. "Other companies that switched over did it in a more fair way," Sala said.

Other employees weren't sure what the ruling would mean if IBM lost on appeal. Some doubted that IBM would be able to pay back the estimated $200 million in annual savings from the cuts and still remain solvent.

Thursday's ruling came as a shock to 43-year-old Guy Hauck because IBM had seemed so confident. The technician with 22 years at IBM lost 50 percent of his pension when IBM made the switch back in 1999.

"I don't think this thing is dead yet, but they only have a 50 percent chance of getting this appealed," Hauck said. "Nobody really wants to say anything just yet. We don't want to hold out our hopes."
Contact Sue Robinson at 660-1852 or srobinso@bfp.burlingtonfreepress .com ^new ( Display, modify, or delete resource in a separate tab or window.)

- Work-force changes at Essex Junction plant

1957: IBM chooses Essex Junction as the manufacturing site for its Data Processing Division, leasing a 40,000-square-foot building from the Greater Burlington Industrial Corp. By the end of the year, 500 workers are at the site.

1964: IBM announces Essex Junction will build the System 360 computer. By the end of the year, the plant employs 800 workers and is undergoing a 300,000-square-foot expansion.

1969: New laboratory complex is built. Site expands to 820,000 square feet, and employment reaches 3,850.

1982: Employment hits the 8,000 mark. IBM purchases land in Williston for laboratory
development.

1989: IBM announces plans to cut its global workforce by 10,000, fighting to maintain its No. 1 position in the computer industry. Under the first of several job ''buyout'' plans by the company, 400 workers are trimmed from the Essex Junction plant payroll. Employment falls to 7,000.

1992: IBM announces alliance with Toshiba Corp. of Japan and Siemens AG of Germany to produce the 256-million-bit chip, to be developed in East Fishkill, N.Y. Voluntary retirements and buyouts continue at IBM Burlington; employment tumbles to 6,300.

1993: IBM transfers 450 workers from East Fishkill to the Essex Junction plant on temporary assignment. Essex plant avoids layoffs; 750 workers take voluntary buyout. Employment at 6,000.

July 1994: IBM annouces it added production workers, resulting in first employment increase at Essex Junction plant in more than a decade. Employment at 6,200.

December 1994: 300 employees are notified they are among the first ever to be laid off at the Essex IBM plant.

November 1996: Approximately 200 workers accept buyout offer as part of corporate-wide downsizing effort.

June 1999: IBM changes employee retirement to save money. Long-term employees standed to loose up to 33% of their retirement through the change. IBM employees start process of starting a union.

March 2001 IBM Announces it has responded to by it employees to start a union by secretly building a manufacting plant in China. All Endicott jobs will go there, where workers will get $60/week plus room and board.

July 2001: More than 100 temporary workers are laid off. Company expects to eliminate all of its approximately 400 temporary positions by September.

August 2001: Hours are cut for manufacturing workers ,which results in less pay for about one-half the workforce at the plant. Plant population at record high 8,500.

Nov. 28, 2001: IBM hands layoff notices to 500 engineers, managers administrators and technicians.

May 15, 2002: IBM president and CEO Sam Palmisano says company's semiconductor division has surplus capacity and will need to "make some adjustments."

May 23, 2002: A top IBM official tells Essex Junction managers that the plant is not for sale.

May 29, 2002: Essex Junction loses fewer than 10 jobs as part of companywide cuts in its Global Services Division.

June 4, 2002: IBM cuts 988 jobs in Essex Junction; the cuts do not include production workers.

Aug. 2, 2003: Reduces hours for 2,400 manufacturing workers at Essex Junction.

Aug. 18, 2003: IBM cuts 500 jobs in Essex Junction; the cuts exclude manufacturing workers. Another 3,000 workers are told they will take a week off in September without pay.

Nov. 2003: IBM decides not to sell the IBM Burlington manufacturing plant in Essex Junction. ^new ( Display, modify, or delete resource in a separate tab or window.)

- By Aki Soga -- Free Press Staff Writer

For IBM in Essex Junction, 2003 was a year punctuated by the loss of hundreds of jobs, but ending on a more hopeful note: a declaration by the site's top executives that massive cuts were over.

The job losses came amid a continued slump in the technology industry and losses in what IBM calls its technology business, which consists almost entirely of manufacturing semiconductor chips.

The cuts are not a sign of the plant's imminent demise, said John DiToro, who took over as IBM Essex Junction's top executive in July.

While true that the Vermont site was no longer making the company's latest microprocessors -- the chips that power personal and other computers -- Essex Junction had launched itself into a market that would breathe new life into the technology that had been developed there.

IBM reduced its Vermont work force by 800 in 2003 -- 500 jobs cut in August and another 300 positions lost through attrition. By year end, IBM put the Essex Junction plant population at 6,000, down another 200.

IBM spokesman Jeff Couture said the site lost some positions to attrition and transfers -- fewer than 50 -- and previous counts included long-term temporary workers.

"It's a more accurate accounting," Couture said of the latest count.

The cuts in 2003 came on top of the 1,500 jobs lost at the Essex Junction plant since November 2001.

DiToro's optimism is driven by a reworked vision of what IBM Essex Junction is about.

The Vermont plant was long considered the start of IBM's semiconductor manufacturing operations, where state-of-the-art technology turned the industry's leading-edge advances into mass-produced chips.

Essex Junction was unseated from its top spot in the company's chip-making hierarchy when IBM opened a semiconductor plant in East Fishkill, N.Y., in 2002. That development, along with the job cuts, fed local fears that one of the state's main economic engines was considering shutting down or selling its Vermont operation.

In the fall, DiToro said the Essex Junction plant was not for sale and was not shutting down.

He said the plant's mission was largely misunderstood and the semiconductor industry consisted of more than a race to top Intel's latest Pentium chip.

First, he said the Essex Junction plant was the only qualified source for thousands of parts used throughout the industry, a fact that ensured that IBM cannot afford to shut down the site for fear of angering its top customers.

"That doesn't mean thousands at any one time," DiToro said. "There are thousands that customers have the right to call on."

Second, technology that might be considered obsolete in the world of microprocessors has "cutting-edge" applications in other fields of semiconductor chips.

DiToro calls IBM Essex Junction's contract announced in September to produce power management chips for Intersil Corp. the "poster child" of this strategy.

Intersil started making the chips at its own plant in Florida, but decided to look for help when it pushed to increase production volume. The move meant Intersil could avoid the costly investment in the technology needed to mass-produce the chips.

The kind of manufacturing technology IBM Essex Junction had for making microprocessors two or three generations old was "state of the art" for the kind of chips Intersil produced.

Although the contract is for five years, DiToro saw long-term potential in IBM's relationship with Intersil, the kind of relationship that would keep the lines busy at Essex Junction.

"This is their next-generation set of products that they're starting to design and sample now," DiToro said. "The typical run life of these power management chips is 10 to 15 years."
Contact Aki Soga at 660-1866 or asoga@bfp.burlingtonfreepress.com
^new ( Display, modify, or delete resource in a separate tab or window.)