Telco Inc

The above quotation is from our TelCo Retirees Association, Inc. "Mission Statement." The information below is to make you aware of pending federal and state legislation that has the potential to radically impact sacrosanct television programming and to permit telecom competition with existing cable companies.

(A national alliance of consumer advocacy groups committed to promoting maximum choice 4 consumers in cable, video and broadband service)

C4CC seeks a deregulated, pro-consumer cable television market that stimulates fair price, more choices and improved service options.

…Consumer Choice and Broadband Deployment Act of 2006 (U.S. Senate, Commerce, Science and Transportation Committee.

…California AB2987 - provide for a statewide franchising of cable and broadband.

Passage of this state and federal legislation would provide State-Wide Franchising of Cable and Broadband and. would require all such providers to include the added functions of public education and government channels, now required of cable companies.

The approval of this pending legislation will inject competition into the cable television market and provide consumers with a freedom of choice.

Mr. Steve Forbes (Editor In Chief - Forbes Magazine) made the following statement in the June 5^th issue entitled, "Nettlesome Idea."

"Beware, investors of an idea called ‘Net Neutrality.’ Net neutrality’s seemingly benign, superficial appeal is that Internet Network Providers would have to give equal treatment to all traffic on their networks, with no transmissions getting preference over others."

‘The major telecom firms, such as Verizon and AT&T, are pouring billions of dollars into building extensive fiber-optic networks. Among other things, they are beginning to provide television programming to compete with cable companies, which, in turn, are going into the telephone business. The telecom also want to offer new services with which providers, for a fee, could have certain kinds of traffic move faster than others. It would be similar to sending a letter via FedEx versus traditional mail. You pay a premium to FedEx for speed and reliability. But net neutrality regulations would bar this kind of tiering."

"Networkers shouldn’t be permitted to discriminate against particular Web sites or services, but they should otherwise be free to do as they see fit. Only in this way will the necessary investments be made to bring us out of our high-tech Stone Age."

"Net neutrality would discourage the kind of investments Verizon and others are making. It would be equivalent to the disastrous 1996 Telecommunications Act, which forced the telecoms to provide access to competitors at below market prices, a critical reason that we haven’t developed broadband the way numerous other countries, such as South Korea and Japan, have. Experts say we are technologically years behind. Net neutrality would require voluminous regulations to ensure that all traffic is priced the same."

Your TelCo Retirees Association, Inc. believes the passage of this federal and state legislation is extremely vital to the interests of AT&T, its customers, owners and retirees!

The "Consumers for Cable Choice" have asked for the support of our membership and our association to ensure passage of this extremely important state and federal legislation.

Your Officers and Directors urge your individual support for this critical and vital legislation and we encourage the sharing of this information with all of your Pacific Bell/ Nevada Bell friends and associates. You may go online and sign the Electronic Petition to Congress for Cable Choice www.consumers4choice.org

Our Association has been made aware through the efforts of Robert and Cynthia Scarborough (PTG/TelCo members residing in Oregon) that with the recent change from the State Street Financial institution to Fidelity Investments, a serious error has occurred in the PTG ESOP (Employee Stock Ownership Plan) for Pacific Telesis retirees.

"If you have a PTG ESOP Savings Account and you received letters in the past three weeks telling you that Fidelity Investments established a new policy under the AT&T provisions that you must maintain a minimum of $5,000.00 in your PTG ESOP Account or it would be divested to an IRA of their or your choosing, or that you must take a distribution with full tax implications by 6-16-06 - THAT IS IN ERROR!

"Fidelity Investments made a mistake upon taking over the Savings Plan from State Street for SBC and misunderstood the rules and law's associated with PTG and 3 other AT&T ESOP plans they assumed responsibility for in April 2006.

"You do not have to do anything, you do not have to take a distribution, nor do you have to accept the announced transfer to an IRA of Fidelity Investments choosing, or one of your choosing. Also, if you are 62+ and retired, you will not have to accept a Taxed Distribution. That was in ERROR and a letter is forthcoming within the next 3 weeks to you, correcting the previous letters and in effect canceling the announcement you may already have received from Fidelity Investments.

"Legally there is no way Fidelity Investments can arbitrarily determine the minimum balance for the PTG ESOP accounts, nor decide they are going to move or divest your interest in these accounts without an AT&T Board of Directors directive to that effect, which has not happened!!! THERE IS NO MINIMUM, AND THERE IS NO WAY THEY CAN FORCE A TRANSFER TO AN IRA, and OR TO FORCE YOU TO ACCEPT A TAXED DISTRIBUTION regardless of your age.

"All PTG ESOP accounts have been corrected in the Fidelity Investments systems to ensure that no arbitrary action by 6-16-06 or at any later date will take place affecting your holdings in your PTG ESOP account.

"If you are in doubt, contact Fidelity Investments and ask for information on your particular PTG ESOP Account."

The TelCo Retirees Association, Inc. is indebted to the Scarborough’s for their efforts on this and other health care benefit issues during the past months.

This letter was individually addressed to U.S. Senators and Representatives in leadership positions on committees involved with pension reform legislation and to pension reform committee conferees.

Dear Senator / Congressman

As the House and Senate move forward to conference on pension reform legislation, we, the undersigned, on behalf of our constituents, respectfully request that you give every possible consideration to the critical issue of the use of pension plan surplus assets. This issue is of great importance to retirees and we believe that our position is consistent with the intent of Congress in its extraordinary effort to bring about significant and equitable pension reform.

S. 1783 modifies Sec. 420 of the Internal Revenue Code to allow the transfer of so-called "plan surplus" to IRC Sec. 401(h) healthcare trusts to the extent that assets of the plan exceed 115% of the plan’s current liability (as opposed to the current requirement that plans may only transfer assets if the plan’s assets exceed 125% of the "current liability") under restriction of the so-called 125% surplus protection rule. This change requires very cautious review by the Conference Committee and where not bargained for under the terms of a collective bargaining agreement, should not be acceptable. Non-represented participants bear unprotected risks:

An important improvement over the current law is the principle in both the House and Senate bills that the funding target for all pension plans be 100%. We strongly endorse this principle. However, we also strongly believe that the Senate provision reducing the surplus protection rule in Section 420 from 125% to 115% would be extremely harmful to retirees and would not in any way address the nationwide problem of rising healthcare costs. If enacted, the lower 115% limit would permit transfer of an additional 10% of plan assets to the corporate bottom line and add significant plan asset risks for pensioners. We believe this amendment is contrary to prudent pension reform.

Protection of assets from short-term volatility in equity markets was the basis for setting the current 125% limit. If there is any lesson Congress should have learned from the current pension funding crises is that the journey from "overfunded" to "underfunded" can be swift and unexpected. To reduce the security for pension funds from 125% to 115% after having come through the past few years of investment downturn is simply shortsighted and dangerous. The record is replete with examples of pension plans that were overfunded prior to 2001 but now are in serious financial trouble because poor investment returns and untimely and/or ill-advised investment decisions during the 2001-2003 U.S. equity market meltdown and the attendant "at risk" financial condition of many companies (then and today). Imagine the even greater enormity of the problem if these plans had been allowed to skim off pension assets at a reduced level of 115% of plan surplus. Reducing the cost maintenance period 20% (five to four years) would place non-bargained retiree healthcare benefits at risk earlier, this is simply uncalled for.

While new reform rules are likely to initially affect actuarially determined asset and liability values slightly, thus reducing plan funding percentages below pre-pension reform levels, such changes will be part of settling in to a new more secure set of rules and should not be viewed as an opportunity for Congress to permit plan sponsors to raid plan assets under a lower, 115% threshold. The current protection of 30% (125% minus 95%) would be cut in half to 15% (115% to 100%) under a 115% rule. This increases the chances that a single major decline in equity markets and / or bad investment decisions would cause plans to fall below the new 100% limit and that, in turn, would force another round of plan failures dumped in the lap of the PBGC and ultimately all taxpayers.

On the other hand, S.1783 contains some change to Section 420 that we support. Namely, we support the provisions that require collectively bargained plans that preserve the 125% surplus protection rule yet enable the bargaining parties to agree to certain other changes to Sec 420 to make the implementation of Sec 420 transfers more workable. Such agreements protect the 125% rule but enable companies with well funded plans some short-term relief from healthcare costs under the check and balance system of a negotiated contract. These provisions in S.1573 protect pension plan assets while accommodating sensible use of surpluses. We support inclusion of these provisions for collectively bargained plans in the Conference agreement.

We believe we have given thorough consideration to provisions of both the House and Senate bills and to oral and available written positions on this matter, to the best of our abilities. In addition, we requested a third party expert opinion from an experienced actuary. We have attached a copy of his biography and lengthy opinion, much of which addresses the rationale and need to preserve the 125% protection rule.

We strongly believe that reducing the surplus protection rule below the current 125% limit would be a serious mistake that will endanger long-term pension security under non-bargained plans and assert that lowering the 125% limit is not in keeping with the current spirit or intent of pension reform or the integrity of why new funding rules were established.

It was nice talking with you last week when we discussed some of the provisions of HR 2830 and S 1783, now about to go to a Conference committee. These bills attempt to strengthen defined benefit pension plan funding in private industry.

You asked for my written comments on that part of S 1783 dealing with the lowering of the 125% hurdle to 115% in Section 420 and also asked my opinion on whether or not a well-funded pension plan should withdraw money to pay for company restructuring costs such as severance benefits, layoff allowances or other business restructuring costs.

The former is a contraction of the rule that permits a defined benefit pension plan sponsor that has a plan surplus in excess of this % hurdle to set up a special allocated account, 401(h), within the plan assets and put surplus in that account to be used by the firm to help pay for retiree medical premiums or payments.

The later is simply skimming participant funds to pay for corporate restructuring (downsizing). Active employees get cash to leave early, not a defined pension benefit. The plan loses assets but liabilities remain, thus weakening the funded position.

Rules established by Congress and FASB in the 80’s created a bizarre, complicated and expensive situation to implement, an environment that jeopardized the entire private pension industry. These flaws were not only terrible for plan sponsors, but the flaws were subsequently exploited by some plan sponsors to the extreme detriment of literally millions of plan participants (see my comments on Milken, below).

First, and least understood by non-actuaries is that for an ongoing plan, pension ‘surplus’ is a natural part of the actuarial funding process, and does not mean the dictionary definition, ‘not needed’. Next years, ‘surplus’ could just as easily be an unfunded obligation.

As a pension actuary, my first reaction is that I am not in favor of any provision that permits defined benefit plan assets to be withdrawn prior to the satisfaction of all obligations to the plan participants. Any law that permits money to be siphoned off from a defined benefit system before all promised benefits are taken care of, regardless of the reason, weakens the future financial viability of the plan.

These include the using of assets to pay for ‘open window’ programs; the use of ad hoc subsidized lump sum benefits; ‘surplus’ take backs for any reason–certainly not for severance benefits, which often come when a company gets into financial trouble, scarcely the time to deplete pension assets. These do not even meet the definition of a benefit under terms of specific defined pension plan provisions.

When investment markets fluctuate, as they always do, taking money out when they are up, means you are constantly requiring more contributions, especially in a down cycle. And if the plan should be terminated or be severely curtailed, it is the plan participants that will suffer - and/or the PBGC. How anyone could even imply that reducing this 125% barrier to 115% level is going to strengthen funding defies any professional reasoning I know of. This is simply a ploy that will allow skimming of additional assets that should be protected to satisfy plan liabilities.

Let’s review what happened here in the in the late 70’s–and then following that in the early to mid-80s. It was a wild financial time, to put it mildly.

In a few short years inflation and interest rates soared, from a low of around 3-4% in the late 70’s to more than 19% in the early 80’s! We had the most severe economic and financial crisis since the 1929 Stock market crash–and this of course affected actuarially advance funded pension plans. One immediate result was a collapse of both bond and stock markets.

Pension actuaries raised their interest assumption modestly, but nowhere near where their critics wanted. Those critics included some of our clients. While new contributions could be invested at the higher bond rates, the large assets losses mitigated against major interest rate increases. While the increases in interest rates that were instituted lowered pension liabilities somewhat, the liability decrease was relatively modest by comparison to the major decline in assets–causing corporate defined pension plan sponsors to pony up more money. Had actuaries succumbed to those critics little if any additional contributions would have been made. But as it was, these additional plan contributions, however, would soon prove highly beneficial since they were being invested at a major bottom. (Which illustrates how the actuarial advance funding process, when allowed to function unimpeded and done right, contains a self-correcting mechanism.)

As a result of the fed’s major tightening in the early 80s, interest rates came down dramatically over several years and investment markets, both bonds and stocks, soared. For many years thereafter, we saw stock returns of more than 15% compounded (albeit with wide short-term swings), one the greatest bull markets in history. (Even through today the overall compound returns on stocks has been more than 13%, a full three percentage points above historical averages--and this is after the significant crash that began in March, 2000.)

When the stock market was way down, Mike Milken came onto the scene. He used ‘junk bonds’ and began buying very large corporations, dismissing thousands of employees, and breaking apart the company and selling off the pieces. He made a fortune initially when the markets came back, but along the way discovered something else important.

The pension plan surpluses had become so huge that they were often worth more than the company itself–and most importantly there were no laws preventing the plans from being terminated and the surpluses recaptured! Then he banded together with other crooks and began the takeovers of some of America’s largest and finest companies–companies that had been around for more than a century.

Milken also discovered that a flaw in the way benefits accrue in the pension plan–thanks to ERISA–made the downsizing of employees even more profitable. Downsizings caused major actuarial ‘gains’ to the plan and these lowered both the IRS cash minimum funding contributions and also pension expense–improving profits and of course the stock he now controlled, over and above everything else.

Companies then became aware that pension ‘surplus’ was now making them a target of Milken & Company and others, and wanted to know how to get rid of these surpluses. Various stratagems were employed, some successful, some not– but one that was successful ones was this 401(h) provision. Plan sponsors and the health insurance industry lobbied this section of ERISA in successfully; they had much to gain!

Eventually, Milken and others were caught and the grabbing of pension surpluses could not be done without significant tax penalties–serious damage had been done, pension surpluses were not something many plan sponsors favored. Greed displaced protection. As you might suspect, not many legislators were lobbied to enact protection laws.

Congress did not take pension reform action then. In my opinion, this was not just due to ignorance regarding pension surplus and the actuarial advance funding process, but also because there were huge budget deficits and concerns over the tax revenue losses.

The concern over tax losses also caused Treasury to nix Actuarial Advance Funding for corporate retiree medical plans on the same basis as defined benefit pension plans. And because FASB was going to soon require an accounting expense for active employees for corporate retiree medical plans (FAS 106), which were then all funded on a Pay-As-You-Go basis, corporations subsequently decided to either substantially reduce benefits or get rid of these plans. This process continues today.

It is important to understand that actuarial advance funding, if done right, is a rigorous, systematic and self-correcting process, it sets aside money to be invested such that this money plus the investment returns will, in time, exactly pay the promised benefits.

Pension assets serve two major purposes. One is to provide backing for the promised benefits. The second is to have investment returns pay for a major part of the benefits–more than two-thirds for a long-term plan. The former is usually recognized while the latter often is not.

In summary, defined benefit pension plans and corporate retiree medical plans today cover fewer than half of what they covered at the beginning of the 80s–and those that continue often carry smaller benefits. You do not rob Peter to pay Paul, thus weakening the financials of the pension plan, even if the motive, to help pay retiree medical payments is a good one. The S.1783, 115% proposal is ridiculous! Also, using pension plan assets to pay cash to reward downsized employees under open window programs, should never be allowed. On that latter point, few if any companies ever enacted an open window program and had it cost money. Typically it saves a lot of money, if not immediately, at least in the next several years and this is very carefully estimated.

If Congress wishes to help companies reduce costs for their retiree medical programs, all they have to do is enact legislation that forces companies to actuarially advance fund retiree medical and give the same tax breaks they give defined benefit pension plans. On the other hand, plan sponsors do not have to wait for Congress to act, they can easily actuarially advance fund without these tax breaks and the reduction in costs will still be very significant, although less. Corporations, like GM, and many others, might even stave off bankruptcy by doing this.

By the way, in all the years I was a pension actuary, I never saw a defined benefit pension plan that had a Normal Cost under the Entry Age Normal Actuarial Cost Method–that is, the cost, level as a % of pay, once the unfunded Actuarial Liability was amortized–that was more than 5% of pay, and most were under 4% of pay. And Social Security, if advance funded, by the way, could also cost under 5% of pay, once the unfunded past service obligations are amortized.

My book, in writing stages now, contains much detail on the above, and also an entire chapter on Cash Balance plans, which I regard as age discriminatory and a huge rip-off to older participants, as well as a severe cutback for younger ones. None of the pension reform proposals fully fix the underlying problems, not even S 1783. HR 2830 allows companies that have cash balanced their employees to get away scot free! Amazing! My letter to the IRS dated March 13, 2003 on Cash Balance plans contains further information on this subject.

If further clarification is needed or if I can be of any further help to you or members of your group or members of Congress on anything I have said here, please contact me.

Fellow, The Society of Actuaries (FSA), Member, American Academy of Actuaries (MAAA)

SEC/Exchange Commission

The Securities Exchange Commission requires an organization, such as ours, to purchase and hold $2,000.00 in corporate (SBC) stock for a minimum of one year prior to the presentation of a proxy statement at the annual stockholders meeting. (The TelCo Retirees Association, Inc. originally purchased $2,000.00 of SBC stock in July 2004 and purchased an additional $2,000.00 of SBC stock in April 2005 to assure the Association meets all SEC requirements.)

It is the intention of your Association that Officers/Directors (where possible) will attend future SBC stockholder meetings. We encourage all Pacific Bell/Nevada Bell (whether or not they are members of our Association) to attend SBC annual stockholder meetings to assure retiree representation is visibly apparent to SBC Officers and Directors at these meetings.

The purchase and holding of SBC shares provides us with the privilege and rights of submitting stockholder proxy statements to the corporation (SBC) at the annual shareowners meetings. This item is to be discussed at the upcoming meeting in Chicago .

It is our intention to consider the adoption of two proxy issues.

A. The election of independent SBC Directors and B. The restriction of Officer bonuses and other forms of compensation based upon aggressive goals realistic of attainment and accurately supported by financials.

Since your TelCo Retirees Association, Inc. will have SEC and legal rights to represent our members interests at future SBC annual stockholder meetings and since we shall be developing TelCo Retirees proxy statements or presentation at these shareowner meetings, we will request your formal right to vote your shares at these meetings.

It is our hope that we have warranted your trust and support as we embark upon this new TelCo Retirees Association, Inc. venture.

Charles Gilbert, President/CEO

Medicare Prescription Plan

SBC has elected to accept the Medicare 28% non-taxable subsidy reimbursement and will continue its retiree pharmaceutical benefit.

The significance of this decision for the Medicare eligible retirees is monumental . If SBC had followed the Verizon company–s decision to eliminate pharmaceutical coverage, our retirees would have been forced to enroll in the Medicare plan or seek pharmaceutical coverage elsewhere.

Medicare Part D annual premiums are estimated at $420 ($35 per month). The initial deductible is $250 per year. After that, Medicare covers 75% of prescription costs until drug expenses for the year reach $2,250! Then, the infamous donut hole takes effect and the retiree covers all the prescription drug costs until expending $5,100. The retiree will normally have incurred out-of-pocket expenditures of $3,600.

Should the retiree–s total prescription drug costs exceed $5,100 in a single year, there will be catastrophic coverage to cover 95% of all costs over $5,100.

(The Medicare plan, as presently proposed, will have a list of drugs that are covered by the plan. For drugs not listed by Medicare, the retiree must pay the entire cost of the drug and that cost will not count toward either the deductible or the threshold for catastrophic coverage.

Telephone Concession Benefit

The TelCo Retirees Association, Inc. was forced to withdraw our formal CPUC complaint (filed May 13, 2005) because SBC had filed an addendum to the A5 Tariff, which nullified the basis of our complaint. An order of dismissal was granted by the Public Utilities Commission on September 30, 2005 at San Francisco , CA .

We are currently pursuing an interested party status with a Class Action lawsuit filed by a Washington , D.C. law firm (Cohen, Milstein, Hausfeld & Toll, P. L. L. C.) against the SBC Corporation for its failure to provide telephone concession service to retirees as called for in corporate documents. This Class Action complaint was filed in the U.S. District Court, Western District of Texas March 24, 2005.

As a reminder, the US West retiree association (USWRA) successfully filed a federal lawsuit against the Qwest Corporation. Qwest has agreed to refund monies to over 4,000 retirees who were deprived of their company promised telephone concession benefits. They are also negotiating with USWRA to offer unlimited long distance serviceÅ to affected retirees in lieu of exchange service.