For links/summaries to some of the best external compensation/benefits stories on the web, see below.
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Medical Costs for Retirees Continue to Rise, Study Says
A couple retiring this year needs about a quarter of a million dollars to cover medical expenses, a new study reports. The $240,000 estimate is a 6.7% increase from last year's, and the cost is expected to keep rising,
reports the AP/Los Angeles Times.
Medicare pays about half of the health care costs for current retirees, and even that is in jeopardy. The Medicare trust fund reported last year that it expects to be insolvent in 2019 and needs either a payroll tax increase or a cut in benefits to keep it fully functional. That means Medicare may not provide the same level of support for future retirees.
"There are deductibles and co-payments and things that aren't covered that people aren't aware of until they get there," said Paul Fronstin, director of health research and education at the Employee Benefit Research Institute.
3/27/09
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Help Employees Avoid Retirement Savings Missteps
A new report from the National Center for Policy Analysis,
Ten Ways to Wreck Your Retirement, has advice that could help employees avoid practices that can derail even the best retirement plans.
Among the most common missteps about which employees should be educated:
Don't Leave Matching Funds on the Table. Not taking advantage of an employer’s matching contributions to a 401(k) account is like turning down a raise. An employee who turns down a dollar-for-dollar 401(k) account match of up to 5 percent of his salary is passing up 5 percent bonus paid with untaxed dollars.
Don't Borrow against 401(k) Savings. This is a surefire way to set back one’s retirement plan by thousands of dollars through lost compound interest. A $25,000 loan today can cost more than $175,000 in lost retirement interest income over 30 years.
Don't Cash Out 401(k) Savings. Cashing out a 401(k) account when changing jobs means that more than one-third of the balance can be eaten up in taxes and penalties.
Don't Jump In and Out of the Market. In 2008, 401(k) plans lost an estimated $2 trillion in value. But this “loss” would have been on paper only, were it not for the fact that many workers essentially locked in their losses by selling their equity funds during the recent downturn.
3/27/09
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Retention Bonuses Suffer from AIG Fallout
Despite the furor over pay at American International Group (AIG), companies routinely defend retention bonuses as a way to coax employees to stay on through rough patches. But the idea of giving employees, even valuable ones, a bonus for showing up at work might strike many ordinary Americans as absurd, particularly at a time when so many jobs are disappearing,
reports/opines the New York Times.
Some compensation consultants, who generally support such bonuses, concede that the fracas over AIG has given these payouts a bad name. Some suggest a bit of rebranding is in order, and that the term “retention bonus” could disappear, even if the payments do not.
3/27/09
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Some Surveys Show More 401(k) Sponsors Cut Matches; Others Don't
SHRM Online recently reported that 3 out of 5 employers had kept their 401(k) match despite the recession, and that participants were maintaining their contribution rates, citing a survey released in March by the American Benefits Council and WorldatWork (see story
here). But other recently studies suggest more pessimistic findings, report
USA Today and the
Wall Street Journal.
Some of the most dramatic numbers came March 25 in a report by Spectrum Group, whose relatively small survey of 150 plan sponsors found that 34% of U.S. employers have reduced or eliminated the company match in the past 12 months. A separate Spectrum online poll of 400 active retirement plan participants found that 20% of employees had decreased their savings rates and another 5% planned to in the next 12 months.
But according to the Wall Street Journal story, service provider T. Rowe Price reports that only 7% of its large clients have made some sort of change to their match as of March 25. And Fidelity Investments, the nation's largest provider of workplace retirement-savings plans, said as of the beginning of 2009 only about 4.6% of its plan sponsors had suspended or reduced their matches. (Fidelity recommended that companies, rather than cutting the match entirely, consider adjusting the match formula or limiting eligible populations.)
3/26/09
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Lax 401(k) Monitoring Places Some Sponsors at Risk
Just 58% of 401(k) plan sponsors maintain minutes of retirement plan meetings,
reports MarketWatch, citing a recent
survey by Grant Thornton. Only 27% of plan sponsors said they use an independent party to analyze plan fees. And a mere 29% say they had established a "clear chain of authority for their plan's governance committee."
Given those findings, Grant Thornton said the retirement plans surveyed -- and presumably many others -- would have a tough time "supporting the prudence of their fiduciary decisions in the face of a Department of Labor audit."
3/26/09
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GAO Calls for Stricter Overtime Enforcement
The Labor Department’s Wage and Hour Division, charged with enforcing overtime, minimum wage, and other labor laws, is too lax, according to the Government Accountability Office (GAO), Congress’s investigative arm,
the New York Times reports.
“This investigation clearly shows that Labor has left thousands of actual victims of wage theft who sought federal government assistance with nowhere to turn,” a new GAO report alleges. “Unfortunately, far too often the result is unscrupulous employers’ taking advantage of our country’s low-wage workers.”
“We have a crisis in wage theft, and the Department of Labor has not been aggressive enough in recent years,” said Kim Bobo, executive director of Interfaith Worker Justice, an advocacy group. Secretary of Labor Hilda L. Solis said she took the report’s findings seriously.
3/25/09
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Insurers’ Proposal Requires Health Coverage for All
The nation's health insurers offered to stop basing people's premiums on their health and extend coverage to all Americans regardless of pre-existing conditions — provided that everyone is required to get insurance,
reports USA Today.
The suggestion from America's Health Insurance Plans, which represents nearly 1,300 companies insuring more than 200 million people, marked the first time the insurance industry has made such a proposal.
President Obama has not detailed how the health care system should be changed. He has left that largely up to Congress, which will try to write legislation in hopes of passage in the fall.
3/25/09
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Pension Funds May Invest In Treasury Program
Some of the largest U.S. pension funds likely will invest in the Treasury's new program to restart the market for troubled mortgage loans and mortgage-backed securities,
reports CNNMoney.com. Under the program, the Treasury would provide 50% of the equity capital for each fund while private managers would retain control of asset management subject to Federal Deposit Insurance Corp. oversight.
Dev Clifford, a managing director at consulting firm Greenwich Associates, predicted that some of the largest pensions would invest "because they're able to make a monetary commitment that is not a huge proportion of their assets."
These pensions, Clifford said, typically set aside funds for "opportunistic assets." But they would be looking for something that "is a good risk adjusted return and at the same time something that is less correlated with other parts of the portfolios."
3/24/09
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DOL Extends Deadline, Re-Reviews (Not So) Final Investment Advice Rule
The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) published in the March 20, 2009, edition of the Federal Register
a notice extending to May 22, 2009, the applicability and effective dates of the final rule on investment advice under the Pension Protection Act (PPA).
The PPA amended the Employee Retirement Income Security Act by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and individual retirement accounts to obtain investment advice. On Jan. 21, 2009, the department published the final rule.
The department has decided to postpone for 60 days the effective and applicability dates of the final rule to give it time to review legal and policy issues raised by many of the 26 public comment letters it received.
3/23/09
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Intel Seeks to Revalue Worthless Stock Options
Intel is seeking permission from its shareholders to revalue worthless employee stock options, a controversial move that the world's biggest chipmaker says is needed to retain critical staff,
reports Reuters via the New York Times.
Under the plan, Intel would exchange underwater stock options -- whose exercise prices are above the current stock price -- for new options at current market prices. The offer would be open to all employees excluding senior executives. Other technology companies that have taken similar actions include Google, eBay and Advanced Micro devices.
While the move might offer incentive to hard-working employees, it could face opposition from some shareholders who are not being similarly compensated.
(To learn more, see the SHRM Online story,
Bringing Underwater Stock Options Back to the Surface.)
3/23/09
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Deferral Rate a Recession Victim
Overall defined contribution (DC) plan savings rates dropped to 7.4% of salary as of Dec. 31, from 7.8% a year earlier, according to data from Hewitt Associates. Also, 5% of employees terminated their 401(k) plan contributions entirely last year, compared to 3% in 2007,
reports Pensions & Investments.
According to data from The Vanguard Group, 3.1% of active defined contribution participants in plans serviced by the money manager halted their contributions in 2008. That compares to 2.4% in 2007. Two-thirds of all participants who stopped contributing in 2008 did so in November and December, when 1.1% and 0.95%, respectively, halted contributions.
November's level might be the result of “exceptional market volatility,” according to Vanguard. Steve Utkus, head of Vanguard's Center for Retirement Research, said he expects the rate of employees opting out of DC plans to rise to 4% if the economic downturn continues or lingers.
3/23/09
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Hourly Wal-Mart Workers to Get Bonuses
Wal-Mart is awarding approximately $2 billion to its U.S. hourly employees through financial incentives as the retail chain gains market share,
reports Reuters via USA Today.
Wal-Mart CEO Mike Duke said the retailer is awarding roughly $2 billion to U.S. hourly employees, which includes $933.6 million in bonuses, $788.8 million in profit sharing and 401(k) contributions, millions of dollars in merchandise discounts, and contributions to its employee stock purchase plan. "While economic challenges forced others to step back, we moved forward," Duke stated in a memo.
A year ago, Wal-Mart said it awarded almost $1.2 billion in financial incentives to its U.S. hourly employees, including more than $636.4 million in bonuses, which are based on store performance.
3/20/09
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Financial Firms May See Brain Drain If Bonus Tax Becomes Law
A bill passed by the U.S. House of Representatives to tax employee bonuses at companies getting $5 billion or more in government bailout funds, the result of public and government outrage over $165 million in bonuses paid to employees of American International Group's financial products unit,
reports Reuters.
Bank of America Corp has a bonus headache caused by $3.6 billion in bonuses paid by its newly acquired Merrill Lynch unit in December. The bank has indicated it wants to repay government funds by the end of the year or early next year.
3/20/09
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Health Benefits Tax Break: Sacrosanct No More
To help pay for changes and reduce overall costs, lawmakers will consider curbing the tax benefits that employees enjoy when they get their health insurance plans through work,
reports CNNMoney.com.
The Senate's top tax writer, Max Baucus, D-Mont., who is also leading the push for health care reform, has asked White House budget chief Peter Orszag to consider changing the tax break that employees receive when their employers foot part of the bill for their health insurance.
The health care exclusion is the federal government's single biggest tax expenditure.
3/19/09
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IRS Lays Out Smoothing Rules for Defined Benefit Valuations
Defined benefit plan managers will be allowed to change the asset valuation methods they use in 2009 without seeking IRS approval, according to guidance issued by the agency,
reports Pensions & Investments.
The guidance, IRS Notice 2009-22, allows plans to change their method to take advantage of the Worker, Retiree and Employer Recovery Act of 2008 enacted in December clarifying that plans could smooth asset values looking back up to 24 months preceding the beginning of the plan year.
Under existing IRS rules, pension plans needed IRS approval to change the asset valuation method they used for their plans each year.
3/19/09
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Despite Economy, Some Add New Work/Life Benefits
Wall Street Journal online subscribers or those with access to the 3/18/09 print issue can read "Perking Up: Some Companies Offer Surprising New benefits." Columnist
Sue Shellenbarger reports that in recent months leading companies including Intel, Discovery Communications, Brown-Forman, USSA, Yum!Brands and Cardinal Health have unveiled new work/life benefits for rank and file workers, including childcare centers, backup child care, scholarships for employees' children, concierge services, grants for adoption expenses and domestic-partner benefits.
In the view of these companies, Shellenbarger reports, staffs are already lean and "Eventually the economy will recover. If companies lose more workers, they fear being too understaffed to cash in when that day comes." So, to ease the stress and hang on to talent they want to keep, these employers are launching programs that help employees balance their lives, and that don't have a huge price tag relative to other corporate costs.
At Silvery Springs, MD-based Discovery Communications, the fees for its new child-care center are subsidized on a sliding scale based on employees' pay, reducing the coast as much as $300 a month below market rates in as the area.
3/18/09
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AIG Firestorm Consumes Other FirmsThe firestorm over bonuses paid by insurance giant American International Group has triggered alarm at other financial firms, threatening federal efforts to draw private investors into economic recovery programs,
reports MSNBC.com.
The attack by lawmakers on AIG pay has provoked renewed complaints from some financial company executives that federal involvement in business decisions is making it difficult for struggling firms to return to profitability. In particular, executives say they need to offer bonuses to keep and motivate their most valuable employees and are already seeing an exodus of talent.
Some on Capitol Hill say the financial industry should be smaller and its jobs less lucrative.
3/18/09
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403(b) Regs Unintended Consequence: Freezing Loans
An unintended consequences of the new 403(b) retirement plan regulations is the freezing of hardship distributions and loans from contracts of "deselected" vendors, at a time when these funds are needed the most,
writes benefits attorney Robert Toth at the Business of Benefits blog.
New regs for 403(b) plans, primarily used for some nonprofits and public school districts, took effect at the start of 2009 (see
403(b) Retirement Plan Final Regs: An Overview). One change that the regs introduced: the banning of the ability of a vendor or an employer to rely on a participant's representation when taking a loan or hardship from their 403b contract. The old rule permitted such reliance, particularly for employers where 403(b) plans were adopted and administered as the individual pensions they were originally intended to be.
The wholesale "dumping" of that rule has now befuddled the marketplace, as vendors and employers try to sort out who has the responsibility for doing what employees used to be able to do, Toth argues.
3/18/09
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Change Pay, Change Teaching?
One thing holding the teaching profession back is its vastly outdated pay system, say proponents of new compensation plans,
reports the Christian Science Monitor.
Under the pay for performance system that Denver has adopted, high school math teacher Taylor Betz will earn much more this year than her normal salary might suggest, including a $2,300 bonus for working at a "hard-to-serve school," 2,300 for filling a "hard-to-staff position," $2,300 that all teachers at her school are likely to get for raising student scores on state tests, a $2,300 "beating the odds" bonus for significantly raising the math scores of her own students, and a few smaller bonuses as well.
Performance pay is one of several areas getting attention right now as education reformers zero in on high-quality teaching as the key to helping students learn.
3/18/09
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Layoffs Could Trigger COBRA Cash Crunch
If you terminated 1,000 people recently, you might have to lend the government a million interest-free bucks for a few months,
reports CFO.com. That means companies that laid off workers in the past several months as a way to retain more cash may, paradoxically, suffer a near-term cash drain as a direct result of the layoffs.
Under the stimulus package signed into law on February 17, the government will pick up the tab for 65 percent of COBRA coverage for up to nine months for employees terminated involuntarily from last September 1 through the end of this year. But companies must float the payments to their health insurers and recover the money through a credit to their quarterly payroll-tax returns. That means cash-strapped employers might have to scramble for capital in order to satisfy the law, and they won't get the money back for up to three months.
The biggest wallop could come soon. The law requires companies to notify employees eligible for COBRA coverage about the government subsidy by April 18, and gives those who previously elected not to participate in the extended-benefits program a second chance to sign up.
3/17/09
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Massachusetts: New BCBS Contracts Move Away from Fee for Service
Ever since Massachusetts enacted health reform three years ago, requiring coverage but deferring cost controls, the state has been waiting to see who would impose a model for reform and what that model would be,
according to ZDNet. The answer may be Blue Cross Blue Shield, the state's largest health insurer,
reports American Medical News.
Tufts Medical Center, one of the state’s largest, agreed to a new “alternative quality contract,” under which Blue Cross Blue Shield pays physicians on a per-member, per-month basis rather than fee for service, with the possibility for quality-based bonuses
Although so-called "capitated" contracts were once widespread, they fell out of favor in most of the country as physicians argued to plans that the flat rate did not meet the costs of delivering care, and that any savings from the stated goal of more preventive care went to the insurers. The Massachusetts Blues announced last year that it would try to revive the idea, hoping that quality bonuses would allow physicians to share in the cost savings of preventive care.
3/17/09
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Corporations Cut Severance Packages
The lucrative severance package is becoming an increasingly rare parting gift in this economy,
reports the Boston Business Journal.
Concerned about cash flow and future layoffs, companies are shrinking severance packages, which usually include a mix of pay and health benefits.
In the recent past, manufacturing plants that shuttered typically doled out up to a year of severance for administrative workers and several months for hourly workers, said Jack Healy, director of the Manufacturing Extension Partnership. But In one particularly stark example last month, 80 workers at the airbag manufacturer Mastex Industries Inc. were reportedly sent packing with no severance when the business closed.
3/17/09
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COBRA Subsidy Confusion for Workers, Employers
Since President Obama signed into law the $787 billion economic recovery effort last month, employers, laid-off workers, state officials and benefits attorneys have been scrambling to figure out the details of broad-brush provisions that are designed to help the growing number of jobless workers continue health coverage
, reports the San Francisco Chronicle.
Confusion reigns over issues such as state COBRA extension laws, various individual scenarios and the official definition of an "involuntary" termination. As to whether domestic partners would be covered, employee benefits attorneys agreed it is unlikely because the federal government does not recognize the domestic partnership relationship for the purposes of the U.S. tax code.
The U.S. Department of Labor is expected to release a model letter this week that employers can send to their former workers informing them of their new rights. Additional guidance is expected from Health and Human Services as well as the Treasury Department.
3/16/09
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Why Two Congressmen Want to Scrap Employer Health Care
Congressmen Ron Wyden (D-Oregon) and Jim Cooper (D-Tennessee) want to completely scrap the current system under which most people get their health coverage from their employers,
reports Time magazine.
Wyden and Cooper are pushing a drastically different new arrangement under which employers would turn over the money they spend on those benefits to workers, so that employees could purchase coverage themselves, from a selection of plans
Although their proposal has garnered some bipartisan support, it's considered a long shot. The political wisdom in Washington suggests that for any proposal to actually stand a chance, it would have to build on the existing employer-based system. For much the same reason, few believe that "single payer" health care — a government-financed system similar to Medicare — will be given any serious consideration.
3/16/09
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Lawmakers Target AIG Over Executive Bonuses
Key lawmakers are calling for the government to crack down on American International Group after learning the bailed-out insurance giant is going ahead with plans to pay $165 million dollars in bonuses to its executives, bonuses that AIG says it is contractually obligated to pay,
reports Foxnews.com.
Rep. Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee, noted that federal government "is the 80 percent owner" of the company and has some leverage."
"I want to look at it very carefully," Frank said. "These people may have a right to their bonuses -- they don't have a right to their jobs forever."
3/16/09
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HR Exec Guilty of $6 Million Health Care Fraud
The former senior manager of human resources of Hitachi America Ltd., a New York and California-based corporation, has pleaded guilty before U.S. Andrew J. Peck to charges arising out of a scheme to defraud the Hitachi America Ltd. Group Health and Welfare Plan of approximately $6.1 million, reports
the North Country Gazette.
Dennis M. Dowd was hired by Hitachi America in 1979 and was a senior manager of corporate benefits for Hitachi America until March of 2008. He was responsible for managing various aspects of Hitachi America’s employee benefits programs, including the plan.
In January 1997, Dowd opened a bank account in the name “Hitachi Group Insurance Health and Welfare Trust,” an account whose creation was not authorized by Hitachi America. Between 2000 and early 2008, he deposited into the account payments from an excess insurer (which covered beneficiary payments that exceeded certain dollar limits) to the company health plan. Additional checks from insurance companies and health care providers that were made payable to the plan or to Hitachi America or a corporate affiliate, were also deposited into the account, which Dowd used to pay for personal and family expenses.
3/13/09
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Goldman Change to Bonuses Helped Cut Compensation Costs in 2008
Goldman Sachs Group Inc. changed the way it doles out employee stock awards last year, reducing fourth-quarter bonus expenses by an estimated $1 billion as Congress scrutinized Wall Street pay,
reports Bloomberg News.
Workers are for the first time being required to stay at the New York-based bank at least one year to lock in part of their stock and option grants. The switch, disclosed in an annual regulatory filing, shifted costs that Goldman Sachs had traditionally recorded in the fourth quarter into 2009 and beyond.
The revised payout terms contributed to a 45 percent drop in Goldman Sachs’s per-worker compensation costs in the fourth quarter and held down its first quarterly loss as a public company.
3/13/09
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Tax on Health Benefits Proposed
Key U.S. lawmakers are advocating a new way to raise money for health care reforms: taxing the health benefits workers receive from their employers,
reports the Washington Post.
So far, administration officials haven't slammed the door on the idea, which Obama blasted last year after Sen. John McCain proposed it. But White House budget director Peter Orszag now says taxing employer benefits is among several ideas that "most firmly should remain on the table." White House economic adviser Jason Furman called for an end to the so-called "employer exclusion" before he joined the administration.
Many economists and tax analysts have long argued for changing current tax law on health coverage, which disproportionately benefits wealthier workers. The law encourages people to enroll in the most comprehensive health plans on offer, the so-called Cadillac plans that provide vast coverage, mask the true cost of health care and contribute to skyrocketing costs.
3/12/09
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Pension Deficit Soars at Big U.S. Firms
Last year's stock market collapse left the nation's largest private pension plans with a deficit of more than $200 billion, which could force companies to invest more money in their plans,
reports USA Today.
The nation's 100 largest corporate pension plans were underfunded by $217 billion at the end of 2008, holding only 79% of the assets needed to cover estimated long-term liabilities. That compares with an $86 billion surplus — 109% of estimated liabilities — at the end of 2007, according to Watson Wyatt.
Companies are also facing stricter federal funding requirements for pensions, says David Speier, senior retirement consultant at Watson Wyatt. "This combination will require employers to make staggering pension contributions over the next couple of years, at a time when they can least afford them."
3/12/09
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Americans Mull the Choice: 401(k) or the Mattress?
General Motors, Sears, Sprint Nextel, FedEx and Eastman Kodak are also on a list of companies that recently have slashed 401(k) matches or pension benefits. And that development has left may worried about their retirement options,
reports NPR.org.
David Wray, director of the Profit Sharing/401(k) Council of America, says that "Every company has put together an emergency plan in case they get into trouble, and suspending the 401(k) match is on the list." He estimates that $180 billion was put into 401(k)s in 2008, half of it through employer matching.
Wray believes that most employers who suspend matching programs will restore them as soon as the economy improves.
3/12/09
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No Verdict on Pay-for-Performance U.S. Health Plans
Pay-for-performance plans, in which doctors, hospitals and other providers receive more money if they meet certain goals, are seen as a way of boosting health quality. But despite the rapid adoption of these programs, there is little research about how well they work or what types of strategies work best,
reports Reuters via the New York Times.
Physician groups are responding to pay-for-performance programs by making practice changes and altering how they compensate physicians to reward quality, but health plans and purchasers say that those investments are not yet translating into substantial gains in quality," said Cheryl Damberg, a senior policy researcher at RAND, whose study appears
in the journal Health Affairs.
"The true benefits of these programs may take more time to be realized and it is likely that investments in other quality efforts will be needed in addition to performance-based pay," Damberg said.
3/11/09
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Kiplinger: Stable-Value Funds Not on Shaky Ground
The bankruptcy of Lehman Brothers caused a stable-value fund to decline by 1.7% in December 2008, but that situation was unique and doesn't portend broader troubles in stable-value funds,
according to Kiplinger.com (scroll down to fourth question).
Stable-value funds conservatively invest in high-quality bonds with maturities of two to three years, and buy insurance "wrappers" that guarantee the principal. But Lehman's abrupt bankruptcy in September undermined the stable-value fund in the company's retirement plan since (1) many former employees withdrew money from their 401(k)s, forcing the fund to sell bonds at a loss and (2) contracts with three of the Lehman fund's seven insurers specified that their wrappers would become invalid in the event of bankruptcy.
Generally, stable-value funds negotiate new contracts in the case of a bankruptcy and maintain insurance coverage, but Lehman didn't have time to renegotiate the contracts. "It is difficult to imagine a worse case than what happened with Lehman," says David Babbel, professor emeritus at the University of Pennsylvania's Wharton School and author of a study on stable-value performance. Still, even after the 1.7% hit in December, the Lehman fund still gained 2.2% for all of 2008. The average stable-value fund returned of 4% for the year.
3/10/09
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COBRA Stimulus Provision May Hurt More Than Help
A new law intended to help unemployed workers keep their health insurance could come back to bite small businesses through increased costs, and some say the plan may prompt business owners to drop employee health insurance altogether,
reports the Phoenix Business Journal.
“They’re going to have to pick up 65 percent of the cost for nine months,” said Henry GrosJean, a small-business health insurance broker. “For those companies that have 20 or more people on the payroll, they’re going to have to comply with the new COBRA provisions.” GrosJean said many small businesses won’t be able to afford that.
“One reason they laid people off is because of the downturn in the economy,” he said. “Now they’re being asked to pick up 65 percent of the COBRA premium for the people they terminated.” He envisions many companies dropping their health insurance coverage as a result.
3/9/09
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Obama Plan for Mandatory Workplace IRAs Causes Stir
President Obama's proposal that companies that do not provide a qualified retirement plan be required to automatically enroll employees in direct-deposit IRAs, which we reported as
No Retirement Plan? Obama Seeks Auto Enrollment in IRAs, is generating buzz, both positive and negative.
The New York Times opines in
Savings Accounts for All: Simple, but Not Easy that:
As for simplification, the auto-I.R.A. is a bit of a mixed bag. It could improve upon the 401(k) in one important respect, in that people who change jobs could potentially bolt their new paycheck onto their old auto-I.R.A. With 401(k)’s, you start all over again with a new plan when you change jobs (and your employer may not let you sign up for several months or more).
Pensions & Investments, in
Mandatory Retirement Plicy Creeps Closer, reports that:
Chief among [employers'] concerns is the possibility of additional requirements, such as a mandate that employers provide matching contributions to their defined contribution plans, something that has always been voluntary, said Ed Ferrigno, Washington vice president of the Profit Sharing/401(k) Council of America, Chicago.
“Where does this stop?” asked Mr. Ferrigno. “It's very ominous.”
Kathryn Ricard, vice president of retirement policy for the ERISA Industry Committee, Washington, agreed: “It's that slippery slope of what's next; that's what gives us pause.”
3/9/09
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Wage Withholding Tables Revised
The
IRS has issued new income tax withholding percentage and wage bracket method tables for wages paid through December 2009. The new tables were developed due to changes to the tax law made in the American Recovery and Reinvestment Act of 2009.
The IRS asks that employers begin using these tables in lieu of the applicable previously published tables as soon as possible, but no later than April 1, 2009.
3/6/09
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Employers Look to Shrink Health Benefits
Two in three employers are looking to reduce health care benefit costs next year, which likely will boost out-of-pocket costs for workers across the country, r
eports the Chicago Tribune, citing a poll by Hewitt Associates.
This year, the combined average premium and out-of-pocket costs for health-care coverage for a worker is projected to rise nearly 9 percent, to $3,826 a year, Hewitt said. Companies, meanwhile, are expecting to see their health insurance costs rise 6.4 percent, to an annual tab of $8,863 per employee.
For workers, annual contributions to premiums are projected to rise nearly 8 percent, to $1,946. That's about 22 percent of the overall company premium.
3/5/09
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Pension Assets Fall 19 Percent in Largest Retirement Markets
(The value of pension assets in the 11 largest retirement markets dropped 19% in 2008 to $20 trillion,
reports Pensions & Investments, citing research by Watson Wyatt Worldwide. The firm’s global pensions balance sheet, which measures funding status, dropped by 29% for the year.
While the value of defined contribution (DC) plan assets fell more than defined benefit (DB) plan assets in the past year, DC assets had a compound annual growth rate of 7.5% between 1998 and 2008, compared with 1.4% for defined benefit assets in the top seven pension markets.
“The year when DC assets overtake DB assets is approaching,” said Roger Urwin, Watson Wyatt's global head of investment. “Despite this growth, the innovation in DC strategies has not kept up. DC investment approaches often seem rudimentary and expensive.”
3/5/09
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More Doctors Require Full Deductible Payment at Time of Service
In the past, most medical practices were content to collect co-pays from patients and go after health plans for the rest of what they were owed. Today, however, it's getting far more common for practices to collect the entire balance owed by a patient up front before they'll initiate treatment,
reports the Fierce Healthcare website, summarizing a longer
Washington Post article.Practices are able to collect more aggressively of late because software that can estimate final patient charges is becoming more widely available.
Sometimes patients may be on the hook for an immediate payment in the hundreds of dollars, something that has led to conflict with patients who weren't prepared.
3/4/09
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HSAs Continue Ascension in Spite of Sour Economy
Even with a nation in a recession and a Democrat in the White House, health savings accounts (HSAs) are expected to grow steadily, if not spectacularly, in 2009,
reports American Banker.
With more than six million individuals enrolled in health plans linked to HSAs at the start of 2009, assets under management were valued at roughly $6.75 billion, with accounts growing at 40 percent to 60 percent per year, according to Boston-based research firm Celent. The Employee Benefit Research Institute says that more individuals are reporting account balances of at least $1,000 -- 43 percent in 2008 compared to 25 percent in 2006 -- and that that fewer reported zero balances in 2008 than two years earlier.
With consumers feeling increasingly squeezed, many observers are expecting deposit growth to slow this year. Jose Becquer, head of Health Benefits Services at Wells Fargo Bank, said he expects existing balances to shrink somewhat because consumers will "be challenged to save" and will likely need to dip into the accounts for medical expenses.
3/3/09
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Another AIG Woe: $600 Million Pension Contribution
Struggling insurance giant American International Group Inc. expects to contribute about $600 million combined to its U.S. and worldwide defined benefit pension plans in 2009, according to its annual report filed today with the SEC,
reports Pensions & Investments.
The firm is about to receive its fourth emergency cash infusion from the federal government -- up to $30 billion,
reports CNNMoney.com.
Unlike AIG and other recipients of federal bailout money, most U.S. taxpayers do not receive a defined benefit pension from their employer. Among SHRM members, according to the 2008 Benefits Survey Report, only 33% indicated that their organizations offered a defined benefit pension, while 84% offered a defined contribution retirement plan.
3/3/09
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Town Sues KPMG over Madoff-Invested Retirement Funds
The town of Fairfield, Conn., has filed a lawsuit against KPMG and an investment advisor after its employee retirement programs lost an estimated $40 million in two hedge funds that invested all their assets with Bernard Madoff,
reports WebCPA.com.
One of the hedge funds retained KPMG to audit its 2005 and 2006 financial statements. The plan sponsor's lawsuit charges that KPMG should have done a due diligence investigation of Madoff’s investment firm as part of the hedge fund audits.
3/3/09
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HSA Asset Portability Creates New Opportunities
Consumers are catching on to the fact that they can take their health savings accounts (HSAs) to any bank that offers custodial services, especially when they leave an employer,
reports AISHealth.com, summarizing a report in the publication Inside Consumer-Directed Care.
"And in today's economy, many employees are being forced to leave," says Carlton Doty, Forrester Research vice president and research director. He notes that HSAs can be linked to any compatible high-deductible health plan. "This is giving consumers far more options," Doty says.
Most HSA owners also wind up in a banking relationship by default because of an arbitrary partnership between the bank and the employer (or insurer). And a large number are confused about the portability potential and other rules governing their HSAs.
2/27/09
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IRS Issues Final Regs on Automatic Contribution Arrangements
The IRS has issued final regulations on automatic contribution arrangements for 401(k) and other eligible plans, providing guidance on implementing provisions of the Pension Protection Act of 2006 and the Worker, Retiree, and Employer Recovery Act of 2008,
reports the Journal of Accountancy. (You can read the final regulations
here.)
Under these provisions, when an employee is eligible to participate in an employer’s defined contribution plan but fails to elect to do so, an employer may make automatic contributions to the plan on the employee’s behalf.
The final regulations clarify how automatic contribution amounts are determined in an employee’s initial period and when the employee has made an earlier affirmative election that is no longer in effect. They also prescribe rules for a midyear increase in the default percentage of an automatic contribution, and clarify that safe harbor nonelective and matching contributions made under a qualified automatic contribution arrangement are subject to withdrawal restrictions.
2/27/09
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No Retirement Plan? Obama Seeks Automatic Enrollment in Salary Deferral IRAs
For employers that do not offer employee retirement plans, President Obama called for establishing automatic workplace pensions through "direct-deposit IRA accounts" as part of his spending plan for the U.S. Labor Department,
reports Bloomberg News.
The plan would force employers that don’t offer retirement plans to enroll employees in a “direct-deposit IRA account,” with the option for workers themselves to opt out.
2/27/09
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BLS Looks at Paid Time Off Costs
A new issue of the U.S. Bureau of Labor Statistics' online publication
BLS Program Perspectives looks at the cost to employers of paid time off. The mean cost of paid leave for private-sector employers was $1.80 per hour (6.7 percent of total compensation). The cost of holidays was 59 cents per hour, and sick leave averaged 22 cents per hour.
Access to paid personal leave for private-industry workers has increased significantly since the early 1990s. About 14 percent of workers received paid personal leave according to the 1990–91 Employee Benefits Surveys, and that number increased to 37 percent by March 2008.
Employer costs for paid leave, which historically have tended to increase along with wages and salaries, have remained essentially the same as a percent of total compensation.
2/27/09
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House Hearing Brings Out 401(k) Critics
House Education and Labor Committee Chairman George Miller said Tuesday that 401(k) retirement plans do not provide sufficient retirement security for many Americans and must be revamped,
reports Bloomberg News. "For too many Americans, 401(k) plans have become little more than a high-stakes crap shoot," said Miller. "We are realizing that Wall Street's guarantees of predictable benefits and peace of mind throughout retirement was nothing more than a hollow promise."
John Bogle, founder of fund manager Vanguard Group, echoed Miller in his testimony before the committee, saying, "our existing defined contribution system is failing investors" because of high fees, low levels of saving, excess flexibility that permits cashing out and too much borrowing and inappropriate asset allocation. Bogle recommended a single defined contribution plan with annuities from low-cost providers. The single system would be overseen by an independent Federal Retirement Board to protect the interests of plan participants, Bogle said.
Retirement savings are too exposed to market risk, according to Dean Baker, co-director of the Center for Economic and Policy Research in Washington and another witness at Tuesday's hearing. Baker proposed a government-managed system that would provide a modest rate of return for employees. He said it would build on Social Security and allow workers a voluntary default contribution of at least 3 percent of their salaries.
2/26/09
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Execs Forgo Bonuses
Aflac says its chief executive is forgoing his $2.8 million bonus, while the company's chief financial officer has volunteered to trim his bonus by 35%, or about $477,000,
reports USA Today.
Executives at the Ford Motor Company have decided to cut their pay by 30 percent for the next two years, as they suspend bonuses for salaried workers this year, the automaker told employees in a memo,
reports the New York Times.
Workers being asked to accept pay freezes, bonus suspensions and furloughs expect to see sacrifices being made at the top as well.
2/25/09
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Americans Increasingly Insecure About Retirement
Only one in three Americans now believe they will be able to fully retire as huge losses in home and stock prices dent their confidence in the future,
reports Reuters, citing a study by Scottrade.
Just 32 percent of Americans thought they could someday stop working altogether, down from 39 percent from the 2008 survey. That represents an 18 percent decrease in just the last year, and a 22 percent decline from the 2007 survey.
2/25/09
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Best-in-Class 401(k) Materials Honored
Outstanding 401(k) presentation and educational materials received 2009 Eddy Awards,
reports Pensions & Investments, whose web site presents the winners along with brief descriptions of their outstanding approaches. Examples:
Mortenson Co. distributed faux wallets containing a fake check -- signed by the CEO and made out to the participant -- showing the individual's profit-sharing contribution for the year.
Bemis Co. used a tennis theme to educate employees about the company match, including a postcard with a fuzzy partial tennis ball encouraging participants to increase their deferrals.
Ohio Public Deferred Compensation Program did a takeoff on My Space -- called "Smart Space" -- to promote its Smart Plan to younger employees. It looked authentic, down to the web banners.
2/25/09
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Stimulus Includes Qualified Transportation Benefit Increases
The recently enacted American Recovery and Reinvestment Act (the stimulus package) makes many significant changes to the tax code, but one change that has so far attracted relatively little notice is a temporary increase in the amount that can be provided to employees tax free in the form of transit passes and/or vanpooling benefits,
reports a legal alert from Ford & Harrison LLP.
From March 2009 through December 2010, the monthly limit for transit passes and vanpooling benefits (combined) is equal to the monthly limit that applies to qualified parking expenses. This means that, for the remainder of 2009, that monthly limit is $230; before March 1, the monthly combined limit for transit passes and vanpooling benefits was $120.
If you provide transit pass and/or vanpooling benefits, and your plan does not automatically apply increases in the limits, or only applies increases effective as of each January 1, providing increased benefits will require that you amend your plan. Also, if offered in exchange for employees' pre-tax salary reductions, new employee elections must be made.
2/24/09
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Disclosure Regs for 401(k) Fees Remain in Limbo
Starting with the 2009 plan year, new annual fee-and-compensation reporting obligations for defined contribution (DC) retirement plans are supposed to start supplying the Department of Labor (DOL) with expanded fee information—including obscure revenue-sharing arrangements where plan service providers divvy up plan fees among themselves—in their annual Form 5500 financial reports,
reports Financial Week. The rub for sponsors is that they have to get much of the fee and compensation information required for those reports from service providers, but there’s no legal requirement for the providers to release that information.
The DOL under the Bush administration had proposed a new rule that would have required service providers to give plan executives the necessary information. But that proposal was not approved before the Obama administration took over Jan. 20—and it’s unclear what will happen to it.
Some ERISA attorneys and pension consultants said that executives at large DC plans are likely to get much of the information necessary to fill out the enhanced Form 5500s—the first of which are to be filed in July 2010—because many plan service providers will want to keep their customers happy. Still, it’s unclear how many service providers will reconfigure their internal reporting systems to collect detailed fee and compensation information until final regulations on the subject have been adopted.
2/24/09
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Pension Relief, with Strings, in the Works
Corporations might get additional relief from the 2006 Pension Protection Act's onerous funding requirements, but only if they agree not to freeze their plans to new employees — perhaps for several years,
reports Pensions & Investments.
Companies also would have to agree not to terminate their plans to get the funding relief. In addition, frozen plans would not qualify, even if those freezes apply only to new employees, said Nancy Hwa, a spokeswoman for the Pension Rights Center, which along with the AFL-CIO is lobbying to tie funding relief to a requirement that plans remain open.
Jason Hammersla, spokesman for the American Benefits Council, an employer group, fears the proposal “represents a foot in the door to mandated benefits, and we are proponents of the existing voluntary system.” He added that “Employers will oppose the maintenance-of-effort requirement because it inhibits their ability to adapt to changing business circumstances.”
2/23/09
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Senate Weighing New Rules for Target-Date Retirement Funds
Target-date retirement funds are coming under increased scrutiny as investors try to contain the damage to their 401(k)s from the worst economic downturn in generations,
reports the Washington Post. The Senate's Special Committee on Aging is expected to ask the Department of Labor to establish regulations governing the composition and advertising of target funds. It is also planning to request that the Securities and Exchange Commission look into similar concerns.
Last year, too many 2010 target-date funds reported astounding losses, considering their participants were on the brink of retirement," said Sen. Herb Kohl (D-Wis.), chairman of the committee. "It's clear that a number of these companies need to reassess their definition of 'conservative.' "
An analysis by the committee found that some target funds were made up of as much as 66 percent equities and as little as 31 percent bonds. Performance was just as varied. The DWS Target Fund 2010 fell just 3.6 percent in 2008, besting the overall stock market. Meanwhile, the Oppenheimer Transition 2010 dropped 41.3 percent.
(To learn more, read the SHRM Online article
Trying Times Yield Opportunities for 401(k) Plan Sponsors.)
2/23/09
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Fees Drop for Outsourced Benefits Administration
HR services clients have seen a sharp drop in the fees charged for outsourcing benefit programs, according to an analysis by TPI, an provider of HR services,
according to HRO Today.While the magnitude of decrease differs by benefit program—401(k), pension, or health and welfare—in all cases, the cuts exceed 20 percent.
Benefits administration providers no longer typically build in an annual increase to reflect inflation in their bids. This effectively represents a fee decrease as clients renew their contracts without this provision.
2/23/09
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New COBRA Provisions Could Burden Cash-Strapped Businesses
COBRA requires employers to extend workers who quit or were laid off an opportunity to continue their health-care coverage by paying 100 percent of the premium (people in the program must pay another 2 percent to cover administrative costs incurred by their former employers in extending the coverage.) Under the stimulus law, the federal government will subsidize 65 percent of the cost for nine months. The government will do that by requiring employers to pay the 65 percent portion upfront then allow them to deduct those costs from their Social Security and Medicare taxes
, reports the Washington Post.The plan has a retroactive feature. It allows workers who became jobless as early as Sept. 1 and rejected coverage to reconsider.
Some small-business advocates, however, argue that the law puts a hefty burden on them to cover the health costs at a time when they are suffering from cash-flow problems resulting from the credit crunch and declining revenues. Companies "are already stressed," said Keith Ashmus, chairman of the National Small Business Association and principal in a Cleveland law firm. The new COBRA plan, he added, might force small businesses to "drop group health plans entirely and all the people who are supposed to be helped by this won't be."
(To learn more, read the SHRM Online article
COBRA Coverage Expansion: HR Action Steps to Take Now.)
2/23/09
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COBRA Changes Could Be Costly
Some U.S. employers fear that the revised rules for COBRA coverage in the stimulus law could raise health care costs,
reports USA Today.
The stimulus package signed into law this week by President Obama subsidizes 65% of their COBRA health insurance premiums for individuals laid off between Sept. 1 and the end of this year. Employers must notify former employees who are eligible for the new subsidy by March 1. Employers, and the companies they hire to manage their COBRA programs, are scrambling to meet the March 1 deadline to notify employees. But an even greater concern for employers is how higher COBRA enrollment will affect their insurance costs.
The most likely candidates to take advantage of the subsidy are individuals with health problems, says Tom Billet, senior benefits consultant at Watson Wyatt. Those individuals are also more likely to seek medical care for themselves and their families before their coverage expires, he says. "That's always an issue with COBRA. ... You're paying for it, you only have a certain amount of time on it, so you want to use it."
(To learn more, see the SHRM Online article
COBRA Coverage Expansion: HR Action Steps to Take Now.)
2/20/09
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Coca-Cola Adopts Cash Balance Pension Plan
The Coca-Cola Co. is freezing it traditional defined benefit pension plan and adopting a cash-balance pension plan for new and current employees, who will receive annual age-weighted credits equal to a percentage of pay,
reports Pensions & Investments. The plan will be offered to most U.S. salaried and hourly employees hired as of Jan. 1, 2010. Current employees now in Coca-Cola’s traditional $1.5 billion final-average-pay plan will earn future benefits in the new plan starting Jan. 1, 2010.
Coca-Cola’s move to a cash-balance plan comes at a time when many major employers are phasing out their defined benefit plans and offering only defined contribution plans. Cash-balance plans are seen as a "hybrid" approach.
Coca-Cola is the third major employer to adopt a cash balance plan since 2006, when Congress passed the Pension Protection Act, which included provisions that let employers set up new cash balance plans without fear of facing litigation.
2/20/09
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U.S. Employers Expect Steady Rise in Health Costs
U.S. employers expect increases in health care costs will stay at a steady 6 percent this year, twice the rate of inflation,
reports Reuters, citing a new study by Watson Wyatt and the National Business Group on Health..
The survey of 489 large U.S. employers also showed that more plan to offer consumer-directed health plans in 2010 to try to control cost increases. "Cost increases have stabilized, but the financial crisis is causing many companies to reevaluate their health plan strategies," said Ted Nussbaum, group and health care practice expert at Watson Wyatt. Some 51 percent of surveyed companies now offer workers a consumer-directed health plan, up from 47 percent in 2008.
The average employer spent $7,173 per employee for health care in 2008 and paid an average of 20 percent of total medical premium costs for workers in 2008.
2/20/09
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On 401(k) Fees, 7th Circuit Rules in Favor of Plan Sponsor
On Feb. 12, the the federal 7th Circuit Court of Appeals decided on
Hecker v. Deere & Company, et. al. in favor of the Deere defendants. The decision deals a major blow to 13 other ERISA lawsuits pending against some of the largest 401(k) plan sponsors in the country,
according to BrightScope.
Three major implications of the Deere decision are:
The ERISA section 404(c) safe harbor was deemed to offer broad immunization to the Deere 401(k) plan fiduciaries.
The plan's allowance of access to lower-cost funds through a brokerage window helped defeat claims of excessive investment fees within the core options of the investment menu.
Fee disclosure, and particularly disclosure of revenue-sharing payments, was held irrelevant to the investment decisions of participants.
2/20/09
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Wanted: Lousy Job, Low Pay
More Americans are desperate for a job and willing to take less pay to get one,
reports CNNMoney.com. Between the increase in overall job seekers and the reduction in the number of jobs available, competition for even the least desirable jobs has become much steeper.
Traffic to job search site Indeed.com is up 26% in the last quarter and jumped 98% from last year, according to the company.
"People are so thirsty for anything that resembles a job out there," said Dave Sanford, executive vice president of client services for Winter, Wyman, a staffing firm based in Waltham, Mass, "that candidates are applying to every opening that is even remotely possible."
2/20/09
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Bonus and Salary Cuts Spread Far from Wall Street
Companies of all sizes -- and even many nonprofit organizations -- have adopted bonus systems as a way to reward performance, hold down base-pay levels and provide more flexibility to smooth out costs. But now, in the 14th month of a deepening recession, smaller bonus checks are arriving, if they come at all, and are delivering diminished expectations,
reports the New York Times.
“People have begun to live as if bonuses were not bonuses at all but part of their expected annual income,” said Jay Lorsch, a professor at the Harvard School of Business. “When those bonuses don’t come through or are substantially reduced, people have to take it out of their lifestyles.”
Separately,
Bloomberg News reports that Hewlett-Packard, the world’s largest personal-computer maker, is cutting its CEO's base salary by 20 percent, executives’ pay by 10 percent to 15 percent, and most employees’ salaries by 5 percent.
“In an environment like this, there’s no margin for error and no tolerance for inaction,” CEO Mark Hurd in a memo to employees. “My goal is to keep the muscle of this organization intact, but we do have to do something because the numbers just don’t add up.”
2/19/09
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Stimulus Bill's Executive Salary Caps
The new economic stimulus bill, known as the American Recovery and Reinvestment Act of 2009, places a $500,000 limit on salaries and tight caps on how much in bonuses executives can earn if they take in government money,
reports USA Today. These tighter provisions were thrown in at the last minute by Sen. Chris Dodd, D-Conn.
If implemented, these measures, which also ban "golden parachutes" for departing executives, will lead to some of the most drastic changes in CEO compensation in the financial industry. CEOs of bailed out firms are fast adjusting to the new reality. Recently, Wells Fargo canceled a Las Vegas jamboree to reward its top employees, as did U.S. Bancorp for one in Naples, Fla.
Law firm Jones Day has posted online a
detailed overview of the new compensation provisions. President Obama is likely to ask for revisions in the compensation limits,
reports The Hill.
2/17/09
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Stimulus Bill COBRA Provisions Require Employer Action
Several law firms have now posted advice on complying with the expansion of COBRA under the new American Recovery and Reinvestment Act.
American Recovery and Reinvestment Act of 2009 Affects Group Health Plans, Even If Fewer Than 20 Employees (Thompson Hine): The Act's provisions apply to coverage under both the federal COBRA law and any state "mini-COBRA" laws (i.e., state continuation laws applicable to employers with fewer than 20 employees).
Immediate Action Needed to Implement Stimulus Act Changes to COBRA Coverage (Butzel Long): Decisions and procedures include . . . . Identifying all potential [assistance-eligible individuals, or 'AEIs') -- employees who were covered by the group health plan whose employment was involuntarily terminated (other than for gross misconduct) beginning September 1, 2008 (and their covered spouses and dependents) -- and their last known addresses.
Stimulus Package Includes 65% COBRA Premium Subsidy (Spencer Fane): Although the Act omits language from the House bill that would have mandated an extension of COBRA coverage through age 65, it does require employers and other plan sponsors to facilitate this federal subsidy of COBRA premiums.
2/16/09
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Employers Prepare for Surge in COBRA Enrollees
Employers will have to scramble to comply with federal legislation providing a federal subsidy of COBRA health insurance premiums to laid-off employees,
reports Business Insurance.
Employees who were laid off from Sept. 1, 2008, through Dec. 31, 2009, will be eligible for a 65% federal subsidy of their COBRA premiums under provisions in the massive economic stimulus bill. Employers with lots of laid-off employees should expect a surge in enrollees. "The takeup rate is going to skyrocket," said Andy Anderson, of counsel with law firm Morgan, Lewis & Bockius L.L.P. in Chicago.
COBRA often is a big money-loser for employers. Due to the high cost of coverage, those now opting for COBRA typically make extensive use or expect to use medical services. As a result, it is not uncommon for employers to pay out $1.50 in claims for every $1 in COBRA premiums they collect.
2/16/09
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Government Pension Agency Braces for Recession
The deepening recession spells trouble for the Pension Benefit Guaranty Corp. (PBGC), which insures the pensions of 44 million workers and retirees.
The AP reports that the PBGC has an $11 billion deficit that seems sure to grow larger as Corporate America suffers through the worst economic crisis since the Great Depression.
Because of plummeting asset values, companies this year are faced with having to contribute to their pension funds two to three times what they had expected, said Aliya Wong, director of pension policy at the U.S. Chamber of Commerce. "Because this is coming out of the bottom line, companies are making decisions not just about freezing their pension plans but whether they can even continue in business," Wong said.
Congress passed the Pension Protection Act in 2006 requiring companies to meet target dates to eventually fund 100 percent of their pension obligations, but those restrictions were relaxed in December to help them weather the bad economic times. The business community is lobbying to further waive the rules during the current economic slump.
2/16/09
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Stimulus Would Alter Unemployment Benefit System
The stimulus legislation would revamp the 74-year-old U.S. unemployment compensation program by encouraging states to give benefits to those who quit their jobs to care for ailing relatives,
reports Bloomberg News.
The measure includes a $7 billion fund to reward states that provide benefits to people who quit a job for a “compelling family reason” such as caring for a sick or disabled member of their immediate family, or because of domestic violence. Workers could collect benefits only when they started looking for a new job.
The provision was sponsored by Rep. Jim McDermott (D-Washington), who has long pressed for an expansion of the unemployment insurance program. He claimed that expanding unemployment payments meets the goals of the economic stimulus package.
2/13/09
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Wal-Mart Now an Innovator in Employee Health Care Coverage
Once vilified for its stingy health benefits, the world's largest company has become an unlikely leader in the effort to provide affordable care without bankrupting employers, their workers or taxpayers in the process,
reports the Washington Post.
Wal-Mart has partnered with prestigious organizations such as the Mayo Clinic and begun targeting costly health problems such as obesity and premature births. Its plan options include a menu of deductibles, co-payments and maximum out-of-pocket costs. It teamed up with the Internet site WebMD to simplify enrollment, created electronic health records and expanded its $4 generic drug plan from the 350 medications available to customers to more than 2,000 for employees.
Many workers have chosen low-premium, high-deductible plans that analysts say provide less coverage for preventive and primary care. The company tries to mitigate that with an upfront credit of between $100 and $500 that can be used on any medical expense.
2/13/09
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State Lawmakers Delay Vote on Charging Obese More for Health Care
South Carolina lawmakers have delayed voting on whether to charge obese public employees higher premiums in the state health insurance plan,
reports the AP.
State Sen. Greg Ryberg said he would be willing to rewrite his bill as a way to reward healthy residents rather than punish overweight workers. Ryberg said too many residents are overeating and not exercising, and that their deliberate decisions not to take care of themselves are costing the state. He said he wants to motivate people to live healthier lives.
Some of his colleagues agreed with the bill’s intent but said it would be difficult to enforce.
2/13/09
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Money Motivates Smokers to Kick the Habit
There’s more evidence suggesting financial incentives to improve employee health work. A
study published in the current issue of the New England Journal of Medicine found smokers who were paid to quit succeeded far more often than those who got no cash reward,
reports the Wall Street Journal's Health Blog.
But it seems the money must be sustained long term, since more than a third of the quitters in the incentive group relapsed before the study ended. A similar issue occurred with the weight-loss study, which found participants gained back some weight afterward.
2/13/09
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Stimulus Bill with COBRA Subsidy Expected to Go to President Soon
The American Benefits Council has posted
this summary of the COBRA subsidy provisions in the House-Senate conference agreement for the American Recovery and Reinvestment Act's premium subsidies available for COBRA continuation coverage for unemployed workers ($21.4 billion):
• Subsidy for eligible workers is 60% of the premium for 9 months.
• Administered by Treasury through mechanism that allows employers (or health plans if they administer COBRA benefits) to receive a credit against payroll taxes.
• Individuals with annual incomes above $125,000 (single) or $250,000 (couples) would not be eligible.
(SHRM Online will shortly post an analysis of the new provisions, so consider this a "heads up.")
2/12/09
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Employers Fighting Unemployment Benefits
More U.S. workers applying for unemployment benefits are finding that the proportion of claims disputed by former employers has reached record levels,
reports the Washington Post.Under state and federal laws, employees who are fired for misbehavior or quit voluntarily are ineligible for unemployment compensation. When jobless claims are blocked, employers save money because their unemployment insurance rates are based on the amount of the benefits their workers collect.
As unemployment rolls swell in the recession, many workers seem surprised to find their benefits challenged, their former bosses providing testimony against them. One result is employees and employers squaring off over reports of bad customer service, anger management and absenteeism.
2/12/09
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COBRA Subsidy Revised, But Survives in Senate Bill
The stimulus spending bill passed by the Senate on Feb. 10 holds that the federal government would pay 50% of COBRA health care premiums for up to 12 months for employees who are laid off from Sept. 1, 2008, through Dec. 31, 2009,
reports Financial Week.Under an economic stimulus bill passed earlier by the House of Representatives, the federal COBRA premium subsidy would be set at 65% and last for up to 12 months. That measure also would allow employees terminating employment after 10 years with one employer and those age 55 and older to retain COBRA until eligible for Medicare at age 65. (The
American Benefits Council strongly urged that the Senate maintain the current law's 18 month period for COBRA coverage.)
The House and Senate reconciled their differing versions of the COBRA subsidy on Feb. 11. SHRM Online will post an analysis shortly.
2/11/09
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Average Worker Lost 27 Percent of 401(k) Savings in ‘08
Millions of American workers lost an average of 27 percent of their 401(k) retirement savings last year,
reports the Louisville Courier-Journal, citing a Fidelity Investments study.
The average 401(k) balance went from $69,200 in 2007 to $50,200 in 2008 because of market declines, the study found.
(To learn more, see the SHRM Online article
401(k) Participants Stay the Course, but Markets Take Toll.)
2/10/09
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Despite Slump, Some Small Firms Add 401(k)s
Even as the recession is taking its toll, some small-business owners are adopting 401(k)s for their employees,
reports the Wall Street Journal.
They see the plans as a way to retain valued workers and get people who otherwise wouldn't save for retirement to do so.
But to be able to afford the plans, some companies are having to make some trade-offs, including delaying employer matches or offering the matches in lieu of raises.
2/10/09
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25% of Companies Plan Salary Freeze
About a quarter of businesses have frozen workers' salaries for 2009 in the wake of a pessimistic economic outlook,
reports CNNMoney.com, citing a Mercer survey.
Those companies that plan on offering raises to their employees will give smaller-than-expected pay increases, Mercer said. The average expected salary bump at those businesses was just 3.2%, down from a planned 3.6% according to an October study.
It's not an easy message to communicate to employees, but we think managers will be aided by the unprecedented context of these difficult decisions - including low inflation and high unemployment," said Steve Gross of Mercer.
2/9/09
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Target-Date Funds Missed the Target
In 2008, all of the 264 target-date funds sold by the 39 mutual fund firms that market them performed poorly and contrary to expectations,
reports MarketWatch.com.
The most conservative target-date retirement funds -- those designed to produce income -- fell on average 17% in 2008 and the riskiest target date retirement funds -- designed for those retiring in 2055 -- fell on average a whopping 39.8%, according to a recent report from Ibbotson Associates, a Morningstar company.
Selecting a target-date fund based simply on matching your anticipated date of retirement with the name of the fund is too simplistic and neglects two major factors: First, target-date funds don't consider your personal risk tolerance. And second, target-date funds don't contemplate that two people with the same target retirement year would likely have very different current income levels.
2/9/09
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Safe Harbor 401(k)s: Eliminating Employer Contributions?
As the economy continues to struggle, more plan sponsors are asking how they can reduce or eliminate their contributions to employees' accounts in a safe harbor 401(k) plan,
reports Sunguard Relius.
An employer may freeze or amend mid-year a safe harbor 401(k) plan which provides a safe harbor matching contribution formula, in order to reduce or eliminate future safe harbor matching contributions. However, an employer may not freeze or amend mid-year a safe harbor 401(k) plan which uses the safe harbor nonelective contribution formula.
An employer may use the “maybe” notice approach with the safe harbor nonelective contribution formula. Under the maybe notice approach, the employer has until 30 days before the end of the year to decide to provide the safe harbor nonelective contribution, and thereby become a safe harbor plan for the plan year.
2/9/09
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Companies Have Found Ways Around Executive Pay Caps
President Obama moved Wednesday to rein in the pay of executives whose companies get taxpayer bailout money. But
as the Los Angeles Times reports, over the last two decades Wall Street and the rest of corporate America have skirted a series of rules that sought to rein in executive compensation.
An attempt in 1993 to deal with such compensation is a textbook example. With the country struggling economically, President Clinton signed a law limiting a company's ability to deduct more than $1 million in salary for top executives from their taxes. It's widely believed to have backfired. Companies shifted to stock options, leading to an explosion in executive compensation through the rest of the 1990s and setting the stage for scandals over attempts to backdate the options to make them even more valuable.
"You're pitting a group of government bureaucrats against compensation consultants and lawyers who are paid lots of money…" said Graef Crystal, a former executive compensation consultant who has written six books on the subject. "It's a lot easier to find ways around things like this than it is to invent them in the first place."
The
Washington Post provides an in-depth look at the new proposal, as does the
Wall Street Journal (but that one is limited to WSJ subscribers)
2/5/09
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Daschle Exit, Successor Search, Delays Health Agenda
Tom Daschle's departure as President Obama's choice as Health and Human Services chief is likely to delay for months the momentum for an overhaul of the U.S. system,
reports Bloomberg News.
None of about a half-dozen potential successors to Daschle carry the political influence and health-care expertise of the former Senate majority leader, analysts said
Among the possible replacements mentioned by lawmakers and activists are Kansas Governor Kathleen Sebelius, U.S. Representative Rosa DeLauro of Connecticut; Mark McClellan, a former head of the Food and Drug Administration; and former Democratic Party chief Howard Dean..
2/4/09
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DOL Formally Seeks Delay in Investment Advice Rule
The Department of Labor proposed delaying by 60 days the effective date of new rules allowing mutual fund companies to provide direct investment advice to defined contribution plan participants, according to a
notice published in the Feb. 4th Federal Register. The DOL will make its decision based on the comments it gets from the public
, reports Pensions & Investments.The Labor Department also wants to provide 30 days — during the 60-day delay period — for public comment on whether the agency should “allow the (investment advice) rules to take effect, issue a further extension, withdraw the rules or propose amendments,” the DOL notice said.
The Bush administration’s investment advice rules, as published in the Federal Register on Jan. 21, the day after the Obama administration took office, were scheduled to go into effect March 23. The proposed delay would move the effective date until at least May 22, the DOL said in its notice.
2/4/09
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Obama Seeks New Limits on Executive's Pay
President Obama wants to impose a $500,000 pay cap on executives whose firms receive government financial rescue funds. But the administration will also propose some long-term compensation restrictions even for companies that don't receive government assistance, which some consider a dramatic intervention into corporate governance,
reports USA Today. According to an official, the proposals include:
• Requiring top executives at financial institutions to hold stock for several years before they can cash out.
• Requiring nonbinding "say on pay" resolutions — that is, giving shareholders more say on executive compensation.
• Holding a Treasury-sponsored conference on a long-term overhaul of executive compensation.
More details on the plan, and a transcript of the President's remarks, are
reported by the Boston Globe.
2/4/09
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The Structure of 401(k) Fees – Not Just the Amount – Matter
Better disclosure of fees alone is not sufficient. The structure of fees commonly used in 401(k) plans tends to transfer wealth among participants and can reduce the returns that participants earn on their wealth,
according to The Center for Retirement Research at Boston College.
The fees collected from participants tend to be a constant proportion of the balances they hold in the plan. Yet, some of the costs covered by these fees – many administrative and sales costs – are relatively constant for all participants, regardless of the size of their balances.
Participants with twice the balances of others are not likely to entail twice the management cost, although they pay twice the management fee. Thus, a constant expense ratio that decouples fees from costs is a deceptively simple method of pricing, the authors argue.
2/4/09
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New Health Care Legislation Requires Disclosures from Employers
Both houses of Congress have passed new legislation that would, among other things, require employers to amend their health care coverage rules and disclose health plan information to state officials or face a $100 per day fine,
reports plansponsor.com.
Under the Children's Health Insurance Program (CHIP) Reauthorization Act of 2009), employers are required to notify employees in writing of any state Medicaid and child health assistance available to them and their dependents if they need financial help to pay for employer-sponsored health coverage.
In addition, group health plan administrators must disclose detailed information about benefits available requested by state officials to determine if it would be cost effective for the state to provide financial assistance and supplemental benefits to employees.
2/3/09
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44% of Defined Contribution Plans Expect to Replace Options in ’09
A Callan survey shows that 44% of private and public defined contribution plans expect to replace an investment option for performance-related reasons in 2009, up from 39% that did so last year,
reports Pensions & Investments.
Target-date funds were used as the default investment option in 59% of plans surveyed, up from 36.4% in 2007 and 32.5% in 2006.
Also, 76% of those surveyed said they’d be increasing the frequency of investment committee meetings in light of market volatility.
2/3/09
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Consumer-Directed Health Defended
There's an interested
post and discussion on The Healthcare Blog about the recent Health Affairs article,
Consumer-Driven Health Care: Promise and Performance, which we referenced on 1/27/09.
In the comments to The Healthcare Blog's post, Greg Scandlan, president of Consumers for Health Care Choices, takes issue with the authors of the Health Affairs article, noting:
Just in the past few months reports have been released by the Mercer Company, WellPoint, CIGNA, the Blue Cross Blue Shield Association, United Healthcare, Aon Consulting, and even the chronically skeptical EBRI, all showing that people in CDHPs pay more attention, seek out information, participate in wellness and prevention programs, choose lower-cost treatments, and save substantial amounts of money for themselves and their employers.
2/2/09
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Is Suspending 401(k) Match a 'No Brainer'?
Since last June, a growing number of employers have announced plans to change or cease their 401(k) matches,
reports CFO.com.
But employers in industries that so far are holding up in the face of the recession may see a need to maintain their matches. Such is the case at AEP, one of the nation's biggest generators of electricity. Overall, the energy company tries to make its benefits package comparable with those offered by its competitors.
On Dec. 15, Dollar Thrifty Automotive Group reported that it would reinstate its 401(k) match starting this month after suspending it in 2008 "due to worsening economic conditions." The car-rental company said it would match employee contributions dollar-for-dollar up to 2 percent.
2/2/09
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Fair Pay Act May Not Close Gap Soon
The recently signed Lilly Ledbetter Fair Pay Act will make it easier to sue employers for wage discrimination, but economists don't expect it to close the pay gap between women and men anytime soon,
reports the Detroit Free Press.
The most recently available figures (albeit as of the end of 2007) show women in America were paid about 78% of what men were paid. Discrimination plays a part in that difference, but many economists say the gap persists mostly because of the varying kinds of work men and women do.
However, economists do say the pay gap is shrinking — but in part because men's wages are falling. Those male wages have declined since the 1970s as factory work disappeared.
2/2/09
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Employers Running Out of Stock Options
Many companies pay employees partly in stock, but investors seeing losses in their own accounts are reluctant to approve issuing more shares for this purpose, forcing companies to seek alternatives,
reports the Wall Street Journal.
Caraustar Industries Inc., a maker of recycled paperboard, canceled old share awards to top executives so it could distribute shares to lower-ranking managers. Seismic-equipment firm ION Geophysical Corp. refunded some employee stock-purchase payments, because it didn't have enough shares. Electronic-equipment maker Keithley Instruments Inc. trimmed awards to executives and directors to preserve shares.
Pay plans with insufficient shares are "one of the biggest issues on the compensation committee agenda going into 2009," says Janet Clarke, a director who chairs the pay panels at ExpressJet Holdings Inc. and Asbury Automotive Group Inc. "I don't see any quick fix."
2/2/09
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Employment Costs Up 2.6% in 2008, Lowest on Record
Employment costs in the U.S. rose last year at the slowest pace on record, government data shows, as a painful recession pinched compensation amid soaring unemployment,
reports Reuters. (The Bureau of Labor Statistics
release is here.)
The Labor Department's Employment Cost Index, a broad measure of wages and benefits, increased by 2.6 percent in the 12 months to December, down from a 3.3 percent rise in 2007. It was the weakest reading since records began in 1982.
Wages and salaries mounted 0.5 percent in the fourth quarter while benefits were up 0.4 percent. Companies have been stinting on overtime and cutting back on workers' benefits like pension contributions to shield profits.
1/30/09
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Billable Hours Giving Ground at Law Firms
Clients have complained for years that the practice of billing for each hour worked can encourage law firms to prolong a client’s problem rather than solve it. But the rough economic climate is making clients more demanding, leading many law firms to rethink their business model
, reports the New York Times.The system of billing by the hour has been firmly in place since the 1960s; keeping track of time spent provided a rationale for the amount charged. In earlier, perhaps more trusting times, firms stated a price “for services rendered,” without explanation.
But one has only to eavesdrop on a table of law associates comparing their workloads to get a sense of how entrenched the billable hour is, creating a pecking order among lawyers, identifying the best as the busiest and the most costly.
1/30/09
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Review of 401(k) Advice Rule Lamented
The Obama administration's decision to review recent Department of Labor final rules, including the final rule on providing investment advice to 401(k) participants, is lamented by benefits attorney Andrew Oringer, on
BNA's Pension & Benefits blog. (For more about the rule, see
DOL Issues Final Rule on 401(k) Investment Advice.)
"It seems hard to argue with the basic point that participants in participant-directed plans need high-level help and guidance regarding their management of these most-important investment assets," blogs Oringer. "I would prefer that the open questions on this critical matter get resolved by a careful examination of the statute and what informed it, not through highly charged, emotional descriptions of what we now have before us and how we got to this point."
He continues, "The final regulations, incorporating what had been a related proposed class exemption, came after a long, deliberative and consultational process. The great irony here in my view is that the DOL personnel involved with the development of these rules were anything but pro-employer and pro-advisor."
1/30/09
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Incentives Can Be Effective – but Still Backfire
When AT&T executives tried to encourage productivity by paying programmers based on the number of lines of code they produced, the result was programs of Proustian length, highlighting a recurring difficulty with the use of incentives that work, but don't,
reports Fast Company.
Incentives are dangerous, and not just because people game them. They often yield collateral damage. Yet incentives are still the first resort of most managers, perhaps because they all think they're smart enough to create the perfect carrot.
It apparently never dawned on the person who set up Merrill Lynch's incentive system that the traders' bonuses would make training new employees impossible.
1/29/09
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Obama Set to Sign Wage Discrimination Bill
Congress has sent the White House its first legislation of Barack Obama's presidency—the Lilly Ledbetter Fair Pay Act, which makes it easier for women and others to sue for pay discrimination, even if the discrimination has prevailed for years, even decades,
reports MSNBC.com.
The bill has long been a favorite of Democrats and groups representing labor and women's rights. Opponents contended that the legislation would gut the statute of limitations, encourage lawsuits and be a boon to trial lawyers.
Having succeeded with the Ledbetter bill, labor activists plan to take up other issues supported by the Obama administration, including a controversial measure that would take away a company's right to demand a secret ballot when workers are deciding whether to join a union.
1/28/09
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Bucking Trend, Republic Bank Ups 401(k) Match
Republic Bank is bucking the current trend of companies suspending their 401(k) defined contribution matches by increasing its match and shortening the vesting period for its 750-person work force effective Jan. 1, 2009,
reports Financial Week.
This runs counter to what companies such as Motorola Inc. and Starbucks Corp. have all done—suspended their respective 401(k) employer matches, citing the difficult economic environment.
The Louisville, Ky.-based bank now will match 100% of an employee’s total contribution. Previously, the match was 50% for the first 1% of salary and 75% for the next 2% to 5% of salary. Also, it will shorten the full vesting period for employees to two years from six
1/28/09
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A New Twist: 401(k) 'Re-Enrollment'
Employers' efforts to get participants to diversify their 401(k) investments haven't been a resounding success. But employers aren't giving up. The newest twist is called "re-enrollment," in which employers can shift participants' money out of their current 401(k) investments and reinvest the money in a diversified portfolio,
reports the Baltimore Sun.
It's another sign of how 401(k)s are adopting features of traditional pensions, where workers are automatically signed up and investment decisions are made for them. But while re-enrollment can benefit workers who take no interest in managing their 401(k) investments, some worry it could also make them even less engaged if the employers make all the choices for them.
Re-enrollment is a very bold move that people are waiting to see if it's the right kind of thing," says Michael Doshier, Fidelity's vice president of marketing.
1/27/09
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The Continuing Evolution of Health Care Consumerism
It is the patient and consumer, not the physician or insurer or employer or regulator, who should be vested with the right to make trade-offs in the emotionally and sometimes spiritually charged domain of health care, argues an important new study,
Consumer-Driven Health Care: Promise and Performance, published in the journal Health Affairs.
The authors (James Robinson of the School of Public Health at the University of California, Berkeley, and Paul Ginsburg of the Center for Studying Health System Change in Washington, D.C. ) acknowledge that consumers often need support if their choices are to promote their well-being, and that health care is complex at best and not infrequently rife with nontransparent, anticompetitive, and even fraudulent behavior on the part of the many self-interested agents.
The health care market continues to pioneer hybrid forms that incorporate elements of both managed care and of health care consumerism, which the authors call an emerging system "managed consumerism."
1/27/09
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Wall Street Bonuses Criticized, Again
Wall Street’s system of paying year-end bonuses to reward workers is under criticism after the worst financial crisis since the Great Depression led to record losses and forced the government to pump taxpayer money into banks. Still, 46 percent of Wall Street workers responding to a poll said they were dissatisfied with their bonus,
reports Bloomberg News.
About 79 percent of Wall Street employees said they received a bonus for 2008, and 46 percent of these said it was higher than last year. "What it shows is the bonus culture is very deep-set in the securities industry,” said John Benson, CEO of eFinancialCareers.com. “There’s an entitlement culture amongst a number of people in the industry, which I think in the current environment is very misplaced.”
“I have been a defender of the bonus system in the past because it provides banks with a degree of flexibility on their cost structure,” Benson added. “I think most people on Main Street would say their organization incurred losses of this size that very few people in the organization if anybody would receive bonuses at all.”
Firms including Morgan Stanley, Credit Suisse Group AG and UBS AG have added so-called clawback provisions that set aside portions of workers’ bonuses that can be recouped in later years if an employee leaves or is found to have behaved in ways that are harmful to the company.
1/27/09
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PBGC Stays on Government Watchlist
The federal Pension Benefits Guaranty Corp. (PBGC), which insures vested pension benefits of participants and beneficiaries within certain limits, will remain on the GAO’s “high-risk” watchlist for 2009, amid concerns that the nation’s economic crisis could lead to more pension plan terminations that would increase the agency’s budget deficit,
reports Pensions & Investments, citing a Government Accountability Office report.
The long-term decline of the defined benefit pension system continues to erode PBGC’s premium base, with PBGC insuring about 65% fewer plans than it did 15 years ago,” GAO said.
1/26/09
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Delay on Investment Advice Rule May Lead to Revamp
The longtime quest by financial services firms to provide direct investment advice to participants in defined contribution plans took a potentially disabling hit, thanks in part to one of the first official acts of President Barack Obama's administration,
reports Pensions & Investments.
The Bush-era Department of Labor's new final rule isn't scheduled to go into effect until March 23, but a Jan. 20 memo from Rahm Emanuel, the president's chief of staff, asked federal agency heads to put all last-minute Bush administration regulations on hold. The wait on the investment advice rule is expected to result in delays and, perhaps, dramatic revisions, ERISA attorneys said.
Under the Bush rule, mutual fund employees would be able to offer one-on-one advice as long as the employees' compensation doesn't depend on the investment options selected by the plan participant, and the advice meets other key conditions. “That provision of the rule has no chance of going into effect without a serious second look by the new administration,” said J. Mark Iwry, former Treasury Department benefits tax counsel during the Clinton administration and now a senior fellow at the Brookings Institution.
(To learn more, see the SHRM Online article
DOL Issues Final Rule on 401(k) Investment Advice.)
1/26/09
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Businesses Prepare for New Burdens under 'Fair Pay' Act
The Lilly Ledbetter Fair Pay Act, recently passed by the House and Senate (a reconciled version of the bill is expected to shortly be signed into law) will pose new burdens on employers,
reports the Wall Street Journal.
In addition to a potential spike in worker claims, employers worry about the burden of having to keep compensation records for an indefinite period of time. There also is concern about wording in the bill stating the law could apply to individuals "affected by" the discrimination, which could be interpreted to mean a spouse or other family member of a worker could file suit.
"It will be more difficult for the employer to deal with the questionable claim," said Michael Eastman, executive director of labor policy for the U.S. Chamber of Commerce, adding that now they will have to find more ways to prove suits aren't valid, including paying more lawyers and conducting more investigations.
Another question employers are asking about the Lilly Ledbetter Act: To what extent can claims be applicable to employee benefits that might have been affected by earlier discriminatory acts, such as pension payout calculations? Paul Mallos, a principal and attorney with Mercer LLC, said this could be one more disincentive for employers to offer pension benefit plans.
"I think it's really critical for employers to assess the current compensation landscape and do an analysis to determine if there are any pay inequalities in their work force," Mallos said.
(To learn more, see the SHRM Online article
Senate Passes Wage Bias Bill.)
1/26/09
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PBGC Stays on Government Watchlist
The federal Pension Benefits Guaranty Corp. (PBGC) will remain on the GAO’s “high-risk” watchlist for 2009, amid concerns that the nation’s economic crisis could lead to more pension plan terminations that would increase the agency’s budget deficit,
reports Pensions & Investments, citing a Government Accountability Office report.
The long-term decline of the defined benefit pension system continues to erode PBGC’s premium base, with PBGC insuring about 65% fewer plans than it did 15 years ago,” GAO said.
1/26/09
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Senate Passes Bill Clearing Way for Wage-Bias Lawsuits
The U.S. Senate on Thursday approved a measure to make it easier for U.S. workers to win pay-discrimination lawsuits,
reports Bloomberg News. The House passed its version earlier this month.
The Ledbetter Fair Pay Act was introduced after the U.S. Supreme Court in 2007 rejected a $360,000 award to Lilly Ledbetter, an Alabama worker for Goodyear Tire & Rubber Co., who said almost two decades of discrimination meant her salary was 15% to 40% lower than what her male counterparts earned. The new legislation will let employees sue on a claim they are being underpaid because of discrimination that occurred years earlier.
• Business lobbyists say the proposal would increase costs and expose companies to more lawsuits.
According to the
Washington Post, the House will likely approve the Senate version to move the Ledbetter piece forward. The final bill will probably be on the President's desk very shortly.
1/23/09
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Google Rescues Workers with Underwater Stock Options
Google stock is about 50% off its 52-week high, leaving 85% of the company's employees with underwater (worthless) stock options paid as incentive compensation. That's a dangerous position for Google to be in, because viable options are a strong motivator to stay at a company, especially in Silicon Valley,
reports Fortune (via CNNMoney.com).
Good news for those employees: Google plans to create a stock options exchange program, allowing employees to swap their underwater options for ones with strike prices set at Google's current share price.
• In return, participating Google employees will give up 12 months of vesting -- a way of assuring those employees will stay at the company longer.
1/23/09
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How Some Firms Boost the Boss’s Pension
Some major companies are boosting the value of retirement plans for top executives by using a generous formula when converting a pension into a single lump-sum payment,
reports the Wall Street Journal.The practice, which remained largely unknown until a recent change in federal disclosure requirements, can increase the value of a CEO's pension by 10% to 40%, sometimes amounting to millions of extra dollars.
There's no standard way to figure a lump-sum amount, and practices vary widely. Some companies have been basing their calculations on an obsolete federal interest-rate formula that many experts say tends to produce an inflated payout. Business groups have successfully lobbied Congress to be able to use a less-generous formula when it comes to paying out pensions for regular workers.
1/23/09
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Pay Freezes Spread During Recession
For companies, pay freezes are a key cost-cutting tool for surviving hard times,
reports the AP (via MSNBC.com)"Employers are battening down the hatches," said John Challenger, president of Challenger, Gray & Christmas, a placement firm. "I think pay freezes are going to be widespread as companies struggle to hold on and wait out the recession." Some examples:
• The Cleveland Clinic in Ohio imposed a hiring and salary freeze across its 33,000-worker health system in December.• Aluminum producer Alcoa Inc. has imposed a salary and hiring freeze. • Luxury retailer Saks Inc. is eliminating merit raises and suspending matching contributions to its 401(k) plan. • Caterpillar Inc., the world's biggest maker of mining and construction equipment, is cutting executive compensation by up to 50%. It's also suspending merit pay increases for managers and support staff. • FedEx Corp. is cutting pay for senior executives and freezing 401(k) contributions for a year.
Add Yahoo to the growing list of companies that have put in place a pay freeze, separately
reports the AP.
1/22/09
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Despite Recession, Employers Offer Bigger Incentives for Healthy Living
Companies the began by offering modest incentives for completing health risk questionnaires have now boosted rewards — such as cash, free medications and insurance discounts — but require workers to do more to get them,
reports USA Today.
When Affinia Group first offered employees free testing for high blood pressure, cholesterol and diabetes in 2003, it enticed them with a $10 Walmart gift card. It now asks workers to sign a covenant agreeing to participate in health screenings and classes to manage medical conditions. Those who sign get a $1,000 discount on annual insurance costs.
Workers also can get $50 to $200 in tax-free health reimbursement accounts for having colonoscopies, taking healthful eating classes or avoiding alcohol or tobacco while pregnant.
1/21/09
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More Firms Rethink Compensation Plans
Companies that pay executives and other employees partly in stock or stock options are scrambling to revamp the plans amid the steep declines in the stock market. If they don't make changes, they effectively could be cutting compensation -- and that may prompt talented workers to look elsewhere,
reports the Wall Street Journal.
Even in depressed industries, directors believe they must reward the best 10% to 20% of employees because other businesses "will always make room for somebody who's a top performer," said Mark Reilly, a partner at 3C, Compensation Consulting Consortium in Chicago.
Roughly half of nearly 200 companies recently surveyed by consulting firm Mercer have changed or are considering changes in the way they grant stock or stock options. Equity-grant practices this year "will be fundamentally different than in previous years," Mercer concluded.
1/20/09
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PBGC Takeover of Pension Is No Easy Out
The federal Pension Benefit Guaranty Corp. (PBGC) does not automatically take over the defined benefit pension plan when company goes into bankruptcy. The company must first decide if it wants to terminate the plan. If it does, it has to demonstrate it cannot afford the plan,
reports the Washington Post.
For a company that cannot afford to maintain its pension plan in 2009, the PBGC would cover up to $54,000 of annual pension benefits for workers who retired at age 65. Those who retired at an earlier age would get less. Those who retired at a later age would get more. For example, a worker who retired at age 62 would receive up to $42,660.
Among other limits, the PBGC cannot guarantee benefit increases made within the five years prior to plan termination or the date the company filed for bankruptcy.
1/20/09
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EAPs: A Perk for Stressful Times
A widely available but often ignored corporate perk — the employee assistance program — can help workers who are suddenly facing a layoff, as well as those who worry that the same fate will befall them,
reports the New York Times.
According to The ComPsych Corp., an EAP provider, calls are up 30% to 40% over last year, spurred by unease about job prospects. “There is a sense of panic that we have not seen in our 24 years in business,” said Richard Chaifetz, the chief executive. “We’ve had an increase in calls on anything from feelings of depression or stress to refinancing mortgages, handling adolescents and dealing with bankruptcy.”
“Many companies have EAP’s, and they are usually a fairly rarely used and modestly publicized benefit,” said Mary Tavarozzi, a principal at consultancy Towers Perrin. “What employers have been doing of late is beefing up the benefit itself by offering additional sessions with counselors. Some large companies with employees located in a fairly large campus have established on-site EAP facilities with weekly office hours, when usually contact is with an unseen counselor by telephone.”
1/20/09
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Target-Date Funds Not Fool Proof
When confronting their year-end 401(k) statements, many participants who put money in 2010 target-date mutual funds may in for a shock – and facing a delayed retirement,
reports the Washington Post.
Last year's average loss was nearly 25% among 31 funds with 2010 retirement target dates tracked by Morningstar. Depending on which 2010 fund investors were in, the 2008 loss may have been as small as 3.6% or as big as 41%.
Target-date funds can still be a good long-term choice, particularly for hands-off investors, since they help to moderate asset-allocation extremes.
1/20/09
Companies Find Spreading Pain Preferable to Cutting Jobs
Giving workers the boot isn’t the only way businesses are trying to reduce costs these days. Broad-based pay cuts, long frowned upon, are being imposed by a growing number of companies big and small,
reports the Los Angeles Times.
FedEx Corp. cut wages for 36,000 salaried workers by 5% last month; at construction equipment maker Caterpillar, many employees will see their pay reduced by as much as 15%. Gymboree Corp., the San Francisco-based children's clothing retailer, is cutting senior executives' salaries by up to 15% and the pay of some other staffers by as much as 10%.
Union workers at YRC Worldwide Inc., the nation's biggest trucking company, voted last week to accept an across-the-board 10% pay cut to help their employer weather the slump in freight traffic.
1/15/09
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Why Pension Funds May Be the Next to Collapse
After the collapse of the housing market, the implosion of the stock market and the near collapse of the auto industry, are pension funds the next domino to fall? This
NPR audio report takes a look.
Suspending dividends, layoffs, and other cost-cutting measures may be ahead for a growing number of companies trying to meet mandated pension funding requirements.
1/15/09
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Next Benefit to Face the Ax: Charitable Matching Gifts
Hit hard by the recession, many companies have trimmed contributions to employees' 401(k) plans, suspended bonuses and cut back on health-care benefits. Now, a growing number are also taking the ax to their charitable matching gifts and volunteer programs,
reports the Wall Street Journal.
Such programs, in which companies match employee contributions — or donate funds based on the number of hours they volunteer — have been popular for decades with nonprofit groups, employees and firms themselves, who use it as a recruiting tool and to burnish their image, as well as benefit from tax deductions.
But over the past year, more than a dozen large U.S. companies have shut the doors on their matching programs or significantly reduced the matching ratio, say from $3 or $2 per every dollar donated by an employee to $1 or less. Other changes include lowering matching limits or excluding retirees or part-time employees from participating.
1/14/08
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Walgreen Promotes Its Health Program for Businesses
Walgreen Co. is stepping up the marketing of its combination of its clinics, pharmacies and other services to businesses looking to save on employee healthcare costs,
reports Reuters.
Walgreen, best known for the thousands of drugstores it has across the United States, also runs hundreds of health clinics in stores and at corporate offices. The program offers employees, dependents and retirees a 15 percent discount on Walgreens brand merchandise at its stores.
1/14/08
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Health Insurer, Accused of Overcharging, Settles
UnitedHealth Group, one of the largest health insurers in the U.S., has agreed to pay $50 million dollars in a settlement announced today after being accused of overcharging millions of Americans for health care,
reports MSNBC.com.
The New York attorney general’s office launched an investigation after receiving hundreds of complaints about Oxford Insurance and its parent company, UnitedHealth Group, which claims to rely on “independent research from across the health care industry” to determine reimbursement rates. In actuality though, it relies on Ingenix, a research firm owned by UnitedHealth Group.
New York Attorney General Andrew Cuomo is now investigating other insurance companies that use Ingenix’s database to determine reimbursement rates for patients. In addition, some patients plan to bring a class action lawsuit against UnitedHealth Group.
1/14/08
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Big Retirement Issues the New President and Congress Must Tackle
Retirement experts and lobbying groups are pelting the soon-to-be-sworn-in president with what they view as the big retirement-related problems that must be addressed over the next four years,
writes MarketWatch columnist Robert Powell.
Among the suggestions: Fix the financial education and advice system. Michael Hurd, the director of Rand Corp.'s Center for the Study of Aging, notes that Americans need help learning how to save and invest. "People don't know how much to save, how to invest and who to turn to for trusted advice."
Nevin Adams, editor-in-chief of PlanSponsor magazine, suggests embedding financial education in the elementary school curriculum. "If kids were exposed to half as much education about finances and the markets as they are drugs and sex education," he said, "we'd all be much better served -- and much better prepared to take responsibility for our financial futures."
1/13/09
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Agency Sounds Alarm on Car Makers' Underfunded Pensions; Executives, Unions Defend Retiree Benefits
The U.S. Pension Benefit Guaranty Corp. (PBGC) says the pension funds of Detroit's Big Three are dangerously underfunded,
reports the Wall Street Journal.
The agency estimates that the three auto makers only have enough money in their pension funds to cover only 76% of the pension obligations they have made, if they terminate the pension plans. GM's plan is estimated to be $20 billion, or about 20% underfunded, while Chrysler's plan is 34% underfunded, leading to a $9 billion-plus shortfall, the agency said. Ford's funded ratio is not publicly available, but the company's pension plans are likely running at a $12 billion deficit. About $13 billion of the estimated $41 billion shortfall would be covered by the PBGC, Jeffrey Speicher, an agency spokesman, said.
Separately, General Motors Chief Executive Rick Wagoner, in a joint appearance with United Auto Workers President Ron Gettelfinger, claimed that Detroit automaker can survive without cutting benefits to retired workers,
reports USA Today. A $13.4 billion federal loan package granted GM last month requires the UAW to make concessions, although union leaders indicate they are hoping for more favorable conditions from the incoming administration.
1/13/09
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Are Government and Union Pension Funds the Next Crisis?
State, local, and private pension plans covering millions of government employees and union workers with defined benefit accounts are teetering on the brink of implosion, victims of both a sinking stock market and investment strategies influenced by political considerations, warns
a report in Reason magazine.
From January to October 2008, defined benefit funds—those promising a predetermined amount of retirement money to the payee—averaged losses of 26 percent, according to Northern Trust Investment Risk and Analytical Services, making it the worst year on record for corporate and public pension funds.
Traditionally, public investments and union-based corporate pension funds were managed according to strict fiduciary principles. But over the past years, these funds were increasingly tailored to meet social agendas, as advocacy groups used their clout to direct money into pet social projects with dubious fiduciary prospects.
(The
PensionWatch web site is a useful resource on challenges facing defined benefit plans.)
1/13/09
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COBRA Too Costly for Many Unemployed, Report Finds
The cost of buying health insurance for unemployed Americans who try to purchase coverage through a former employer consumes 30 percent to 84 percent of standard unemployment benefits,
reports the Washington Post, citing a report by the liberal advocacy group Families USA.
The organization and House Speaker Nancy Pelosi (D-Calif.) said the new report highlights the need to include health insurance subsidies in the economic recovery package being crafted this month.
But one health policy analyst at the conservative Heritage Foundation responded it would be more effective to offer unemployed Americans a broad range of health insurance options, including high-deductible private policies or new state-based programs.
1/12/09
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Chronic Disease Key Driver of Out-Of-Pocket Payments
A rise in chronic disease, particularly among baby boomers and older adults, was a key driver of the fact that consumers spent about 40 percent more out of pocket for health care over the past 10 years,
researchers report in the journal Health Affairs.
The prevalence of chronic disease in the United States has burgeoned since 1996 not just among the "oldest old" but also among people in midlife and early old age -- regardless of sex, race, ethnicity, or income. Not surprisingly, the greatest growth in costs assumed directly by the consumer occurred among people with multiple chronic problems.
Cost sharing at the point of care can disproportionately burden people with chronic conditions and discourage adherence to drugs that prevent disease progression.
1/12/09
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Bear Mauls 'Safe' Target Funds, Too
Increasingly popular among 401(k) investors, target-date mutual funds are billed as a one-stop solution for investors saving for retirement. But the past year's market turmoil shows they're not one-size-fits-all,
reports the Wall Street Journal.
Last year's massive declines in stocks, as well as hefty losses in some parts of the bond market, led to big differences in returns among the offerings from different fund companies with similar target dates.
Many fund companies argue that even for a target-date fund aimed at a retirement year of 2010, the kinds of stock weightings that led to big losses will prove to be the correct move.
1/12/09
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Obama to Push for Digital Health Records
President-elect Barack Obama has proposed a massive government effort to make all health records standardized and electronic,
reports CNNMoney.com.
Many hurdles stand in the way. Only about 8% of the nation's 5,000 hospitals and 17% of its 800,000 physicians currently use the kind of common computerized record-keeping systems that Obama envisions for the whole nation. And some experts say that serious concerns about patient privacy must be addressed first.
(For more about e-health records and government vs. private initiatives, see the SHRM Online article
Intel Chairman: Transforming Health Care Is Employer Imperative.)
1/12/09
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Google Cuts Back on Perks
Google Inc. has jettisoned some of the generous employee perquisites that have been a company hallmark for the past decade,
reports the AP via the New York Times.
Google closed some company cafeterias that serve free meals and last month withheld a $1,000 holiday gift that's traditionally distributed to all employees. Instead, the company handed out free cell phones that run on Google software -- a gift that management valued at about $400.
1/9/09
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Educate Participants about Target-Date Funds
One of the benefits of target-date funds is that they eliminate extreme equity allocations in defined contribution plans, according to a new
report at IndexUniverse.com.
Non-target-date investors tend to hold greater extremes in equity exposure: 16% hold no equities, while 30% hold only equities. Target-date investors cannot hold extreme positions because target-date options include both equity and fixed income assets.
Sponsors should consider expanding educational efforts regarding target-date options and their "all in one" approach. Some participants may fail to realize that the funds are intended as a single portfolio solution and that they are already broadly and professionally diversified across the global capital markets. This education effort could also contrast rational approaches to portfolio diversification (e.g., core/satellite) with naive ones (e.g., holding multiple funds regardless of their objective).
1/9/09
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Big Slide in 401(k)s Spurs Calls for Change
The stock-market rout has ignited a crisis of confidence for millions of Americans who manage their own retirement savings through 401(k) or other defined contribution plans,
reports the Wall Street Journal.
While many employers have added "target date" funds to their 401(k) menus, these funds haven't offered investors much protection. The average target-date fund dropped 32% last year, slightly better than the Standard & Poor's 500 stock index's 38.5% decline. Funds with a target date of 2010, designed for investors on the brink of retirement, didn't fare much better, losing nearly 25%.
"It's so crazy to have a system where people can lose half their assets right before they retire," says Alicia Munnell, director of Boston College's Center for Retirement Research. But David Wray, president of the Profit Sharing/401(k) Council of America, says the plans shouldn't be judged prematurely: "When the entire American work force has 30 or 35 years in the 401(k) plan, then you'll see very substantial balances."
1/8/09
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Pension Expenses to Soar in 2009, Study Predicts
With estimated defined-benefit pension plan deficits for Standard & Poor's 1500 companies hitting a record of $409 billion for 2008, companies are likely to find themselves with added constraints on capital spending, loan covenants, and other potential outlays this year,
reports CFO.com, citing research by Mercer.
With the stock market tanking, companies will be hard pressed to simply invest themselves out of their pension deficits—meaning that hefty cash contributions will be required.
Funding strategies "will need to be revisited," said Adrian Hartshorn, a Mercer retirement plan consultant, "because the deficits come at a time when there are needs for other competing resources within the business."
1/8/09
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FMLA Steps that Employers Need to Take by January 16
There are several steps that employers covered by the Family and Medical Leave Act (FMLA) should take before January 16, 2009 in order to comply with the new regulations, reports
an alert by law firm Gray Plant Mooty. These steps include:
1. Post the New FMLA poster.2. Revise your organization’s FMLA policy.3. Start using the new FMLA forms.4. Ensure that supervisors are aware of new types of FMLA military family leaves5. Ensure that individuals responsible for administering FMLA leaves are familiar with the new regulations
1/8/09
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New York May Mandate Insuring Dependents Up to Age 29
New York Gov. David A. Paterson will propose that private employers be required to offer health insurance to workers’ dependents who are ages 19 to 29, part of what the administration hopes will be a step toward universal health care coverage in New York,
reports the New York Times.Currently, employers are not required to offer health insurance to dependents who are older than 18 or, if they are in college, 22.
2/7/09
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Lower Pay Seen for U.S. Small Business Employees
Small U.S. business employees, whose earnings eroded in 2008, can expect to earn even less this year as competition grows for jobs,
reports Reuters.
Average small business paychecks dropped by 3.1 percent nationwide in 2008, according to SurePayroll, a company that processes paychecks for more than 20,000 small businesses. The decline was steepest in the U.S. South, where pay fell 9.2 percent, in part reflecting the effects of the Florida housing bust. "I wouldn't be surprised if we saw another 3, 4 percent decline for the year," SurePayroll President Michael Alter said. "You've got a lot more workers out there looking for jobs, and that depresses wages."
Meanwhile, more small businesses -- defined as anywhere from one to 100 employees -- are employing contractors to avoid payroll taxes and benefit costs. Use of contractors was up 8.3 last year, the largest increase since 2004. About four in 100 small business workers are now independent contractors.
2/7/09
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Kroger to Union: Health, Pension Costs Too High
The Kroger Co., a grocery chain, has warned rising health care and pension costs could be sticky issues in labor negotiations that will affect about 12,000 Georgia-based employees,
reports the Atlanta Business Chronicle.
The union said it plans to fight potential demands for health care cost-sharing and other concessions.
Health care and pension benefits for years remained sacred cows for labor unions, many of which vowed to keep management from shrinking such benefits, even if it meant compromising on pay raises.
2/6/09
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Spending Rise for Health Care and Prescription Drugs Slows
National health spending grew in 2007 at the lowest rate in nine years, mainly because prescription drug spending increased at the slowest pace since 1963,
reports the New York Times.
Dr. Robert S. Epstein, chief medical officer of Medco Health Solutions, which manages drug benefits for more than 60 million people, said the approval of generic versions of blockbuster drugs in 2006 and 2007 “had a tremendous influence” in slowing the growth of drug spending.
Out-of-pocket spending on health care increased 5.3 percent in 2007, to $268.6 billion. Such expenses have been growing more slowly than total health spending, but faster than household income, so many consumers have felt a squeeze on their pocketbooks, federal officials said.
Separately,
Drug Benefit News, via AISHealth.com, reports that health insurers are rolling out "value-based prescription drug plans" that waive or reduce employee co-pays (flat dollar amounts) or co-insurance (percentage amounts) for some prescription drugs in order to improve compliance and lower long-term health care costs. For example, WellPoint has demonstrated in several different plans a roughly $100 per-member per-month reduction in total costs of care when members are compliant with cholesterol-lowering statins.
1/6/09
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Upcoming 401(k) Final Rule: New Fiduciary Responsibilities
As early as this month, a set of detailed rules from the U.S. Department of Labor are expected to become final. The proposed regulations mandate that 401(k) plan sponsors disclose clearly worded information to plan beneficiaries, including investment descriptions, benchmarking data and fee information,
reports TheStreet.com.
In the past the common practice was for plan sponsors, usually through providers, to give participants the bulk of information about their plans when the participant first entered the plan. Under the proposed rules, an overview of the plan—including information about the plan investments, expenses, and the procedures for making and changing investments and taking loans—must be handed out each year.
The regulation will require that participants be given, on their quarterly statements, the dollar amounts that were charged to their accounts for administrative expenses such as consulting charges to the plan, and transactional expenses—like fees for participant loans. Plans also will only be required to give information about the expense ratios, expressed as a percentage of the participant’s plan assets.
(To learn more, see the SHRM Online article
DOL Proposes Rule to Improve 401(k) Fee Disclosure to Participants.)
1/6/09
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Pay Discrimination Ruling to Draw Congressional Action; 'Litigation Explosion' ?
President-elect Obama and Democrats in Congress are planning swift legislative action to overturn a Supreme Court decision that upheld a statute of limitations on lawsuits seeking relief from pay discrimination alleged to have taken place years before,
reports the New York Times.
The 2007 Supreme Court decision rejected a pay discrimination suit brought by Lilly M. Ledbetter against tire manufacturer Goodyear. Ledbetter's lawsuit charged wage inequality throughout her 19 years at the Goodyear plant. Ledbetter has pointed out that her pension payments are based on her paychecks at the tire plant, and that in general a pay gap that results from discrimination not only affects a woman's pay but her pension levels,
Workday Minnesota reports.
The proposed legislation would relax the statute of limitations under various civil rights laws, creating uncertainty for employers by giving plaintiffs decades to file charges. President Bush threatened to veto the bill, but Obama has said he is eager to sign it. Successful class action suits, some fear, could require employers to re-calculate vested pension amounts from years earlier and re-adjust past and future pension payouts to former employees.
The United States Chamber of Commerce opposes the bill, saying it “would lead to an explosion of litigation” against employers. Under the bill, “it is possible that claims could be filed decades after an allegedly discriminatory act occurred,” said R. Bruce Josten, executive vice president of the chamber. Nevertheless, most observers expect the bill to pass and be enacted into law.
1/5/09
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More Workers Forced to Take Unpaid Vacations
It's the vacation no one wants, courtesy of the recession: Forced time off without pay. Financially struggling universities, factories and even hospitals are requiring employees to take unpaid "furloughs" — temporary layoffs that amount to one-time pay cuts for workers and a cost savings for employers,
reports the AP via MSNBC.com.
This year, the number of temporarily laid off workers hit a 17-year high.
3M Co. said early this month that it had ordered some workers to take vacation or unpaid time for the last two weeks of the year. Computer maker Dell Inc. in November asked employees to consider taking unpaid vacation days during the fourth quarter.
1/5/09
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Bucking Trend, McDonald’s Keeps Its 'Supersized' 401(k)
To retain valuable workers, McDonald's in 2004 began offering a rich retirement savings perk. Employees who put 5 percent of their salary in the company 401(k) receive a company match of as much as 11 percent,
reports BusinessWeek via MSNBC.com. Significantly, the fast-food giant is bucking a trend that finds many companies cutting back on their matching contributions in recent months as the recession deepens.
McDonald's corporate match remains especially extravagant at lower levels of saving: employees who put just 1 percent of their salary in the plan get $3 for every $1 they invest. (Most companies won't even match a contribution until an employee puts in at least 3 percent.) McDonald's then makes a dollar-for-dollar match on the next 4 percent. After that there's a potential profit-sharing match of up to 4 percent. All told, workers who save 5 percent of their pay can see the total swell to 16 percent.
To make sure employees take advantage of the program, McDonald's has made enrollment automatic. And to ease the pain of automatically deferring 1 percent of pay, the company gave managers a one-time, 1 percent salary increase.
1/5/09
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Pension Funds Stay Invested in Riskier Hedge Funds
Many pension funds plan to continue investing in hedge funds, which attempt to produce higher returns by using debt to finance investments, even as pressure is mounting for regulation of the funds,
reports the Washington Post.
Hedge funds experienced the largest performance spread in their history in 2008, with the bottom 10 percent losing more than 58 percent and the top 10 percent soaring more than 40 percent, according to Hedge Fund Research.
"The problem with most pension fund relationships with hedge funds is that they're opaque, and in order to know what to do with the market index and the options, you need to know what is going on in the hedge fund," said H. Sean Mathis, an investment adviser. "What went wrong was you didn't know what the hedge fund was doing.''
Along similar lines, the
Wall Street Journal reports that many pension fund managers say they'll keep their hedge fund investments despite the Madoff scandal.
"We have an 8.5% actuarial assumption, and ... we have to look for programs that can reach that level," said Alan Van Noord, chief investment officer at the $54.7 billion Pennsylvania Public School Employees' Retirement System. "There are very few asset classes that you can get [returns] above 8%."
1/5/09
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After Madoff Scandal, 401(k) Plans Advised to Avoid Opaque Investments
Bernard Madoff's operations lacked any sort of transparency. His clients, including a number of large 401(k) plans, simply didn’t know where their assets were or how they were invested. And the resulting losses have been devastating to their unknowing participants,
blogs Scott Pritchard of Capital Directions.
Plans that invest in collective trusts, collective funds, unit investment trusts, or other tools with similar names, potentially face a similar lack of transparency. While collective trusts may be less expensive than the average retail mutual fund, they lack the transparency of mutual funds, which are required to provide copious public detail, Pritchard states.
"As fiduciaries, we cannot fulfill our duties without full transparency. We’ve heard that all year as it relates to fee disclosure, but the Madoff fraud reminds us that we also have to apply that to the structure of the investments we offer to plan participants," Pritchard advises. "It’s fine to trust. Just make sure you can verify."
1/5/09
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In 2009, Uncertainties for Health Care, Retirement Plans
Benefit managers have entered 2009 with a host of concerns regarding their departments' operations and their employee benefits offerings in the wake of the dismal economy,
reports Business Insurance.
Just as benefits managers are waiting to see how their benefits departments will be affected by the economic downturn, they are pondering if and when health care reform will occur and how their organizations will be affected, said Chantel Sheaks, a principal with Buck Consultants L.L.C. in Washington.
"I think for employers, when they're doing their planning and looking forward, it's very difficult in this political climate to really plan on the health care side for next year," Sheaks said. "Many employers have to plan as if nothing is going to happen."
1/5/09
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Citigroup Limits Top Executive Pay, Bonuses
The recipient of a $45 billion infusion from the federal government, Citigroup Inc. said it would place strict limits on management's compensation, including no severance for its top five executives,
reports USA Today.
Under pressure from lawmakers, Citigroup Chief Executive Vikram Pandit and Chairman Win Bischoff opted to forego their 2008 bonuses. The company's new executive pay limits also feature a clawback provision in which Citigroup can recoup executive pay "that over time proves to be based on inaccurate financial or other information."
1/2/09
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Life After a Six-Figure Salary
Following lay offs, former high-end earners are finding that new jobs often pay 30%, 50%, 70% less than their old ones,
reports CNNMoney.com.
With more than three job seekers for every opening, more workers are having to take significant pay cuts to find employment.
In fact, 63% of unemployed workers said they would be willing to accept a job offer that pays less than their previous job, according to a recent survey conducted by the National Employment Law Project. Still, only 37% of respondents expressed high confidence in finding a job in the next four months despite being willing to make such a sacrifice.
1/2/09
