Author: Mark Jr.

In a town that’s been focused on Supreme Court nominees, it’s not surprising that Peter Kirsanow takes a page from their playbook when describing how he will serve on the National Labor Relations Board.

    “The philosophy is going to be similar to the philosophy I would expect from anyone in a judicial capacity,” he says. “I’m going to approach each issue as objectively as I possibly can, with adherence to precedent and statutory and regulatory law.”

    Kirsanow is not officially a judge, but he and his four fellow NLRB commissioners adjudicate disputes between companies and unions. The low-profile NLRB could have a big impact on employers as it rules on union certification and the definition of a supervisor.

    Like new Supreme Court Justices John Roberts Jr. and Samuel Alito, Kirsanow likely will bring a conservative perspective to the body he’s joining. The NLRB, composed of three Republicans and two Democrats, also tilts to the right.

    Unions protested Kirsanow’s recess appointment by President Bush in January. He can serve through 2007 without Senate confirmation.

    “Mr. Kirsanow has taken stands against the minimum wage, affirmative action, prevailing wages, voting-rights legislation and other basic protections for workers and citizens, and he has expressed a marked hostility to unions,” AFL-CIO president John Sweeney said in a statement.

“I’m going to approach each issue as objectively as I possibly can, with adherence to precedent and statutory and regulatory law.” –Peter Kirsanow, NLRB

    A member of the U.S. Civil Rights Commission and a former employment lawyer, Kirsanow says he is not against the minimum wage, but does not want it indexed to inflation. He supports affirmative action as it was “originally constituted,” but opposes quotas and preferences.

    The fiercest controversy surrounding Kirsanow to date involves race. Critics assert that he has advocated the internment of Arab Americans if there were another terrorist attack.

    Kirsanow, whose father was held in a Soviet detention camp, strongly denies the charge. “I made it abundantly clear that what I was saying is that the best civil rights for all Americans is that we protect the safety of all Americans,” he says.

    Commissioners’ backgrounds and beliefs matter greatly on the NLRB, says one expert. “There are several issues where the philosophical and ideological approach will make a big difference,” says Risa Lieberwitz, associate professor of labor and employment at the Cornell University School of Industrial and Labor Relations.

    Kirsanow does not oppose unions in principle, but he will favor establishing them in secret-ballot votes rather than through a card-check certification, says Charles Baird, professor of economics at California State University, East Bay. “Some people define being hostile toward unions as anyone who disagrees with John Sweeney,” he says.

    Kirsanow will strengthen the NLRB, Baird says. “The fact that he is a black member is a big plus for the board, and it’s a big plus for the ever-growing black community of conservative thinkers and scholars and lawyers,” he says.

Workforce Management, February 13, 2006, p. 14 — Subscribe Now!

When Rebecca Miller returned to college, she took computer and statistics courses that helped her cope with the transformation of her manufacturing job. But a women’s studies class also gave her a new perspective to take to work.

    “I didn’t know that much about my history as a woman in America,” says Miller, a circuit-board inspector at ITT Industries’ aerospace/communications division in Fort Wayne, Indiana. “Textbooks tend to focus on the achievements of men. It empowered me as a woman. It built my confidence.”

    Miller is using a lifelong learning account to finish an associate degree in general studies at a regional campus of Indiana and Purdue universities. Her monthly $50 contribution to the account is matched by her employer and by foundations that are supporting a demonstration project in the Fort Wayne area.

    The Northeast Indiana program focuses on manufacturers and government, while initiatives in Chicago and San Francisco target the food service and health care industries, respectively. A total of 350 workers are participating. The accounts were developed by the Council for Adult and Experiential Learning, a Chicago-based organization that promotes education for working adults.

    Country House Restaurants, a Chicago-area chain, has found that employees are inspired by going back to school, even though the skills they’re acquiring often don’t directly relate to their jobs.

“I never thought I would go back to college because I couldn’t afford it.”  –Rebecca Miller

    “They’re excited. It gives them something to talk about,” says Dean Timson, general manager of Country House Res­taurants. “People feel better when they’re accomplishing things.”

    For Miller’s employer, the most tangible benefit of her schooling is that she was able to make a smooth transition when her job became automated. “I knew exactly how to use the mouse, how to use the Web pages,” she says. “I helped train the others in my department.”

    A 17-year veteran of ITT, Miller was hesitant to become a student again. “I never thought I would go back to college because I couldn’t afford it,” she says.

    Learning accounts are designed for employees like Miller. Tuition reimbursement, on the other hand, works for those already motivated to continue their education.

    LiLAs, as the accounts are called, break down barriers for people who have “sweaty palms” about school because they previously quit or can’t afford it, says Fort Wayne Mayor Graham Richard. In the program, an employee develops a learning plan with a coach who encourages follow-through.

    “The object here is, don’t count on someone else to do this for you,” Richard says. “You need to get into the habit of saving money that you can invest in your own skill set.” Fort Wayne has spent $163,000 in matching funds and administrative costs for 50 city employees involved in the project.

    In addition to LiLAs, Richard has developed a large catalog of courses and development programs for municipal workers.

“You have to think of yourself as a lean, lifelong learning machine.” –-Graham Richard, Fort Wayne mayor

    “What we’ve created is our own internal learning factory,” he says.

    For a city whose private sector is dominated by manufacturing, training and education are central to increasing wages. “The LiLAs help us keep hammering to everybody: learning and earning,” Richard says. “They’re linked like they’ve never been linked before. You have to think of yourself as a lean, lifelong learning machine. You can’t stop.”

    Program growth likely will have to come from the local level rather than through state or federal tax incentives. The problem is finances, not politics. “This isn’t a Republican or Democratic issue,” Richard says. “The budget crunch at the state and federal level is so significant that you don’t find very many legislators willing to propose tax credits.”

    For now, the initiative is targeting one worker at a time. Miller feels better prepared for a downturn like the one in 2000. She lost her job, and worked a variety of factory jobs before returning to ITT. “In case anything happens, I have an education I hadn’t finished before,” she says.

Workforce Management, January 30, 2006, p. 14 — Subscribe Now!

With President Bush’s poll numbers mired below 50 percent and Capitol Hill Republicans battling ethics scandals, observers in Washington have been waiting to see what kind of blueprint Democrats will offer to regain control of Congress in 2006.

    Improving the U.S. workforce is one issue they might emphasize. Late last year, House Democratic Leader Nancy Pelosi of California introduced a plan to increase the number of science, math, engineering and information technology workers. Dubbed the Innovation Agenda, the manifesto also calls for bolstering research and development through public-private partnerships, making broadband technology available nationwide, achieving energy independence and boosting small-business growth.

    “We will add 100,000 new scientists, mathematicians and engineers to America’s workforce in the next four years by providing scholarships, other financial assistance and private-sector opportunities to college students to achieve this goal,” Pelosi said in a National Press Club speech.

    Republicans argue that Pelosi is highlighting initiatives they have supported for years while she and her Democratic colleagues have opposed job training bills and other proposals to strengthen education and small business. The GOP also asserts that it has taken the lead in pushing for more federal R&D funding.

    Pelosi invited Republicans to join Democrats on the innovation initiative. She shied away from drawing parallels between the plan and the Republicans’ 1994 Contract With America, which garnered some credit for the GOP’s takeover of the House.

    “This is not a contract with, for or on America,” she said. “What it is, is a document for the future.”

    Democrats believe that their agenda may get political traction because it addresses issues–jobs and education–that motivate voters and corporations.

    Businesses “consider education and training as an absolute bedrock of their ability to continue to do business in the United States,” says Rep. George Miller of California, the top-ranking Democrat on the House Committee on Education and the Workforce. Miller participated in a conference with executives at Stanford University this past fall, one of several hosted by Democrats in advance of releasing their proposal.

    The Democratic plan came out one week before the National Association of Manufacturers released its “2005 Skills Gap Report,” which found that more than 80 percent of the 800 employers surveyed are experiencing a shortage of qualified workers. The most important factor determining business success over the next three years will be a “high-performance workforce,” according to 74 percent of respondents.

    John Engler, NAM president and former Republican governor of Michigan, stressed that improving skills should rise above politics. “I would love to see this be one area where there is truly bipartisanship,” he says.

    Strengthening the workforce is as much a mandate for business as it is for Washington. Employers must think beyond wages and benefits and offer opportunities for supervision, leadership and training to keep the work environment stimulating, according to an expert who helped conduct the NAM survey.

    “You can’t put the emphasis on how you recruit and how you retain employees,” says Richard Kleinert, a principal at Deloitte Consulting. “It’s how you develop them, how you train them, how you engage them.”

Workforce Management, January 16, 2006, p. 12 — Subscribe Now!

Here’s a good day for an American company: AARP singles it out. The company is recognized as an “employer of choice,” one that treats its age 50-plus workforce well. There’s a glossy, professionally produced event, speeches and kudos all around.

    Here’s a bad day for an American company: AARP singles it out. This time, the attention comes in the form of an AARP-instigated lawsuit. There are depositions, oral arguments and, potentially, a multimillion-dollar price tag for tampering with the 50-plus workforce’s retirement benefits.

    Once, AARP mostly flew below corporate radar. That’s when it was the American Association for Retired Persons, and so, by definition, it had nothing to do with anyone’s employees.

    Now, however, AARP has banished “retired” from its name, going simply by its former acronym. It is perhaps best known as the political behemoth that stopped private Social Security accounts cold. And it has increasing clout on workplace issues. The senior lobby has been a driving force behind lawsuits brought by older employees who allege that they suffered financial losses when companies converted from traditional defined-benefit pension systems to cash-balance plans. It also is in court fighting to equalize pre-65 and post-65 retiree health benefits.

    AARP chief executive William Novelli won’t cast his organization as business’ best buddy, or its worst enemy. Its loyalty is to its 36 million members, and its commitment is to ensuring that their current, former or would-be employers treat them right.

    “We think of ourselves as a catalyst,” he says. “The social contract between employer and employee is changing. With that come two messages. One is, be fair. The second message is for boomers: Save your money.”

    When fairness means that AARP will give companies a hand in employing older workers, the message is easy to swallow. Today’s staffing challenges mean that businesses of all kinds increasingly turn to experienced employees with strong work ethics. And so companies clamor to partner with AARP on efforts to encourage workers older than 50 to keep working.

    When the “be fair” message is delivered via legal action, it’s a different story. Lawsuits pose the danger of making retirement programs profoundly more expensive. In 2005, IBM settled a cash-balance case by agreeing to pay $300 million to the class-action plaintiffs. Its liability may rise to $1.4 billion if it loses an appeal on another part of the suit.

    If AARP prevails in its drive against cash-balance conversions, it will deny companies the flexibility to change benefit systems to cope with global competition and workforce demands, observers say.

    “You’re not allowing companies to design programs that would best fit their needs and the needs of their workers,” says Lawrence Sher, director of retirement policy at Buck Consultants in New York. “It would straitjacket employers and force them into a corner. What’s at jeopardy is jobs and company survival.”

Worker expectations
AARP’s ultimate goal, says Lynn Dud­ley, vice president of the American Benefits Council, which represents about 250 large companies, is to inculcate an entitlement mentality in which people demand all the benefits they are expecting from age 50 until retirement, even if they haven’t earned them yet.

    “AARP’s interest is in vesting the expectations of the older worker,” she says. “If you go down the road of vesting people’s expectations, it’s hard to know where to stop.”

“The social contract between employer and employee is changing. With that come two messages. One is, be fair. The second message is for boomers: Save your money.” –William Novelli, chief executive, AARP

    David Certner, director of federal affairs for AARP, says that the organization is standing up for older workers who have based career decisions on companies’ benefit promises. “We’re trying to meet people’s reasonable expectations,” he says.

    AARP has the power to meet those expectations by influencing both social policy and U.S. business performance through its huge constituency of baby boomers. Not only are they the people most likely to vote, but employers must persuade them to remain in the workforce as the U.S. population ages and the labor market tightens.

    Although it is an ally of companies that are trying to fill jobs with older workers, AARP also hews to its traditional role of protecting every penny of senior benefits. That means it pushes back when President Bush advocates investing some Social Security funds in the stock market. In the private sector, AARP takes companies to court when it perceives that they’re not living up to promises made to employees decades ago.

    In a Pennsylvania age discrimination case, AARP itself is the plaintiff, arguing that employers must provide the same level of health coverage for retirees over the age of 65 as they do for those who are younger than 65. Businesses offer more generous retirement packages to pre-65 retirees because the smaller post-65 benefit is wrapped around Medicare. AARP asserts that the practice amounts to age discrimination.

    In September, U.S. District Judge Anita Brody reversed an earlier decision and found that the Equal Employment Opportunity Commission can authorize employers to give differing benefits to retirees without violating the Age Discrimination in Employment Act. The ruling, based on a recent Supreme Court case, is likely to be appealed by AARP.

Unrealistic goals?
    Employer groups warn that companies will resist a mandate to take on increased health care costs and will drop retiree benefits altogether, hurting AARP’s constituency. The pro-business Employment Policy Foundation estimates that employers would have to pay $1,500 more per Medicare-eligible retiree if AARP wins.

    “AARP’s position is simply incoherent,” says Mark Ugoretz, president of the ERISA Industry Committee, which represents large companies. “AARP members should question why AARP is taking this position against their interests.”

    The feeling is consistent across the business community. “It’s not a realistic position in the real world of increasing health care costs,” says Robert Costagliola, former labor and employment counsel at the National Chamber Litigation Center.

    AARP maintains that the Pennsylvania court has misinterpreted the Supreme Court ruling and that the EEOC has overstepped its bounds. “We don’t believe you can have different benefits for retirees over and under 65,” Novelli says.

    When a fix for the retiree health care benefit was put into Medicare reform legislation in 2003, AARP objected, and it was removed. The lobby’s support for the bill was crucial. “I don’t think the prescription drug benefit would have gone through without AARP, ” says Jane Marie Mulvey, director of economic studies at the American College of Pathologists.

    AARP, whose $878 million annual revenue includes $350 million from royalties like those it will receive by offering its own Medicare drug plan, knows how to flex its muscles.

    It has persuaded a number of members of Congress to question cash-balance conversions. “Some of these conversions harm people,” Novelli says. About 1,500 companies sponsor cash-balance plans, covering 8.5 million workers.

    As the IBM case has demonstrated, cash-balance lawsuits can be expensive. If firms are required to pay older workers the equivalent of what younger workers will make over the life of the plans, the bill could add up to billions.

“We had historically interfaced with business through litigation,” says Deborah Russell, director of economic security and outreach for AARP. When it comes to workforce participation issues, however, AARP seeks to be a partner. –Deborah Russell, AARP

    But Certner argues that companies “did know that there were questions and legal issues surrounding these plans.” A recent study by the Government Accountability Office concluded that most workers, regardless of age, would receive greater benefits under a traditional defined-benefit plan than under a cash-balance plan. Workers at 50 who are hurt in a conversion lose about $238 per month, according to the GAO. An AARP survey indicates that companies offered protection to older workers in 23 of the 25 largest cash-balance conversions.

Promoting partnership
    The cash-balance fight aside, AARP goes beyond confrontation in its relationship with corporate America. The scowls that executives see when the organization pursues benefits lawsuits are replaced by welcoming smiles when AARP reaches out to help companies recruit workers older than 50, a demographic they must tap as the population ages.

    “We had historically interfaced with business through litigation,” says Deborah Russell, director of economic security and outreach for AARP. When it comes to workforce participation issues, however, AARP seeks to be a partner.

    Five years ago, Russell implemented a program that annually recognizes the best places to work for people over 50. In 2004, AARP instituted its Featured Employers Program. Both efforts are designed to connect older workers with companies.

    “We’re not mandating work,” Russell says. “Our goal is to provide opportunities for our members to work as long as they want to work.”

    AARP highlights links to featured employers on its Web site. In November, the organization recognized 2005 winners at a Washington event. New York Life Insurance Co., one of the honorees, depends on older employees to help develop products that appeal to their peers.

    “Through the Web site in particular, we’re going to generate a lot of leads for employment candidates,” says New York Life president Fred Sievert. “This relationship, and being a featured employer, is very important to us. It’s going to help strengthen our brand.”

    AARP seeks companies where the older-worker message courses through every vein of the organization. Home Depot is an example.

    “It was a commitment from Bob Nardelli, CEO of the Home Depot, all the way down to that manager of the Hoboken Home Depot who was going to be accepting applications,” Russell says.

    In addition to being named a featured employer, Home Depot has entered into a partnership with AARP that gives the organization a branded presence in the stores and enables its members to receive a 4 percent discount on online purchases of gift cards.

    AARP also boosted recruiting efforts for Adecco, an international placement firm in Melville, New York. The company received more than 10,000 hits on its Web site as a result of being named an AARP featured employer.

    “There are a lot of myths about older workers that AARP has been successful in busting,” says Victoria Mitchell, who formerly headed corporate relations at Adecco. Among those misperceptions is that they are loath to learn new technologies and are less productive.

    The goal for AARP is to keep people like Bill Corporan on the job. A former senior writer at Exxon Mobil, he is now a cashier at Borders. “The single most important thing is the interaction with the public,” he says.

    Developing relationships with customers is also what inspires Dale Vernon, 65, a manager for CVS/pharmacy in a Cleveland neighborhood called Slavic Village. Vernon hears Polish, Chinese, Russian and Spanish in his store.

    Vernon, who joined CVS in 1997, praises the company for promotion opportunities and feedback. “They reward you and let you know you’re doing a good job,” he says.

    CVS has increased its number of 50-plus employees from less than 1 percent in the early 1990s to nearly 18 percent today. As an AARP featured employer, the drugstore chain will be able to mine that part of the workforce even more deeply.

    Corporan, 58, the Borders cashier, found his job through a link on the AARP Web site. “It was incredibly simple,” he says.

    With testimonials like that, it’s easy to see why companies continue to seek partnerships with the organization. They’re hoping they’ll have more good AARP days–and maybe none of those bad ones.

Workforce Management, January 16, 2006, p. 1, 36-41 — Subscribe Now!

Five years ago, the Pension Benefit Guaranty Corp. enjoyed a $9.7 billion surplus and relative obscurity. But now, in the wake of such high-profile pension failures as the $6.6 billion default by United Airlines in May, the federal agency is running a $23.3 billion deficit, and both the PBGC and its executive director, Bradley Belt, have a higher profile.

    That puts Belt, a former congressional aide and financial services firm executive, in a sort of bully pulpit. And he’s using it to stress that companies were living in a fantasy world in the 1990s, when a strong bull market enabled them to reap profits from their defined-benefit retirement plans. Belt is bluntly telling plan sponsors to face the reality of market downturns, like the one that hit in March 2000 and continues to linger. His key message: Corporations must prepare for such realities by treating pensions as a cost center and keeping them fully funded at all times.

    “Companies have to write checks every year for wages; they have to write checks every year for 401(k) plans; they have to write checks for health care benefits, for paper clips, for notepads,” Belt says. “But somehow we came to accept this notion that we didn’t have to put any money into pension plans–that you could ride these asset gains forever, ignoring that markets are cyclical.”

    In an administration that is business-friendly, Belt is a leading advocate for changes in pension law that corporate constituencies are resisting. The issue is likely to come to a head as legislators return to Washington this month.

    Fall is shaping up as a watershed moment for pension policy reform. Two bills have been introduced–one in the House and one in the Senate–that largely follow the administration’s proposal to strengthen funding rules, institute risk-based premiums, raise PBGC premiums and increase transparency. Belt, a key figure in pension policy along with officials from the Departments of Labor and Treasury, is given some of the credit for helping the White House get its way so far on Capitol Hill.

    After Labor Day, additional committees in the House and Senate are expected to offer their own bills. Key congressional leaders indicate that they want to enact pension legislation by Christmas.

    So far, employers are balking at the proposed changes. A Credit Suisse First Boston report in June found that some large companies would have to sharply increase the amount of money they contribute to their defined-benefit plans if the Bush proposal became law. Administration and congressional proposals include a provision to raise PBGC premiums from $19 to $30 per pension plan participant. IBM, for example, would have had to allocate an additional $1.32 billion this year, and General Motors would have owed an additional $1.5 billion. Smaller businesses would obviously feel the impact too. Businesses argue that the PBGC, with $40 billion in assets, is not in immediate danger of tapping out and that reform proposals would increase the volatility of defined-benefit plans, forcing healthy companies to end them.

    Meanwhile, U.S. Comptroller General David Walker has been urging Congress to fix the PBGC problem before it requires a taxpayer bailout. He draws a parallel to the political lassitude that preceded the savings-and-loan collapse in the 1980s.

    “The common denominator is that there is a systemic problem,” he says. “It needs to be acted on sooner rather than later.”

Agency strained
    The urgency to fix the system stems from the growing number of pension plan defaults in corporate America, which have decimated the PBGC budget. Falling interest rates and stock market declines since the dot-com bubble burst at the beginning of the decade put pressure on company pension plans. Federal rules that permit companies to withhold contributions to their plans also contributed to vast underfunding in the system.

    These factors contributed to spectacular pension defaults. When companies dump their plans, the PBGC must step in and provide payments to current workers and retirees. In 2003, US Airways and Bethlehem Steel dumped pension obligations of $3 billion and $3.7 billion, respectively, on the agency. This year, United Airlines defaulted on $6.6 billion in pension liabilities. A recent study by Watson Wyatt indicates that about 11 percent of big companies froze or terminated their pension plans in 2004, up from 7 percent in 2003.

    The PBGC, an 800-employee agency that had a $9.7 billion surplus as recently as 2000, is now saddled with a $23.3 billion deficit. A total of 3,479 pension plans have been terminated and unloaded on the agency, which is responsible for providing current and future pension benefits for about 1.1 million workers and retirees. The PBGC insures nearly 44 million workers and retirees in more than 30,000 pension plans that collectively have promised about $1.5 trillion in pension payments. The maximum benefit that the PBGC pays is $45,614 annually after a worker reaches 65.

    Signs indicate that the PBGC will have to make more of those payments in the future. The underfunding of insured single-employer pension plans totals $450 billion, while underfunding of plans at firms with junk-bond status, where termination is deemed “reasonably possible,” totaled $96 billion last year, up from $34.1 billion in 2002.

    In a May report, the Government Accountability Office (formerly the General Accounting Office) found that in 2002 almost a quarter of the 100 largest pension plans were less than 90 percent funded. It said that 62.5 percent of plans made no cash contributions, increasing the chances that employees would lose their pension benefits if the companies went under.

Calling for an overhaul
    Belt cites the GAO report, which designated the PBGC as being at “high risk” of significant vulnerabilities, when he argues that the defined-benefit pension system must be overhauled. A former aide to Sen. John McCain, R-Arizona, Belt is given credit for being a straight talker himself. “He’s been thoughtful, analytical and forthright,” says Mark Iwry, a senior adviser to the Retirement Security Project and a former benefits tax counsel in the Treasury Department during the Clinton administration. “He’s been straight up about what he thinks is needed and why.”

    His ability to articulate the technicalities of pension policy has impressed both Democrats and Republicans in Washington. “He truly understands what he’s talking about,” says former Sen. John Breaux, D-Louisiana, who was co-chairman of the National Commission on Retirement Policy at the Center for Strategic and International Studies in 1997 and 1998 when Belt was the commission’s director. “Democrats know he’s someone they can trust.”

    But plan sponsors are particularly resistant to the proposal to increase PBGC premiums from $19 to $30 for each insured participant. “The focus is on the solvency of the insurance system rather than the protection of the defined benefit as a key part of retirement security,” says James Morris, senior vice president of SEI Investments, a management company that provides defined-benefit programs. “The issue for many well-funded plans is that they could be shouldering the burden through increasingly higher premiums.”

    By concentrating on shoring up the PBGC, the administration and Congress are overlooking a fundamental retirement security issue, plan sponsors say–keeping healthy businesses in the defined-benefit system. “What should keep the PBGC and Congress up at night is not that there might be a few more underfunded plans that will terminate, however regrettable that would be, but rather that the premium base that supports the PBGC could further seriously erode,” says James Klein, president of the American Benefits Council. “What’s missing from this debate is what can we do to stanch the flow of plan terminations and freezes, and what can we do to reverse the decline of defined-benefit plans.”

    Belt argues that pension policy must be reformed and that the Bush proposal would help keep companies in the defined-benefit system.

“The notion that maintaining the status quo is somehow going to be the savior of the defined-benefit system is seriously misguided.” –Bradley Belt

    “We are trying to stop the hemorrhaging,” he says. “And you can’t have a viable defined-benefit system and insurance program if you’re continuing to absorb the kinds of losses we’ve seen at United Airlines, US Airways, Kemper Insurance, Kaiser Aluminum and a host of others that have terminated in just the last year or so.”

    Plan sponsors sometimes take out their frustrations over pension reform on Belt–not on the record but in the corridors of Capitol Hill. “He’s been very effective at laying out problems in the current system,” says a Republican aide on the Senate Finance Committee who requested anonymity because only the official panel spokeswoman and Chairman Charles Grassley can be quoted for attribution. “That has unfairly ruffled some feathers downtown (among business lobbyists). Some lobbyists personalize it. And that’s inappropriate. Being head of the PBGC is one of those thankless jobs. You almost never make everyone happy.”

Critics in the capitol
    On Capitol Hill, pension reform has bipartisan support, as was demonstrated when the Senate Finance Committee unanimously passed its plan in July. But hammering out the details of how to do it can provoke criticism of the administration, Belt’s sales skills notwithstanding.

    “Some of their recommendations were ridiculous,” says Sen. Trent Lott, R-Mississippi. “You can’t drive up the costs at a time when these companies are going down the chute. Just raising what people pay into (the system) is not the solution. It’s how you do it.”

    Belt maintains that the administration has had a constructive dialogue with the Hill on pension reform. “People will differ on how to achieve that,” he says.

    Another Republican, Ohio Rep. John Boehner, chairman of the House Education and Workforce Committee, also has disagreed with parts of the administration’s approach. Boehner’s reform bill, which was approved by his committee in June, is viewed as being more sympathetic toward pension plan sponsors.

    The Boehner legislation permits some interest rate smoothing, a way of valuing assets and liabilities that utilizes the weighted average of interest rates over a number of previous years. Businesses back smoothing because it provides greater predictability. The administration wants to virtually eliminate smoothing, arguing that it distorts economic reality. Boehner’s bill is not as tough as the administration’s proposal on companies whose debt is in the junk-bond category.

    On the Democratic side of the aisle, one member of Congress has singled out Belt for criticism. California Rep. George Miller, ranking member of the House Education and Workforce Committee, claims that Belt didn’t provide information on how much the Bush pension reform would cost companies before the panel acted on the Boehner bill. As a consequence, all 22 Democrats voted “present” rather than approving or rejecting the measure.

    Miller said the Democrats didn’t vote on the bill because they didn’t know its economic impact. “The only conclusion I can draw is that you intentionally withheld your letter until after the markup based on political considerations,” Miller wrote in a July 6 letter to Belt.

    Belt is trying to convince Democrats, Republicans and everyone involved in pension management that the system is in peril. The PBGC insures about 30,000 plans today, compared with 112,000 two decades ago. “It’s difficult to see how a chief financial officer, a chief executive officer can make a rational decision to come into a system where there’s a $23 billion deficit and growing and they’re ostensibly on the hook for paying premiums that cover that,” he says.

    The PBGC is not in immediate danger of collapse, but it is hamstrung by its congressional overseers, says Douglas Elliot, president of the Center on Federal Financial Institutions, which estimates that the PBGC would run out of money by 2022 under current law.

    “The fundamental problem the PBGC has is the imbalance between the level of risk imposed on the PBGC by Congress and the level of premiums the Congress allows PBGC to charge,” he says.

    And in the pinch is the PBGC, which is managing about 360 active bankruptcy cases. “We have large and growing business lines,” Belt says. “Unfortunately, they’re growing for the wrong reasons.”

Workforce Management, September 2005, pp. 36-42 —Subscribe Now!

Company bankruptcies, pension terminations and complex retirement benefit regulations force Bradley Belt, executive director of the Pension Benefit Guaranty Corp., to deal with arcane subjects and language.

    There’s one concept, though, that he believes is straightforward and that companies should heed as they manage pension funds: Be careful if you’re going to pursue alpha, or above-market return.

    Although some pension funds may be able to find market niches that allow them to earn more than beta–the market return–they may not last long because there is about $4 trillion in pension money looking for the same niches.

    “What makes me nervous is … that conventional wisdom is that we’re going to be in a low-return, low-interest-rate environment for a period of time,” Belt says. “Everybody’s saying, ‘Aha, we’re going to chase alpha.’ Well, this isn’t Lake Wobegon, and not everybody is above average.”

    That’s particularly true of pensions, Belt says. “In aggregate, pensions are the market,” he says. “Not everybody can achieve above-average returns. For every winner, there’s going to be a loser. There’s not enough alpha for everybody.”

“The problem is that companies aren’t willing to recognize that there is a trade-off between risk and return.” –Bradley Belt

    Part of the reason that defined-benefit plans are underfunded by about $450 billion is that companies counted on the bull market of the 1990s to bring in outsize returns to sustain their programs. The economic downturn that hit in 2000 resulted in huge funding gaps.

    “The problem is that companies aren’t willing to recognize that there is a trade-off between risk and return,” Belt says. “Each company is in the best position to determine its own appetite for risk. But to pretend the risk isn’t there is not the answer. What they want to be able to say is, ‘Let’s take the risk so that we can get the upside but the downside is shifted to third parties.’ I guess we would all like to have that: Heads I win, tails you lose.”

    The business community asserts that the pension changes the Bush administration has proposed will increase the volatility associated with defined-benefit plans and force companies to shut them down.

    “They expect to spend a lot of money on their plans,” American Benefits Council president James Klein says of sponsoring companies. “What they can’t justify is having unpredictability about their expense.”

    Belt argues that companies will have the ability to control risk and volatility under the Bush plan. “If what company sponsors are saying is, ’The only way we’ll stay in the system is if we can continue to have the flexibility to chronically underfund our pension plans’ … then I think we need to ask ourselves whether the cost is too high,” he says.

Workforce Management, September 2005, p. 14 —Subscribe Now!

When John Finnegan, chairman, president and CEO of the Chubb Corp., was first approached with the idea of establishing a workplace flexibility pilot project, he was leery about potential damage to productivity and customer service.

    But flexibility was tied to improved business results, so Finnegan signed up Chubb for a 90-day program involving 17 employees at the property and casualty insurance company’s Western claims service center in Phoenix. The workers were placed in three teams that were responsible for formulating their schedules and performance goals.

    Now Chubb is reaping the benefits–an 18 percent increase in the number of claim files handled and 4 percent growth in claim payment processing.

    “This isn’t just an employee satisfaction thing,” Finnegan says. “This is also something that should improve quality and productivity as well as advance employee satisfaction.” Finnegan released Chubb’s results at a National Press Club event in Washington in July.

    Gannett Co. reported gains after implementing a flexibility pilot project for 18 engineering services employees and 16 mail workers. The publisher reduced its engineering project backlog 71 percent in January and 81 percent in February compared with a year earlier. In mail services, unscheduled leave dropped 72 percent.

    The experiments were sponsored by Business Opportunities for Leadership Diversity, a nonprofit organization that promotes women and minorities in the workplace. Since 2003, the initiative has received more than $700,000 in funding from the Alfred P. Sloan Foundation.

    In addition to Chubb and Gannett, seven other companies set up pilot programs, including Johnson & Johnson, Macy’s Northwest, Pepsico, Pitney Bowes, Prudential Financial, Puget Sound Energy and Weyerhaeuser.

    Satisfied that flexibility produced quantifiable results, Finnegan is eager to move forward. “Now I think we know it’s applicable to a broad range of claims people,” he says. “Then you have got to say after that, ‘All right, is it applicable to areas with less metrics?’ So you keep going at it.”

    The BOLD initiative has been persistent in trying to increase the numbers of women and minorities in management, asserting that changing the structure of the workplace is required.

    “We don’t want people to feel guilty about having considerations of family, child care, health care or health issues,” says Karen-Hastie Williams, BOLD chairwoman. “We want all of the talent that is available to be available to our corporations,” she says. Flexibility “is one way we can garner additional talent into the corporate pool.”

Workforce Management, August 2005,  p. 22 —Subscribe Now!