Author: Site Staff

Delphi Corp. says it will not assume responsibility for its pension plans when it emerges from Chapter 11 bankruptcy protection, under modifications to its reorganization plan filed Monday, June 1, in U.S. Bankruptcy Court in New York.

According to a Delphi news release, the “remaining assets and liabilities of Delphi’s hourly pension plan will be addressed by GM.” General Motors accepted $2.1 billion of net unfunded liabilities for the hourly pension plan on September 29.

The auto parts maker’s combined defined-benefit plans totaled $6.147 billion as of December 31, according to its annual report.

Delphi said in its release that it explored “numerous alternatives” for the salaried plan and plans of certain subsidiaries, but none was “feasible” and as a result, the Pension Benefit Guaranty Corp. “may initiate involuntary termination” of the company’s salaried pension plan.

The Delphi statement said the PBGC “is expected to enter into a settlement with Delphi” that will result in it getting an unsecured claim once the firm emerges from Chapter 11.

PBGC spokesman Jeffrey Speicher said the agency has not reached a final settlement with Delphi, has not decided to terminate the Delphi plans and has held a substantial unsecured claim against the auto parts maker since it went into bankruptcy protection in October 2005.

Delphi spokesman Lindsey Williams did not return a call seeking comment.

The release said that as part of the new plan, Parnassus Holdings II, an affiliate of private equity manager Platinum Equity, will acquire and manage Delphi’s U.S. and non-U.S. operations after the bankruptcy for $3.6 billion. GM will provide Delphi with up to $250 million of capital through July 31 as part of the reorganization.

GM will acquire some of Delphi’s U.S. manufacturing operations and its global steering business.

The approval hearing for Delphi’s revised reorganization plan is scheduled for July 23.

Filed by Christine Williamson of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workforce Management’s online news feed is now available via Twitter.
 

The top 100 U.S. corporate pension plans saw their funded status drop by nearly 30 percentage points in 2008, giving up all gains of the previous five years, according to a review of annual reports conducted by Pensions & Investments, a sister publication of Workforce Management.

The plans had an aggregate funding deficit of $198.9 billion in 2008, based on projected benefit obligations, a sharp reversal from surpluses of $111.1 billion in 2007 and $37.3 billion in 2006.

That’s the worst since 2002, when the top 100 plans had an aggregate deficit of $151 billion.

Gains of the previous five years were erased by plunging markets and declining corporate bond yields, with the average actual return on plan assets at -30.7 percent.

Only three plans saw positive actual returns, two of which—General Mills Corp. of Minneapolis and FedEx Corp. of Memphis, Tennessee—have fiscal years that ended last May, well before the market’s collapse. The third, Prudential Financial of Newark, New Jersey, had an actual return on plan assets of $334 million, or 3.4 percent of plan assets.

The average actual return on plan assets was 9.4 percent in 2007 and 11.7 percent in 2006.

The pension deficit, combined with pressures of the Pension Protection Act of 2006, means companies will have to ramp up pension contributions, according to Steven J. Foresti, managing director at Wilshire Associates in Santa Monica, California.

“A lot of corporations came into this environment with really solid balance sheets, so while it’s been a tough environment, I think many corporations were able to make sizable contributions.” Foresti said.

Company contributions rose slightly in 2008, to $19.1 billion from $17.3 billion in 2007. Three companies each contributed more than $1 billion to their plans last year: Bank of America Corp., Charlotte, North Carolina, at $1.4 billion; Raytheon Co., Waltham, Massachusetts, $1.2 billion; and Merck & Co. Inc., Whitehouse Station, New Jersey, $1.1 billion.

There’s also a danger that “the timing of the PPA and the timing of a horrendous market” will force more employers to freeze their defined-benefit plans, Foresti said. The number of Fortune 1,000 companies that sponsor one or more frozen defined-benefit plans increased to 169 in 2008, from 138 in 2007 and 113 in 2006, according to a Watson Wyatt Worldwide study.

On December 23, President George W. Bush signed the Worker, Retiree and Employer Recovery Act of 2008, a law easing some funding regulations put in place by the Pension Protection Act of 2006, such as the requirement of what interest rates plan sponsors must use to calculate pension liabilities.

Lobbying for relief
Despite the legislation, pension executives have been lobbying for further relief from PPA requirements. A proposal being considered by Democratic members of Congress would give additional breaks to active plans, provided they are not frozen for several years.

“You want to keep the system alive, and it’s delicate and the timing was such that it wasn’t in place very long before some tweaks were needed,” Foresti said.

“What companies have learned over the last two years is that they need retirement systems [that] are sustainable,” said Kevin Wagner, retirement practice director at Watson Wyatt Worldwide in Atlanta.

“A lot of companies are looking at their plans and making sure they make sense from a financial perspective and an HR perspective,” he added. Plan sponsors will be looking at long-term solutions that fit a wide variety of economic environments, Wagner said.

“The crisis we are clearly going to see is that people will not have sufficient assets to retire. It’s possible that companies will revisit this when people are ‘retired on the job,’ ” Wagner said.

“If you’re going to participate in risk-based investments, there is no avoiding this kind of situation,” Foresti said. “To find yourself at 81 percent funded when there have been two bear markets in the last decade, it kind of puts things in perspective.”

“Once the doctor tells you you’re going to die, and then you realize you’re not going to, you’re feeling pretty good,” Wagner said.

Of the 12 plans that were fully funded, the best-funded for the fourth year in a row was FPL Group of Juno Beach, Florida, with a funding ratio of 156 percent despite a return on plan assets of -34.9 percent. The plan’s funding ratio in 2007 was 216.5 percent.

The second-best was General Mills, with a funding ratio of 128.1 percent.

Rounding out the top five were MeadWestvaco Corp. of Glen Allen, Virginia, with a funded ratio of 126.4 percent in 2008, down from 152.2 percent in 2007; Prudential Financial at 120.1 percent, down from 126.5 percent; and Alcatel-Lucent at 115.3 percent, down from 132.9 percent.

The worst-funded pension plan was Atlanta-based Delta Air Lines Inc. This was the first year in which Delta assets were combined with assets of Northwest Airlines following the companies’ 2008 merger. Delta’s funding ratio in 2008 was 45.8 percent. In 2007, Delta’s funding ratio was 66.1 percent, while Northwest’s was 68.7 percent.

The Delta plan’s actual loss on plan assets was $1.1 billion, or 14.9 percent of the fair value of plan assets. In 2008, Delta contributed $125 million to its pension plan. It expects to contribute $275 million in 2009.

The next worst-funded pension plan belonged to Exxon Mobil Corp. of Irving, Texas. The plan’s funding ratio in 2008 was 50 percent, down from 88 percent in 2007. The actual return on plan assets was -47.2 percent. The company contributed $52 million to its U.S. defined-benefit plan in 2008 and expects to contribute $3 billion in 2009.

Houston-based ConocoPhillips saw its funding ratio fall to 51.4 percent in 2008, down from 73.3 percent in 2007. The plan’s actual return on plan assets was -35.4 percent and the company contributed $407 million to its U.S. pension plan in 2008. The company intends to contribute $930 million to the plan in 2009.

Delphi Corp. of Troy, Michigan, had a funding ratio of 53.9 percent in 2008, down from 76.5 percent in 2007. The plan had the worst actual return on plan assets on a percentage basis of the top 100 plans, with a loss of $3.2 billion, or 51.3 percent of the fair value of plan assets.

Delphi reported an allocation of 55 percent equities, 20 percent fixed income, 8 percent private equity, 11 percent real estate and 6 percent other for its U.S. pension plan in 2008 in its 10-K.

Rounding out the bottom five was Philadelphia-based Cigna Corp. at 54.8 percent, down from 84.5 percent.

J.C. Penney Co. of Plano, Texas, saw the greatest change in funding ratio, with the ratio falling 61.9 percentage points to 92.6 percent in 2008 from 154.5 percent in 2007. The actual loss on plan assets was $1.56 billion, or 45.2 percent of plan assets.

The average discount rate used to determine benefit obligations rose for the third year in a row to about 6.4 percent, from 6.26 percent in 2007. The average discount rate in 2006 was 5.86 percent.

Discount rates
Fifty of the top 100 plans increased their discount rates—20 of them by 50 basis points or more. Twenty-five plans kept the same discount rates.

The average long-term expected return on plan assets fell to 8.22 percent in 2008 from 8.41 percent in 2007. Only three plans raised their long-term expected return on plan assets.

A proposal by the Financial Accounting Standards Board amending Statement 132R was postponed by one year and will take effect December 15, 2009. The new amendment requires defined-benefit plans to release more information about their investment allocations.

In addition, there has yet to be further movement on Phase II of FAS 158, in which the board was expected to decide whether to measure liabilities using accumulated benefit obligations in place of the current measurement using projected benefit obligations.

Filed by Rob Kozlowski of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workforce Management’s online news feed is now available via Twitter

Public employers are being forced by the economic downturn to shift more benefit costs onto employees, according to a survey by the International Foundation of Employee Benefit Plans.

With less money in public coffers to pick up the tab for employees’ and their dependents’ health care expenses, 72 percent of U.S. public entities are considering increasing deductibles, co-insurance and/or co-pays; 74 percent are considering increasing employee premium contributions; 31 percent are adding consumer-driven health care plans; 20 percent are introducing spousal surcharges; and 26 percent are converting fully insured plans into self-funded plans.

Although many private employers typically have adopted these cost-sharing measures in response to higher health care costs, it’s rarer for public employers to do so, said Sally Natchek, senior director of research at the Brookfield, Wisconsin-based IFEBP.

“The fact that the majority of public employers are now increasing deductibles, co-pays and premiums illustrates the dual effect rising health care costs and the financial crisis are having on their plans,” Natchek said in a statement.

The rise in CDHPs is particularly interesting, since many public employers were skeptical of the plans’ ability to save money, Natchek said.

“The survey showed that while still in the minority, a significant number of public employers are implementing these types of plans,” she said of the survey of nearly 1,300 people.

The survey, “Health Care Plans: The Impact of the Financial Crisis,” is free to IFEBP members. Nonmembers can purchase the survey for $50. To order, visit www.ifebp.org/books.asp?6696E or contact the foundation bookstore at bookstore@ifebp.org.

Filed by Joanne Wojcik of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workforce Management’s online news feed is now available via Twitter.

 

The Obama administration took General Motors into Chapter 11 bankruptcy Monday, June 1, and moved quickly get the carmaker out with $30.1 billion in bankruptcy financing, the White House said in a statement.

The federal government will have the right to replace GM’s current board of directors with its own trustees, except for one director who will be picked by the Canadian government and another selected by a United Auto Workers-administered retiree health care trust.

But the White House vowed to exercise its ownership stake in GM “in a hands-off, commercial manner.” That is, to let it operate as a car company, not a government agency.

The Obama administration said it didn’t intend to provide funding beyond the $30.1 billion in bankruptcy financing. The government has already assisted GM with $19.4 billion since late December.

The $30 billion will give the government a 60 percent stake in a reorganized GM. The governments of Ontario and Canada will provide another $9.5 billion in financing to GM for a 12 percent stake in the new GM.

Dealerships that GM plans to discontinue will be offered an agreement to phase out their stores over the next 18 months.

More pain is in store for the UAW members as well.

GM intends to announce that it will close 11 plants and idle three others. The carmaker had aimed in February to cut 21,000 more hourly workers. GM employs about 54,000 workers represented by the UAW.

With the necessary reductions in capacity and a cleaned-up balanced sheet, a reorganized GM will be able to break even on its operations at 10 million annually in industrywide U.S. vehicle sales, the administration said. The previous break-even point was 16 million sales, according to the White House.

Contract concessions approved by the UAW last week will save GM about $1.2 billion annually. That agreement calls for elimination of bonuses and cost-of-living increases as well as more flexible factory rules.

The UAW also agreed to accept GM equity instead of cash for most of the funding of the retiree health care trust known as a voluntary employee beneficiary association.

Filed by David Barkholz of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workforce Management’s online news feed is now available via Twitter

Minutes after General Motors filed for bankruptcy protection, CEO Fritz Henderson in a 45-minute videoconference attempted to raise the spirits of a beleaguered workforce even as he announced the company would lay off an additional 4,000 salaried employees, most by year’s end.

On Monday, June 1, Henderson spoke of the “new GM” that would emerge from bankruptcy with more competitive labor contracts, reduced operating costs, fewer plants and a leaner production capacity focused on small, fuel-efficient cars.

Henderson later spoke during a news conference, evoking a sober optimism and saying that the bankruptcy was a “defining moment” for the 101-year-old automaker.

“The new GM will have a significantly healthier balance sheet,” he said.

He spoke of the salaried and hourly workforce reductions and plant closures as “extraordinarily difficult steps.”

Henderson said he expected the bankruptcy to be completed within 90 days.

By 2010, GM said it expects to have a salaried workforce of 23,000 in the U.S., down from the 29,000 salaried workers GM had at the end of 2008.

Hourly U.S. workers will drop to 40,000 in 2010 and 38,000 by 2011. GM says it will close 14 plants by 2010. GM had 61,000 hourly workers at the end of 2008.

In a note to employees, the company said, “General Motors is working with the U.S. Treasury to reduce some retiree benefit obligations by roughly two-thirds. This reduction will impact salaried retiree life insurance, salaried retiree health care, executive non-qualified pension, executive retiree life insurance and non-UAW hourly life insurance and we are still working on how to accomplish this in the most appropriate way.”

The company said it will reduce the number of dealers to 3,600 by 2010 from the 5,969 it counted at the end of 2008.

“We need to move fast. Speed is of the essence,” Henderson said during the news conference. “Not with a sense of urgency. I’m talking about pure, unadulterated speed.”

As GM attempts to rebuild, its workers describe an atmosphere resembling the TV show Survivor.

“It’s dog eat dog,” said one GM worker on Monday who asked for anonymity because workers are not allowed to speak to the media. “You have to watch your back. People who were friends are no longer.”

Employees describe an atmosphere of low morale and anxiety that has been heightened by a deterioration in work conditions. Salaried workers describe lawns that have not been mowed in weeks and bathrooms not adequately stocked with toilet paper or soap.

A spokesman said the deterioration is to be expected at a time of extreme austerity for the company.

For employees who once referred to their employer affectionately as “Generous Motors,” the swift change has been upsetting. A kind of shock, mixed with gallows humor, has set in, workers say.

Employees say GM stands for “Government Motors” now that the Treasury Department is the major stakeholder, followed by the unions and union’s retiree health care trust.

The bankruptcy filing of General Motors represents a new chapter for the storied American carmaker, and Henderson, in his talk with employees, tried to convey a sense of renewal by focusing on the distinction between the “old GM” and the “new GM” that would emerge from bankruptcy to reclaim its position of prominence in the global auto industry as a leader in 21st century green technology.

Workers, however, have already begun to refer to his talk as “the eulogy.”

—Jeremy Smerd

Workforce Management’s online news feed is now available via Twitter

You need a scorecard to keep up with President Barack Obama’s plethora of priorities. On the domestic policy side, he has vowed to make sweeping changes in health care, energy and education.

An important subset of education–workforce training–tends to fly under the radar in Washington, but it will require more presidential and congressional leadership than it has received in a long time.

Obama appears set to provide guidance. On May 8, he announced that the Departments of Labor and Education would work with states and educational institutions to allow recently laid off workers to receive unemployment payments while they are enrolled in training programs and to have easier access to educational grants.

“The idea here is to fundamentally change our approach to unemployment in this country, so that it’s no longer just a time to look for a new job, but is also a time to prepare yourself for a better job,” Obama said.

Now Obama will have to follow through in an area that has languished from neglect in Washington.

The federal law that undergirds training programs, the Workforce Investment Act, has been up for renewal for nearly six years but has been stymied by a variety of policy and political issues. Congress is under way with another attempt.

Most experts and users of the system agree that it needs to be more flexible to respond to local labor market needs. Too many programs are run in silos and fail to communicate with one another.

Determining what kind of training is offered for what kind of jobs is a huge question that can elicit many different answers. The Obama administration wants to focus on so-called “green jobs.” The $787 billion stimulus package included $500 million for training in that area.

Republicans caution that federal training should be improved for all kinds of occupations and worry about artificial demand being created by government fiat.

Democrats also question whether job training priorities have been set correctly. Rep. David Obey, D-Wisconsin and chairman of the House Appropriations Committee, expressed concern at a May 12 hearing on the Department of Labor budget.

He noted that the stimulus bill included $250 million for training for health care industry jobs. But the administration’s budget request for the agency didn’t contain similar funding.

“If we’re serious about significant health care reform, we need to build the capacity of the system, and we’re falling short in this area,” Obey told Labor Secretary Hilda Solis.

The thousands of jobs that Dollar General Corp. will have to fill over the next couple years aren’t necessarily “green.” But they could offer a path out of the recession for thousands of workers–if they are qualified.

As Dollar General Stores become more automated in tracking and managing inventory, employees have to be more fluent with technology, according to David Bere, president and chief strategy officer.

They don’t have to have bachelor’s degrees, but they should have training beyond high school. “You need a higher skill set in our stores and distribution centers,” Bere said in an interview after a recent House hearing on the Workforce Investment Act.

Dollar General has long been an advocate of federal training programs. Bere urges other companies to join in the effort to reshape the system. 

“The business community has to step up,” Bere said. “Only by partnership is this going to get done.”

When it comes to job training, many constituencies want to see improvement. But it will take firm leadership from Obama and Congress to make sure that they work together to set priorities that make sense for workers and the economy.

Members of the United Auto Workers have ratified an agreement that will allow financially troubled General Motors Corp. to shave billions of dollars in contributions to a retiree health care trust and cut certain retiree benefits, union officials announced Friday, May 29.

The agreement, approved by nearly 75 percent of UAW members, also requires GM to continue its defined benefit pension plan offered to UAW members.

The agreement on the eve of GM’s expected bankruptcy filing next week modifies a 2007 accord between GM and the UAW that would have capped GM’s burgeoning retiree health care liabilities. That agreement called for GM to transfer assets—currently valued at $10 billion—from an existing voluntary employees’ beneficiary association to a new VEBA controlled by the UAW. For about $20 billion in cash and other contributions to the trust, GM no longer would have been responsible for retiree health care benefits as of Jan. 1, 2010. The accumulated value of those assets was estimated at roughly $50 billion last year.

The new agreement maintains that VEBA-to-VEBA transfer arrangement. However, instead of GM contributing about $20 billion in cash and other contributions, the new VEBA will receive a note, payable in cash, with a principal amount of $2.5 billion. The note will make cash payments of $1.38 billion, including accrued interest, in 2013, 2015 and 2017.

The VEBA also will receive preferred stock in the restructured company with a face value of $6.5 billion. The stock will pay an annual cash dividend of $585 million for as long as the VEBA holds the stock.

Finally, the VEBA will receive 17.5% of the common stock issued by the restructured GM and warrants giving the VEBA the right to purchase an additional 2.5% of the reorganized company’s common stock.

Like an earlier agreement the UAW reached with Chrysler L.L.C., GM’s deal will eliminate retiree vision and dental benefits effective July 1. The UAW said further adjustments of retiree health benefits are likely in 2010 and 2011.

While an exact figure of how much the latest agreement will save GM is not available, GM said the savings will eliminate the wage and benefits gap with its competitors.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workforce Management’s online news feed is now available via Twitter.

 

A union group called Warehouse Workers United blocked an intersection in Southern California on Thursday, May 28, by handcuffing people around a forklift in the middle of the road in an effort to focus attention on warehouse workers. In a press release, the group said it wants to persuade companies in the warehouse district to end the system of temporary employment.

It said temporary workers hired through unions are “paid meager wages, have no access to affordable health care and are denied the right to choose to form a union, and suffer the additional burden of being unable to collect unemployment benefits when they are let go.”

The group said the intersection was a central point for trucks heading to warehouses used by companies such as Wal-Mart, Target and Home Depot.

A report in the San Bernardino Sun newspaper said about 200 people blocked the intersection of Van Buren Boulevard and Etiwanda Avenue in Mira Loma, California. A fight also broke out between some protesters and a motorist who tried to drive past the blockade, according to the report.

The Riverside County Sheriff’s Department reported that traffic was obstructed for more than an hour and that 11 people were arrested for creating a public nuisance.

—Staffing Industry Analysts

Workforce Management’s online news feed is now available via Twitter.

 

The private health insurance market can exist alongside a public health care plan, and may even provide some healthy competition, according to the former head of the Democratic Party.

In fact, it is possible that individuals who choose to enroll in the proposed government plan will decide to leave it and enroll in a private plan after they discover how restrictive it is, said Howard Dean, who is also a physician and the former governor of Vermont.

Regardless of whether a public option is ultimately created, Congress is still failing to address the real health care crisis in America, and that is cost, Dean said during a keynote address Thursday, May 28, at the Council of Insurance Agents & Brokers’ Employee Benefits Leadership Forum in Colorado Springs, Colorado.

“What will happen with the public option [is] people will initially choose to go to the public option,” Dean said. “But it works both ways. After they’ve been there for a while, some of them will decide it’s too inflexible, it’s too bureaucratic, and they will come back into the private option.”

“Meanwhile, I think the fact that a public option is there, it’s going to force [private insurance] companies to reassess how they do cost control; it’s also going to force them to reassess how they’re paying physicians,” he said.

“A public/private hybrid can work,” said Dean, comparing a government-run public plan option, which legislators may include as part of a comprehensive reform likely to be unveiled next month, with the federal program through which Medicare beneficiaries can buy from commercial health insurers and others federally subsidized prescription drug coverage.

“It’s come under budget by a substantial amount for all four years of its existence,” he said. “I think that there is ample room for the public sector and the private sector to cooperate and coexist. I think it will change the way people do business in the private sector. I think that’s a good thing.”

“I think the advantage is, we’ll still have all the innovation of the private sector that doesn’t happen in the public sector, and we will have some downward pressure on costs from the public-sector plan,” which he said should cost much less to administer.

Drawing from his experience in Vermont, where as governor he outsourced Medicaid to the private sector, he said he found that administrative costs were much lower when the program was state-run. While Medicaid’s administrative costs average only about 4 percent, the administrative overhead of a well-run publicly traded insurer averages around 20 percent, according to Dean.

But even as Congress debates whether to include a public option in the health reform legislation it soon will consider, it is failing to address the real health care crisis in America, which is the escalation in costs, Dean asserted.

“I believe the thing that makes America the greatest country on the face of the Earth is part of why we spent 60 percent more of our GNP on health care,” he said, comparing U.S. health care spending with that of most other industrialized nations. “Our culture … is imbued with optimism. Cynicism is sort of not allowed in America. We think we can do anything, and unfortunately that also means that we think death is an avoidable consequence of every single illness that there is.”

As a result of this aversion to death, Americans spend far too much on end-of-life care, and it is bankrupting the nation, Dean said.

“We spend an enormously disproportionate part of resources in the last six months of life, and they get damn little quality of life,” he said.

Filed by Joanne Wojcik of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workforce Management’s online news feed is now available via Twitter.

 

P&I  May 26  Doug Halonen

The Pension Benefit Guaranty Corp. has taken over the defined-benefit pension plan of Contech US of Portage, Michigan, according to a PBGC news release.

The Contech plan, which covers 532 workers and retirees, is 38 percent funded, with assets of $8.4 million and liabilities of $22 million, the news release said. The PBGC expects to cover $12 million of the $13.6 million shortfall.

The plan was frozen on December 31, 2007, according to the release.

Contech, which is under Chapter 11 bankruptcy protection, is selling its divisions and subsidiaries to several third parties in deals that do not include the pension plan, the news release said.

Filed by Doug Halonen of Pensions & Investments, a sister publication of Workforce Management To comment, e-mail editors@workforce.com.

Workforce Management’s online news feed is now available via Twitter