Author: Site Staff

A BGI-sponsored survey shows 63 percent of defined-contribution plan participants have grown less confident in the past year about reaching their retirement goals.

Just less than 50 percent of all participants surveyed said their employer should offer an investment option with guaranteed income in retirement. For those who are worried they will never be able to retire, 61 percent said a guaranteed income option would improve their 401(k) plan.

Forty-one percent of respondents are unsure they will be able to retire as planned, and 46 percent are worried they will never be able to retire.

Among those worried they might never be able to retire, 41 percent plan to delay their retirement and 58 percent plan to work until they die, according to the survey.

Almost half of all participants surveyed said they would save more to make up for their losses of the past year, but only one in four who say they’ll never be able to retire said they would save more and 19 percent of those worried they will never be able to retire said they have no idea how to recover their retirement losses.

Only 4 percent indicated they will stop DC contributions, and half of all participants said they will not make any changes to their DC accounts in the next 12 months.

The survey, “401(k) Participant Attitudes, Behavior, and Intentions,” was sponsored by BGI and the Boston Research Group. It polled 1,000 active 401(k) plan participants during March.

Filed by John D’Antona Jr. of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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A General Motors bankruptcy could become a nightmare for the federal government’s Pension Benefit Guaranty Corp.

That’s because the automaker could dump as much as $13.5 billion in unfunded pension liabilities onto the U.S. agency that takes over troubled pension plans—the largest ever from a single company—if GM were unable to fund its U.S. defined-benefit plans and terminated them.

The claim would be almost twice as large as the current record of $7.5 billion from the 2005 termination of the Chicago-based UAL Corp.’s United Airlines pension plans.

For this to happen, GM would have to terminate its plans and PBGC officials would have to agree to cover all the unfunded pension liabilities of the company’s U.S. hourly and salaried plans. Together, the plans had a combined $84.5 billion in assets and $98.1 billion in liabilities as of December 31, according to its 10-K report.

GM officials are considering, among other options related to a restructuring, filing for Chapter 11 bankruptcy protection or some sort of specialized government-backed bankruptcy protection. That way, GM could slash its debt and seek concessions from the UAW, including cuts in its retiree-health obligation.

“GM is a benefits-paying organization masking itself as an auto company. The real function of the company is trying to pay pensions and retiree health care. They could produce a car to compete with Toyota but couldn’t pay the retiree liabilities they agreed to many years ago,” said Donald G.M. Coxe, chairman of Chicago-based Coxe Advisors. Coxe doesn’t invest in GM.

GM expects that it won’t have to contribute to its U.S. plans until 2013 or 2014, according to a Securities and Exchange Commission filing in February. Its U.S. plans were overfunded by a combined $20 billion as recently as December 31, 2007, according to the company’s annual report.

The GM defined-benefit plans have less than $1 million in GM stock, according to the report.

GM’s hourly and salaried 401(k) plans have combined assets of $20.3 billion, including $1.4 billion in GM stock, as of December 31, 2007, according to a report filed last June. Based on a 91 percent drop in the share price since then, that stock would be worth $126 million now.

Last November, State Street Bank & Trust, Boston, investment manager for the GM company stock fund in the 401(k) plans, stopped participants from purchasing stock in GM because of its financial difficulty.

The PBGC estimates its exposure to contingent liabilities of the Detroit 3 automakers— GM, Ford Motor Co. and Chrysler—totaled $41 billion as of January 31. The net claim exposure represents what the PBGC estimated it would have to cover.

The Detroit 3’s total pension liabilities have skyrocketed since September 30 because of the market meltdown, said Gary Pastorius, a PBGC spokesman. On that date, the PBGC had estimated total contingency liabilities of $46.7 billion, including $20.9 billion from automobile and other manufacturing companies. These liabilities represent the total unfunded vested benefits.

Ford had $37.4 billion in assets in its U.S. pension plans and $43.1 billion in liabilities as of December 31, according to its 10-K report. Ford this year expects to contribute $1.5 billion to its pension plans worldwide. It didn’t provide a U.S. plan breakout.

Chrysler had U.S. defined-benefit assets of $21.6 billion as of September 30, according to Pensions & Investments’ January 26 report on the largest U.S. retirement funds.

Chrysler’s pension plan was overfunded by $3.1 billion as of December 31, 2007. At that time, it was 113 percent funded with pension assets of $26.2 billion and pension liabilities of $23.1 billion. An updated funding level wasn’t available.

Cerberus Capital Management owns 80.1 percent of Chrysler.

As of September 30, the latest data available, the PBGC’s single-employer program has a $10.7 billion deficit, with $61.6 billion in assets and $72.3 billion in liabilities, Pastorius said.

The PBGC paid out $4.3 billion in benefits for the year ended September 30. It collected $1.5 billion in employer premiums in the same period, bolstering its financial position, he noted.

Coxe said GM stock and bond investors are in a weak situation.

“When you have a market cap at $1.074 billion, what you have is a low-cost leap” for potential investors speculating on a rise in value, he said. “The market is saying not many investors are willing to take it.”

Bondholders “would still be stuck trying to pay for all” the retiree health care liabilities unless a U.S. bankruptcy court would terminate the obligations, Coxe said, even if the bondholders secured the company or major assets in a potential bankruptcy reorganization.

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

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New guidance clarifies for employers the key question of when an employee has been involuntarily terminated and thus is entitled to new federal subsidies to pay for COBRA health care premiums.

Last week, the Internal Revenue Service in Notice 2009-27 [] provided broad definitions and specific, real-world examples of involuntary terminations.

In addition, the IRS’ 27-page notice resolves numerous other questions raised by employers about the new subsidies, which Congress created—at a $25 billion cost—as part of a massive economic stimulus bill legislators passed in February.

The subsidies, through which the federal government pays 65 percent of eligible beneficiaries’ COBRA premiums, are available to employees who are involuntarily terminated, except in cases of gross misconduct, from September 1, 2008, through December 31, 2009.

Beneficiaries are entitled to the subsidies for up to nine months or until they become eligible for new group coverage or Medicare. In all, lawmakers estimate that about 7 million people and their families will be able to retain health insurance coverage because of the subsidies.

Benefits experts welcomed the guidance for formalizing the IRS’ positions and for providing needed details.

“It is good to have this in black and white,” said Rich Stover, a principal with Buck Consultants in Secaucus, New Jersey.

“It is surprising in its breadth. A fair amount of detail was provided in various forums. But it really was impossible to keep track of everything,” said Andy Anderson, of counsel with Morgan, Lewis & Bockius in Chicago.

The key aspect of the guidance is clarification about what constitutes an involuntary termination—the trigger that makes an individual eligible for the subsidy.

Clarity on involuntary termination “is the big one here for employers,” said Sharon Cohen, an attorney with Watson Wyatt Worldwide in Arlington, Virginia.

The IRS’ definition of an involuntary termination is when an employer invokes its authority to terminate employment “where the employee was willing and able to continue performing services.”

The guidance also makes clear that there can be situations in which the involuntary termination standard would be met even though the employee initiated a termination. That could occur if the termination was due to employer action that results in a “material negative change in the employment relationship for the employee.”

The guidance provides several examples of how a material negative change could entitle a COBRA beneficiary to the subsidy.

Under one example, an employee elected to retire because he knew he would be terminated. That employee would be considered to have been involuntarily terminated.

Under the IRS guidance, an involuntary termination “is far more than an employer letting an employee go,” said Tim Stanton, a shareholder with Ogletree, Deakins, Nash, Smoak & Stewart in Chicago.

The guidance clarifies several other issues.

For example, employers do not have the right to deny the subsidy to higher-paid individuals who are not eligible for the subsidy because of their incomes. Unless those individuals sign a waiver revoking their right to the subsidy, they could take it, though they later would have to return it to the government.

In addition, beneficiaries can be eligible for the COBRA premium subsidy multiple times.

Take the example of an employee who is let go on March 1, 2009, opts for COBRA and receives the 65 percent premium subsidy.

Then, on October 1, 2009, he starts a new job, enrolls in the new employer’s health care plan, ending his COBRA coverage. On November 1, 2009, he is terminated and again takes COBRA. That individual would have a new right to nine months of federally subsidized COBRA coverage.

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

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Participants in the 401(k) plan at Merrill Lynch & Co. Inc. have reached a $75 million preliminary settlement with the brokerage firm to cover losses sustained in their retirement plans over the last several years.

Cohen Milstein Sellers & Toll of Washington, along with Keller Rohrback of Seattle, announced the proposed settlement Monday, April 6.

Marc Machiz, an attorney with Cohen Milstein, who is representing Merrill workers in the class action, added that a federal court will hold a hearing at the end of July to determine if the payment will be approved.

He said that the class notice will be going out this week to Merrill workers who participated in the company’s 401(k), retirement accumulation plan, or stock ownership plan between September 30, 2006, and December 31, 2008.

During that time, the value of Merrill’s stock declined by more than 80 percent.

The class action was initiated by participants in November 2007 to recoup some of the losses they incurred for investing a portion of their retirement savings in Merrill stock.

The suit alleged that the company should have known that its stock was an imprudent investment option for its plan participants.

A Merrill spokesperson could not be reached for comment.

Filed by Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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General Motors said Friday, April 3, that about 600 hourly workers who tentatively accepted a special attrition retirement or buy-out package last month have changed their minds.

About 7,600 workers initially accepted the offers, said Tom Wilkinson, GM spokesman. Many of them had until March 31 to reconsider, he said. Most of the remaining 7,000 workers left the company by April 1, GM said.

GM was pleased with the initial number who had accepted. In a progress report to the U.S. Treasury, GM said the 7,600 acceptances were 1,000 more than anticipated. But even with 600 reconsidering, the results are still good, Wilkinson said.

“This was always envisioned as an important step toward where we need to get,” Wilkinson says. “These are 7,600 individual decisions and individual people and individual families. We’re not disappointed. It just is what it is.”

At a press conference Monday, April 6, GM’s new CEO, Fritz Henderson, hinted that there might be more special attrition programs in the future. That’s because President Barack Obama gave GM 60 days to restructure the company or face possible bankruptcy. To achieve that kind of restructuring, Henderson said, GM will have to cut deeper.

Henderson hinted there might also be more factory closures. In its February 17 viability plan submitted to the U.S. Treasury, GM proposed closing 14 manufacturing facilities in the U.S. by 2012. That’s five more than it included in its December plan given to the government. Henderson said he expects that number could rise.

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

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The House of Representatives has approved a bill that would repeal a provision in the American Recovery and Reinvestment Act that exempted certain bonuses at companies receiving federal bailout money from tough executive pay regulations.

The measure, which the House approved Wednesday, April 1, on a 247-171 vote, would affect the payment of retention bonuses such as those paid to some employees of American International Group Inc.’s Financial Products Corp. unit.

The ARRA contained a provision that exempted bonuses that had been promised in employment contracts signed on or before February 11 of this year. The House action voids that provision.

The measure, H.R. 1664, would prohibit a company receiving money from the government under the Troubled Asset Relief Program and some other programs from paying any executive or employee any compensation that is “unreasonable or excessive,” as defined in standards established by the Treasury secretary, and from paying any bonus or other supplemental payment that is not directly based on performance-based standards set by the secretary.

“Given the legislative process and the administration’s desire to get this bill done before the recess to speed funds into the economy, Congress made a mistake,” House Financial Services Committee Chairman Barney Frank, D-Massachusetts, said in a statement. “We have, fortunately, a process for correcting mistakes, which is subsequent legislation. We have now acted very promptly, and if this bill becomes law then the mistake will have had no effect.” The measure now goes to the Senate for its approval.

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

The Obama administration has given South Carolina Gov. Mark Sanford permission to use a portion of the state’s expected $2.8 billion in federal stimulus money to help reduce the liabilities of the $27 billion South Carolina Retirement System, according to Joel Sawyer, Sanford’s spokesman.

The administration had rejected Gov. Sanford’s original request to use the stimulus money to pay down state debt, including debt related to retirees.

He wrote a letter to President Obama on March 18 asking for the administration to reconsider allowing the state to use a portion of the $2.8 billion—the first payment of which is expected to be $740 million—to reduce pension liabilities.

Sanford will accept the stimulus funds as long as the state assembly uses equal amounts of the money received for programs and to pay down debt, Sawyer said, but the governor has not yet announced whether he has formally accepted them yet.

Filed by John D’Antona Jr. of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Imperial County Employees’ Retirement System, El Centro, California, has filed a lawsuit against the $488 million plan’s custodian, JPMorgan Chase Bank, alleging breach of fiduciary duty, negligence and breach of contract.

The suit, filed on March 27 in U.S. District Court in New York, alleges that JPMorgan Chase incurred losses in the securities lending cash collateral pools it managed for the plan through an investment in medium-term notes issues by Sigma Finance despite “unmistakable—yet unheeded—warnings concerning Sigma.”

The suit also noted that JPMorgan “earned substantial fees and interest through providing short-term repurchase agreements financing for Sigma,” according to court filings.

The suit seeks recovery of unspecified losses as well as restoration of profits that JPMorgan Chase gained through its financing agreement with Sigma. The plan also is seeking class-action status.

David H. Prince, Imperial County retirement administrator, did not return a call seeking comment on the plan’s lawsuit.

John Johnman, a JPMorgan Chase Bank spokesman, said the firm “cannot comment on any pending litigation.”

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

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Financial asset management firm Fairfield Greenwich Group was charged with fraud in connection with the Bernard Madoff scandal in an administrative complaint filed Wednesday, April 1, by Massachusetts Secretary of the Commonwealth William F. Galvin.

The complaint alleges lack of due diligence in funneling Massachusetts investors’ money to Bernard L. Madoff Investment Securities.

In a news release, Galvin alleged that Fairfield exhibited a “total disregard” for its fiduciary responsibilities in placing 95 percent of the $7.2 billion in Fairfield’s Sentry Funds with Madoff, who pleaded guilty in federal court in March to running a giant Ponzi scheme.

Brian McNiff, a spokesman for Galvin, said Fairfield Greenwich will have 21 days to respond to the allegations before a hearings officer from the state’s Securities Division, with the option of appealing any eventual ruling to Superior Court.

The administrative complaint seeks restitution for losses and disgorgement of performance fees paid to Fairfield by those investors, as well as an administrative fine. Fairfield earned a fee of 1 percent of the Sentry funds’ assets under management, plus a 20 percent performance fee based on the funds’ returns, the news release said.

In a statement released Wednesday, April 1, Fairfield Greenwich said it “intends to vigorously contest the allegations in the complaint,” which it termed “false and misleading.” The statement said the Massachusetts complaint is based on “20-20 hindsight that supposes that anyone familiar with Madoff’s operations should have determined that it was a Ponzi scheme.”

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

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Adecco, the world’s largest staffing firm, named a new CEO on Thursday, April 2, and announced that its current top executive will leave at the end of the month. The company said it will still continue with plans to build up its professional staffing business.

The new CEO, Patrick De Maeseneire, currently is top executive at European chocolate company Barry Callebaut.

However, De Maeseneire had several executive roles at Adecco before going to Barry Callebaut in 2002. De Maeseneire started at Adecco as country manager for the Belgium/Netherlands/Luxembourg region in 1998, and later led its global professional staffing business out of New York.

Adecco’s current CEO, Dieter Scheiff, formally assumed the post in April 2006 from then-CEO Klaus Jacobs. Scheiff had previously served as CEO of German staffing firm DIS, which was acquired by Adecco.

Jacobs, who died last year, also served as chairman of Adecco, but did not stand for re-election in 2007. Jacobs Holdings holds 22.8 percent of Adecco’s shares and 50.5 percent of Barry Callebaut, according to annual reports from both companies.

In a conference call with analysts Thursday, April 2, Adecco chairman Rolf Dörig said it was the board that opted to look for a new CEO.

Dörig also said the company will maintain its current direction.

“Adecco will continue to build on what we have started three years ago,” he said. “The company will continue to pursue its dual objective of building up the professional staffing business while continuing to optimize operations in the general staffing, with a particular focus on delivery models, specialization and cost leadership. So there will be no change in strategy.”

Dörig said Adecco is looking at building the professional business both organically and through acquisitions.

Adecco posted 2008 revenue of €19.97 billion ($28.15 billion).

—Staffing Industry Analysts