Author: Site Staff

More employees are depending on company benefits to weather the recession, and employers are keeping an eye on costs even while they see benefits as a retention tool, according to a new survey by MetLife.

The study shows that 41 percent of employees polled in November “consider workplace benefits to be the foundation of their personal safety net as they awaken to current realities about their financial security,” up from 33 percent in August. That number rises to 52 percent for workers in a company that employs 2,500 people or more.

The cratering economy has caused 46 percent of employees interviewed to take a greater interest in understanding their benefits. In addition, 51 percent report that they obtain most of their financial products through their employer.

The attention to benefits is understandable in light of the fact that 50 percent indicated that they have only enough savings to miss two paychecks.

Even as layoffs increase sharply during the economic downturn, 50 percent of employers cite retention as their main objective in offering benefits. It just edges out controlling costs, which was cited by 49 percent.

“It truly is a balancing act you’ve got going on here,” said Bill Raczko, MetLife vice president and chief marketing officer for institutional business. He spoke at a conference Monday, March 23, in Washington where he released MetLife’s seventh study of employee benefits trends.

One of the biggest providers of insurance and benefits, MetLife conducted interviews of more than 1,500 company officials and more than 1,300 full-time employees in August and November.

The study shows that benefits strengthen the bond between companies and workers. Employees cited pay, health care, retirement and all other insurance benefits as the top factors influencing loyalty. Companies think that pay, health care, company culture and advancement opportunities are the most influential.

As they increasingly value their benefits during the recession, 33 percent of workers expressed concern that companies would cut benefits over the next 12 months. But only 12 percent of employers are mulling reductions.

Boosting productivity is the primary objective in offering benefits for 40 percent of companies. For instance, the number of companies adopting wellness programs has grown from 27 percent in 2005 to 33 percent in 2008.

Of course, for employees to feel good about company benefits, they have to know about them. Raczko said employers need to communicate better, especially because employees are depending on them for financial guidance.

“Taking the time to have that dialogue is something that employees respond very positively to,” he said.

That is especially true for Generation Y workers, who are experiencing their first recession and have a proclivity for seeking and absorbing information from a variety of sources.

“They are almost like sponges,” Raczko said.

The twentysomethings also are in the vanguard of a trend toward accumulating retirement income through annuities—a goal of people across age groups who will be left with what Raczko calls “financial and emotional scars” from the precipitous drop in the stock market.

“Volatility is the issue here,” he said. “Guaranteed income that lasts a participant’s lifetime is increasingly being seen as the critical missing element of defined-contribution plans.”

—Mark Schoeff Jr.

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Step therapy, a common cost-containment tool that substitutes less expensive generic medications for costlier brand-name drugs, actually may lead to higher overall health care costs, a study concludes.

The study, which focused on anti-hypertensive drugs, found that benefit-plan members subject to step therapy incurred $99 more in quarterly health care expenditures than a comparable group. Moreover, plan members in step therapy programs also had more inpatient admissions and emergency room visits, the study found.

“When step therapy is implemented, there is an associated increase in inpatient and ER visits and a reduction in prescription drug use,” said Tami L. Mark, lead author of the study and director of analytic strategies at Thomson Reuters Healthcare in Washington.

She suggested this might be caused by patients not filling their prescriptions.

“You go to a doctor and the doctor prescribes a drug—not knowing that it has to be a generic—and you find out it’s not covered or more expensive than you had expected, so you don’t fill the prescription,” Mark said.

To prevent this unintended consequence from occurring, she advised employers to make sure doctors know about step therapy requirements.

“I think you have to evaluate how it’s actually being implemented and what the overall impact is. Maybe the way it’s being implemented is not as intended and needs to be reconsidered,” she said.

The study compared the health care costs of 11,851 employees and dependents at two companies with benefit plans that required step therapy with 30,882 employees and dependents of two companies that did not.

Data for 2003 through 2006 came from MarketScan Research Databases kept by Thomson Reuters.

The study, “The Effects of Antihypertensive Step Therapy Protocols on Pharmaceutical and Medical Utilization and Expenditures,” was published in the February issue of the American Journal of Managed Care.

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

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The Labor Department issued a set of model notices Thursday, March 19, that employers can use to describe federal premium subsidies available to employees who lose their jobs between September 1, 2008, and December 31, 2009.

Under economic stimulus legislation signed into law last month by President Barack Obama, involuntarily terminated employees must pay only 35 percent of the COBRA premium and the federal government will pick up the remaining 65 percent. The subsidies are available up to nine months, until a terminated employee is eligible for coverage from a new employer or from Medicare.

The law also required the Labor Department to publish model notices by March 19 that employers can send to beneficiaries advising them of the subsidy and how to enroll for the subsidized coverage.

The Labor Department has provided four model notices, each tailored to a specific situation.

For example, the so-called “full notice” would be sent to beneficiaries who lost group coverage between September 1, 2008, and December 31, 2009. A so-called “abbreviated notice” would be for beneficiaries now receiving unsubsidized COBRA.

Another model notice applies to individuals who lost their jobs between September 1, 2008, and February 16, 2009—the date before the stimulus legislation was signed into law—and declined to opt for COBRA at the time. That notice, which must be provided to beneficiaries by April 18, informs them of their new right to opt for COBRA.

The fourth notice describes the right of individuals working in states with so-called “mini-COBRA” laws, which apply to employers with fewer than 20 employees, to also receive COBRA subsidies.

Aside from the model notices, which benefits experts say many employers are likely to provide to beneficiaries, the Labor Department has resolved several questions employers have raised about the new subsidy in a question-and-answer format.

For example, the Labor Department says beneficiaries can be required to pay 35 percent of the full COBRA premium, which includes a 2 percent administrative fee.

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

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Employers are stepping up communication with their employees about wellness and employee assistance programs available to them and are not planning to make significant cuts in their budgets for those programs, a survey shows.

“Despite pressure to reduce costs in many other areas of operations, 45 percent of respondents report increasing their wellness communications to highlight available services that can assist employees with issues brought on by the economic downturn,” said Ruth Hunt, a principal in Buck Consultants’ communication practice in New York, in a statement.

Hunt co-directed the survey with Barry Hall, Buck principal and global wellness leader, during the Fourth Annual Employer Health & Human Capital Congress, which took place in Washington last month. The survey was conducted interactively involving 200 audience members attending one of the meeting’s general sessions.

“Our findings suggest that wellness has ‘come of age’ as a vital benefit offering, especially during financially difficult times,” Hall said in the statement.

He said 53 percent of survey respondents reported an increase in the use of wellness services since the financial crisis began.

Among other survey findings:

• 19 percent plan to increase spending on wellness programs.
• 59 percent have experienced no budget changes, but are anxious about the possibility of having to make future cuts.
• Among those expecting cuts, 78 percent said that those involving wellness programs will be no greater than any reductions affecting other corporate spending areas.

Before the conference, Buck conducted a separate survey of 52 employer delegates to examine the culture of health—the creation of a workplace culture that promotes healthy lifestyle choices—in today’s workplace.

Those findings include:

● Only one-third of respondents report having a culture of health today, while 87 percent intend to pursue this philosophy.
● Measuring outcomes is the top priority for enhancing wellness programs among 56 percent of respondents.
● Forty-seven percent of respondents reported the biggest barrier to achieving a culture of health in their organizations was getting a commitment from top management.

Results of the surveys have not been formally published.

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

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In a feverish effort to defuse public fury, American International Group Inc.’s chief executive said he has asked employees who recently received more than $100,000 in bonus payments to “do the right thing” and return at least half of their money. He said some have already done so.

“We’ve heard the people,” CEO Edward Liddy told a congressional panel Wednesday, March 18.

Still, Liddy stood by his stance that AIG had no choice but to pay $165 million in what it called retention bonuses to hundreds of employees at the derivatives division that caused the company’s collapse in September.

He said the division’s portfolio of toxic assets remains huge—at $1.6 trillion—and it could “explode” unless AIG keeps experienced staff to wind it down.

Otherwise, he warned, the insurer, now 80 percent owned by the federal government, will be unable to ever repay the nearly $180 billion it has borrowed from taxpayers.

“I know $165 million is a lot of money,” Liddy said. “But in the context of the $1.6 trillion book [of toxic assets] and the money already invested in us, we thought it was a good trade.”

He added that he balanced the risks associated with denying the bonuses and alienating staffers with “blindly following legal advice.”

Members of Congress seemed pleased that some AIG staffers are being asked to give back bonus money, but questioned why they ever got it in the first place.

Rep. Barney Frank, D-Massachusetts, said AIG should have denied the payouts and forced the employees into the difficult position of suing for them. (His office has released the full language of the company’s retention-bonus contract.)

Frank also said he would seek a subpoena for the employees’ names unless Liddy provided them, something Liddy said he wouldn’t do, citing his concerns for the employees’ safety as public anger rises over details of the AIG bailout. New York Attorney General Andrew Cuomo has issued a subpoena for the same information.

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

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The Investment Company Institute is proposing sweeping changes to restore confidence in the $3.9 trillion money market mutual fund industry, including more transparency, tighter control over investments and prohibiting investments in second-tier securities.

Among the recommendations released yesterday by a working group of the Washington-based institute are proposals to create new daily and weekly minimum-liquidity requirements, to require regular stress testing of money fund holdings and to reduce a portfolio’s average maturity limit to 75 days, from 90 days.

The working group included such firms as the Vanguard Group, Fidelity Investments, Legg Mason and JPMorgan Asset Management of New York.

The group would also like to prohibit all investing in so-called second-tier investments, or those securities that have been given the second-highest short-term rating category by two ratings agencies.

Currently, money funds can hold up to only 5 percent of the portfolio in second-tier investments. These securities represent 6 percent of the commercial-paper market, according to the ICI.

“Our belief is that the recommendations strengthen an already-strong industry,” said J. Christopher Donahue, president and chief executive of Pittsburgh-based Federated Investors, which has $407 billion in assets under management, including about $355 billion in money market assets.

“There weren’t any fundamental problems with money funds. The problem was liquidity in the market,” he said.

The money-fund sector experienced a run by investors last fall after the Reserve Primary Fund, offered by Reserve Management of New York, saw its net asset value dip below $1 and “broke the buck.”

The working group’s proposals to reduce the average maturity limit of money fund portfolios and to add transparency about investors are designed to avoid runs on the funds, Donahue said in an interview.

“A lot of the recommendations are what funds are already doing,” said Peter Crane, president of Crane Data, a Westborough, Massachusetts-based research firm. “I think the recommendations overall are very positive. I suspect these Band-Aids will be enough, as the patient is up and walking anyway.”

The working group is also proposing that funds disclose the concentrations of their client bases as well as give funds’ boards the authorization to suspend redemptions and purchases temporarily if a fund is in danger of losing its $1 net asset value.

“The biggest news is what they didn’t say anything about, which is insurance,” Crane said. “Money funds are weaning themselves off of the Treasury insurance and not taking the shift toward private insurance: That is the main issue going forward.”

Most fund firms are participating in the Department of the Treasury’s guarantee program, launched September 19, which offers insurance to cover investments made up to that date. The program is set to expire April 30.

The ICI has asked the Treasury to extend the program through September 19.

“I think the Treasury will extend it to September of this year,” said Connie Bugbee, managing editor of iMoneyNet, a money fund research firm also based in Westborough.

“I think the feeling is that if they take it away in April, there could be another run. I do think that you will see more Treasury funds opt not to have the insurance. But you’ll see it stay on prime-money funds and tax-exempt muni funds.”

The working group did not recommend a continuing federal insurance scheme after September.

“It would be destabilizing to other intermediaries, including depository institutions,” Paul Schott Stevens, the ICI’s president and chief executive, said in a conference call today.

All the recommendations are necessary to restore investor confidence, Bugbee explained.

Whether they will impose additional operating costs and mean lower yields for investors is not known.

“There are no free lunches,” Donahue said. “You’re going to have some give and take here. But it’s hard to relate that to basis points at this point.”

Crane was more optimistic, saying: “There shouldn’t be noticeable changes in yield. I doubt all of these recommendations would even cost a basis point.”

The recommendations were endorsed by the ICI’s board of governors for adoption as general industry practices. Members of the working group have already agreed to adopt them voluntarily.

Filed by Sue Asci of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Dear Befuddled:

It’s natural to feel overwhelmed by the implications of the American Recovery and Reinvestment Act of 2009 (more commonly referred to as the “stimulus package”).

We expect that the new law will require employers to consider and implement multiple changes to their tax withholding, reporting and record-keeping procedures for employees. Here are the two most immediate changes you need to be aware of and take action on:

“Making Work Pay”: This provides workers a rebate/credit for the 2009 and 2010 tax years of the lesser of $400 for individuals and $800 for couples, or 6.2 percent of earned income.

The credit will be received by workers in their net paychecks through adjusted tax withholding tables no later than April 1, 2009. This means that you need to begin using these new tables (see IRS Notice 1036 and Publication 15-T) to process your payroll by this deadline. If you use an outside payroll provider, check with this vendor to ensure they’ve made the appropriate changes. At Paychex, we have implemented this change and are processing client payrolls using the adjusted tax tables.

Premium Assistance for COBRA Recipients: This allows COBRA beneficiaries to pay 35 percent of their premiums, with employers absorbing the remaining 65 percent (which are reimbursable through a credit on payroll taxes). In order to report and calculate subsidy amounts, and for employers to receive the credit, the IRS has redesigned Form 941, Employer’s Quarterly Tax Return, effective for the first quarter of 2009.

To make things more complex, there’s also a special 60-day election period for individuals who would be eligible for the assistance, but who weren’t enrolled in COBRA at the time the stimulus package was signed into law. What’s more, employers can choose to allow eligible individuals to be covered under a different plan offered by the employer than the one they were enrolled in prior to their involuntary termination.

And There’s More: You should also keep your eye on additional economic proposals under consideration, such as raising the federal minimum wage to $9.50 an hour by 2011 and allowing withdrawals from retirement accounts of 15 percent up to $10,000 without penalties.

Again, if using an outside payroll or benefits provider, make sure your vendor is actively following these changes and is ready to implement any new developments.

SOURCE: Marty Mucci, Paychex Inc., Rochester, New York, March 10, 2009

LEARN MORE: Among the wide-ranging effects of the federal stimulus bill are changes to COBRA provisions.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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Dear Workforce Newsletter

Total U.S. defined-contribution assets dropped 21 percent last year to $3.8 trillion, but the percentage of retirement assets coming from DC plans rose to an all-time high of 49 percent, according to a Spectrem Group report.

Also in the report released Wednesday, March 18, “Retirement Market Insights 2009,” Spectrem wrote that U.S. retirement assets tumbled 24 percent in 2008 to $7.86 trillion.

The overall share of retirement assets from DC plans grew from 47 percent in 2007.

Assets in corporate 401(k) plans, which account for 71 percent of all corporate DC assets, declined 23 percent to $1.94 trillion.

Total DB assets were $4.03 trillion in 2008, down 27 percent from the previous year.

The report was based on data taken from public and private sources, as well as from Spectrem, as of December 31.

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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Despite any impact the recession might have on revenue and earnings growth this year, U.S. health insurers are expected to take steps during 2009 to restore their former profitability, analysts at Standard & Poor’s Corp. predict in a report issued Tuesday, March 17.

New York-based S&P revised its outlook for U.S. health insurers to negative in November 2008 because so many insurers’ earnings were falling far below projections due to underestimation of medical cost trends, an unanticipated change in business mix and inadequate pricing of some Medicare Advantage and Part D prescription drug programs, the New York-based ratings agency reported.

As a group, the 37 insurers S&P monitors reported 2008 earnings that were approximately 25 percent less than estimates.

In addition to raising premiums for certain lines of coverage, health insurers also will trim their administrative overheads, according to S&P, which pointed to recent layoffs at Bloomfield, Connecticut-based Cigna Corp. and Indianapolis-based WellPoint Inc. as examples.

Those health insurers are cutting 4 percent and 3.5 percent, respectively, of their workforces and are closely monitoring their budgets, Medicare payment rates and the potential impact that national health reform might have on their margins after 2009, S&P analysts said in the report, “Will Profits Rebound for Health Insurers in 2009?”

“For the 37 health insurers in our database, 2008 earnings were about 25 percent below the estimates we made this past year,” said Standard & Poor’s credit analyst Neal Freedman in a statement. “In all, 19 health insurers ended up cutting their own 2008 earnings forecasts.”

Of that group, S&P lowered ratings on seven, revised the outlooks to negative from stable on three and affirmed ratings with a stable outlook on the remaining nine, Freedman noted.

S&P also is paying close attention to the business mix at Minnetonka, Minnesota-based UnitedHealth Group Inc. and Woodland Hills, California-based Health Net Inc., where enrollment rates at small or midsized employers were less than expected for 2008.

“Lower-than-expected enrollment in the fully insured, commercial, small and midsized group was a significant contributor to earnings shortfalls in 2008,” the S&P report said.

S&P attributed much of insurers’ earnings shortfalls in their Medicare business to adverse selection caused by enrollment of beneficiaries more likely to take advantage of the benefits available.

“We consider insurers that have significantly increased their Medicare Advantage or Medicare Part D enrollment … as potentially falling prey to adverse selection,” the analysts’ report noted.

S&P’s report on U.S. health insurers’ future profitability is available to RatingsDirect subscribers at www.ratingsdirect.com, or it can be purchased by calling (212) 438-9823 or by sending an e-mail to research_request@standardandpoors.com.

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

New Jersey Attorney General Anne Milgram filed a lawsuit on behalf of the $59 billion New Jersey Division of Investment against executives of Lehman Brothers Holdings, claiming the state’s pension fund lost more than $100 million on investments in Lehman, said a spokesman for Gov. Jon Corzine.

The suit alleges fraud and misrepresentation on the part of Lehman executives “in violations of New Jersey and federal securities laws, negligent misrepresentation, breach of fiduciary duty, fraud, and aiding and abetting. It seeks to recover compensatory and punitive damages,” Corzine’s office said in a statement released Wednesday, March 17.

The Division of Investment bought preferred and common stock in Lehman after the investment bank claimed it had sufficient liquidity, a strong capital base and superior hedging, risk management and valuation practices, the statement said.

“Lehman’s executives kept telling investors its financial position was solid when, in fact, the opposite was true,” Milgram said in the statement. “The state bought and held Lehman securities at artificially inflated prices and lost millions, which we seek to recover with this suit.”

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

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