Author: Site Staff

Retirees of auto parts maker Delphi have frantically organized themselves in recent weeks to fight their former employer’s attempts to terminate their health care coverage by working to form a health care trust similar to one created for their unionized colleagues.

Last month, Delphi received qualified permission from a bankruptcy judge to terminate health care benefits for its 15,000 salaried retirees. The judge said cutting those costs was necessary to help the company emerge from bankruptcy. Delphi, which filed for Chapter 11 bankruptcy in October 2005, argued that ending retiree health care would save the company $70 million annually and removes $1.1 billion from its balance sheet.

But retirees are appealing that ruling, saying the company promised them in writing that they would receive health care in retirement. Delphi is also seeking to end its life insurance benefits. The judge is expected to rule Wednesday, March 11.

“It’s definitely harder to be protected unless you have a collective bargaining agreement and a union to protect you and language that protects your benefits,” said Stuart Wohl, retiree health practice leader for Segal & Co.

Paul Higgins, who worked as an international service manager for Delphi Thermal in Lockport, New York, for more than 44 years, said the company has not responded to the retirees’ request to fund a health care trust known as a voluntary employee beneficiary association.

Delphi would not comment pending the legal outcome, a spokesman said.

Unionized workers at Detroit’s Big Three automakers and Delphi have created a similar health care trust. While it remains to be seen whether the struggling automakers will be able to fully fund the VEBAs, the trusts already have enough money to provide benefits in the near term. At the end of 2008, the VEBA for General Motors workers had more than $10 billion in it, according to GM’s annual report.

Delphi retirees said they feel betrayed.

“The salaried workers don’t have a union, so Delphi doesn’t have to go through negotiations,” said Higgins, 67. “It’s easy picking, the lowest fruit on the tree.”

It is not unusual for salaried workers to establish VEBAs during bankruptcy if they have something they can use to bargain, like walking off the job, VEBA experts say. That is something workers are unlikely to do in this economic climate.

“Who’s going to walk off a job and not get paid in these economic times?” Higgins said.

Employers are moving to end or limit retiree health care. This year, 58 percent of employers offered retiree health care, compared with 59 percent a year earlier, according to Hewitt Associates.

Last summer, GM announced it would no longer provide health care benefits to white-collar retirees 65 or older, instead providing a slight increase in pension payments to help cover the cost of supplemental Medicare plans. Ford has made its white-collar retirees pay more for medical benefits. Chrysler eliminated medical benefits for its retired salaried workers in 2006.

Milton Beach, 55, would have preferred to keep working, but he said he took a forced retirement in January during a round of layoffs. After representing Delphi as a public relations manager for 34 years, he finds himself fighting for what he feels was promised to him.

“I think my feelings are typical,” he said. “You feel betrayed.”

—Jeremy Smerd

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Amid the deepest economic collapse in generations, corporate America is coming up with a novel way to justify extravagant executive pay: Ignore the bad news.

Companies that sank into the red last year are looking past a host of business expenses, ranging from asset write-downs to higher-than-expected operating costs, to rationalize paying brass even more than they got in flush times. Others appear to be reducing pay but continue to bestow extraordinary perks, such as “golden coffins.”

Defiant shareholders admit that reining in the practices is a tough battle, even though the dire economy and lousy results would seem to make pay cuts a given.

“Executive pay is the ultimate shell game,” said Richard Ferlauto, a longtime critic of corporate compensation practices and director of pension investment policy at the American Federation of State, County and Municipal Employees. “Boards come up with all sorts of new ways to pay people whose performance shows they don’t deserve it.”

Just last week, New York Stock Exchange parent NYSE Euronext Inc. said chief executive Duncan Niederauer had been awarded total compensation of $7.1 million in 2008—his first full year in the job—including $4 million designated as a “performance bonus.”
Niederauer’s pay was nearly $2 million more than predecessor John Thain got in 2006, his last full year at NYSE. The exchange’s performance in 2008 was dismal by almost any traditional measure. It posted a $738 million net loss, and the stock price fell 68 percent. (Rival Nasdaq dropped 50 percent.)

The loss was driven by a $1.6 billion asset write-down related to the 2007 acquisition of Paris-based Euronext. NYSE concluded that European operations will generate less cash than expected because of bleak markets and regulators’ opening trading to more competition, a much-anticipated development that hurt its market share and led to lower transaction fees.

In defending Niederauer’s pay, NYSE argues that the company fared better in 2008 than its financial results and stock price suggest. A spokesman pointed out that revenue rose 4 percent, while fixed operating expenses declined. “Pro forma” earnings rose 9 percent when the merger-related charges and other items are excluded, the spokesman said. “The board deemed that, overall, we met targets as a company,” he said.

Indeed, NYSE directors had tried to show Niederauer more largesse. They had established a $5 million “target bonus” for him but ultimately awarded less because management cut the companywide bonus pool by 20 percent. In a regulatory filing, the board said, “We believe individual performance would have supported higher award levels.”

Munificent as NYSE was, Loews Corp. went the extra mile when it came to CEO James Tisch.

Loews, whose holdings include hotels, insurers and oil exploration outfits, lost $182 million from continuing operations last year, and its stock price sank 44 percent. Yet the board paid Tisch $7 million—8 percent more than in 2007, when Loews generated $1.6 billion of net income from continuing operations.

Grading pay on a curve
The company covered Tisch’s raise partly by excluding $2 billion worth of setbacks that it said “would not be appropriate” to consider when setting pay.

The bad news includes a higher-than-budgeted $204 million of catastrophe losses in its insurance division, nearly five times as much as in 2007, mainly due to hurricanes Gustave and Ike. Companies often exclude noncore items when determining compensation, but Loews acknowledged in its annual report that catastrophe losses are an “inevitable” part of its insurance business.

Loews directors also decided it wasn’t fitting to consider the insurance division’s $750 million of realized investment losses. Additionally, they dismissed more than $750 million of write-downs in the oil exploration unit, which stemmed partly from revaluing reserves to account for lower commodity prices.

“What does ‘pay for performance’ mean if you ignore performance?” Ferlauto said.

Loews declined to comment.

Some CEOs are willing to accept less compensation. Stephen Schwarzman of the Blackstone Group cut his pay 99 percent last year, to $350,000, after the firm swung to a $1.2 billion net loss connected to heavy write-downs. Numbing the pain was the $180 million Schwarzman pocketed in 2007, when he took his leveraged-buyout firm public.

But even companies that have better aligned their pay policies with the times still seem to have a tin ear when it comes to what critics call over-the-top perks.

For example, the total pay of Verizon Communications Inc. CEO Ivan Seidenberg fell 30 percent last year, to $18.6 million. But some shareholders are peeved that his heirs stand to collect up to $35 million payable upon Seidenberg’s death—an unusual benefit known as a “golden coffin.”

Arguing that shareholders shouldn’t be saddled with a payment for which no service can be rendered, the Philadelphia city employees’ pension fund and another public pension fund have filed a shareholder resolution for Verizon investors to vote on the perk.

Verizon insists that golden coffins are necessary to retain key employees.

But the pension funds wryly retort that “in our opinion, death defeats this argument.”

Check stubs
Duncan Niederauer, $7.1 million
NYSE chief collects a performance bonus after posting a $738 million net loss.

James Tisch, $7 million
Loews CEO gets 8 percent hike from board that ignored $2 billion worth of bad news.

Ivan Seidenberg, $18.6 million
Verizon head keeps controversial $35 million “golden coffin.”

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 9th U.S. Circuit Court of Appeals on Monday, March 9, declined to review a unanimous 2008 decision by a three-judge appeals panel upholding the legality of a San Francisco health care spending law. A San Francisco-area restaurant trade group that challenged the 2006 law, which went into effect last year, had asked for the full appeals court to review the panel’s decision.

A majority of the active members of the appeals court rejected the request for an en banc review. In a decision written by Judge William Fletcher, the appeals court again said the San Francisco law was not pre-empted by the Employee Retirement Income Security Act.

Fletcher also said that the San Francisco law was different from a Maryland law—overturned by the 4th U.S. Circuit Court of Appeals—that required large employers to spend a certain percentage of payroll on health care, or pay the difference to a fund used to provide coverage to the uninsured. As a result, there was no conflict at the appeals court level, he wrote. Fletcher also wrote the original appeals decision.

Under the law, employers with 100 or more employees must make health care expenditures in 2009 of at least $1.85 per hour for every eligible employee working at least eight hours a week, and employers with 20 to 99 employees must make health care expenditures of at least $1.23 per hour. Expenditures can include payment of group health insurance premiums, health savings accounts and health reimbursement arrangement contributions, or payments to San Francisco.

The case is being watched by employers nationwide who fear the San Francisco law could lead to a wave of new health care spending laws by other cities and states looking for ways to expand coverage.

That would result, benefit experts say, in both higher health care and administrative costs for employers, as they try to keep on top of new benefit mandate after benefit mandate, and would make it extremely difficult for multistate employers to offer uniform health care benefit plans.

Kevin Westlye, executive director of the Golden Gate Restaurant Association, said the group intends to seek U.S. Supreme Court review of the ruling by the 9th Circuit.

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

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Nineteen percent of employers responding to a new Hewitt Associates survey are planning to stop offering health benefits over the next three to five years, nearly five times as many as the 4 percent that said they were planning an exit strategy last year.

For those employers planning to continue to provide health benefits, keeping employees healthy has become the primary workforce issue in 2009, up from the No. 2 position in 2008, according to Lincolnshire, Illinois-based Hewitt’s survey, “The Road Ahead: Emerging Health Trends 2009.”

“Promoting employee accountability” was ranked the chief health and prevention component of employers’ health care strategies in 2009, followed by “offering competitive benefits” and “managing health risk.” In 2008, employers selected “offering competitive benefits” as their chief objective, followed by “promoting accountability” and “tightly managing health care cost trends.”

“In today’s environment, employers are under pressure to cut health care expenses, but they realize that short-term cost-management tactics do not address the underlying drivers of health care cost,” Jim Winkler, head of Hewitt’s North America health management consulting practice, said in a statement. “This leaves them with two options: making a long-term commitment to improving the health of employees and their families, or exiting health care altogether.”

Among other survey findings:

• More employers are targeting specific health conditions within their employee populations than in previous years. Specifically, employers are targeting asthma, cardiovascular disease, depression and diabetes.

• When employers were asked to what extent health care reform proposals outlined by the Barack Obama administration would affect their current health care strategies, 51 percent said they would have some impact, while 44 percent said it would have no impact.

• While one-third of executives think the Obama administration and Congress should address health reform in the president’s first year in office, 63 percent believe it will take place in Obama’s first term.

• Moreover, 60 percent of executive said the federal government should take the lead, while 33 percent said the federal government and the states should share responsibility.

A total of 343 benefits executives from a broad spectrum of industries responded to the survey, which was conducted from December 2008 to January 2009.

For more information about the survey, contact Maureen Mersch at maureen.mersch@hewitt.com or Mary Ann Armatys at maarmatys@hewitt.com.

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

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Employment deteriorated in February as employers faced greater pressure to cut costs through layoffs and compensation reductions, moves that appear to be taking a toll on the morale of remaining workers.

The unemployment rate surged to 8.1 percent last month, marking the highest joblessness rate in a quarter-century, with losses seen across all sectors, the Bureau of Labor Statistics reported Friday, March 6.

Employers are also looking to trim compensation costs associated with health benefits, a survey released by Hewitt Associates this week showed. The annual survey showed a sharp increase in the number of employers looking to stop offering health benefits in coming years, a move largely attributable to the weak economic outlook.

The sharp rise in unemployment and fears about the state of the economy have begun to affect those workers remaining, according to a separate survey by staffing firm Adecco. Workers fear they might be next to lose their job, and one in five say the economy, while not yet technically a depression, is nonetheless making them feel depressed.

The Labor Department reported that the number of Americans without jobs increased by 851,000 in February to bring the total number of unemployed to 12.5 million. Job losses have totaled 4.4 million since the recession began in December 2007.

The unemployment rate’s half-percentage-point jump in February, to 8.1 percent from 7.6 percent, reflects the worst labor market since 1983, the Labor Department said. Laid-off workers—as opposed to those leaving voluntarily or new workers just joining the labor force—represent 62.3 percent of the unemployed, up from 50 percent when the recession began.

The number of long-term unemployed, those jobless for 27 weeks or more, rose by 270,000, to 2.9 million, in February.

Job losses spanned almost all sectors, with deep reductions in construction, manufacturing and, most heavily, in professional and business services, which shed 180,000 workers, most notably among temporary staffing agencies.

The staffing industry, often the first to be hit by a downturn and the first to recover, continues to see a steep drop in demand for temporary workers. Temporary employment has fallen by 686,000 jobs since the recession began.

The health care industry, however, continued to grow. In February, the industry added 27,000 new hires. That gain was in keeping with its employment trend, the Bureau of Labor Statistics reported.

The deteriorating economy is affecting the willingness of employers to provide health benefits. Nineteen percent of employers say they are moving away from “directly sponsoring health benefits,” up from 4 percent that reported doing so last year, Hewitt reports.

“In this economy you can be a lot more candid with your employees than when they’re job hopping,” said Jim Winkler, a health care consultant with Hewitt.

Winkler anticipates more employers will renegotiate contracts with health insurance vendors and reopen benefits enrollment midyear to save money in the near term.

“Having another enrollment this year is the only way you can materially impact costs this calendar year,” he said.

Workers report a greater willingness to take drastic measures to save their job, according to Adecco. Twenty-eight percent of workers said they would be willing to do something dishonest, like blame a co-worker for a mistake, to keep their job. Generation Y workers were most likely—at 41 percent—to do something dishonest.

Hopes are high among workers that the recently enacted stimulus legislation will be successful. Nearly three-quarters of workers surveyed by Adecco believe the stimulus will provide some benefit to the economy.

Workers appear to be growing impatient, though, to see its impact on the economy, said Doug Arms, chief talent officer for Ajilon Professional Staffing, a division of Adecco. One in five workers say the recession is having a negative impact on their health.

“I think there is more hope that the stimulus package will be helpful, but as the hope meter goes up, the patience meter goes down,” Arms said.

—Jeremy Smerd

2008 DENTAL AND VISION PROVIDERS

With a range of vision benefit programs available to them, employers can offer employees choices while controlling the cost of the benefit even as general health care costs continue to rise.

“If you look at the major providers, I see a lot of `high-medium-low’ designs similar to what an employee might see in a medical offering,” said Manny Menendez, principle benefits consultant-health management practice with Lincolnshire, Illinois-based Hewitt Associates Inc.

By offering a range of copay levels, employers hope to keep the benefit attractive for those employees who need it most—particularly older workers and those with chronic vision problems and other illnesses—while keeping costs down for others. The average employer spends less than 5 percent of total health care-related spending on employee vision care, Menendez said.
On the dental-benefits front, the National Association of Dental Plans and the Delta Dental Plans Association, the U.S. industry’s two trade associations, are closely watching health care reform efforts and how they may affect dental benefits, officials said.

The groups are particularly concerned about changes that would remove employers’ ability to deduct such premiums from their taxes and counting dental benefits as taxable income for employees.

“Over 96 percent of all dental benefits are provided through employment or other private and public groups,” said Evelyn Ireland, Dallas-based executive director of the National Association of Dental Plans. “Changes in employer-based coverage could significantly erode current dental coverage and thereby reduce the oral health of Americans.”

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Talbots Inc. will freeze its two defined-benefit pension plans indefinitely as of May 1 in an effort to boost company cash flow, according to a Securities and Exchange Commission filing.

Participants will receive no further accruals under the defined-benefit pension plan or supplemental pension plan, which should yield cash savings of roughly $6 million for the current fiscal year, according to a news release.

On February 5, Hingham, Massachusetts-based Talbots announced it was suspending matching contributions to the company’s 401(k) plan while increasing health care contributions by employees. The company expects those two steps to result in roughly $7 million in savings during the current fiscal year, spokeswoman Julie Lorigan said.

Talbots’ defined-benefit pension plan had $110 million in assets as of February 2, 2008, according to its most recent annual report. The company had $159 million in its 401(k) plan as of December 2006, according to the 2009 Money Market Directory.

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

Both chambers of Wyoming’s Legislature on Monday, March 2, approved a bill that would provide annual cost-of-living increases for workers’ compensation permanent-disability cases.

H.B. 54, sponsored by the Joint Labor, Health and Social Services Interim Committee, would adjust permanent-disability benefit increases by 3 percent or an amount equal to increases in the Consumer Price Index, depending on which is less. It also would increase death benefits.

A spokeswoman for Wyoming Gov. Dave Freuden did not immediately return a telephone call about whether the governor would sign the bill.

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

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Since the recession started in December 2007, more than 3.6 million jobs have been lost. No one can predict when the economy will turn around, and more employers will be forced to cut staffing. If they’re not careful, CCH says, they could face legal compliance issues. CCH, a provider of labor and employment law information and services and part of Wolters Kluwer Law & Business, offers information and tools that can help employers in understanding the laws regarding plant closings and large layoffs.

Click here to view the proprietary content, available free only through March 31, 2009.

Seniors graduating from college this year will get diplomas, but they may not get jobs.

Employers expect to hire 22 percent fewer new graduates from the college class of 2009 than they hired from the class of 2008, according to a new study by the National Association of Colleges and Employers.

The latest numbers also differ significantly from the fall, when employers’ hiring projections looked flat.

“Earlier, employers indicated that they expected to keep their new college graduate hiring levels even with last year,” Marilyn Mackes, the association’s executive director, said in a statement. “Our current survey shows that college hiring is as affected by the economy as other types of hiring.”

The drop in anticipated college hiring is part of an overall slack labor market, which has worsened rapidly amid the recession.

The expected decline in new-grad hires was prompted by the deteriorating economic situation, said the association, a professional group that forecasts trends in the job market.

“More than two-thirds of employers said the economic situation forced them to re-evaluate their college hiring plans, and nearly all of those said they have decreased their planned number of hires,” Mackes said.

The projected drop is likely to mean a sharp decline in employer activity on campuses this spring as well, with 66 percent of employers responding to the survey reporting plans to lower or eliminate spring hiring.

The latest association study also ends a string of positive hiring reports for new college graduates dating back to 2004. Students graduating in the early part of the millennium experienced major drops at the hands of the dot-com bust and the terrorist attacks of September 11, 2001. Hiring decreased 36 percent for the class of 2002 but steadied for the class of 2003 before rebounding in 2004.

Employers also seem cautious about the near future. More than 46 percent said they are unsure about their hiring plans for fall 2009, and 17 percent are already reporting that they expect to trim their college hiring further.

—Ed Frauenheim

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