Author: Site Staff

In its official filing seeking regulatory approval, Coca-Cola Co. detailed a plan to fund retiree health care benefits through a special trust and its South Carolina-domiciled captive insurance company.

Under the proposal, which Coca-Cola filed last week with the Labor Department, the company would use $187 million in assets now held in a voluntary employee beneficiary association to purchase medical stop-loss policies from Prudential Insurance Co. of America to pay claims over the expected lifetimes of about 4,000 retirees and dependents. Coca-Cola established the VEBA in 2006.

The medical stop-loss policies would pay claims that fall between an attachment point and an upper limit. For retirees younger than 65, the attachment point would be $100 and the upper limit would be $5,800, with an attachment point of $100 and an upper limit of $3,500 for retirees 65 and older.

Prudential, in turn, would use the premium it receives from Coca-Cola to reinsure the risk with Red Re Inc., Coca-Cola’s 3-year-old South Carolina captive insurer.

Atlanta-based Coca-Cola, the world’s largest beverage company, now uses Red Re for a wide range of risks, including benefit coverages of employees outside the United States. Red Re’s 2007 gross written premium volume was $11.8 million.

Linking a VEBA to a captive to fund retiree health care benefits has several advantages, outside observers earlier said.

Under federal law, assets contributed to a VEBA must be used to pay benefits or purchase insurance policies that provide benefits. Employers cannot remove VEBA assets for other purposes, even when a benefit program is being wound down.

By contrast, using a captive to fund benefits gives a company greater financial flexibility. For example, investment gains on contributions made to the captive can be paid out as dividends to the parent.

Coca-Cola’s risk management and employee benefit executives briefly outlined the arrangement at the World Captive Forum in November and are asking the Labor Department for quick review of its application. The department has 45 days to act on the application.

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’ contributions to their pension plans need to nearly triple this year to shore up plans with funding levels that plummeted due to the equities market crash, according to an analysis released Tuesday, January 13.
 
Under federal funding law, employers in 2009 will be required to contribute $108 billion to their plans compared with just $38 billion in 2008, estimates consultant Watson Wyatt Worldwide.

“It is a staggering burden on employers, especially in a weak economy,” said Alan Glickstein, a senior consultant in Watson Wyatt’s Dallas office.

Watson Wyatt estimates that plans now are funded 75.2 percent on average, a stunning fall from only a year ago when plans had average funding of 97.4 percent.

Responding to lobbying efforts by employers, a federal law enacted last year eases funding requirements. But that relief, which removed a transition rule laid down by a 2006 pension law that required employers to immediately start fully funding their plans if they miss certain funding targets, only slightly reduces the contribution burden employers now face, according to Watson Wyatt. That relief will cut required 2009 contributions by about $16 billion, from $125.1 billion to $108.7 billion.

Without further relief, “companies will still struggle to meet the large and unexpected contributions required,” Watson Wyatt said.

However, several changes that business groups have been urging Congress to pass would cut required contributions this year to just under $66 billion, Watson Wyatt estimates.

Glickstein said legislators are becoming more aware of the severity of the problem for employers and the need for additional funding relief.

“I believe we will get more of what is needed,” he said.

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

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A major employer benefits organization said Monday, January 12, that it would back federal COBRA premiums subsidies as long as those subsidies are temporary.

In addition, the Washington-based National Business Group on Health said lawmakers should consider allowing former employees to choose a less expensive plan in which to receive COBRA coverage. Under current law, COBRA beneficiaries must remain in the plan in which they were enrolled until the next open enrollment period.

“With choice, they might pick a plan that has lower premiums and may be a better value,” NBGH president Helen Darling wrote in a letter sent to the chairmen and ranking members of congressional committees with jurisdiction on health care issues, as well as to Tom Daschle, President-elect Barack Obama’s selection as the next secretary of the Department of Health and Human Services.

The NBGH backing of federal COBRA premium subsidies comes as lawmakers are considering whether to include subsidies in an economic stimulus package. Business lobbyists said last week that lawmakers were discussing a proposal in which the government would subsidize 50 to 60 percent of the COBRA premium paid by beneficiaries.

Under law, employers can charge COBRA beneficiaries a premium equal to 102 percent of the cost of coverage offered to employees.

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

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As Ford Motor Co. enters discussions for additional United Auto Workers givebacks, the automaker will have to wait at least a year to hire its first lower-paid, two-tier workers.

Ford manufacturing chief Joe Hinrichs told Automotive News at the Detroit auto show Monday, January 12, that it will be 2010 before Ford can start to hire new workers at wages and benefits that are half of those paid veteran workers.

Current workers earn about $28 an hour.

Ford employs about 47,000 hourly workers covered by the contract.
Slow industry sales and the slumping economy are preventing Ford from availing itself of the new-hire provisions permitted in the 2007 UAW contracts with the Detroit Three, Hinrichs said.

Contractually, new hires paid at the lower-tier level can constitute up to 20 percent of Ford’s hourly workforce. But using current assumptions about an industry recovery, Ford estimates it will take “a few years” to get to that level, Hinrichs said.

As a provision of the recent federal $17.4 billion bailout package, General Motors and Chrysler have been ordered to bring their compensation in line with the Japanese transplants. Ford is looking to piggyback on any UAW labor changes to stay competitive with GM and Chrysler.

Hinrichs said Ford’s labor cost gap with the Japanese transplants is about $9 per hour in wages and benefits. Ford UAW workers earn all-in compensation of about $58 an hour versus $49 an hour for the Japanese transplants, he said.
Hinrichs said Ford is discussing the contracts with the UAW daily as GM and Chrysler seek to meet a February deadline to tell Congress how they will meet their loan requirements. Hinrichs said he met this weekend with UAW president Ron Gettelfinger.

Ford has not asked for federal loans, but the company has said it wants a $9 billion line of credit available from the government if vehicle sales deteriorate dramatically in 2009.

The tier-two provisions in the 2007 UAW contracts were meant to close the labor-cost gap. If Ford could get the maximum 20 percent of its UAW workforce on the second-tier wage, the company would trail the Japanese in labor costs by just $4 to $5 per hour, Hinrichs said. But getting to that level will take years, he said. U.S. vehicle production in 2009 is expected to drop 25 to 30 percent against an already depressed 2008.

Hinrichs declined to discuss its negotiating strategy with the UAW. But he did say that one potential area of cost savings is in skilled trades.

In 2006 and 2007, local plant-operating agreements with the UAW cut skilled-trade classifications from more than 100 to the low 20s, Hinrichs said. But there could be additional changes on that front to cut costs and improve manufacturing flexibility, he said.

Hinrichs said it has yet to be determined whether Ford will offer additional hourly buyouts and retirement incentives. He said production cuts have given Ford a temporary surplus of workers. But Ford wants to avoid paying up to $140,000 in cash for workers to leave, only to have to hire workers in an uptick, he said.

During 2008, Ford offered two hourly buyouts. Hinrichs said 7,000 workers took the buyouts.

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

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Motorola Inc. is cutting an additional 4,000 jobs, including 3,000 in its struggling mobile-phone business, as its financial outlook darkens. The layoffs will begin immediately, the company said Wednesday, January 14.

Analysts have long predicted that Motorola would have to drastically cut jobs because its phone sales have tumbled. The company announced in October that it would cut 3,000 jobs, including 2,000 in mobile devices.

The company said it now expects fourth-quarter revenue of about $7.1 billion, compared with the $7.5 billion analysts were forecasting. Motorola will lose 1 to 2 cents per share, excluding charges, the company said. Analysts were expecting earnings of 3 cents per share, according to Thomson FirstCall.

(For more, read “Motorola Puts DB Plans, 401(k) Match on Hold.”)

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

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Terrorists attacks in India. Hamas rockets in Israel. Kidnappings in Mexico.

Not the kinds of headlines that help sell risk-averse employers on the idea of sending employees abroad for medical care. The threat of violence is one reason few employers have signed up with companies that offer low-cost medical care at foreign hospitals and even fewer are sending employees overseas, medical tourism operators say.

Despite cost savings in elective surgeries such as hip replacements, employers remain concerned about liabilities—medical and otherwise—related to receiving health care overseas.

One medical tourism company, Calabasas, California-based Planet Hospital, has signed up five employers. But after the November terrorist attacks in Mumbai, Planet Hospital’s employer clients said they wanted to cross India off their list.

What started out as interest in medical tourism has yet to translate into sending employees abroad.

“They sign up but they don’t execute,” said Planet Hospital founder Rudy Rupak. “The employer says, ‘We’re not going to do this until we’re absolutely protected against malpractice.’ But you’re not going to get absolute protection even in America. If a person wants to sue, they’re going to sue.”

The company has for months been working on providing liability insurance to employers against being sued by employees who experience medical complications. Rupak said Los Angeles-based clothing retailer American Apparel recently signed up for the service. But the company is restricting its options to Mexico, despite a recent string of high-profile kidnappings in the country.

Employers, though, are often more concerned than employees about safety risks, said Tom Keesling, president of Indus Health, a Raleigh, North Carolina-based medical tourism company focused on India.

“While we might say an employer may be hesitant because of worldwide unrest, we know that when employees are asked to assess that risk themselves we know they want to go,” Keesling said.

That’s because often the incentive for individuals is cost. In the U.S., a hip-replacement surgery can cost $30,000 to $40,000 for uninsured patients, according to BlueCross BlueShield of North Carolina, compared with about $9,000 in India and $12,000 in Singapore.

But unless employees are uninsured or underinsured—that is, they have high out-of-pocket costs associated with surgeries—there is no financial incentive steering them overseas for care.

In 2007, some 750,000 Americans traveled abroad for care, according to estimates by the Deloitte Center for Health Solutions, which is part of the Deloitte audit and advisory firm. Most were uninsured or underinsured individuals. A few were employees whose firms gave them an incentive to go.

Keesling said he has one corporate customer that has sent 15 employees overseas for care. The client did not want to be named because of a backlash that occurred against Blue Ridge Paper, a North Carolina company whose efforts to send an employee abroad for care created a public uproar.

Still, Keesling said that during the terrorist attacks in Mumbai in November, he had four clients in India. While everyone else worried, the patients, who were far away at a hospital in Bangalore, were not, Keesling said.

He said subsequent trips to India were not canceled.

“Patients knew about what was going on in India, but there wasn’t enough concern to cancel flights,” Keesling said. “Nobody canceled.”

Russell Bigler, CEO of the Self Insured Schools of California, which manages benefits for public school districts in Central California’s Kern County, said he had considered medical tourism but decided against it.

Though he had been in Thailand this fall when the airport was shut down by anti-government protesters, his decision had nothing to do with global instability. Benefit design is why his 250,000 members do not have the option to go overseas. Teachers and other beneficiaries of the heath plan do not have the high out-of-pocket costs that would make surgery outside the U.S. worthwhile.

“The deductibles, the co-insurance [are] not big enough to warrant something like that,” he said. “It’s for a company that’s self-insured that has $5,000 deductibles.”

—Jeremy Smerd

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Canadian pension plan solvency is at historical lows, according to an analysis by Watson Wyatt Worldwide.

The pension funding ratio for Canadian defined-benefit plans declined 27 percentage points to 69 percent in 2008. Funded status declined 11 percentage points in the fourth quarter, according to the analysis. The yearly decline is the lowest since pension funding ratios started being measured in the mid-1980s, according to Laura Samaroo, a Watson Wyatt retirement practice leader. The previous low was 75 percent in September 2002 and March 2003.

“Canadian pension plans are certainly reflecting the declines in financial markets,” David Burke, Watson Wyatt retirement practice director, said in a news release. “What’s most troubling is that the significantly higher pension contributions that will be required to offset sizable investment losses are placing additional strain on companies and negatively impacting corporate capital investment plans for 2009 and beyond.”

Defined-contribution plans also showed significant losses, with account values dropping 10 to 20 percent, according to Watson Wyatt.

“As defined-contribution plan participants watch their account balances fall, their anxiety levels are likely to rise,” Dan Morrison, a Watson Wyatt senior retirement and investment consultant, said in the news release. “And with investment losses making retirement less affordable, expected retirements may be deferred or, worse yet, employees may retire on the job—struggling to be productive and engaged.”

Similarly, a report by investment consultant Mercer shows a 23-percentage-point decline in the Mercer Pension Health index to 59 percent for Canadian plans. The index reflects the funding ratio for a model pension plan.

“Most equity markets fell by more than 30 percent last year in local currency,” Yvan Breton, a business leader for Mercer’s Canadian investment consulting business, said in a news release. “Even for plans that benefited from the fall in the Canadian dollar because they did not hedge foreign currency exposure, pension fund assets were hit hard in 2008.”

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

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It pays to be an employee of the city of New York.

Firefighters earned an average of $186,464 last year in total compensation. The city’s police officers pulled in $164,045. Teachers and other school officials earned an average of $112,852, and all other workers received an average of $101,096, including salary and fringe benefits.

With a $7 billion city budget deficit looming in 2011, a report released Thursday, January 8, by nonpartisan private research group the Citizens Budget Commission highlighted how the cost of Big Apple public employees far outstrips the compensation of other public workers in the state as well as private workers.

New York City public employees cost taxpayers an average $107,000 per person in 2008, with fringe benefits such as health care and pension contributions totaling $37,600. The report, based on publicly available material from the city’s Office of Management and Budget and U.S. Labor Department statistics, says total compensation has grown 63 percent since 2000. Fringe benefits have gone up 182 percent, led by a 700 percent increase in pension costs.

Since 2000, the city’s average contribution to pensions grew to $20,333 from $2,530 for full-time employees. The growth was sparked by a recalculation of pension fund assets and lower-than-expected investment returns that showed a need for greater contributions.

The report stated that health care benefit costs had doubled since 2000. By contrast, private-sector workers’ fringe benefits increased by 40 percent and state workers’ benefits rose 52 percent since 2000.

“These skyrocketing costs are stunning,” CBC president Carol Kellermann said in a statement. “And they impose an enormous, and growing, burden on increasingly strained taxpayers. Corrective action is essential and can no longer be delayed.”

The city offers workers defined-benefit pension plans and does not require workers to contribute to health insurance premiums.

Since 2000, employee contributions toward premiums have jumped 119 percent nationally, according to the Henry J. Kaiser Family Foundation.

While health insurance costs were the same for all employees, wages varied based on profession. Firefighters and police officers earned more because of lucrative overtime assignments.

—Jeremy Smerd

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New York Gov. David Paterson said Wednesday, January 7, that he will propose legislation to require employers purchasing health insurance coverage from commercial insurers to extend coverage to dependents up to age 29.

Under the proposal, all dependent family members 18 to 29 would be entitled to continued coverage under their parents’ employment-based health care plan. While employers could require employees to pick up the full cost of the extended coverage, the cost likely would be significantly less compared to coverage in the personal-lines market.

Paterson said his proposal is aimed at reducing the number of New Yorkers without health insurance, noting that 31 percent of the state’s uninsured are residents 19 to 29.

Numerous states have passed similar measures in recent years, including neighboring New Jersey, which allows employees’ dependents to retain coverage to age 31.

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

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Workplace wellness programs that incorporate goal-setting and receive management support are twice as likely to improve employee activity levels as merely providing information to employees on the health benefits of exercise, a study has found.

The study compared the activity levels of 1,442 Home Depot Inc.’s employees who participated in the retailer’s 12-week “Move to Improve” program with a control group.

The control group took health risk appraisals designed by the Centers for Disease Control and Prevention and received monthly newsletters describing the health benefits of physical activity.

The study group was divided into teams and was asked to set both personal and team goals that included weekly increases in the frequency of 10-minute exercise breaks and in the number of pedometer steps. Senior managers endorsed the program and encouraged middle managers to support employee participation, and participants received small incentives for meeting goals. The program also incorporated environmental prompts, such as signs posted in high-traffic areas throughout the work sites that encouraged physical activity.

By the sixth week of the study, 51 percent of the study group participants logged at least five 30-minute moderate exercise sessions or two to three 20-minute vigorous exercise sessions weekly, compared with only 25 percent of the control group. Moreover, study group participants sustained that level of activity through the end of the 12-week study, with few dropouts, according to the study’s lead author, Rod Dishman, a professor of exercise science at the University of Georgia.

“The biggest pleasant surprise was the steady and sustained progress,” he said in a statement.

“Move to Improve: A Randomized Workplace Trial to Increase Physical Activity” will be published in the February 2009 issue of the American Journal of Preventive Medicine, and is available to subscribers at www.ajpm-online.net.

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

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