The economic downturn has kept HR managers busy with questions from employees concerned about their retirement. Managers have had to field questions about what the crisis means for employees seeking to retire soon and even those who have many years before they hang it up. A paper by the Center for Retirement Research at Boston College, “The Financial Crisis and Private Defined Benefit Plans,” can be helpful for HR professionals whose companies offer defined-benefits plans. The paper has a big-picture view of the impact the crisis can have on pensions, and that information may be useful in helping employees sort through their concerns. The document “explores what a loss of roughly $1 trillion of private sector defined benefit equities means for the individual participants and for the firms that sponsor those plans.” The center says that in just one year, from October 9, 2007, to October 9, 2008, the value of equities in retirement plans dropped by $4 trillion.
Analysis Big Pension Plans Lose $469 Billion in 2008
Hammered by the crash in the equities markets, pension plans sponsored by large companies suffered a dramatic reversal of fortune in 2008, with the average funding level sinking to 75 percent at year-end, down from 104 percent a year earlier, according to an analysis released Wednesday, January 7.
That unprecedented drop was the result of a huge decline in the value of assets held in pension plans sponsored by the 772 companies in the S&P 1,500 that offer defined-benefit plans.
New York-based consultancy Mercer estimates that the pension plans lost $469 billion in 2008, converting a $60 billion surplus at the end of 2007 to a $409 billion shortfall at the end of last year.
“This is a very difficult time for pension funds,” said Adrian Hartshorn, a Mercer principal in New York.
The decline in funding levels “will reduce balance-sheet strength, which leads to consequences for several areas of the business, including capital-expenditure decisions, loan covenants and credit rating decisions,” Hartshorn said.
To meet funding requirements set by federal law, employers will have to pump in tens of billions of dollars in new contributions to shore up their plans, while some companies may decide to freeze their plans.
More employers will take a step back and ask if their plans still are viable, Hartshorn said.
The release of the Mercer analysis comes as business groups are expected to renew their push to persuade federal legislators to temporarily ease funding rules. Last month, Congress approved legislation that provides a modest relaxation of funding requirements.
Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
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It’s Tough All Over for Employment Prospects
The number of jobs posted online is shrinking, the market for temporary jobs even more uncertain, and services are sliding.
Welcome to 2009.
The number of U.S. jobs posted online dropped by 507,000 in December, to 3.9 million, according to the Conference Board’s measure of online help-wanted ads released Wednesday, January 7. This is the first time since the summer of 2006 that the measure has fallen below 4 million.
“The sharp December drop in online advertised vacancies is another indication that the economy has not reached bottom,” said Gad Levanon, senior economist at the Conference Board. “The widespread nature of the decline in employers’ demand for workers—both across geographies and across occupations—does not bode well for an employment upturn in the first half of 2009.”
The American Staffing Association’s index measuring temporary employment fell to a reading of 81 in the week of December 15-21 from 90 in the week of November 10-16. The drop in the index indicates a decline in temporary staffing. The index was at 87 in the third week of December 2007.
“The increase in demand for temporary and contract employees that typically occurs throughout the calendar year has not been seen in 2008; however, a decline is typical the third week in December,” according to the ASA.
The index measures changes in the number of temporary and contract employees weekly and monthly. The index’s baseline value of 100 was set in June 2006.
Economic activity in the U.S. service sector declined in December compared with November, but the rate of decline slowed, the Institute for Supply Management also reported Wednesday. Its nonmanufacturing index rose to a reading of 40.6 in December from 37.3 in November. The nonmanufacturing index was expected to slip further, The Wall Street Journal reported.
Index readings above 50 indicate expansion.
Employment in the service sector also contracted in December, but at a slower rate than in November, according to the institute’s nonmanufacturing employment index, which is used to make up the larger nonmanufacturing index. The employment index rose to 34.7 in December from 31.3 in November.
—Reports compiled by Staffing Industry Analysts, a sister company of Workforce Management. To comment, e-mail editors@workforce.com.
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Dear Workforce Which Résumé Is Preferable?
In my experience, and in speaking with a number of recruiters, an objective on a résumé is not only outdated, but usually unnecessary. Unless the candidate is a recent graduate, changing careers or going in a new direction that necessitates some explanation, most recruiters bypass any stated objectives to focus instead on a person’s experience. Their main interest is in determining whether a person is a viable candidate for the job.
Most recruiters only look at an objective to answer things that don’t make sense in the résumé itself. This might occur if someone applies for a sales position but lists no sales experience.
This candidate might include an objective as to why they are interested and/or qualified for this position, even though their background is in something that appears unrelated to the sales position.
SOURCE: Kelly A. Hamm,Futurestep, Los Angeles, December 4, 2008
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.
Dear Workforce How Do We Reduce Our Starting Pay Without Compromising Recruiting?
The reasons that people accept positions with a company vary widely, with pay being one factor as a candidate evaluates an offer. Alternatives to higher starting salaries are numerous, but at their essence should be determined in light of your company’s business strategy and human resources philosophy.
Are you a firm that can recruit and retain based on your corporate mission and vision (innovative, philanthropic, community service, religious, etc.)?
Does your firm have a reputation for providing employees with intrinsic benefits on which you can build a brand image?
How important is work/life balance, and do you walk the talk?
Can you provide employees with highly competitive noncash benefits instead of cash?
Are you able to provide a wealth of technical or other training and developmental opportunities?
Is your company a fun place to work?
The point: Don’t attempt to replace high starting salaries for recruits with something that will not fit with your company’s culture. The result will not be that which your management is expecting.
Also, don’t interpret the current “buyer’s market” in labor for some jobs as an excuse to make lowball offers to all candidates. Although this may work to hold down costs in the short run, it could be detrimental to long-term business performance. In this type of labor market, experienced candidates may accept any offer—even one involving pay cuts—yet won’t be content until your company addresses this imbalance in some other meaningful way.
Before embarking upon this strategy, it is appropriate to analyze why it is important to management to reduce starting salaries. What are the important considerations in this decision? Once your company has outlined the business reasons for changing its pay policy, your human resources department then needs to communicate it to managers, as well as adjust your recruitment strategy. In these difficult times, it is critical to not to be “penny-wise and pound-foolish” with pay. Experienced candidates, as well as high-performing employees, should be identified and compensated appropriately.
SOURCE: Bob Fulton, the Pathfinder’s Group Inc., Glenview, Illinois, November 19, 2008
LEARN MORE: Changing of pay practices is a hot topic amid the financial crisis. Some companies are slashing raises and planning layoffs, perhaps to weed out low performers.
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.
Cigna to Cut Jobs; Recession Cited
Cigna Corp. said Monday that it will cut 1,100 jobs worldwide, or 4 percent of its workforce, and consolidate some operations amid the ongoing recession.
The Philadelphia-based insurer said the actions will result in after-tax restructuring charges of $30 million to $40 million in the fourth quarter of 2008.
The layoffs are expected to be completed by mid-2009. The company said it will provide more details on cost-cutting measures at its first-quarter earnings conference call February 5.
“Given the unprecedented economic situation we and our customers are facing, these actions are essential to ensure we can meet their needs for high value, cost-effective products and services,” Cigna chairman and CEO H. Edward Hanway said in a statement.
Cigna told investors in the fall fall that it would likely reduce expenditures because of falling enrollment and investment losses.
Filed by Rebecca Vesely of Modern Healthcare, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
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Gettelfinger UAW Will Seek Worker Approval for Contract Changes
UAW president Ron Gettelfinger said Tuesday, January 6, that the union would seek rank-and-file approval for any changes it makes to labor agreements to help the Detroit Three comply with provisions of the federal bailout.
The UAW’s bargaining team from the General Motors department was scheduled to begin discussing their negotiating strategies Tuesday, Gettelfinger said in an interview with Automotive News. The union’s bargaining teams from Ford Motor Co. and Chrysler will begin meeting later this week, he said.
President George Bush is requiring GM and Chrysler to make cuts to improve their competitiveness as part of emergency loans each receives from the federal government to stave off a cash crisis.
Chrysler and GM have received $4 billion each to date. GM is slated to get an additional $5.4 billion on January 16. GM would get another $4 billion on February 17 if Congress authorizes additional federal loans under the $700 billion banking bailout legislation passed this fall.
The UAW was singled out for more concessions than any of the other stakeholders, including bondholders, dealers and suppliers, Gettelfinger said. The union is willing to help, he said. But the process is being slowed by confusing loan language and the absence of a federal point person or car czar to clarify questions, he said.
The so-called term sheet of the loan calls on the UAW to agree to competitive compensation with the Japanese transplants and more flexible work rules. What’s more, it requires new multibillion-dollar trusts created by the UAW for retiree health care to be half paid with automaker stock instead of cash.
With GM and Chrysler needing those concessions by February, Gettelfinger said UAW staff resources have been stretched thin.
He declined to say what changes the UAW would make to the cost-saving national agreements signed in late 2007. But whatever changes are negotiated, the UAW rank and file would vote on the provisions, he said.
“We’ll sit down and have discussions along the lines of things we could do in the contracts and have that ratified without opening the contracts,” Gettelfinger said.
Any changes made to the voluntary employee beneficiary associations, or VEBAs, also must be approved by a court. The previous retiree trusts were approved by a judge after a class hearing.
Gettelfinger said he expected bondholders, dealers and suppliers also to make sacrifices. But he said he would not let those negotiations stop the UAW from making changes that would help the automakers get their loans.
Filed by David Barkholz of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
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Report Health Care Spending Growth Rate Slowed in 2007
Health care spending grew 6.1 percent in 2007, representing a slight decrease in growth from 6.7 percent in 2006 and the slowest rate of growth in nearly a decade.
Overall, health care spending reached $2.2 trillion, or $7,421 per person, the U.S. Centers for Medicare & Medicaid Services (CMS) said in its annual report on health care spending trends.
The CMS attributed slower growth in retail prescription drug spending and spending associated with administering Medicare health benefits as the main reasons for the lowest rate of health care spending growth since 1998.
“At the same time, health spending continued to consume a larger share of our gross domestic product,” said study lead author Micah Hartman, a statistician with the CMS.
Health spending growth overall outpaced the economy, consuming a larger portion of the gross domestic product in 2007, reaching 16.2 percent, up from 16 percent in 2006.
Hospital spending in 2007 increased 7.3 percent to $696.5 billion, marking the third straight year of relatively stable spending growth in the sector, the study found. Strong growth in Medicaid spending for hospital care accounted for much of the increase in hospital spending. Hospital price growth in the meantime slowed to 3.5 percent in 2007 from 4.4 percent in 2006.
Spending for physician and clinical services in 2007 grew 6.5 percent to $478.8 billion, the same rate of growth from the previous year.
Medicare spending grew 7.2 percent in 2007 to $431.2 billion, following an 18.5 percent increase in 2006 that was partially driven by the implementation of Medicare Part D. Meanwhile, spending for the Medicaid program grew 6.4 percent in 2007, reaching $329.4 billion.
Private health insurance premiums rose 6 percent to $775 billion in 2007, the same as in 2006.
(For more, read “Special Report: Consumer-Driven Health Care—If You Fix It, They Will Come.”)
Filed by Jennifer Lubell of Modern Healthcare, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
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Connecticut to Take Step Toward Alternative Investing
Connecticut state Treasurer Denise L. Nappier plans to ask the investment advisory council of the Connecticut Retirement Plans & Trust Funds, Hartford, on January 14 to approve a new investment policy statement that will allow her to invest up to 8 percent of assets in alternative investments.
Approval by the panel is necessary before implementation of the policy. Nappier makes investment management decisions as sole trustee of the $21 billion combined pool of retirement and state trust fund assets.
In an interview, Nappier said that once the council approves the new investment guidelines, she and her staff will create an implementation plan for first-time investments in “opportunistic investment like hedge funds, infrastructure, commodities or any investment that doesn’t fit neatly into other asset classes.”
While not committing to an initial investment in hedge funds of funds, Nappier said she probably would look at this alternative area first because “it’s a good time to get into hedge fund of funds.“ She said institutional investors likely will be able to command increased portfolio transparency and fees concessions, given rocky returns, high redemptions and the impact of the Madoff scandal this year.
A 2006 asset allocation study recommended the addition of an alternative investment allocation, and in June 2008, the council approved asset allocations for the five main state retirement funds that include a zero to 8 percent investment range for alternative investments. As of September 30, the asset allocation of the combined funds was domestic stock, 30.7 percent; international stock, 21.8 percent; domestic fixed income, 24.3 percent; international fixed income, 4.2 percent; cash equivalents, 7.0 percent; private equity; 7.7 percent; and real estate, 4.3 percent. The combined funds’ assets have dropped 11 percent from the $23.6 billion they had as of September 30.
Filed by Christine Williamson of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
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TOOL All About ERISA and Pension Plans
Employers seeking to help their workers become more knowledgeable about defined-contribution and defined-benefit plans, how workers’ assets are protected and more may consider linking their intranets to a page on the U.S. Department of Labor’s Web site. “Frequently Asked Questions About Pension Plans and ERISA” answers basic questions about the Employee Retirement Income Security Act of 1974; explains DB, DC, 401(k) plans and others; discusses whether plans can be terminated; explains which federal agencies regulate plans; and more. The page also contains contact information for the Pension Benefit Guaranty Corp. and the DOL should employees want to find out more.