Author: Site Staff

In a massive new round of layoffs, Citigroup Inc. is cutting at least 53,000 jobs in its investment bank and in other divisions throughout the world, according to The Wall Street Journal.

The move comes as Citigroup CEO Vikram Pandit works to stabilize the New York-based financial services company, which has posted more than $20 billion in net losses during the past year.

Pandit will address employees in a town hall-style meeting Monday morning, November 17.

He and his deputies have instructed officials at the company to reduce employee compensation by at least 25 percent, the report said.

Managers can minimize the number of employees laid off by cutting higher-paid traders and bankers, according to the report.

Earlier this month, Citigroup began notifying employees who were affected by its previous plan to slash 9,100 positions over the next month. That figure was about 2.6 percent of its 352,000-person workforce.

During the past 12 months, the company has disclosed plans to cut approximately 23,000 jobs.

Citigroup is aiming to pare down its workforce to about 290,000 employees by next year, another person said.

In another move, Citigroup is notifying about 20 percent of its credit card customers that their interest rates are being increased by an average of three percentage points, according to the Journal.

The company, which has 54 million active credit card accounts, posted a loss of $902 million in the third quarter, compared with $1.4 billion in profit in the year-ago period, as more credit card holders defaulted on their payments.

A spokeswoman for Citigroup declined to comment specifically on the cuts but said: “We are showing good traction on cutting our expenses, and we are selling businesses and shedding assets that don’t fit our strategic profile. We will continue to carefully manage our headcount levels as we re-engineer the company in line with our stated goal and market realities.”

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

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The recent financial crisis drained retirement funds worldwide by $4 trillion, according to an estimate from the Organization for Economic Cooperation and Development.

The estimate was released Wednesday, November 12, at an OECD seminar in Paris in a presentation by Pablo Antolin, principal economist at the organization’s financial affairs division.

“The main message is that losses are substantial and dependent on the asset allocation of pension funds in a specific country,” Antolin said.

The estimate—that defined-benefit and defined-contribution plans lost the money from January 1 to early November—was calculated by using the OECD’s own asset allocation data by country as of December 31 and applying global equities, bonds and cash index returns to those allocations.

Losses were highest in Ireland, the U.S. and the Netherlands, where exposures to equities were the highest at the end of 2007. Pension funds in those countries lost 20 percent or more of assets on average, according to the OECD’s Web site. Pension funds in South Korea and Luxembourg, where equity exposures are very low, have experienced minor losses.

Funding levels have declined 5 to 15 percentage points on average, depending on the discount rate used, and the OECD expects that when year-end data are reported, the figures will be worse.

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

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The volatile stock market and struggling economy have companies intensifying due diligence on all of their vendors.

As a result, a growing number of human resources executives are working more closely with their procurement departments to make sure they are current on the financial viability of their HR vendors, experts say.

“This is a very hot topic of discussion right now,” said Michel Janssen, managing director at Hackett Group, a Miami-based business process outsourcing consultant.

Procurement departments at companies usually are in charge of keeping tabs on the financial viability of all company vendors. But given the unpredictable nature of today’s markets, it’s essential that HR talk to procurement managers about what they believe would be red flags of financial viability issues, experts say.

“Procurement is doing the risk assessment from the top and bottom, but HR should be helping and comparing notes,” Janssen said.

At Prudential Financial, HR has its own team monitoring vendors. The company is keeping a particularly close eye on financial institutions, said Suzanne Manganiello, vice president of risk management at the Newark, New Jersey-based company.

“Any relationships we have with financial institutions are of higher risk,” Manganiello said. For example, JPMorgan Chase is the pension payroll provider for Prudential.

In the past, Prudential’s HR risk managers would run quarterly reports on all of its vendors, but given the current economic situation, the company is doing this much more frequently, Manganiello notes. “We have people Googling companies and data mining constantly,” she said.

While Prudential is one of a number of companies that have executives like Manganiello, whose job is to monitor HR risks at the organization, many companies do not, experts say.

“At many companies, this is the first time in history that HR has spoken to procurement,” Janssen said.

And these conversations between HR and procurement should be ongoing, advises Naomi Bloom, an HR business process outsourcing consultant.

“My standing advice to HR executives is that they should not just evaluate vendors when they are in the dating process, but they need an ongoing competitive intelligence gathering process so that they are never surprised about what is happening at vendors,” Bloom said.

Bloom advises companies to use the Internet, particularly social networking sites such as LinkedIn and Glassdoor.com, to keep tabs of what’s occurring at vendors.

“Find out if the vendor is getting any buzz,” she said.

Unfortunately, even the most thorough due diligence might not enable an employer to foresee a problem with a vendor, Janssen warns.

“There is no magic tool in this market,” he said. “A high credit rating doesn’t guarantee anything.”

—Jessica Marquez

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Morgan Stanley plans to lay off 9 percent of employees in its asset management group as a result of closing and consolidating nonperforming and overlapping investment funds. The firm also plans to lay off 10 percent of its institutional securities staff.

“The firm is resizing its cost base and headcount to match current opportunities in the marketplace, while reallocating resources to those businesses that provide an attractive risk-adjusted return on capital,” said spokeswoman Erica Platt.

She declined to comment on specifics of the layoffs or which funds were being closed or consolidated.

The asset management division had $570 billion in assets under management as of August 31.

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

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Morgan Stanley CFO Colm Kelleher on Wednesday, November 12, indicated that the onetime investment bank will be cutting more jobs.

Kelleher, who was speaking at a conference sponsored by Merrill Lynch, said Morgan Stanley would reduce headcount in its asset management group by 9 percent. He said that any new cuts would be in addition to the 10 percent reduction in staff the bank made earlier this year.

He added that markets were “incredibly dislocated.”

Meanwhile, the bank’s co-president, James Gorman, said Morgan would be scaling back operations in prime brokerage, proprietary trade, principal investments and commercial real estate origination.

He stated that Morgan planned to reduce headcount by 10 percent across its institutional securities businesses.

“We’re very mindful of the environment that we live in at the moment,” Gorman said, and the bank would “rationalize” headcount and costs accordingly.

Filed by John Goff of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce com.

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Aetna Inc. is planning staff cuts as the health insurer expects the economic downturn to extend into 2009.

An internal memo was sent to employees of Hartford, Connecticut-based Aetna by Ronald Williams, chairman and CEO, explaining that “selective” cuts would need to be made as a result of the economic slowdown, an Aetna spokesman confirmed.

The spokesman provided no further details on when the cuts would come or how many employees would be affected.

Aetna previously reported that its third-quarter net income dropped 44 percent, to $277.3 million, primarily due to investment losses. Meanwhile, the insurer reported that enrollment was up 1 percent, to $17.7 million, for the quarter.

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

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The funding ratio of the typical public and private U.S. defined-benefit plan with a moderate-risk portfolio dropped 3.7 percentage points in October, dragged down by the dramatic sell-off in the global equity markets, according to a BNY Mellon Asset Management report.

Pension-funding ratios for public and private plans have declined 7.7 percent year to date, spokesman Mike Dunn said.

“This was the largest decline in funded status for a single month since we started tracking pension funding in March 2005,” Peter Austin, executive director of BNY Mellon Pension Services, said in the report. “The picture would have been worse if equities hadn’t rallied during the last week of October.”

Austin said the drop in asset values was only partially offset by a 7.3-percentage-point drop in typical plan liabilities.

Filed by John D’Antona Jr. of Pensions & Investments, a sister publication of Workforce Management

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The Transport Workers Union on Monday, November 10, regained the right to have dues automatically collected from members’ paychecks after a pledge by its president that the union does not intend to strike in the future.

A Brooklyn judge had prevented the union from automatically collecting dues from its 38,000 members for the past 17 months as a penalty for the 60-hour strike that brought the city to a standstill in December 2005. The union was also hit with a $2.5 million fine for the walkout, which violated the Taylor Law barring public sector unions from striking.

Though many members continued paying dues, stripping the union of having the dues automatically deducted from paychecks, called “check-off,” was a staggering blow to the union. “The impact on the union’s finances has been severe,” union president Roger Toussaint wrote in a court affidavit.

The Transport Workers’ Union had the ability to reapply for dues check-off beginning in September 2007, but the Bloomberg administration, which had been incensed at the three-day strike, filed an amicus brief insisting that check-off should not be reinstated until the union made it clear that it would not strike in the future.

The union had previously said it did not assert the right to strike, but in a filing last month, Toussaint affirmed that the union would not strike in the future, a position endorsed by the union’s executive board.

“The union does not assert the right to strike,” Toussaint pledged. “And … the union has no intention now or in the future of conducting … any such strike.”

Although the pledge makes it unlikely that the union would strike under Toussaint’s leadership, it’s unclear if it would be binding under a new president. There has been one transit strike roughly every 20 years dating to the 1960s.

The Metropolitan Transportation Authority, which had sought the initial check-off penalty, and the city, which had fought against its reinstatement, dropped their opposition in exchange for Toussaint’s vow not to strike.

“New Yorkers can rest easier now that the TWU has finally pledged to the court that it will obey the law and not conduct another illegal strike,” said Michael Cardozo, corporation counsel for the city.

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

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A little more than a week after the election and 10 weeks before a new congressional session begins, an influential senator has launched the debate on overhauling the U.S. health care system—keeping employers at the heart of coverage for most Americans.

Sen. Max Baucus, D-Montana and chairman of the Senate Finance Committee, introduced a plan Wednesday, November 12, that he said would guarantee health insurance to every American while reducing costs and improving quality of care.

Employers that do not offer a health plan would have to contribute to a fund to help cover the uninsured.

With the economy headed into a recession—or already there by some estimates—President-elect Barack Obama and Congress will have plenty of issues competing for the top of the agenda. Baucus urged Obama and his colleagues to turn to health care immediately.

“There’s no way to really solve America’s economic troubles without fixing the health care system,” Baucus said at a Capitol Hill press conference.

His goal is to have Congress vote on a health care reform bill by the middle of next year. “The need is so great, we need to act now with dispatch,” he said. “The longer the inaction, the greater the cost.”

Baucus has not yet offered legislation. He said he would work with the Senate Health Education Labor and Pensions Committee in crafting a bill. The chairman of the HELP panel, Sen. Edward Kennedy, D-Massachusetts, has been assembling a comprehensive health care reform proposal for months.

Baucus’ plan “provides an important analysis of the urgent need for significant improvements in our health care system and thoughtful recommendations for reform,” Kennedy said in a statement.

Universal coverage is the key to Baucus’ initiative. Getting “everyone under the tent for health coverage” will lead to lower premiums, improved insurance markets and more effective preventive medicine, Baucus said.

Baucus would establish a nationwide Health Insurance Exchange in which people could purchase plans. Companies that don’t cover their employees would have to pay into an insurance pool. Low-income families and small businesses would receive premium subsidies.

Unlike Obama, Baucus favors an individual coverage mandate.

“Much of what’s here dovetails with the president-elect’s own health plan,” Baucus said. “Where we differ, I have committed to work with him to find consensus. For this to work, every American has to be included.”

There won’t be spending estimates for the Baucus plan until it becomes a bill. Baucus acknowledges that it will cost more than it saves for a number of years. That may draw opposition from Republicans and conservative Democrats, as Baucus tries to build bipartisan consensus.

He also will have to find common ground with the other side of Capitol Hill. Rep. Fortney “Pete” Stark, D-California and chairman of the House Ways and Means Health Subcommittee, predicted that Congress would take smaller steps toward health reform, such as expanding the State Children’s Health Insurance Program, which President Bush vetoed, and implementing nationwide standards for health care information technology.

In a news conference Monday, Stark predicted that the House would wait for Obama to send health care legislation to Congress and then would proceed with hearings.

Although the legislative direction won’t crystallize for a while, it looks as if the increased Democratic majorities in Congress don’t portend a government-run health care system.

Instead, Baucus, a centrist Democrat, and Stark, a liberal, agree that that companies should continue to play a central role in providing health care.

“Eliminating employer-based coverage, as some have proposed, would upend health care for more than half the American people—158 million in all,” states Baucus’ plan, “Call to Action: Health Reform 2009.”

Baucus said that “nothing is off the table” in the health care reform debate, but he added, “I don’t think the single-payer system makes sense in this country.”

Stark said that with business groups like the U.S. Chamber of Commerce calling for health care changes “there’s a much broader constituency for reform” than there was in the early 1990s when the Clinton administration attempted to pass a comprehensive plan.

But he cautioned that Americans don’t want to lose their company coverage.

“You’d start a revolution overnight,” Stark said. “People won’t change that radically or that rapidly. [Reform] will have to involve current types of insurance programs. We might come to an all-payer system.”

Baucus wants his plan, which is based on a series of Finance Committee hearings over the summer, to be the foundation. “Change is coming,” he said. “This is where I believe we should start.”

—Mark Schoeff Jr.

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As troubled as the 401(k) system may be, retirement plan experts argued recently for reforming it rather than getting rid of it.

The tax-advantaged accounts deserve a tough review in the wake of the stock market collapse that has crushed account values and evidence that 401(k)s tend to benefit wealthier workers, said attendees of the annual West Coast Defined Contribution Conference in San Francisco late last month.

But by and large, officials with retirement plan sponsors as well as industry officials conveyed a “mend, don’t end” attitude about the 401(k) system.

Jeff Maggioncalda, CEO of advisory firm Financial Engines, said it’s not enough to stick new employees in an automatic 401(k), where workers are enrolled by default into a plan, contributions gradually increase and investments are prudent. Current employees also need help, he said.

“Applying the automatic 401(k) to existing participants is critical,” Maggioncalda said in his keynote presentation.

The conference took place amid growing concern about 401(k) plans.
An estimated 50 million people have the plans, which enable employees to sock away money on a pretax basis for retirement and control their investment choices. Some employers make contributions to the accounts.

But compared with traditional defined-benefit pensions, 401(k) plans transfer investment risk from companies to individuals.

The nature of that risk has become starkly clear in the last few months, as dramatic sell-offs in the stock market have decimated many 401(k) accounts. At an October 7 congressional hearing, Rep. George Miller, D-California, said that in the past 12 months, more than a half-trillion dollars has “evaporated” from 401(k) plans thanks to the crisis in financial markets.

Until September, criticism of the plans had focused largely on low contribution rates, poor investment choices and questions about account fees.

But the public debate has intensified.

The hearing chaired by Miller included the testimony of Teresa Ghilarducci, a professor at the New School for Social Research, who proposed dismantling the 401(k) system and replacing it with “guaranteed retirement accounts,” to which the government would pay a 3 percent inflation-indexed return.

Ghilarducci testified that “the shift toward 401(k) plans increases tax expenditures, does little to expand retirement savings and favors workers who need the help least.”

The “shocking results” of the 401(k) design, she said in her testimony, are that “6 percent of taxpayers with incomes over $100,000 per year get 50 percent of the tax subsidies.”

Miller is raising legitimate questions, said Ron Eisen, co-founder of Fiduciary Benchmarks, a firm that aims to help retirement plan sponsors meet fiduciary obligations. Miller is “doing everyone a favor by forcing the attention,” Eisen said at the San Francisco conference, which was presented by Workforce Management and sister publication Pensions & Investments.
 
Still, a number of conference attendees argued that the 401(k) system is not beyond repair. Maggioncalda doubts the country will abandon a core principle of the 401(k)—having people in charge of their own retirement fate.

“Individual responsibility for retirement risk is here to stay,” he said.

—Ed Frauenheim

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