Author: Site Staff

While few corporate pensions have been immune to the dramatic downturn in the equity markets this year, it appears that plans at energy companies are in the worst shape.

According to a new analysis of S&P 500 companies from Citi Investment Research, companies in the energy sector had defined-benefit plans that were only slightly more than 80 percent funded at the beginning of this year—the lowest funding level among any of the 10 industries examined by Citi.

Given the major declines in the equity markets through the end of October, Citi calculates that funding levels have dropped off an additional 20 percent, at a minimum, which would leave energy companies’ pension funds hovering just above 60 percent funded.

“This could result in a need for energy firms to meaningfully contribute to their plans in 2009,” wrote Citi analyst Tobias Levkovich in a report released Thursday, November 6. “This would come at a time when earnings revisions for energy companies already are sliding sharply alongside plummeting oil prices … and could add another headwind for energy earnings and stock prices.”

Energy profits, according to forecasts from Citi’s economists, are projected to drop by 45 percent in 2009, compared with a 21 percent gain this year.

The report noted that a substantial chunk of the funding shortfall in the energy industry belonged to just a handful of companies. That included Exxon Mobil, ConocoPhillips and Chevron, which have been reporting huge profits but still had three of the 10 most underfunded pension plans in the S&P 500 at the beginning of this year.

Indeed, Exxon Mobil had the most underfunded plan of any company in the S&P 500, according to Citi. The energy giant had $27.8 billion in pension plan assets to cover $34.5 billion in pension liabilities, for a $6.7 billion deficit. ConocoPhillips, with a $1.6 billion shortfall, had the fifth-most underfunded plan, while Chevron’s $1.2 billion pension deficit was the eighth-largest of any company in the S&P 500.

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

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Milwaukee became the third city in the U.S. to guarantee paid sick days for workers after voters overwhelmingly passed a referendum on the issue Tuesday, November 4.

Despite opposition from the city’s mayor and business community, 68 percent of voters approved the ordinance. The law will require employers within the city to provide each employee up to nine days of paid sick leave per year—or one hour of sick leave for every 30 hours worked.

Small employers with fewer than 10 employees would be required to provide up to five days of paid sick leave per year.

The Metropolitan Milwaukee Association of Commerce, a business group opposed to the mandate, said it intended to fight the outcome of the referendum in court, said spokeswoman Julie Granger.

San Francisco became the first U.S. city to pass such a measure when it enacted a law last year requiring employers to provide seven sick days a year to employees. Washington, D.C., followed suit in February when its City Council voted to approve a mandated sick leave policy providing seven days of sick leave for workers at large employers; workers for small employers receive five days off.

Supporters of the new law, including unions and advocacy groups such as the National Partnership for Women and Families in Washington, said they expected other cities to adopt similar laws.

States, however, have had a harder time mandating sick leave. At least 11 states have considered laws requiring paid sick leave, but none has passed. A referendum on paid sick leave in Ohio was pulled from the November 4 ballot after it became clear that passing it would be divisive and costly.

It was not immediately clear whether opponents of the Milwaukee law planned to mount a legal challenge.

President-elect Barack Obama voiced support for paid sick leave when he said at the Democratic National Convention in August that the measure of a strong economy was “whether the waitress who lives on tips can take a day off to look after a sick kid without losing her job—an economy that honors the dignity of work.”

—Jeremy Smerd

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Fidelity Investments plans to cut about 1,300 employees in November and will have a second round of layoffs during the first quarter of the coming year, due to global economic conditions and the “unsettled nature of the world’s stock markets.”

The job cuts represent 2.9 percent of the Boston-based asset management company’s 44,000 workers, the mutual fund giant said in a statement.

The company said details of the second round of job cuts would be finalized in the coming weeks.

“While this wasn’t an across-the-board cut, most divisions will be impacted,” said Ann Crowley, a spokeswoman for Fidelity.

She noted that most of the company’s division leaders will lay off some of the company’s employees.

Crowley added that the company plans to reduce some of the layers of its management structure and will focus on maintaining the resources to provide the “highest level of customer service.”

As of September 30 Fidelity’s custodied assets have fallen 9 percent, to $3 trillion, while its managed assets have declined nearly 7 percent, to $1.4 trillion, compared with the year-ago period.

In another ominous sign, Financial Research Corp. of Boston last month reported that Fidelity’s mutual fund assets had fallen 11.8 percent, to $716.9 billion, in the same time period.

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

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Top officials of Detroit’s Big Three automakers and the United Auto Workers were expected Thursday, November 6, to make a two-part pitch to House Speaker Nancy Pelosi and other lawmakers for emergency aid to the industry, said a source familiar with the plan.

First, the industry executives will ask lawmakers to use their influence—and perhaps a legislative directive—to get the Treasury Department or Federal Reserve to provide a cash infusion to the companies.

Second, the officials will ask Pelosi to help provide $25 billion in low-interest government loans to help General Motors, Ford and Chrysler meet their obligations to newly created retiree health benefit funds, the source said.

Those funds, called voluntary employee beneficiary associations, were created under last year’s collective bargaining agreement with the UAW.

The new loans would be in addition to $25 billion in low-interest loans approved in September for automakers and suppliers to improve the fuel economy of vehicles.

The new $25 billion would be part of an economic stimulus bill that Pelosi, D-California, wants to consider during a lame-duck session of Congress scheduled to begin November 17.

Earlier this week, Pelosi hedged on whether there will be such a bill if Republican lawmakers and the Bush administration do not express support.

The source said the huge looming obligations posed by the beneficiary funds are among the reasons the Detroit Three automakers can’t get credit from private lenders. UAW president Ron Gettelfinger and Detroit automaker CEOs were expected to attend the meeting.

The source said the industry executives “will be making the case that there is a need for immediate government assistance to the industry because of what’s happened with the economic and credit crunch and the resulting huge drop in auto sales.”

Filed by Harry Stoffer of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Top executives of the Detroit Three were scheduled to be back in the nation’s capital Thursday, November 6, to make a personal appeal for billions of dollars in additional federal help.

Leaders of the companies and the United Auto Workers are to meet with House Speaker Nancy Pelosi, D-California, about providing more low-interest loans to automakers, according to published reports Thursday.

A likely vehicle for the funds would be economic stimulus legislation that Pelosi has said she wants Congress to enact in a lame-duck session scheduled to begin November 17.

The meeting comes fast on the heels of action by the Bush administration to speed some of the $25 billion in low-interest loan money that Congress and the White House approved in September for automakers and suppliers.

Late Wednesday, the Department of Energy issued what it called an “interim final rule” that provides companies with guidance on how to apply for loans.

The rule, however, cannot remove restrictions that federal law places on the loan funds—mainly that they be used to undertake projects for substantially improving fuel economy and that projects be “financially viable” without additional federal money.

All of which means the funds, even if they become available sooner than the six to 18 months predicted earlier by the department, still may not relieve the cash crisis said to be threatening the survival of some companies.

A department spokeswoman reiterated to Automotive News this week that the loans were never meant to provide a capital infusion for the automobile industry.

The new loan package, if approved, would have fewer restrictions, and could help keep struggling companies going through a deep recession, industry sources have said.

Filed by Harry Stoffer of Automotive News, a sister publication of Workforce Management. Amy Wilson contributed to this report. To comment, e-mail editors@workforce.com.

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South Carolina voters this week rejected two constitutional amendments that would have allowed state and local governments to invest in stocks to fund retiree benefits. The votes show how risk-averse the public has become in recent months, experts say.

Currently, state and local governments have to set aside funds for retiree benefits and these funds are invested in low-yielding fixed-income investments. But despite warnings that by rejecting the amendments voters may have to pay higher taxes, more than 55 percent of voters defeated the measures.

In a letter Tuesday, November 4, to the editor in The Post and Courier in Charleston, South Carolina, Mayor Joseph Riley stated that voting in favor of Amendment 3, the local government amendment, would result in “tremendous savings to taxpayers.”

However, the mayor’s pleas were unheeded.

“In the current environment, a lot of people are scared stiff,” said Joe Hessenthaler, a principal at Towers Perrin. “They would rather take a fixed return of 2 percent even if it will cost them more.”

Overall, the public has become much more attuned to the risks associated with returns, said Cecil Hemingway, executive vice president and head of the U.S. retirement practice at Aon Consulting.

But just because the public is risk-averse today doesn’t mean these amendments won’t pass if they are brought to vote again in a few years, Hemingway said.

“We will all forget and then create another bubble and then remember about risk,” he said. “It’s human nature.”

—Jessica Marquez

Saving time and money is something all employers strive to do, but especially now, with the bottom line harder to see in a shaky economy. One way companies can keep track of costs is to monitor technology resources. TechSoup offers some ideas on why businesses might consider an asset-management system, what they’ll need to implement a plan and how to evaluate a tool. Visit TechSoup’s Learning Center for details.

December is a busy time for all, with the holidays, end-of-year activity and more. However, employers can still remind their workforces about important health observances in December, as compiled by the Wellness Council of America. For instance, December 1 is World AIDS Day, as designated by the Joint United Nations Programme on HIV/AIDS. And December 7-13 is National Handwashing Week, which can be a helpful workplace hygiene reminder during cold-and-flu month.

Do you know what constitutes a successful results-oriented workplace wellness program? The Wellness Council of America says it does. In fact, WELCOA says it has identified seven benchmarks for success:

• CEO support
• Creating cohesive wellness teams
• Collecting data to drive health efforts
• Carefully crafting an operating plan
• Choosing appropriate interventions
• Creating a supportive environment
• Carefully evaluating outcomes
  

If you are seeking to institute a program for your employees or think you need to retool your existing plan, WELCOA’s model may be of some value to you. You can take a look at the council’s “Absolute Advantage” report for guidance or, for a quicker overview, see the executive summary.

Standard & Poor’s Corp. has revised its outlook on U.S. heath insurers to negative from stable.

The New York-based rating agency cited several factors in lowering its outlook, including pressure on earnings, a weaker economic forecast and unfavorable results. The change means that over the next 12 to 18 months, S&P expects the number of downgrades to exceed upgrades in that sector.

Health insurers, however, are not facing the level of investment and equity market losses hampering other financial institutions, nor do they appear to face “product-linked liquidity concerns,” S&P said.

But U.S. job losses, small-business failures and government budgetary shortfalls likely will weigh on health insurer revenues, the rating agency said.

“Furthermore, we believe the challenging operating environment could expose errors in strategic judgment and execution of business fundamentals (such as predicting medical trend and pricing to it) that would have had less of an impact on the bottom line when growth was high and operating margins were more robust,” S&P said.

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

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