Author: Site Staff

As large corporate pension plans plunge deeper into the red, there’s more on the line than just retirement benefits for rank-and-file workers. Pension benefits for top executives may soon be in jeopardy too, thanks to regulations put in place a few years ago.

Tucked into the Pension Protection Act of 2006—which was designed to shore up the funding levels of corporate pension plans, among other things—is a provision that says companies with defined-benefit plans that are funded only 60 percent or less may not set aside money for nonqualified pension plans for executives, including supplemental executive retirement plans, or SERPs.

While this rule received little notice in the heady days of 2006, it’s bound to get more attention given the deterioration in the funded status of many companies’ defined-benefit plans this year. Some experts predict that collectively, large corporations could end the year with their pensions more damaged than ever before.

If that proves to be the case, companies with the most severely underfunded pensions would be subject to the new rule, which was created to encourage executives to make significant contributions to their workers’ defined-benefit plans and keep the funded status of these plans from approaching precarious levels. It was hoped that the rule would help prevent companies from terminating or freezing traditional pension plans.

“The thinking was that executives shouldn’t be able to have money set aside for their personal pension plans if they’re not doing an adequate job of funding their employees’ pensions,” said Gregory Ash, a partner in the employee benefits practice of law firm Spencer Fane Britt & Browne. “If workers are in danger of losing their retirement benefits, then the PPA says there should be consequences for executives as well.”

This may not single-handedly propel executives to make larger-than-required contributions to their workers’ defined-benefit plans, “but it does give them a personal interest in the health of their workers’ pensions,” noted Howard Silverblatt, a senior analyst at Standard and Poor’s. “And many of these pensions, right now, appear as if they could be on life support.”

Silverblatt estimates that the defined-benefit plans of companies in the S&P 500 are currently underfunded by more than $200 billion combined, in contrast to the $63 billion surplus they boasted at the beginning of the year. If equity markets don’t improve, or if corporate bond yields decrease (which would cause companies to calculate a larger stream of pension liabilities), these large plans could easily end the year being more underfunded than they were in 2002, when their collective deficit was a record $219 billion.

Ordinarily, Silverblatt said, it’s unusual for a plan’s funded status to fall below 60 percent. Last year, for instance, only four of the 100 largest companies—Delphi, Procter & Gamble, ConocoPhillips and Delta—had funding levels that were below 80 percent, according to data compiled by actuarial and consulting firm Milliman. Delta, with a funded status of 66 percent, had the most underfunded plan among the group.

“Companies don’t usually see their plans get to that point unless there are extraordinary circumstances and they’re in great distress,” Silverblatt said. “But these are obviously very unusual times, so anything is possible.” He said the funding restrictions on executive pensions could wind up applying to more than just one or two companies.

Executives at any companies that may be subject to this provision would also be faced with a number of other issues related to their workers’ pension plans, of course, which could have significant implications for their employees.

Under another provision in the Pension Protection Act, companies with defined-benefit plans that are only 60 percent funded may be forced to freeze their plans, said Kenneth Raskin, head of the executive compensation, benefits and employment practice at law firm White & Case. He also noted that when funding levels fall below 60 percent, the Pension Protection Act limits the distributions that can be made to participants. Most notably, workers are not permitted to take full-value lump-sum payouts.

“So if your funded status falls that far, you are probably in pretty bad shape on a number of levels,” Raskin said. “Losing some funding for your executive benefit will likely be the least of your concerns.”

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

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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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Fifty-four percent of public and private defined-contribution plans that use unbundled providers said they plan to add to their lineup of investment options in the next 12 months, compared with 35 percent of those plans that use bundled services, according to a Spectrem Group report.

Also, DC plans using unbundled providers are likely to add employer stock, high-yield bonds and target-date funds as new investment choices, the report said. Twenty-five percent of DC plans using unbundled providers plan to offer employer stock and high-yield bonds, while 22 percent are going to offer target-date funds and 19 percent corporate bonds. Similar data were not available for DC plans using bundled providers.

The report, “Investment Manager Selection in the Defined Contribution Investment Only Market,” said DC plans using service providers that purchase unbundled services tend to offer fewer investment options (16) to their participants than those using bundled services (19).

The report also said strong performance and low investment management fees were the criteria ranked as most important in the selection and evaluation of plan investment providers.

The Spectrem report was based on data taken in May and June from 1,052 DC plan executives who were responsible for the evaluation and selection of plan service providers.

Filed by John D’Antona Jr. of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Dear Money Talk:

The short answer is to be upfront with them. While your question is not specific as to whether you are planning negative or positive changes, it is nevertheless critically important that you inform your employees concerning as much of the detail as you can share. If major changes will occur, and you don’t tell them about it, then they will make up stories about what you are really trying to do.

Once the rumor mill gets going in full force, it’s hard to stop. These stories will be wild, but in the absence of information a huge amount of misinformation will fill the vacuum. The result is overreaction. The company runs the risk of increased turnover, and your high performers are the ones who will generally jump ship if they feel that it is sinking.

Determining what and how to effectively communicate can be daunting. Start with a detailed communication plan, and in doing so consider:

• What are the critical business changes are driving these changes?
  
• When are the compensation plan changes occurring?
  
• Who are the audiences that need to be aware of these changes? (Chances are, there are several different audiences for pay plans).
  
• What does each audience (managers, employees, others) need to know and understand about the changes?
  
• What do managers and employees need to do differently as a result of our program changes?
  

One of the most critical components of any communication plan is defining the right communication vehicles. Effective communication strategies include multiple delivery methods. In addition, sharing information can take place in a number of contexts.

Company newsletters, while not the best way to disseminate this type of sensitive information, can help set the stage for upcoming meetings, such as weekly staff meetings or other departmental gatherings. Planning the right vehicles for communications means analyzing the following questions:

• Which are the most effective ways of delivering our messages?
  
• Which vehicles are currently available?
  
• How do employees prefer to receive information about important program changes?
  
• How do managers and employees typically get their information at our company?
  
• How can we create opportunities, within certain parameters, for questions, ideas and constructive feedback?
  

In your meetings, make sure you devote enough time for questions and answers.

The key to communication is to build employee understanding of, not necessarily agreement with, the changes you are making. If the changes are going to have a particularly negative impact, then achieving a level of acceptance with employees probably should not be a goal of the communication, while it may be an important goal with managers.

Provide specific information that is factual, has an underlying business rationale and clarifies your key messages. This includes the effective date of the change, what you expect employees and especially managers to do differently, and how managers and employees can get answers to questions.

Tell them upfront what you are trying to accomplish. This fills any information void and helps ensure your message is delivered successfully, and with a minimum of “water cooler” disruption to the business.

SOURCE: Bob Fulton, the Pathfinder’s Group Inc., Chicago, October 9, 2008

LEARN MORE: Please read a discussion on disclosing salary requirements when posting job ads.

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.

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Dear Workforce Newsletter

Employer groups are warning Congress that many corporate pension plans could be frozen or terminated unless the pension funding requirements of the 2006 Pension Protection Act are delayed at least through next year. The funding rules started phasing in January 1.

“The drop in the value of pension plan assets coupled with the current credit crunch has placed plan sponsors in an untenable position,” a coalition of employer groups said in a Tuesday, October 28, letter to House Ways and Means Committee Chairman Charles Rangel, D-New York, and Rep. Jim McCrery, R-Louisiana, the ranking Republican member of the committee. “At a time when companies need cash to keep their businesses afloat, they are also required to make unexpectedly large contributions to their plans in order to meet funding requirements.

“These large funding obligations will, if not modified, divert assets away from job retention, job creation and needed business investments, thus increasing the number of Americans who are unemployed and slowing our economic recovery,” the letter said.

The coalition includes the American Benefits Council, the National Association of Manufacturers and the U.S Chamber of Commerce.

Even if a company freezes its plan, the company would still be forced to meet the Pension Protection Act’s full funding requirements, said Judy Schub, managing director of the Committee on the Investment of Employee Benefit Assets. The committee, which represents major corporate defined-benefit pension plans, did not sign the coalition’s letter but is also planning to lobby for Pension Protection Act relief, Schub said.

“Money is awfully tight,” she said. “You need every dollar for operations.”

Jason Hammersla, an American Benefits Council spokesman, said employer groups want lawmakers to include the pension funding relief in a fiscal stimulus package that might be considered by Congress in a possible post-election session.

“We’re looking for whatever legislative vehicle we can to get this done as soon as possible,” Hammersla said.

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

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Retailers will be hiring fewer part-time holiday workers this season in reaction to predictions of flat retail sales growth of 1 to 2 percent from last year.

But because rising unemployment is expected to yield a bigger crowd of job seekers this year, retailers have a chance to get better-quality hires, analysts say.

Several economic indicators point to a tepid holiday shopping season for retailers as tough times limit consumer spending. The 10-year average of holiday retail sales growth is 4.4 percent, according to the Washington-based National Retail Federation, but forecasts for this season have slipped to 2.2 percent.

Daniel Butler, vice president of the federation’s retail operations, said retailers plan to hire fewer part-time workers but will likely give them more hours per week.

Part-time workers will be deployed primarily at stores within national chains where sales are strongest, Butler said, with managers closely tracking activity so headquarters can make staffing adjustments on the fly.

“They’re planning [seasonal hiring] store by store and determining what their actual need is,” Butler said.

But stores also likely have a core of proven part-timers available on call to staff any store where sales are more active than predicted, Butler added.

“A lot of companies have developed a bench if business is stronger,” he said.

But this year, “they’re really counting more on existing full-time staff,” Butler noted.

Retailers aren’t planning to cut any full-timers, whose ranks have mostly grown in the past year, he said.

Veronica Harvey, senior vice president of talent solutions for Chicago-based Aon Consulting, said retailers should be especially keen this year on hiring the best temporary help because it can translate into more sales.

“Getting the right people is going to continue to be critical,” she said. “In a year in which every sale is particularly critical, you don’t want to lose a sale because you don’t have someone working in an appropriate manner.”

“A strong service orientation” isn’t teachable, Harvey said, but it is detectable through a good applicant-screening process.

Other desired traits of holiday hires, such as dependability to show up for work and adaptability to various job shifts, also can be detected with screening tools. Basic math, literacy and reasoning skills are also assessed.

“If you can hire someone who sells incrementally more” than an average-performing quick hire, Harvey said, “at a big box retailer, that translates into a lot of dollars. The key for merchants is not to shortchange the selection process.”

She added that holiday hiring has been put off by some retailers, which suddenly gives them little time to hire.

And this year, with a higher volume of holiday temp workers expected to apply for retail positions, screening tests can speed up processing of large batches of applications, Harvey added.

Her recommendation to retailers facing an overload of applicants: Hire consultants specializing in large-scale employee recruiting to save time and attract good hires.

—Mark Larson 

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The economic downturn is leading to an increase in unpaid medical bills that large employers may end up subsidizing in the coming months through premium increases and spikes in medical costs.

Saying they are forced to choose between food, housing, transportation and other necessities, Americans are increasingly unable to pay their medical bills, leading many into deep medical debt, according to several surveys released recently. The Kaiser Family Foundation reported in October that one in three Americans report trouble paying medical bills, while 18 percent of Americans say their medical bills have totaled more than $1,000 in the past year.

The weakening economy isn’t affecting only the uninsured. Medical debt is particularly common among Americans with high-deductible plans, the Commonwealth Fund reported. The New York-based health policy research organization said 53 percent of adults whose deductible equaled or exceeded 5 percent of their income “incurred medical bill burdens and debt.”

Roger Deshaies, CFO of Fletcher Allen Health Care, a hospital system in Burlington, Vermont, said charity care has increased 10 percent in the year ended September 30 because many patients with high-deductible plans are unable to pay the deductible.

“If they have a deductible of $1,500, their chances of meeting that is limited at a time when heat and fuel are going up considerably,” he said.

The hospital system, which projects charity care costs will double next year if the economic downturn deepens, is already approaching health insurance companies seeking increases in the amount they are reimbursed for care provided to people with employer-sponsored health plans.

Tom Beauregard, a product development leader at UnitedHealth, said hospital debt “does put pressure on commercial rates and ultimately premium levels” for employers.

In addition to bad debt, premiums are also being pushed higher by increased use of health care services among people who have health insurance but are worried they might lose their jobs or benefits, said Linda Havlin, worldwide partner and global leader for research at Mercer. Small and midsize employers, many of which renew their health care contracts in the fall, are already seeing double-digit spikes in premium costs, Havlin said.

Because health insurance trends vary among states, not all insurers have been besieged with requests from hospitals for reimbursement rate increases. Nonetheless, health insurers are likely to resist such requests.

“We haven’t experienced significant rate increases because of high-deductible plans, nor do we plan to compensate the hospitals” if they are unable to collect the money that patients owe them, said John W. Kennedy, COO of Blue Cross Blue and Blue Shield of Kansas City.

Cigna spokeswoman Amy Turkington said the insurer helps hospitals collect payments from patients with high deductibles through a process called automatic claim forwarding, which deducts the amount a patient owes a hospital from that person’s health care spending account. Turkington said the insurer has permission to automatically withdraw funds owed to a doctor or hospital from 85 percent of its members that have flexible spending accounts, health savings accounts or health reimbursement accounts.

Rural areas and small towns where fewer large employers exist could be particularly susceptible to rate increases because small employers are more likely to offer health insurance with high deductibles.

Deshaies recognizes that asking health insurers to reimburse hospitals more for medical care will increase costs for employers and ultimately for patients—possibly exacerbating the amount of charity care the hospital provides. But he says his hospital’s short-term financial needs outweigh those long-term consequences.

“The insurance companies will push the story that you are only creating a spiral that will come back to you anyway,” he said. “To a certain extent, over time, that’s true, but not immediately.”

—Jeremy Smerd

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In a move designed to improve coverage of the contingent labor industry, Crain Communications said Monday, November 3, that it has acquired media company Staffing Industry Analysts.

Detroit-based Crain Communications is the parent company of Workforce Management, which reports on the staffing industry as part of its broader coverage of business strategy and people management matters.

Los Altos, California-based Staffing Industry Analysts provides research and analysis on the contingent workforce market.

Terms of the deal were not disclosed.

“For almost 20 years, Staffing Industry Analysts has been serving staffing companies and more recently large corporations who buy contingent labor with research, data and events,” Rance Crain, president of Crain Communications, said in a statement. “Their leading role in the marketplace as the acknowledged expert and voice of independence makes Staffing Industry Analysts an exciting addition to the Crain human resources group.”

Under the Crain umbrella, Staffing Industry Analysts will continue to produce its online content of research, data and analysis for staffing companies and those who buy contingent labor.

Staffing Industry Analysts will become a wholly owned property of Crain Communications and will maintain its presence in Los Altos. It will retain its employees and management with the exception of current chairman Peter Yessne. Ron Mester, who has served as Staffing Industry Analysts’ chief executive for nearly seven years, will continue to lead the organization.

“I can’t imagine becoming part of a better organization than Crain Communications, a company that has been responsible for information and data in so many industries for such a long time,” Mester said in a statement. “We have watched the growth and change in the use of contingent labor over the last many years and we believe the usage of contingent labor will continue to grow in the future.”

Staffing Industry Analysts’ titles include Staffing Industry Review and Contingent Workforce Strategies magazines in print and online. In addition to temporary staffing, Staffing Industry Analysts covers the related sectors of third-party placement, outplacement and staff leasing. It also hosts executive conferences.

Crain publishes more than 30 business-to-business newspapers and magazines including Automotive News, Advertising Age, Business Insurance, Pensions & Investments and regional city business publications in Chicago, New York, Cleveland, Detroit and Manchester, England. Crain has more than 1,000 employees in 17 offices worldwide.

—Ed Frauenheim

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Nissan Motor Co. is the latest automaker to slash its earnings outlook, saying it will cut output and its workforce to bring inventory into line with tumbling U.S. demand.

The company halved its earlier profit forecasts for the fiscal year ending March 31, 2009. It now expects operating profit to plunge 65.9 percent, to 270 billion yen ($2.62 billion), while net income is seen falling 66.8 percent, to 160 billion yen ($1.55 billion).

COO Toshiyuki Shiga said Nissan would cut global production by 200,000 units this year and trim 3,500 jobs in the U.S., Spain and Japan as a result. The U.S. cuts come in the form of previously announced voluntary worker buyouts.

The Japanese layoffs will total 1,000, mostly affecting contract workers.

“To say the current operating environment is severe is an understatement,” Shiga said Friday, October 31, while delivering July-September earnings results. “If we look at the current trend, we must be more pessimistic, and we should steer the company under such assumptions.”

Nissan’s lowered expectations follow similar downward revisions at Honda Motor Co., Mitsubishi Motors Corp. and Mazda Motor Corp. North America was the common weak link.

Nissan now expects this fiscal year’s global sales to be flat at 3.77 million vehicles. That goal was also lowered—from an earlier target of 3.9 million units.

The production cuts will come at factories in the U.S., Europe and Japan.

The company did not give sales forecasts by region, but first-half performance shows the trend.

U.S. retail sales slid 3.4 percent, to 516,000 vehicles, in the April-September fiscal half. North American operating profit nearly evaporated—plummeting 88 percent, to 19.9 billion yen ($187.7 million). Shiga said North American operations should stay in the black for the full year.

European sales gained just 0.7 percent, to 306,000 vehicles. Regional operating profit there declined 19 percent, to 32.2 billion yen ($303.8 million).

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

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Sara Lee Corp. CEO Brenda Barnes has created a program that gives parents who left the workforce to raise children the opportunity to test the waters when they’re ready to return to the corporate world.

Sara Lee announced October 23, it’s launching “returnships,” four- to six-month internships at the Downers Grove, Illinois,-based food maker for midcareer professionals who have been out of the workforce for a few years.

Barnes knows the challenges such professionals face. In 1997 she resigned as president of PepsiCo Inc.’s North American beverage business to spend more time with her three school-age children. At the time, she came in for criticism that she might be hurting other mothers’ chances of climbing the corporate ladder.

Barnes, who joined Sara Lee in 2004 and took over as CEO in February 2005, developed the idea of returnships and “feels there is an untapped pool of talent for corporations,” said a Sara Lee spokesman. Barnes wasn’t available for comment Thursday.

“I haven’t seen anything like this [before], and it’s a great idea,” said Robert Wilson, president of Westmont, Illinois-based Employco Group Ltd., a human resources consultant. “It’s a great opportunity for someone re-entering the workforce.”

Wilson said that since most internships focus on employees fresh out of college, it can be difficult for many people to rejoin the workforce after several years off. And from a company’s point of view, such a program would help an employer find more seasoned workers.

Sara Lee is recruiting applicants to begin work in February in marketing, brand management, sales, finance, human resources and product innovation. The interns will be paid the equivalent of full-time employees based on experience, job skills and hours.

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

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