Author: Site Staff

Pinning down the financial markets bailout bill consumed Congress in the waning days of its session this year.

To nail down its final approval, the $700 billion bailout had to be strapped onto a measure that requires equality between mental health and other medical benefits in health care plans that offer both.

When Congress returns to Washington in January, legislators likely will make the faltering economy the top priority, but health care reform will remain in the mix.

Perhaps the first piece of the puzzle was put on the table October 7 by a bipartisan group of prominent senators in health care policy, including Sens. Max Baucus, D-Montana; Charles Grassley, R-Iowa; Mike Enzi, R-Wyoming; and Ron Wyden, D-Oregon.

They introduced a “discussion draft” of legislation that would require companies to disclose on employees’ W-2 tax forms the amount of money they spend annually on health insurance. The idea emanated from a set of hearings designed to prepare Congress to legislate next year on health care.

The bill is designed to enlighten workers regarding how much money their employers spend on health care and its effect on wages. The senators are collecting public comment until December 31.

The initial reaction from the business community is mixed. Diann Howland, vice president for legislative affairs at the American Benefits Council in Washington, says that most members of the organization, which includes more than 200 large employers, already provide annual benefits statements to employees.

She’s concerned that the bill would foist an administrative burden on companies and subject them to liability regarding the tax form. She adds that employers want to increase benefits transparency.

“We share a lot of the same goals,” Howland says of the bill. “It’s a matter of how you get there.”

Kathleen Lester, a partner at the law firm Patton Boggs in Washington, says few of her clients have reacted to the bill. But the senators have the right motivation.

“It’s important for consumers to know what things cost and how it drives treatment options and quality [of care],” Lester says.

Seeking wide input on the part of Capitol Hill was a hallmark of the parity bill. Businesses, insurers and mental health advocates hammered out a compromise over three years that resulted in strong bipartisan backing.

The bill does not mandate mental health coverage. But if it is offered, it must be equal to other medical and surgical benefits in deductibles, co-payments, out-of-pocket expenses, coinsurance, covered hospital days and covered outpatient visits.

The parity negotiation process is a model for larger reforms, Howland says.

“Although it’s painful, it’s a better way to proceed,” she says. “In the end, you’ll get a product that people say, ‘We can support this.’ ”

Among the candidates for the first health measures of 2009 are a bill to establish nationwide standards for the adoption of health information technology, which stalled this year because of privacy concerns and the cost transparency measure.

“We will probably see folks take small steps like that,” Lester says.

—Mark Schoeff Jr.

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Despite deteriorating economic conditions—and expectations that many companies would pay out less to their top officers—chief executives at publicly traded companies of all sizes have seen an increase in their compensation.

According to a study of CEO pay released Monday, October 20, by the Corporate Library, the median total pay package for chief executives at almost 2,000 companies was just over $2 million last year, a 7.5 percent uptick from the year before.

The increase, while one of the lowest in recent years, was still a surprise, noted Paul Hodgson, senior research associate at the Corporate Library, given the economic developments that began crippling companies in the finance and housing industries last year.

“We figured that the across-the-board numbers would have been flat, at the very least, or might have even gone in reverse,” he said. “But at many companies, particularly large corporations, it appeared to be business as usual.”

To his point, the Corporate Library research found that companies in the S&P 500 awarded their CEOs total compensation packages that increased by a median of 22 percent in 2007.

That largesse doesn’t jibe with the overall performance of the companies. Operating earnings of S&P 500 companies actually decreased by 5.9 percent during the year, according to Standard & Poor’s data.

The bump in pay, Hodgson said, was driven mostly by stock option gains that top executives cashed in last year.

Likewise, midcap companies boosted their CEOs’ pay by 15 percent, while small-cap companies only paid their CEOs 5.5 percent more last year than they did in 2006 (the Corporate Library data were based on company proxy filings from August 2007 to June 2008).

A record number of CEOs also received substantial increases last year. In fact, 29 chief executives saw their total compensation increase by more than 1,000 percent.

It does not appear, however, that the executives awarded big pay raises inflated the overall increases in pay. Hodgson pointed out that 25 CEOs saw their actual compensation decrease by 90 percent or more last year, with at least one CEO—Arbor Realty Trust’s Ivan Kaufman—receiving no compensation in 2007.

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

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Rising pension costs threaten to eat into the profits of many of the Chicago area’s largest companies as they divert billions of dollars to shore up funds depleted by the stock market swoon.

Aon Corp., Exelon Corp., Abbott Laboratories, Caterpillar Inc., Motorola Inc. and Sara Lee Corp. are among the region’s companies that started the year without enough in their pension funds to cover projected payments to retirees. Those shortfalls almost certainly have deepened, observers say.

Kraft Foods Inc., Allstate Corp., Pactiv Corp. and others whose pension funds were only slightly in the black are likely to be running deficits by the end of the year.

Assessing how the market sell-off has affected individual companies is difficult because they file financial reports on their pension funds only once a year. But new rules require companies to book any pension shortfalls as liabilities on their balance sheets—potentially putting pressure on credit ratings — and to top up the funds at a much faster rate.

“Contribution requirements are going to be much larger and much sooner than they anticipated,” said Rick Pearson, managing principal in Chicago for Towers Perrin, a corporate risk management and actuary consultancy. “This is going to require more cash to get back to a full-funded status.”

Besides squeezing profits, the pension shortfalls come as companies try to conserve cash amid a credit freeze that has shut off access to capital from banks and the bond market. Draining corporate cash pools to bolster pensions leaves less money for shareholder dividends, stock buybacks or investments that could enhance earnings just as a weakening economy puts profits under pressure.

“Companies are going to have to put cash in pensions when earnings are not going to be that great for a lot of them,” said Howard Silverblatt, an analyst with Standard & Poor’s Investment Services in New York.

Signs of trouble are emerging already. Peoria, Illinois-based Caterpillar said last quarter that a decline in asset values in the first half had driven up its unfunded pension liability by an estimated 161 percent, to $2.43 billion. A spokesman last week declined to comment on the impact of the market plunge since then, but at the start of the year, more than two-thirds of Caterpillar’s pension assets were invested in equities.

“We know it’s going to cost them more money,” said Eli Lustgarten, an analyst with Ohio-based Longbow Research.

Aon’s unfunded pension liability could nearly triple to $2.8 billion by the end of the year, said Bijan Moazami, an analyst with Virginia-based FBR Capital Markets Corp. Making up that shortfall could trim per-share earnings by about 25 percent, he wrote in a note to investors last week.

“It’s premature for us to estimate on that,” a spokesman for the Chicago-based insurance broker said. “A lot can happen between now and the end of the year.”

Nearly 350 companies in the S&P 500 index have defined-benefit pension plans, which typically invest about two-thirds of their funds in stocks. At the start of the year, those plans had a combined $1.5 trillion in assets, exceeding obligations by $63 billion.

With the S&P 500 down about 36 percent for the year, analysts estimate that those companies’ assets have lost 15 to 20 percent of their value, leaving a funding shortfall that could approach $200 billion.

Observers expect the ballooning pension deficits to provide additional incentive for companies to continue to curtail or drop traditional pension plans, which guarantee retirees’ incomes. The number of such private-sector plans fell by 34 percent from 1998 to 2005.

Under a 2006 federal law, companies are required to make up unfunded balances within seven years. In the past, they were allowed to spread out payments for pension shortfalls for as long as 30 years. As part of the new law, companies will be forced to limit employee benefits if pension plan assets fall below 80 percent of obligations.

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

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A large proportion of the nation’s primary care physicians are not prepared to advise patients enrolled in consumer-driven health plans on such issues as coverage limitations and cost considerations, a new survey has found.

In fact, 43 percent of the doctors responding to the survey, which was conducted by the Robert Wood Johnson Foundation Clinical Scholars Program and published Wednesday, October 8, in the American Journal of Managed Care, said they have heard “a little” or “not at all” about consumer-driven health plans, 33 percent reported having heard “somewhat,” and 24 percent reported having heard “much” or “a great deal” about the plans, which generally combine a high deductible with either a health reimbursement arrangement or a health savings account.

Despite their limited knowledge about the plans, 40 percent of the physicians responding to the survey reported having enrollees in such plans on their practice panels, generally comprising about 5 percent of their total patients.

An estimated 5.5 million Americans are enrolled in consumer-driven health plans nationwide, according to the 2008 Employer Benefits Survey released last month by the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust.

Dr. Craig Pollack, a Robert Wood Johnson Foundation clinical scholar at the University of Pennsylvania and a co-author of the study, said physicians’ lack of knowledge about the plans demonstrates that many plan members are receiving little or no guidance from their doctors when making medical purchasing decisions.

The survey, which was conducted anonymously by mail in May and June 2007, asked 528 randomly selected internists, family physicians and general practitioners 65 or younger, about their baseline knowledge and overall impression of consumer-driven health plans; their general readiness to discuss issues of cost, cost-effectiveness and medical budgeting with patients; their ability to advise patients on the costs of commonly prescribed services; their views regarding the effects of the plans on clinical care; and their views on the role of publicly available quality-of-care information in patient decision-making.

Once doctors were provided a brief description of consumer-driven health plans, 46 percent reported a favorable impression, 37 percent were neutral, and 17 percent reported an unfavorable impression. Physicians with patients enrolled in such plans were more likely to have a favorable impression than physicians without these patients, the survey found.

When physicians were asked about their readiness to discuss issues related to cost, cost-effectiveness and budgeting, almost three-quarters said they were prepared to discuss cost (73 percent) and cost-effectiveness (76 percent), but less than half—48 percent—said they were ready to discuss medical budgeting with patients.

Physicians were generally distrustful of quality-of-care information available to members of the plans from government or insurance Web sites, with less than half agreeing that this information should factor into patients’ choice of hospitals or specialists. Less than 21 percent of physicians said patients should trust government Web sites for such information, while less than 8 percent said that insurer Web sites contained reliable health care quality information.

“The AMA is working to better educate America’s physicians about the coverage and cost considerations of consumer-directed health plans,” American Medical Association board chairman Joseph Heyman said in a statement. “A health savings account brochure is available for patients and physicians on the AMA Web site, and we are looking into other ways to better answer physicians’ questions about consumer-directed health plans.”

Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com. Workforce Management’s online news feed is now available via Twitter.

The maximum contribution that can be made to 401(k) and other defined-contribution plans will increase next year, and the maximum benefit that can be funded through defined-benefit plans also will rise in 2009, the Internal Revenue Service announced Thursday, October 16.

The maximum annual contribution an employee can make through salary reduction to a 401(k) plan will rise to $16,500 from $15,500, while the maximum annual catch-up contribution that employees 50 and older can make to 401(k) and certain other defined-contribution plans will rise to $5,500 from $5,000.

In addition, the maximum annual total contribution, including employer contributions, to defined-contribution plans will rise to $49,000 per participant from $46,000.

The maximum annual benefit that can be funded through a defined-benefit plan will increase to $195,000 from $185,000, and the amount of employee compensation that can be considered in calculating pension benefits and contributions to defined-contribution plans will rise to $245,000 from $230,000.

The definition of a highly compensated employee for 401(k) plan nondiscrimination testing purposes will rise in 2009 to one earning $110,000 a year from $105,000.

The 2009 limits are determined by a methodology set by federal law and reflect increases in the cost of living.

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

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The percentage of all workers participating in employment-based retirement plans was 41.5 percent in 2007, up from 39.7 percent a year earlier, according to a study by the Employee Benefit Research Institute.

Among full-time workers 21 to 64 years old, 55.3 percent were in an employment-based plan in 2007, up from 52.7 percent the previous year, according to a news release on the study issued by EBRI in Washington.

Other findings in the study were:

• 63.9 percent of workers 55 to 64 were in a retirement plan in 2007, compared with 28 percent of workers ages 21 to 24.

• 57 percent of full-time female workers participated in a plan in 2007, compared with 54 percent of male workers.

• Florida had the lowest representation of workers participating in plans in 2007, at 42 percent. Wisconsin had the highest participation rate, at 68 percent.

The study is available on EBRI’s Web site, www.ebri.org.

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

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The credit crunch, a slowing economy and growing budget deficits will strip almost 30,000 construction jobs from New York’s workforce by 2010, bringing industry employment to its lowest level in more than 10 years, according to a report released Tuesday, October 14, by the New York Building Congress.

Employment will fall 23 percent, to 100,250, in the next two years, and could drop even further if efforts to shore up the credit markets don’t bear fruit, the report says. The most substantial losses won’t show up until 2010 as projects financed in flusher times mean construction spending will reach a record $33.8 billion this year, a 16 percent increase from 2007.

“If we do not solve the credit crunch, I think we could be in for even a greater loss of jobs than is projected,” said Louis Coletti, president of the Building Trades Employers’ Association and a vice chairman of the Congress. “I’m really concerned about the future of the industry on both the public and private sides.”

Construction spending will fall more than 22 percent, to $26.2 billion, by 2010, driven by across-the-board drops. Residential, nonresidential and public sector work are all forecast to fall off by 2010. The steepest drops will occur on the residential side, where developers had rushed to get projects into the ground to beat changes to the 421(a) tax incentive program that went into effect July 1.

The number of residential units constructed is expected to be nearly halved by 2010 to 18,500, with a falloff in spending of $2.2 billion. Nonresidential construction, including office space, institutional development and sports venues, will fall nearly 30 percent, to $7.1 billion. And government projects—which remain the primary driver of construction activity in the city—will fall more than 15 percent, to $14.4 billion, by 2010.

The report paints a resilient picture of the industry, predicting it will stave off major losses until 2010. Even then, it says the $26.2 billion forecast for that year would be well above levels from the early 1990s and early 2000s, when adjusted for inflation.

But much remains unknown. A prolonged downturn could lead to further slashing of funds for public projects such as mass transit, schools and bridges. It’s already becoming nearly impossible for developers to fund new private projects. Coletti said banks that typically require 15 to 20 percent down for construction loans are now starting to ask for as much as 40 percent. For now, developers are biding their time.

“If you were in the market trying to finance something now, you’d have a real problem no matter how good the project was,” said David Picket, president of Gotham Organization Inc.

Fear is starting to spread from future projects to ones already under construction. The tightening of credit prompted industry leaders to gather last week for an emergency meeting on the future of construction in the city.

“It’s not only whether future projects can be canceled or delayed, but it’s cash flow for contractors currently building projects,” Coletti said. “If they can’t use credit lines, how will they pay for products or supplies they’ve already ordered? How do they pay the cost of benefits for their workforce?”

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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General Motors Corp. is being monitored by the Pension Benefit Guaranty Corp., “as financial reports come in,” said Jeffrey Speicher, PBGC public affairs specialist.

“We will be looking with great concern as financial reports come in,” he said. “We aren’t sending out any flares or raising any panic.”

GM’s pension plan was overfunded, based on its latest filings, he said. “From our point of view, it is difficult to say what the impact [of the market turmoil] is” on the plan, he said.

“I don’t know of any public contacts” the PBGC has had with GM executives, he said. “But there are no public steps we can talk about,” he added.

GM’s defined-benefit plan was $9 billion overfunded, based on assets of $117 billion and accumulated benefit obligations of $108 billion as of December 31, according to a Milliman report.

GM’s 10-K showed a funded status of $19 billion, based on assets of $104 billion and liabilities of $85 billion as of December 31.

GM’s pension asset allocation was 48.9 percent fixed income, 30.1 percent equity and 21 percent other, according to the Milliman report. GM’s 10-K lists the allocation as 26 percent equity, 52 percent debt, 9 percent real estate and 13 percent other.

Because the GM plan is overfunded, it would not be affected by curtailments of pension benefits, including shutdown benefits in the event of layoffs, under the Pension Protection Act of 2006, according to an ERISA attorney who asked not to be named because of potential conflicts with corporate clients.

In 2006, GM froze its salaried defined-benefit plan for all active participants, moving them into a new defined-contribution plan. That reduced pension expense by $383 million in 2006 and reduced the pension benefit obligations by $2.8 billion, according to its 2007 10-K.

Standard & Poor’s on Thursday, October 9, put the bond ratings of GM and its finance unit, GMAC, on negative credit watch, triggering an S&P review of the financial situation over the next three months.

The negative watch “reflects the rapidly weakening state of most global automotive markets, along with capital market conditions that will remain a serious challenge for the foreseeable future,” the S&P report said. It did not address pension issues.

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

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HR executives know that employers have a vested interested in the health and well-being of their employees—and their families. Employers may help their workforce by adding links to their intranets to, for instance, “Health Hotlines,” which is from the National Library of Medicine, part of the National Institutes of Health. People can search for toll-free phone numbers and Web sites by keyword or by subject.

Employers can become more of a partner in their employees’ health and wellness by adding to their intranets links to a number of federal Web sites that offer information. For instance, there’s the National Institutes of Health, part of the U.S. Department of Health & Human Services. The NIH site offers information on such topics as Health and Wellness, Conditions/Diseases, Healthy Lifestyles and Research. The site also contains quick links to areas including Men’s Health, Women’s Health, and Child & Teen Health; NIH toll-free information lines and toll-free numbers to health organizations around the country.