Author: Site Staff

Three million fewer Americans younger than 65 received health insurance through employers in 2007 compared with 2000, according to a report from the Economic Policy Institute in Washington.

The number of individuals receiving employer-sponsored health insurance from their own or a family member’s employer has declined for seven consecutive years, to 62.9 percent of the under-65 population in 2007 from 68.3 percent in 2000, according to the report.

The report, “The Erosion of Employer-Sponsored Health Insurance,” attributed the growing uninsured population across the country to declines in employer-sponsored health insurance. Despite a slight gain in the number of U.S. individuals younger than 65 with health insurance in general from 2006 to 2007, the overall uninsured population has expanded by 4 million individuals since 2000.

Public health insurance, as opposed to private, nongroup coverage, is the predominant alternative to employer-provided coverage that has been cut, especially for children. Employer-sponsored health insurance for children through their employed parents dropped 6.4 percent from 2000 to 2007, affecting 3.4 million kids. However, coverage for children through Medicaid and the State Children’s Health Insurance Program increased by about 7 percent.

According to the report, no category of worker has escaped losses in employer-sponsored health insurance since 2000, with every race, education level and work status experiencing declines. Hispanic workers experienced a 3.4 percent decline in employer coverage, compared to a 2.7 percent drop for black workers and a 3.2 percent decrease for white employees.

College-educated workers experienced a 2.6 percent drop in coverage from 2000 to 2007; high school-educated workers, a 6.3 percent drop. Full-time employees saw a 3.3 percent drop in coverage, and part-time employees saw a 5.9 percent drop in coverage.

Filed by Kristin Gunderson Hunt of 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.

Heading into work September 15, Linda Garcia knew she was in for a long day.

That morning, amid a financial market meltdown, Bank of America announced it was acquiring Merrill Lynch. Garcia, vice president of HR at Seffner, Florida-based Rooms To Go, knew employees would have questions regarding the deal’s effect on their 401(k) plans.

What Garcia didn’t expect was the kinds of questions she received from employees. While she knew there would be specific concerns with Merrill Lynch as the record keeper for the furniture company’s 401(k) plan, she didn’t realize how little employees understood about what that meant.

“We were getting questions about how the decline in Merrill’s stock price was affecting their 401(k)s,” she said. “People didn’t understand what the role of a record keeper was or how it all worked.”

Garcia is one of a number of HR managers who have realized in recent weeks that despite all the financial education they offer, many employees still don’t understand the fundamentals of 401(k) plans.

George Lane, a principal at Mercer in Washington, said the crisis has revealed deep misconceptions among workers about how 401(k) plans work. Last month, as Wall Street imploded, Lane traveled to an employer to facilitate a town hall-like discussion for employees on retirement benefits. One employee mistakenly believed that her 401(k) was protected by the Federal Deposit Insurance Corp.

“She said, ‘We don’t have to worry about our 401(k)s because they’re insured up to a hundred thousand dollars,’ ” Lane said. “I just shook my head.”

Such questions always come up in times of crisis, said Don Stone, a Chicago-based 401(k) consultant.

“It illustrates that people aren’t educated about investing and not reading the materials that are made available to them,” he said.
The good news is that as a result, many investors are stuck in a state of inertia in times of market volatility, which is, usually, what they should do so they can be fully invested when the markets recover, Stone said.

And that’s why many companies have decided in the past few weeks to hold off on sending communications to employees about the market crisis, he said.

“By sending out communications, they may be raising people’s temperature instead of lowering it,” Stone said.

Novi, Michigan-based Trinity Health Services delayed sending communications during the height of the crisis about the importance of investors staying the course, said Silvia Frank, manager of defined-contribution plans.

“We pulled back on that because the message wasn’t different from the guidance we have been giving,” Frank said. “We want to be careful with what we communicate given the magnitude of what’s happening.”

Rooms To Go has taken a different approach. In fact, the week of September 15, Garcia sent an e-mail explaining what the Bank of America acquisition meant, which was followed by an e-mail from Merrill Lynch.

Later that week, Garcia sent another e-mail to the company’s plan participants about money market funds. “We are just trying to keep putting e-mails out on different topics to make sure people don’t panic and do something foolish with their investments,” she said.

Ultimately, employers need to come to terms with the reality that there will always be employees who don’t pay attention to their investments, Stone said.

“That’s why a lot of people are pushing for auto-everything on 401(k) plans,” he said. “The reality is, most people are not investment gurus and we aren’t going to get them there.”

—Jessica Marquez and Jeremy Smerd

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Bob Nardelli, just 14 months into his tenure as CEO of Chrysler, now fears the collapse of an “extremely fragile” auto industry amid the credit crisis and Wall Street meltdown.

Nardelli said federal officials, preoccupied with trying to unfreeze credit, don’t appreciate the importance of the auto industry.

“You start to see the global collapse of the auto industry where strong, dominant international players are really feeling it in their home market,” he told Automotive News last week. “We thought the $4-a-gallon gas was going to be our biggest challenge, but that’s been minimized by the credit market.”

Nardelli’s comments came as shares of Detroit Three rivals General Motors and Ford Motor Co. cratered. GM closed at $4.89 on Friday, October 10, down from a 52-week high of $43.20. Ford ended at $1.99, off from a 52-week high of $3.34. On Friday, GM issued a statement saying it was not preparing to seek bankruptcy protection.

Nardelli said the auto industry faces unique federal regulatory burdens, such as increased fuel economy requirements.

“I’m not sure it’s registered at the highest levels the impact of losing the auto industry,” he said. “When I say the entire industry, it’s not only the OEMs; it’s the Tier 1, Tier 2, Tier 3” suppliers.

Nardelli said cash is “the No. 1 metric for the auto industry.” In Chrysler’s case, he said, “We’re concerned about it. We’re monitoring it, but we’re not on the edge.”

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

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Dear Willing to Tell:

Even before their first day on the job, employees want to know: “What’s in it for me?” They are numbers-savvy and knowledge-thirsty. So you should strive to be candid and transparent, and consider showing employees as much as possible to ensure they appreciate the full value of your bonus program.

Regardless of the type of bonus program you have, it’s important for employees to understand:

• The goals for your organization and whether those goals are set on an individual, group, business-unit or companywide basis (or a combination).
  
• How bonus funding is established and aligned with meeting business goals.
  
• The full range of pay potential and how their contributions affect their personal earnings potential.
  
• In other words, for your company to maximize its investment in the program, employees must know what is expected of them, how they can achieve it and what their reward is.
  

Frequently, organizations expend a tremendous amount of time and energy developing an effective bonus program but fall short on executing a fine-tuned communication strategy. Employee-focused messaging is a powerful way to drive the company’s financial success. Communicated within a performance framework, cash awards can influence discretionary effort and consistently motivate employees to act like vested owners of the business. On the other hand, awards positioned as “supplemental” (discretionary) tend to have less impact on employees and business performance. Employees may appreciate the extra cash, but are not necessarily motivated to perform better, if the link between their effort and reward is vague or missing altogether.

Communication can provide the critical link to company performance. Some best practices based on our experience include:

• Cascade timely, consistent messages. Communicate company financials against targets throughout the year while employees can still positively affect the numbers.
  
• Arm your champions. Make sure HR recruiters, managers and leaders at every level are prepared to explain and answer questions about your bonus program.
• Keep it clear. Avoid jargon, use conversational language, and provide examples to illustrate complex concepts.
  
• Show them their money. Some leading companies offer employees personalized communications about how their bonus is calculated (with detail on how the program is structured) and online tools that allow them to model “what if” scenarios based on individual and company performance.
  

Finally, remember that a bonus program is only one component of employee pay. Communication should consistently connect to your total rewards program—all the available pay, benefits, learning opportunities and work/life programs that fully answer the enduring employee question, “What’s in it for me?”

SOURCE: Suzanne Johnson and Linda Ulrich, Buck Consultants, Secaucus, New Jersey, July 2, 2008

LEARN MORE: Cash bonuses remain popular tools for rewarding employee performance.

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

Restrictions on executive compensation contained in the massive financial markets rescue package reflect congressional—and constituent—anger about exorbitant payouts to Wall Street executives who were at the controls when their firms sank.

Congress was right on the money when it reined in C-suite pay for firms participating in the $700 billion federal bailout, according to Nell Minow, editor of the Corporate Library, a governance think tank in Maine. President Bush signed the bailout plan into law October 3.

Financial firms collapsed under the weight of complex mortgage-based assets whose value is plummeting as the housing market deteriorates. Executives were inspired to concoct the opaque mortgage derivatives, or at least foster their creation, because of enormous financial incentives to take big gambles, Minow said.

“The pay plans poured gasoline on the fire and were a direct contributor to the demise of these financial institutions,” she said.

The degree to which executive compensation is limited for firms selling toxic assets to the government depends on whether the Treasury Department buys them directly or at an auction.

In general, the rules curb golden parachutes; enable companies to recover bonuses paid for inaccurate performance achievements; and “exclude incentives for executive officers … to take unnecessary and excessive risks.”

Although these reforms apply to relatively few companies, Democratic congressional leaders want to address executive pay next year. 

“There now exists a template that Congress could follow if it wanted to extend prohibitions on compensation to the rest of corporate America,” said Steven Seelig, executive compensation counsel at Watson Wyatt Worldwide in Arlington, Virginia.

With CEO pay skyrocketing while income for average workers stagnates, the issue has become volatile.

“Incentives are the life blood of any economy, and they are at risk in this backlash,” said Leslie Stretch, CEO of Callidus Software, a San Jose, California, maker of pay management programs.

The desire to start curbing compensation at the top of the corporate ladder is misguided, Stretch said. With 30 million to 40 million workers receiving variable pay, companies should take a harder look at the returns they’re receiving on rewards for the rank and file.

Stretch suggests requiring a line on financial disclosure forms that outlines incentives that are awarded across the company.

“The world at large has not addressed this problem in a structured way,” Stretch said.

Other experts don’t predict fundamental changes in pay systems.

“I don’t see the desire to reduce the rewarding for risk,” said John Mancuso, managing director of executive compensation and benefits at the Bostonian Group, a Boston consulting firm. “I see a more well-rounded package on the executive benefits side versus pure equity.”

Mancuso predicts greater use of restricted stock and more emphasis on performance rather than length of tenure when vesting bonuses.

Taking prudent risks that result in accomplishing business goals—like developing innovative products—should continue to be rewarded, said Charles Tharp, executive vice president for policy at the Center on Executive Compensation, a Washington organization sponsored by the HR Policy Association.

“Most companies tend to have a greater [emphasis] on long-term incentives, not annual bonuses, which tend not to encourage significant annual risk taking,” Tharp said.

—Mark Schoeff Jr.

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Employees who participate in a company probe of discrimination may receive the same protections against retaliation as the person who formally filed the charge, if the Supreme Court rules in favor of a Tennessee woman at the heart of a case argued on Wednesday, October 8.

Vicky Crawford, who headed the payroll department of the school district of Nashville and Davidson County, testified in a July 2002 internal sexual harassment investigation of Gene Hughes, the district’s employee relations director.

Crawford was not pursuing her own case against Hughes, but she did tell an HR official conducting the review that Hughes had engaged in sexually derogatory behavior, including an incident in which he tried to force her head into his crotch.

Hughes was reprimanded but not dismissed. Crawford was later fired after the district said it found problems with payroll operations.

A district court dismissed Crawford’s case, holding that federal discrimination laws didn’t apply to her for being a witness in the harassment probe. The 6th Circuit Court of Appeals in Cincinnati affirmed the decision.

During the Supreme Court oral argument, the justices generally seemed sympathetic toward extending the Title VII anti-discrimination prohibitions against retaliation to cover employees interviewed by companies responding to internal complaints.

But they did explore how far the court should go in defining whether an employee has “opposed” discrimination. Too permissive a standard “just leaves the employer open to a lot of jury determinations the he shouldn’t be subjected to,” said Justice Antonin Scalia.

Under Title VII, a worker is protected if he or she objects to a discriminatory employment practice (the opposition clause) or pursues a charge (the participation clause).

Chief Justice John Roberts Jr. noted that a worker could oppose discrimination without contributing to an investigation and vice versa.

“This is a statute written deliberately with overlapping provisions to ensure that nothing is missed,” said Eric Schnapper, Crawford’s lawyer.

Crawford’s position was endorsed by the Department of Justice.

In previous rulings, the Supreme Court has encouraged employers to establish an affirmative defense against discrimination charges by setting up complaint response procedures.

Lisa Blatt, assistant to the solicitor general, said that the federal discrimination law is undermined if employers are given incentives to investigate and then are allowed to retaliate against people they question.

“Witnesses are going to be afraid to fully cooperate if they’re not given protection,” Blatt said.

But Francis Young, assistant attorney for the Metropolitan Government of Nashville and Davidson County, asserted that an employee must formally charge an employer in order to fall under the aegis of Title VII.

Otherwise, anyone who talks to company officials in an investigation can later claim retaliation if he or she is fired for an unrelated reason.

“The essence of the opposition clause is somehow putting the employer on notice,” Young said. “The best way to oppose sexual discrimination is to go and make a complaint about it.”

Crawford never reported Hughes’ behavior to her superiors before she testified in the internal probe, according to Young.

But she blamed her involvement in the investigation when she was subsequently fired for what Young called severe problems with payroll processing.

If Crawford wins, Young said that companies would circumscribe their responses to discrimination allegations.

“Employers would stop conducting these investigations if everyone they interview is a potential retaliation case,” Young said.

Justice David Souter wasn’t convinced by that argument, saying that internal procedures provide the best defense for a company.

“Any employer who doesn’t go through [an investigation] is crazy,” Souter said.

Schnapper emphasized the importance of giving people such as Crawford confidence that they can speak up about colleagues’ discriminatory behavior without losing their jobs.

“If sexual harassment is going to be stopped, it’s mostly going to happen in these internal processes,” he said.

—Mark Schoeff Jr.

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Only 48 percent of American workers plan to retire at age 67, with others planning to work longer, according to a survey released by Sun Life Financial.

The data also showed that only 46 percent of those surveyed are “very confident” they will have enough money to take care of basic living expenses at 67, and 28 percent are “very confident” they will be able to take care of medical expenses.

Younger generations have little confidence that government benefit programs such as Social Security and Medicare will be available when they retire, as 63 percent of workers 30 to 39 years old don’t believe Social Security will be available. The same age group also noted the need for employer-sponsored health care benefits as a reason to work past 67.

The survey was conducted August 9-19 and covered 1,515 people who were working either part time or full time.

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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There’s more evidence that growth in 401(k) plan participants with account balances is dovetailing with the increase in plans using automatic enrollment. 
 
More than four out of five eligible employees had balances in their 401(k) plans in 2007, up from 78.9 percent in 2006, with increased employer use of automatic enrollment accounting for the rise, according to a recent survey by the Profit Sharing/401(k) Council of America in Chicago. 
 
“More than half of large plans utilize this feature, and usage by small plans doubled,” PSCA president David Wray said in a news release about the survey. 
 
That comes as no surprise to Pamela Hess, director of retirement research at Hewitt Associates Inc. in Lincolnshire, Illinois. She said automatic enrollment can increase employee participation by as much as 20 percent, based on Hewitt’s research. 
 
“It [auto-enrollment] is an increasing trend,” Hess said. “When you default employees into automatic enrollment plans, you absolutely get a participation-rate increase.” 
 
Still, further gains in employee participation could be had if pension-plan executives went back to existing employees who aren’t participating in the plan and re-enrolled them into 401(k) plans, Hess said. 
 
“Most companies do not ‘back sweep’ [enroll employees who declined participation initially] and enrolling existing hires will be much more painful,” Hess said. “Paychecks will go down for existing employees, while for new hires the money is never there to miss.” 
 
Jamie Kalamarides, senior vice president for Prudential Retirement Services in Hartford, Connecticut, said that once new employees are enrolled into a company’s retirement plan, plan officials should use automatic escalation, raising employee contributions to ensure adequate and increased retirement funds are available for employees. 
 
“Those two things [auto-enrollment and auto-escalation] combined will help participants make the right decisions and create the right inertia in savings for the future,” Kalamarides said. 
 
Hess cautioned that more employees enrolling in a company’s retirement plan and automatic increases in contributions could mean higher costs to a company in matching contributions and a potential strain on company profits. 
 
“Some companies just cannot afford to re-enroll existing employees due to these higher matching contribution costs,” she said. 
 
The PSCA survey also reported that the typical 401(k) plan has 65 percent of assets in equities, unchanged from 2006. Assets most frequently are invested in active domestic equity funds, followed by indexed domestic equity funds, stable-value funds and balanced stock/bond funds.

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

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Following final congressional approval, President Bush on Friday, October 3, signed mental health care benefits parity legislation into law.

The parity provisions, included in a broader financial services bailout bill, passed the House earlier Friday on a 263-171 vote. The legislation, which the Senate approved earlier in the week, will require health care plans to provide the same coverage for mental disorders as they do for other medical illnesses—a requirement that most group health plans now do not meet.

For example, plans no longer will be allowed to limit the number of annual outpatient visits for treatment of mental disorders while not imposing a comparable limit on the number of outpatient visits for other medical problems.

While the plan changes would be extensive, the cost impact is expected to be modest. The Congressional Budget Office last year estimated that enactment of a similar bill would boost health insurance premiums by an average of about 0.2 percent a year.

The measure will take effect January 1, 2010, for most calendar-year plans.

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 hard to determine how much light a congressional hearing on Monday, October 6, shed on the causes of huge losses in the U.S. financial markets, but a lot of heat was generated about the amount of money that Richard Fuld Jr. earned even though the investment firm he heads, Lehman Brothers, filed for bankruptcy on September 15.

Lehman lost $3.9 billion in its fiscal third quarter as the value of mortgage-related assets fell sharply. The investment bank’s collapse precipitated Wall Street tremors that resulted in Congress approving and President Bush signing a $700 billion bailout bill on Friday, October 3.

Fuld, sitting alone at the witness table during a hearing of the House Oversight and Government Reform Committee, endured two hours of withering criticism from the panel during a hearing that lasted nearly five hours.

Panel Republicans criticized Democrats for focusing only on a Wall Street firm and accused them of refusing to examine missteps by Fannie Mae and Freddie Mac. The two government-sponsored mortgage enterprises, which recently had to be rescued, are often seen as politically favored by Democrats.

Committee Chairman Henry Waxman, D-California, produced a chart that showed that Fuld took home $484.8 million in salary, cash bonuses and stock options from 2000 to 2007.

“That’s difficult to comprehend for a lot of people,” Waxman said. “Is this fair?”

Fuld, who expressed remorse about Lehman’s demise, didn’t respond directly, but he disputed the income calculation later in the hearing, indicating that $350 million was a more accurate number.

He defended himself by saying that he did not receive a severance or a golden parachute and never worked on a contract.

Fuld also said he took the biggest loss of any Lehman stockholder when the company went bankrupt.

“I never sold my shares because I believe in this company,” he said.

Citing documents obtained by the committee staff, a couple members said that Fuld drew down Lehman’s reserves by more than $10 billion this year in part to pay year-end bonuses despite warnings about the company’s liquidity.

Fuld defended the move. He said that most of the $10 billion was allocated to employee compensation. Lehman professionals owned about 30 percent of the firm, which motivated them to “think, act and behave like shareholders,” Fuld said.

“From where you sit, it looks like we spent an extra $10 billion,” he said to Rep. Elijah Cummings, D-Maryland. “That is not, sir, what we did.”

Waxman and his Democratic colleagues repeatedly expressed their ire over Wall Street CEOs receiving huge paydays while taxpayers are now on the hook for hundreds of billions to save financial institutions.

“We can’t have a system where Wall Street executives privatize all the gains and socialize all the losses,” Waxman said.

CEO pay incentives have led to Wall Street’s near collapse, according to Nell Minow, editor of the Corporate Library, a governance think tank.

Wall Street leaders have been compensated based on the volume rather than the quality of the business they generate, she said. That has led to the creation of opaque, highly leveraged securities tied to home mortgages that are sliced and resold many times.

“CEO compensation is not just a symptom [of the problem]. It is a cause,” Minow said. “It throws fuel on the fire.”

She was especially critical of the Lehman board, which the Corporate Library graded as a “D” in June 2004 for poor oversight. It is not an isolated case, Minow noted.

“It’s replicated over and over and over again,” she said.

The House committee will delve further into Wall Street travails this fall over the course of five hearings.

—Mark Schoeff Jr.

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