Author: Site Staff

As if paying heed to the adage that an ounce of prevention is worth a pound of cure, state legislators are looking at ways to encourage—or force—employers to offer work-site wellness programs to their employees.

While most of the measures gently encourage employers to promote wellness by offering financial incentives, at least two states are now considering taking a harder line: A California Assembly committee passed a bill this month that would require employers contracting with the state to offer one or more wellness programs to their employees. A bill introduced in Michigan would require that the state give preference to employers that offer wellness programs in awarding contracts.

California Assembly Bill 2360, introduced by Assemblyman Lloyd Levine, D-Van Nuys, in February, would apply to employers with 10 or more employees bidding on state contracts worth more than $1 million. Businesses could comply in a variety of ways, such as subsidizing memberships to fitness clubs, setting up their own fitness facilities, sponsoring amateur sports teams composed of employees, or providing employees with health information.

Levine’s bill was introduced after state legislators rejected a sweeping health care reform proposal by Republican Gov. Arnold Schwarzenegger that, among other things, would have provided incentives to plan members such as gym memberships; weight management programs; and reductions in health insurance premiums to promote prevention, wellness and healthy lifestyles.

A.B. 2360 has been referred to the Assembly Appropriations Committee, where it will be considered along with all other bills that could have a financial impact on the state, according to a spokesman for Assemblyman Levine.

Michigan’s wellness measure would require the state’s Department of Management and Budget to give preference to business entities that have wellness programs in place for their employees in awarding a contract for services and items needed by state agencies. The bill does not define wellness beyond “a health promotion program offered by an employer to his or her employees.”

A report by the Senate Fiscal Agency for the state of Michigan found that the bill, which was introduced in February 2007 by state Sen. Roger Kahn, R-Lansing, would have no fiscal impact on state or local government. The bill has been referred to the Michigan Senate Committee on Health Policy.

This wave of wellness-related state legislation is a relatively recent phenomenon, according to Amy Winterfeld, a health policy analyst for the National Conference of State Legislatures in Denver.

It is apparently being driven by the need to address the growing burden that chronic disease is putting on state budgets, according to a June/July 2007 legislative brief published by the NCSL.

Chronic disease is now the principal cause of disability and use of health services, accounting for 78 percent of U.S. health expenditures, and state budgets are affected by these higher medical costs through additional costs borne by Medicare and Medicaid, the NCSL report says.

“There wasn’t much state legislation at all on this subject before two or three years ago,” Winterfeld said. Now, however, “there has been a noticeable increase in the number of bills promoting wellness.”

Some of the measures overrule bars on differential rating and allow employers to offer financial incentives to their employees to encourage participation in wellness and health promotion programs.

Others permit health insurers to offer premium rebates or discounts for enrollment in wellness programs. A measure enacted last year in Indiana provides tax credit to small businesses that offer wellness programs to their employees that are equal to 50 percent of the programs’ cost.

While most employers acknowledge the benefits of wellness and prevention programs, they are not keen on laws mandating that they provide them to their employees.

“We already have several wellness programs,” but “I don’t like to be mandated,” said Lea Gerber, director of risk management and benefits at Elixer Industries, a diverse manufacturer in Mission Viejo, California

Among other things, Elixer’s benefit plan covers bariatric surgery, provides incentives for plan members with chronic conditions to adhere to their medication regimens, and provides free car seats to pregnant women who enroll in a prenatal program, according to Gerber.

“Employers have to weigh what’s most important to them. If they can’t afford a health plan, and many small businesses can’t, they certainly can’t afford wellness,” she said.

Elixer currently doesn’t have any contracts with the state of California, Gerber said.

Benefit consultants shared Gerber’s sentiments.

“The intention of this bill is laudable,” said Kirby Bosley, a consultant with Watson Wyatt Worldwide in Los Angeles. “But it’s a very expensive proposition for employers, especially smaller ones.”

J.D. Piro, an attorney with Hewitt Associates Inc. in Norwalk, Connecticut, likened the California legislation to a 1996 San Francisco ordinance requiring city contractors to offer domestic partner benefits, which some members of the benefits community felt was intended to influence the benefit programs of all employers, not just state contractors.

“It certainly does fit in with what is becoming a pattern in California,” he said. “These are certain policies that the state wants employers to follow.”

Because the legislation raises awareness of wellness benefits, it could result in more employers providing them, just as more employers began offering domestic partner benefits following passage of San Francisco’s domestic partners ordinance, said Johan DeKeyzer, senior vice president in the health and benefits practice of Aon Consulting based in Irvine, California.

“It’s a very small step in the right direction,” he said.

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

JPMorgan Chase & Co. of New York will make room for about 40 percent of the 14,000 Bear Stearns employees whose jobs were put at risk by the merger between the two companies, according to published reports.

On Monday, May 12, JPMorgan chief executive James Dimon stated that about three-fourths of hiring decisions have already been made.

JPMorgan will cut job positions to make room for talent coming in from Bear, making the net increase for JPMorgan approximately 3,000 hires.

Dimon also remarked that he has secured positions for an additional 1,500 Bear employees with other firms, according to reports.

Most of those not offered jobs were engaged in operations and technology positions.

The merger, expected to be completed by June 1, has been in the public spotlight since March 16, when JPMorgan purchased the Bear Stearns Cos. for $10 per share.

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

Hewlett-Packard has announced that it is acquiring EDS, a move that may mean good news for ExcellerateHRO.

On Tuesday, May 13, HP and EDS announced they had signed an agreement for HP to acquire the Plano,Texas-based technology company for $13.9 billion, or $25 per share.

Industry observers say that if the merger goes through it would provide a swath of new resources and potential clients for ExcellerateHRO, the jointly owned HR outsourcing business shared by EDS and Towers Perrin.

ExcellerateHRO was formed in 2005, but hasn’t amassed many deals in the past three years—causing many to wonder about the fate of the company.

But now that HP is buying EDS, the company could revamp ExcellerateHRO into an HR outsourcing provider that would be competitive with the top players in the market, experts say.

“It would give them a lot of investment in the company at a time when the market is very slow and it will give them access to the HP infrastructure and client base,” says Phil Fersht, an analyst at AMR Research.

The merger would also give HP a partner in the HR outsourcing business, which it has been seeking, analysts say. HP entered the HR BPO business in 2006, when it signed a deal with Nestlé, but has done nothing ever since.

Experts predict that HP will take over Towers Perrin’s ownership of ExcellerateHRO since it doesn’t need the consulting expertise.

It’s unclear what is going to happen to ExcellerateHRO, says Bill Ritz, an EDS spokesman.

“Subsidiaries like ExcellerateHRO are key components of our strategy and sales delivery system,” he says. “It is too early to speculate on any impact this event may have on our subsidiaries.”

—Jessica Marquez

While almost half of the companies in the S&P 500 have underfunded pension plans, the shortfalls at Ford and Goodyear pose more of a threat to future profitability of those companies than is the case with any of the others in the index, according to a new report from UBS analysts.

David Bianco, a strategist in the investment research group at UBS, notes that a company’s funded status should be compared with its market capitalization to truly measure its effect on a balance sheet. That said, the pensions at Ford and Goodyear are underfunded by roughly $3.3 billion and $1.5 billion, respectively—or 22 percent of their market caps. This, according to UBS, ranks as the largest pension shortfall-to-market value ratio among S&P 500 companies.

“Any shortfall in pension funding will require a diversion of future corporate profits to the fund, and equity capitalization represents the market’s estimate of future profits,” Bianco noted. “Therefore, this ratio reveals the relative burden of the deficit.”

On the other end of the spectrum, the pensions at General Motors and Eastman Kodak are nicely overfunded, and they appear less likely to drag down earnings. GM is carrying a roughly $8.3 billion pension surplus, which represents an estimated 59 percent of its market cap, the highest of any company in the S&P. Eastman Kodak, meanwhile, has a $1.5 billion surplus, which registers as 24 percent of its market cap, second only to GM.

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

General Motors brass considered several options to help strike-bound supplier American Axle & Manufacturing Holdings Inc., but decided the most practical and ethical plan was to offer $200 million in assistance, a top GM executive said.

“There were a number of us involved in it and in the discussions, and collectively we evaluated several options. There were several levels of engagement and we thought that this would be the right thing to do and the right time to do it,” Troy Clarke, president of GM North America, told Workforce Management’s sister publication Automotive News in an interview.

The 10-week-old strike by 3,650 UAW members at five American Axle plants has idled or slowed work at 31 GM plants in North America—primarily light-truck operations.

After saying for weeks that it would not get involved in the dispute, GM changed course on Thursday, May 8, and offered $200 million to help American Axle sweeten its buyout and buy-down offers for the rank and file. American Axle has sought cuts in pay and benefits approaching 50 percent, and GM’s assistance could be crucial in mitigating those cuts and gaining worker approval of a new contract.

GM no longer has any legal obligation to American Axle employees, Clarke said. The decision to help American Axle was both practical and ethical, he said. GM said the strike cost it $800 million in the first month alone.

“We thought it was in our best interests and the best interest of all parties to do something positive and helpful in trying to encourage the parties to reach a resolution,” Clarke said.

He said all work stoppages are painful—it just depends on the degree of the pain. GM was able to withstand the immediate impacts of the strike because of high light-truck inventories.

“Did we have a high truck inventory? Yes, that’s a true statement,” Clarke said. “Did it bleed off some of that inventory that we may have had to bleed off otherwise? I think that’s a fair statement too.

“But I don’t think it’s the kind of thing where we were on the sidelines saying, ‘Wow, I hope the strike lasts another two weeks because it gets me down to my inventory number.’”

Clarke said that GM has other ways to winnow inventory and that strikes are very volatile.

“Labor issues are complex, and [it’s] very tough to talk about these kinds of things in the press,” he said. “I do know one thing: The strike will eventually end.”

Filed by Jamie LaReau and Philip Nussel of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Legislation approved by the Connecticut Legislature on Tuesday, May 6, would open up the health insurance program covering state employees to Connecticut municipalities, nonprofit organizations and employers in the state with fewer than 50 employees.

The theory behind the legislation—which the Senate approved on a 22-12, largely party-line vote—is that by joining the state program, cities, nonprofit groups and small employers would become part of a much bigger purchasing entity and pay lower rates than they would buying coverage on their own.

Earlier, state officials had said expanding the program could increase costs for the state because insurers writing coverage could seek to raise rates to reflect an expansion.

“These additional costs to the state are not budgeted anywhere, and additional resources would have to be budgeted if the bill passes,” state Budget Director Robert Genuario wrote in a letter to lawmakers before the House approved the measure last month on a 102-43 vote.

Connecticut Gov. M. Jodi Rell, a Republican, hasn’t said whether she will sign the measure.

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

Tension between congressional Democrats and the Department of Labor will remain high for the final several months of the Bush administration.

The latest flare-up occurred regarding the agency’s process of distributing about $900 million in training grants for fiscal years 2001-07.

A Government Accountability Office report released Wednesday, May 7, shows that the awards did not include performance goals and other assessment criteria. In addition, $263.8 million in grants targeted toward high-growth industries did not go through a competitive bidding process.

Jennifer Coxe, deputy assistant secretary of public affairs at the Labor Department, maintained that the grants followed federal procurement rules and are crucial in helping workers upgrade their skills for the changing economy. 

“We stand by these investments and their results as a sound use of taxpayer dollars,” she said.

But a training advocate said the GAO has added to the perception that the Bush administration is undermining the state and local boards established by the Workforce Investment Act.

“This GAO report confirms what Congress already believes—that there hasn’t been appropriate oversight and accountability in how these grants have been administered,” said Rachel Gragg, director of federal policy for the Workforce Alliance in Washington. “These grants are circumventing the current workforce development system.”

Democrats on Capitol Hill echoed that point and criticized President Bush for seeking to reduce training funds at a time when workers are being laid off and need to retool their careers.

“Under this administration, the Labor Department’s ability to … support a prepared and competitive workforce has declined significantly,” said Sen. Tom Harkin, D-Iowa and chairman of the Senate Appropriations subcommittee with jurisdiction over the agency, in prepared testimony at a hearing Wednesday, May 7.  

He cited a proposed 16 percent, or $474 million, cut in training grants to argue that the area is not a Bush administration priority.

Labor Secretary Elaine Chao responded at the hearing Wednesday that the current workforce system is riddled with wasteful duplication and bureaucratic inefficiencies. She said that states didn’t spend about $900 million in workforce monies in the last fiscal year.

Harkin dismissed that calculation, especially in light of a $250 million rescission in WIA funding that the administration advocated and Congress approved last year. It’s causing states to deplete their workforce budgets.

“The data we have doesn’t show there’s all that leftover money,” Harkin said.

The Bush administration asserts that it can do more with less by consolidating WIA funding, currently spread over four programs, into individual “career advancement accounts” that provide $6,000 over two years for education and training. Congress has rejected the idea for several years.

Too many people lack “the training they need, and that’s a tragedy,” Chao said.

And workers in the system can be misguided. “We’re training people for jobs that don’t exist,” she said.

But Harkin doesn’t accept the notion that the answer is to reduce funding.

“As we move forward through this budget process, I will fight for the investments that keep our workers’ skills sharp,” he said.

—Mark Schoeff Jr.

When 401(k) participants open up their latest quarterly statements, many will be greeted by declines they haven’t seen in more than five years.

The first quarter wasn’t pretty, that’s for sure, with funds in every equity category posting losses during the period, according to consulting firm Mercer. The S&P 500 index, for one, lost 9.4 percent during the first quarter, the largest drop since the third quarter of 2002, when the index posted a 17.3 percent loss.

The decline in that mainstay index triggered a substantial drop in the value of U.S. equity funds held in 401(k) plans. The median large-cap growth fund tracked by Mercer plunged by 11.6 percent during the quarter, while large-cap core and large-cap value funds dropped by 9.5 percent and 9.1 percent, respectively.

“Participants took a bigger hit earlier this year than they have in a pretty long time,” said Andrew Kramer, a principal at Mercer. He added that the S&P 500 also posted a loss of 3.3 percent in the fourth quarter of 2007. “It wasn’t just limited to the U.S. either, so it had a pretty far-reaching impact.”

Overseas, emerging-market funds registered the worst performance, with a median decline of 11.3 percent during the quarter. The median global equity fund lost 9.6 percent, according to Mercer, while the median international fund dropped by 9.1 percent.

“There were few places for participants to hide during the quarter,” Kramer said.

The good news for plan participants is that the second quarter is off to a strong start. The S&P 500 index recovered quickly and posted a 4.9 percent gain for the month of April, ending a streak of five consecutive negative months. Non-U.S stocks were up more than 5 percent in April, while emerging markets were up more than 8 percent.

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

Publicly traded talent management software firm Taleo has signed an agreement to acquire Vurv Technology, a privately held talent management software provider.

Rumors about the transaction had swirled about the blogosphere for the past couple of weeks.

The acquisition is subject to closing conditions, including regulatory approval, and is expected to be completed before the end of the second quarter.

Under the agreement, Taleo will pay about $128.8 million, based on Monday’s closing price for Taleo’s Class A common stock of $20.32, for all of the outstanding capital stock of Vurv and the assumption of vested employee stock options.

Talent management applications refer to software tools for key HR tasks such as recruiting, performance management, compensation management and employee development. The products are among the fastest-growing applications in the HR software field, which is itself the fastest-growing category of business software.

Taleo and Vurv are among the leading vendors of talent management software. Others include SuccessFactors and Authoria. The biggest vendors of HR software, SAP and Oracle, also sell talent management products.

Jason Corsello, vice president at consulting firm Knowledge Infusion, called the deal “a significant moment in the talent management market” given the prominence of the two vendors. He expects Taleo to move Vurv customers to Taleo software over time. Such migrations can be disruptive to organizations.

“The big question mark is what does this migration look like for a lot of Vurv customers,” Corsello says.

The financial details of the deal consist of 4.1 million shares of Taleo Class A common stock, about $36.5 million in cash (subject to adjustment for third-party expenses and certain other specified items) and the assumption of as much as $9 million of debt. In addition, Taleo will also assume unvested employee stock options.

“This announcement marks an inflection point for talent management, making it easier for customers to realize the full benefits of unified talent management applications,” Taleo president and CEO Michael Gregoire said in a statement. “Together, we can help companies better manage workforce challenges brought about by shifting demographics, globalization and low levels of engagement.

“These challenges demand a new generation of talent management solutions that unify recruiting, performance, succession and compensation applications onto one comprehensive on-demand software platform,” he said. “This unified talent management solution will help companies identify and attract the best candidates, manage and motivate their workforce, and tie compensation to performance.”

“Taleo shares our vision and passion for helping customers around the world attract, retain and engage their people,” Vurv CEO Derek Mercer said in a statement. “Both Vurv and Taleo have independently built world-class organizations with extensive domain expertise and development resources. By bringing our two companies together, we will be better able to deliver talent management solutions addressing the advanced needs of our customers.”

—Workforce.com staff report

Click here to view videos of both CEOs discussing the merger and its effect on customers of both firms.
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An effort to expand a federal electronic employment verification system was set back at a House hearing on Tuesday, May 6, as lawmakers voiced concerns that the mechanism would overburden the Social Security Administration.

In the first of a series of immigration hearings this spring, the House Ways & Means subcommittee on Social Security explored proposals to crack down on illegal hiring through electronic worker verification.

One idea is to extend the current government electronic system, called E-Verify, to each of the country’s 7.4 million employers. Today, about 61,000 companies voluntarily use E-Verify, which checks information from I-9 forms against databases at the Department of Homeland Security and the Social Security Administration.

Rep. Michael McNulty, D-New York and chairman of the subcommittee, cautioned that the Social Security Administration must not take on added immigration responsibilities while the agency is trying to reduce a huge backlog of disability claims. Constituent queries regarding the payments can take more than 500 days to answer.

“It would be very difficult to get a majority to vote for a nationalization of the E-Verify system at this point in time,” McNulty said in an interview after the hearing. “This whole issue needs a lot more careful thought.”

Although immigration reform is stuck in a political quagmire on Capitol Hill, Congress must address verification this year because the law establishing E-Verify expires in November.

McNulty did not comment on an alternative to E-Verify called the New Employee Verification Act, which was written by Rep. Sam Johnson, R-Texas and ranking member of the subcommittee.

“On any of these proposals, we need to move very, very slowly,” McNulty said.

Johnson’s measure would eliminate the I-9 process and mandate that companies submit new-hire information electronically to the Social Security Administration through a child-support enforcement system that about 90 percent of U.S. employers use.

Proponents of the Johnson bill say E-Verify is inefficient, prone to error and incapable of detecting identity fraud. The HR Initiative for a Legal Workforce, which is led by the Society for Human Resource Management, criticizes E-Verify for relying on the Social Security database, which has a 4.1 percent error rate and could mistakenly declare millions of people ineligible for employment.

The Johnson measure would address such problems through an appropriation that would clean up the Social Security database before the verification system goes into effect, according to Mike Aitken, SHRM director of government affairs. The bill also provides a safe harbor for employers who use the system, reduces the number of identification documents for new hires from 25 to four and allows people to put additional protections on their Social Security numbers.

Under the bill, employers could sign up for a secure electronic verification system based on biometric information collected by a network of government-approved private contractors.

An Arizona Democratic co-sponsor of the Johnson bill said that companies in her state have had bad experiences with E-Verify since the state Legislature mandated its use earlier this year.

“They are finding it complicated, unreliable and burdensome,” said Rep. Gabrielle Giffords, D-Arizona, at the hearing. “If Congress does nothing or simply extends E-Verify without much-needed reform, it would be disastrous.”

SHRM president and CEO Sue Meisinger gave a similar warning. “It will slow down the free flow of labor across the economy,” she testified.

But E-Verify also draws staunch support. Homeland Security Secretary Michael Chertoff calls it an important tool to combat illegal immigration.

The author of the original E-Verify bill, Republican Rep. Ken Calvert of California, testified that 92 percent of employees put into the system are immediately approved and only 1 percent will contest a nonconfirmation.

“E-Verify is doing the job it was intended: denying employment to people in the United States not authorized to work,” Calvert said. “Let’s build upon what works and give the American people what they want: mandatory employment verification.”

All employers would have to sign up for the system and eventually run all of their employees through it under a bill sponsored by Rep. Heath Shuler, D-North Carolina, that has 151 bipartisan co-sponsors. Republicans and some conservative Democrats are trying to send the bill directly to the House floor for a vote.

Democratic leadership, torn between members of the party who support an enforcement-only approach and those who promote a path to residency for the country’s 12 million illegal workers, set up this spring’s immigration hearings as a way to let members vent about immigration.

—Mark Schoeff Jr.