Author: Site Staff

In a move that the Equal Employment Opportunity Commission says is designed to preserve retiree health benefits, the commission has issued a final rule that lets employers reduce benefits for retirees once they become eligible for Medicare. 

The rule, published Wednesday, December 26, in the Federal Register, allows employers that provide retiree health benefits to continue to coordinate those benefits with Medicare or comparable state health benefits without violating the Age Discrimination in Employment Act.

“Implementation of this rule is welcome news for America’s retirees, whether young or old,” commission chair Naomi C. Earp said in a statement. “By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits, which are increasingly less available and less generous.” (Read the EEOC’s Q&A on the new rule here.)

Kathryn Bakich, senior vice president and national director of health care compliance at consulting firm The Segal Company, applauded the new rule.

“The EEOC regulation will help employers be creative in addressing the need for retiree health care without worrying about calculating costs,” Bakich said in a statement. “It provides a realistic approach to situations where pre-Medicare and post-Medicare retirees have different needs.”

But the new rule got a chilly reception from advocacy group AARP. “This policy is a civil rights and economic fiasco,” AARP legislative policy director David Certner said in a statement. “It is a wrong-headed move to legalize discrimination, allowing employers to back off their health care commitments based on nothing more than age.”

The new rule comes after years of legal wrangling. A 2000 appeals court ruling, in Erie County Retirees Association v. County of Erie, held that the Age Discrimination in Employment Act requires that the health-insurance benefits received by Medicare-eligible retirees be the same, or cost the employer the same, as the health insurance benefits received by younger retirees.

After that court decision, unions and employers said that complying would force firms to reduce or eliminate the retiree health benefits they currently provided, according to the EEOC. Until the 2000 interpretation, the commission said, employers believed that the law let them coordinate any retiree health benefits they provided with Medicare without having to ensure that the benefits received by Medicare-eligible retirees were the same as those received by younger retirees

The EEOC voted to approve the new regulation in 2004, but AARP sued the commission in 2005 to prevent its implementation. After several years of litigation, the commission said, the Third Circuit Court of Appeals found that the rule was “a reasonable, necessary and proper exercise of [EEOC’s] authority.” That appeals court decision was issued in June, and AARP has appealed the decision to the Supreme Court.

In a statement, EEOC legal counsel Reed Russell said: “Our rule makes clear that it is lawful for employers to continue to provide retirees with the health benefits they currently receive. Contrary to what some interest groups have erroneously asserted, the rule will not require any cuts to retiree benefits.”

—Ed Frauenheim

The Bush administration has approved an innovative Indiana program that will extend state-subsidized health insurance coverage with consumer-driven features to low-income uninsured residents.

The plan, which is funded in part by an increase in the state’s cigarette tax, is set to begin on January 1, 2008. It will be available to residents whose income do not exceed 200 percent of the federal poverty level, which would be $20,420 for an individual and $41,300 for a family of four. Additionally, residents must be uninsured at least six months and not be eligible for employer-provided health insurance.

Under the Healthy Indiana Plan, which received Bush administration approval last week as a so-called Medicaid demonstration project, the state will pay for $500 a year in preventive services, which include annual physicals, smoking cessation programs, prostate exams, mammograms and diabetes testing.

Enrollees will have an annual deductible of $1,100. To cover that deductible, the state and enrollees will contribute a total of $1,100 to a Power Account, which is similar to health reimbursement arrangements used by many private-sector employers. Employers also can contribute to employees’ Power Accounts.

Like an HRA, accumulated contributions in a Power Account will roll over from year to year, offsetting an enrollee’s future contributions.

Beneficiaries’ contributions to Power Accounts will be linked to their income and range from 2 percent to 5 percent of gross annual income. For example, in the case of a single adult whose annual income is $10,210, the state would contribute $896 to the Power Account, while the individual would contribute $204.

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

In another setback to FedEx on the independent contractor front, The U.S. Internal Revenue Service has tentatively concluded that owner-operators who were working in the firm’s ground delivery business in 2002 should be reclassified as employees.

FedEx may have to pay $319 million plus interest in tax and penalties, the company said in a public filing Friday, December 21. The IRS is auditing the company on similar worker classification issues during the period from 2004 through 2006.

But FedEx is confident it will prevail. “We believe that we have strong defenses to the IRS’s tentative assessment and will vigorously defend our position, as we continue to believe that FedEx Ground’s owner-operators are independent contractors,” FedEx said in its filing.

The IRS move will likely not only affect FedEx, but influence a broader debate about the way firms farm out work to independent contractors.

Companies can create a more flexible workforce through the use of contractors, in addition to being able to avoid paying employment taxes. But worker advocates argue that such arrangements often amount to shams that let companies shirk both taxes and their responsibilities to workers who actually are employees under the law.

For years, FedEx and its FedEx Ground unit have been at the forefront of this debate. FedEx Ground argues that it contracts with independent operators to work its routes. The drivers own their own trucks, but FedEx has a series of requirements governing their work, such as the display of company colors and logos on trucks.

FedEx has been hit with multiple lawsuits challenging its treatment of FedEx Ground owner-operators. In its recent public filing, FedEx said the California Supreme Court has refused to review an appellate court decision upholding a trial court ruling that found a number of California contractors should be reimbursed as employees for some expenses.

FedEx said it doesn’t expect to incur a material loss in the California case. But it does face having to pay hundreds of millions to the IRS.

“The IRS has tentatively concluded, subject to further discussion with us, that FedEx Ground’s pick-up-and-delivery owner-operators should be reclassified as employees for federal employment tax purposes,” FedEx said in its filing. “The IRS has indicated that it anticipates assessing tax and penalties of $319 million plus interest for 2002.”

FedEx said that given the preliminary status of the matter, it cannot determine the amount of potential loss. But, it said, “We do not believe that any loss is probable.”

—Ed Frauenheim

States owe public employees at least $2.73 trillion in pension, health care and other retirement benefits. And while they’ve set aside 85 percent of long-term pension costs, states have saved just 3 percent of funds needed for health care and other non-pension benefits, according to a new study by the Pew Charitable Trusts’ Center on the States.

The Pew study is a peek at the amount of non-pension benefits states owe employees, which—until a new ruling by the Governmental Accounting Standards Board—states have not had to disclose. Those numbers are expected to become public between December 2008 and March 2009.

“Now we know the magnitude of this bill—and paying it will require an enormous investment of taxpayer dollars,” says Susan Urahn, managing director of the Pew Center on the States.

Just six states—Arizona, North Dakota, Ohio, Oregon, Utah and Wisconsin—appeared to be able to fully fund their non-pension obligations for the next 30 years as of the end of fiscal 2006.

None of the five largest states—California, Texas, New York, Florida and Illinois—had put aside money for non-pension benefits as of fiscal year 2006. According to the Pew study, New York faces the largest liability, at $50 billion, followed by California at $48 billion, and Connecticut and New Jersey at $22 billion each.

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

Federal authorities have charged a former human resources vice president of American International Group Inc. and three accomplices with defrauding the insurer of $1.1 million with phony bills for employee search services.

FBI agents and local police arrested John J. Falcetta, a former vice president with AIG’s life insurance division, on Tuesday, December 18, in Nantucket, Massachusetts. He was scheduled to be arraigned Wednesday in federal court in Boston.

Arrested separately were Gary J. Santone and Thomas Pombonyo, while a fourth defendant, Justin Broadbent, was still being sought Wednesday.
 
According to a federal criminal complaint, Falcetta moved from Philadelphia to New York to take his job with AIG in September 2005. His duties included managing contracts with employee search firms, and he had the authority to add firms to AIG’s approved list of vendors and to pay vendor bills up to $50,000.

Over the next two years, until AIG terminated him in August, Falcetta approved payments to bogus headhunter firms set up by Santone, Pombonyo and Broadbent, authorities allege. Those payments included $320,525 to G. Santone Associates, run by Santone; $674,886 to two firms, Enterprise Business Group and Global Search Affiliates Inc., run by Pombonyo; and $120,000 to Broadbent Advisory Group, run by Broadbent, the complaint says.

The four companies then kicked back $462,476 to Human Capital Management Partners, an entity Falcetta had created, authorities charge.

None of the search firms actually performed any work for AIG, and at least some of them appear to exist only on paper, the complaint suggests. The address Broadbent Advisory gave on its invoices, for example, is a residence belonging to Broadbent’s mother, and its fax number is registered to a Dunkin’ Donuts store in Philadelphia, the complaint says. The fax number on Santone & Associates’ bills belonged to a Philadelphia jewelry store.

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

Assistant Secretary of Labor Emily Stover DeRocco, who oversaw high-profile programs but also came under fire on matters including the closing of a public online job board, will leave her post in January.

DeRocco has served as U.S. assistant secretary of labor for employment and training for more than six years. During this time, her projects included improving community colleges, supporting talent development plans in regional economies and creating partnerships for the High Growth Job Training Initiative. The initiative is a program to prepare workers for jobs in high-growth, high-demand and economically vital industries, such as health care and advanced manufacturing.

“America’s workers and employers have had a steadfast friend in Emily Stover DeRocco, who always has understood that it is essential to prepare our workforce for the rewarding opportunities that lay ahead,” U.S. Secretary of Labor Elaine Chao said in a statement Thursday, December 20. “Emily transformed a $10 billion social services agency into an economic development driver actively working to enhance workers’ talents and prosperity.”

But there are questions about how well DeRocco managed her substantial budget at the Employment and Training Administration. In a report published in November, the Labor Department’s Office of Inspector General found that ETA did not adequately justify decisions to give out non-competitive awards for the High Growth Job Training Initiative. The Office of Inspector General examined 39 non-competitive awards and concluded that “ETA could not demonstrate that it followed proper procurement procedures” in 35 of them. Those 35 awards totaled $57 million.

The report says DeRocco “strongly disagreed” with findings related to the procurement practices used for noncompetitive grants.

The November inspector general report isn’t the only time DeRocco has landed in hot water. A 2005 inspector general report about the award of National Emergency Grant funds found that ETA was inconsistent in applying federal procurement rules and regulations with which the department was responsible for ensuring compliance.

DeRocco also was criticized for ETA’s move earlier this year to shutter America’s Job Bank, a public online job board. The Labor Department cited outdated technology and claimed that America’s Job Bank duplicated what was already available in the private sector. But the department declined to make public any comprehensive study weighing the pros and cons of America’s Job Bank and justifying the decision to close it, even though a good deal of evidence argued for the site’s preservation.

DeRocco represented the U.S. in numerous international forums, and was named to and led boards and commissions in areas ranging from the future of the aerospace industry to the aging of the American workforce, the Labor Department said in a press release Thursday.

Prior to her appointment at the U.S. Department of Labor, she served 11 years as executive director and COO of the National Association of State Workforce Agencies, a group of state administrators.

“The impacts of globalization and technology have made this period in our history one in which development of a more highly educated and skilled American worker is critical to the nation’s competitiveness in the world economy,” DeRocco said in a statement.

“It has been a privilege and an honor to serve the American people under President Bush’s and Secretary Chao’s leadership,” she added.

—Ed Frauenheim

There is a glaring deficiency in reading and writing among new entrants in the American workforce, and that is troubling employers who are being forced to invest in additional training—or simply look for skilled workers offshore—for one of the most fundamental job skills in the 21st century economy.

The latest report to sound this alarm was published last month by the National Endowment for the Arts, which concluded that employers ranked reading and writing as the top deficiency in new hires. The study, “To Read or Not to Read,” was based on a variety of data sources including a 2006 report by the Conference Board titled “Are They Really Ready to Work?” which concluded that today’s American workforce is “woefully ill-prepared” for the demands of the workplace.

However disparate the sources of the data, the picture presented is one that NEA Chairman Dana Gioia described in the report’s preface as “simple, consistent and alarming.” The decline in Americans’ reading and writing skills has “demonstrable social, economic, cultural, and civic implications.” Workers who cannot read and write well earn less and have higher unemployment rates. Employers, meanwhile, must spend more time and money on what is considered a basic skill.

Linda Barrington, research director for the Conference Board and an author of its report, says that even among recent graduates of four-year colleges, new hires were unable to write effective business communication, read analytically or solve problems.

“It’s nice that they are reading e-mail and reading comics,” Barrington says, “but if they can’t turn it into a communication tool, that is where the breakdown happens on the employer side.”

The Conference Board study was prompted by a closed-door meeting two years ago with Fortune 100 CEOs who worried that the skills gap would only quicken the offshoring of American jobs.

Literacy levels today are similar to those in 1970, according to the Nation’s Report Card, the federal government’s annual assessment of literacy levels. But the economy has changed drastically since then. Workers today need to be able to read and analyze complex, often very technical material, like manuals for car mechanics, to succeed in most jobs.

“Jobs that don’t have much in the way of skills have moved out of the United States or are not living-wage jobs,” says Timothy Shanahan, past president of the International Reading Association and a professor of urban education and reading at the University of Illinois at Chicago. That means even jobs that are considered low skill require workers to read at an eighth-grade level, he says.

“Schools are not demanding students to read what the workforce is demanding them to read,” Shanahan says.

Bill Kozell, who runs Dr. Goodwrite, a Wayne, Pennsylvania-based company that helps workers improve their writing, says the problems come down to basic errors in grammar, spelling and tone that can nonetheless be disastrous for a company and its image.

“If you can’t make sure an e-mail is grammatically correct, what else are you cutting corners on?” says Kozell of the message a poorly written e-mail can send to a client. “Companies invest millions of dollars in their image and it can be undone in a matter of minutes by one sloppy e-mail.”

Financial services company Capital One, Kozell says, is one employer that offers remedial English courses to employees.

But the skills gap has become a national issue that has prompted federal legislation—the Striving Readers Act of 2007—calling for greater investment in basic reading and writing skills training for high school students.

Barrington says employers should develop a more unified approach toward improving the skills of American students rather than funding a hodgepodge of programs meant to address the problem. Just what that approach should be, however, has not yet been determined by researchers.

“It’s where we are looking next,” Barrington says.

—Jeremy Smerd

Cash bonuses are still king for high-performing employees, and many privately held companies are responding accordingly, a recent study says.

Nearly 80 percent of the 300 respondents to a WorldatWork and Vivient Consulting study say they have at least one short-term incentive plan; nine out of 10 companies with such plans say high-performing employees get bonuses for their hard work.

Using short-term incentives or variable pay programs is a great tool many private and public companies use to focus employees on critical goals, says Leonard Sanicola, compensation practice leader for Scottsdale, Arizona-based WorldatWork.

“This is the way to reward people and increase productivity,” Sanicola says.

Privately held companies with varying revenue sizes stay within 2 percent to 12 percent of operating income to fund their short-term incentive program, the study showed. Overall, participating companies’ revenues ranged from $100 million to more than $5 billion.

Critical to the success of any incentive program is communication and setting appropriate measures, Sanicola says. Incentive programs turn into entitlement plans when employees don’t understand company goals and the role they play in achieving them.

Employees “wouldn’t be as upset about not receiving a bonus if they understood how profit for a company is made and how their contribution influences that,” Sanicola says.

For Milwaukee-based Roundy’s Supermarkets Inc., managers and other high-level employees eligible for the bonus program are updated through e-mail, management meetings and other forms of communication.

“At the retail level, monthly scorecards provide opportunities for feedback in key performance areas,” says Vivian King, a company spokeswoman. Roundy’s, with $4 billion in annual revenue and 22,000 employees, measures performance through its sales and earnings before interest, taxes, depreciation and amortization.

WorldatWork’s study showed 49 percent of companies with short-term incentives used sales and specific individual goals to measure performance.

King said Roundy’s management teams’ rewards are based on the performance of their individual stores as well as the performance of the whole company.

“We believe the bonus program rounds out our compensation and benefits package,” King says. “[Short-term incentives] are common in our industry, but they do help attract and retain employees.”

Meanwhile, many private companies falter when it comes to offering more complex incentives. Only 35 percent of the study’s respondents say they have long-term incentive plans; only one in five would add or modify an existing plan.

For the respondents with long-term incentive plans, 34 percent use stock options, 33 percent use long-term cash plans, 19 percent had stock-appreciation rights, and 14 percent use restricted stock, the study showed.

Offering a long-term plan is simply more complicated, Sanicola says. While tax, accounting and legal issues are black-and-white obstacles, some owners have a hard time awarding even the most productive employees with a piece of the company. And while a cash payout may seem easier, liquidity issues often hamstring private companies, he says.

Roundy’s doesn’t have a long-term incentive plan.

“We try to put programs in place that make sense for our customers, employees and our business,” King says. “Until we find a program that truly fits our business, we shy away from implementing it.”

—Patty Kujawa

Blue Cross Blue Shield of Rhode Island will pay $20 million to resolve federal public corruption charges over payments that its lobbyists made to state officials, the U.S. Justice Department announced December 13.

As part of the agreement, federal officials agreed not to press criminal charges against the health insurer as long as it continues to cooperate with federal and state investigations.

The Providence, Rhode Island-based insurer also agreed to implement ethical reforms on how it will interact with state officials and not to impose rate increases to recoup the $20 million fine.

Under the agreement, BCBSRI accepted responsibility for former executives whom the insurer admitted acted within their authority as lobbyists when they made illegal payments to elected officials. For example, the insurer paid $400,000 in insurance brokerage commissions to an unidentified former state Senate president while the insurer’s executives were lobbying him, the Justice Department said.

A Justice Department spokeswoman says she could not elaborate on the circumstances under which the official was paid the commissions. The insurer paid $74,000 to a communications company to produce a cable access program that former state Sen. John Celona hosted. Celona was paid more than $13,500 as the host.

In addition, the insurer paid about $175,500 to a business that former House Majority Leader Gerard Martineau ran.

Celona and Martineau have pleaded guilty to public corruption charges as part of the investigation, the Justice Department noted.

The money from the fine will be deposited into a fund to support projects designed to provide affordable health care services in Rhode Island, according to the Justice Department.

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

A stopgap measure will help the Equal Employment Opportunity Commission keep its phones staffed until March after it closes its call center on Wednesday, December 19.

The four-member commission board voted unanimously on December 12 to hire 38 temporary employees and extend the contract on its interactive voice-recognition answering system for three months. The cost will be about $250,000.

But the complex transition to an in-house capability has divided the board and raised concerns about quality at a time when the EEOC is already under fire in a Supreme Court case.

The temporary employees will help the EEOC’s field offices handle a volume of calls that totals about 65,000 each month. The 24-hour answering system can resolve about 35 percent of the queries.

By late March, the EEOC hopes to have hired 61 federal workers permanently. The agency voted in August to close the outsourced facility, the National Contact Center, and establish an internal function. The move was necessary because Congress eliminated funding for the center.

Even though the EEOC is responding to a Capitol Hill action, the process of closing the call center has sparked two recent contentious meetings.

EEOC Chair Naomi Earp and Vice Chair Leslie Silverman supported extending the center’s contract during the transition. Commissioners Stuart Ishimaru and Christine Griffin voted for the December closure.

At the board’s most recent meeting, Ishimaru expressed frustration with the slow pace of the agency’s effort to put an alternative customer service system in place.

“Here we are a week before the phones are turned off and we have a proposal for what to do next,” he said. “We established an atmosphere that this is not urgent.”

Silverman took exception to Ishimaru’s characterization of the board’s attitude. “What we’re trying to do here is provide the best customer service we can under the circumstances,” she said.

Nicholas Inzeo, director of EEOC field programs, said that temporary workers will be trained on customer service “soft skills” and on EEOC procedures. But, he added, “We’re not going to be able to do as much as we could with the contact center.”

If claims are fumbled during the transition, it could amplify questions surrounding the EEOC’s administrative ability.

In a November oral argument involving the definition of an EEOC charge, or the action that the agency takes against an organization for alleged discriminatory conduct, several Supreme Court justices expressed frustration with the agency’s intake practices. A government lawyer at the hearing said the EEOC had improved its process for bringing charges since the case was filed.

Whether the EEOC loses public confidence during the upcoming transition will hinge initially on the performance of the temporary employees.

“It’s going to depend on who ends up answering the phones and their level of experience,” Griffin said after the meeting. “It’s better than not doing anything.”

Ultimately, an internal customer service system will work better than the call center, Ishimaru said in an interview.

“It was another layer that was added that did not add value to our process,” he said. “We should have EEOC employees answer the phones.”

Ishimaru’s term on the commission ends in January. It’s not clear whether his reappointment will be confirmed by the Senate.

—Mark Schoeff Jr.