Author: Site Staff

Employers may not get everything they want from pension reform legislation being hammered out on Capitol Hill, but they have apparently prevailed on one sticking point—credit ratings likely will not be used to determine the vulnerability of a pension plan and trigger higher payments.

Instead, the funding status of the plan itself would be the barometer, according to sources close to House-Senate talks. If a plan is above 80 percent, it would not be deemed “at risk.”

A plan below 80 percent would subtract its credit balance from its assets and divide that number by its liabilities. If the resulting ratio is less than 70 percent, then the company would have to increase the amount of money it puts into its plan.

A recent study of S&P 500 companies by Mercer Human Resource Consulting shows that the average pension plan is funded at 83 percent.

Even though the credit rating issue is moving toward resolution, officials caution that nothing in the complex bill is final until everything is final.

“Because all of the different moving parts have to mesh perfectly to get a bill, we do not comment on current or prospective details of the draft bill,” says J. Craig Orfield, spokesman for Sen. Mike Enzi, R-Wyoming, chairman of the Senate Health, Education, Labor and Pensions Committee.

Some companies are disappointed that credit balances, which are built up by making higher-than-required pension contributions in some years, probably won’t be used to calculate funding status.

“It’s not the optimal outcome,” says Lynn Dudley, vice president of the American Benefits Council, which represents more than 200 large corporations. “Companies are realistic about the direction the bill is going.”

The business community is sitting tight rather than reacting to this development.

“I don’t think they’re rushing to the door (to end defined-benefit plans),” she says. “They are trying to be practical about controlling cost volatility.”

It’s likely the final bill would require companies to fund 100 percent of their defined-benefit pension promises within seven years.

A number of huge pension defaults by legacy industries like airlines and steel manufacturers have helped create a nearly $23 billion deficit at the federal Pension Benefit Guaranty Corp. A faltering stock market, declining interest rates at the beginning of the decade and, the Bush administration argues, lax funding rules have led to $450 billion in total pension underfunding.

The conference committee, which has missed several self-imposed deadlines, may push to complete its work before the August congressional recess.

Beyond credit ratings, difficult negotiations remain about the legal status of cash-balance plans, rules governing investment advice for 401(k) products and whether to give airlines 20 years to shore up their pensions. A couple tax reform measures also may be added to the bill.

Watson Wyatt Worldwide says that 113 companies in the Fortune 1,000 have frozen or terminated their pension plans as of April, up from 71 in 2004.

In another pension development, the Department of Energy has suspended for one year its April decision to stop reimbursing federal contractors for defined-benefit pension costs.

—Mark Schoeff Jr.

Dear Grieving:



Many organizations spend a lot of time, effort and money trying to uncover the secret to retaining top talent. Yet most of them overlook the obvious–asking their employees why they stay and, also, what might lure them away.

Rather than conducting exit interviews with departing stars, stop guessing what keeps your star performers happy and try using “stay interviews” to prevent them from leaving in the first place. Don’t assume they all want the same things, such as more pay or promotions.

Ask employees, “What will keep you with our company? What might entice you to leave?” Listen actively to the answers you receive. Are employees staying for a chance to learn and grow, for a promotion and a big title, or for some other reason?

Don’t wait for a formal career discussion. Take your treasured employees to lunch or coffee, for the express purpose of asking these important questions.

Asking has many positive side effects. The people you ask feel valued and important, which often engenders stronger loyalty and commitment to the organization. In other words, just asking the question is a retention strategy.

Beyond listening, you need to respond, and what you say is critical. Responses like “that’s unrealistic” immediately halt the dialogue and might even cause your employees to launch a job search.

Some managers hesitate to raise this issue for fear they won’t be able to deliver on the employees’ requests. If that is the case, be frank. But also commit to investigating other possibilities. We guarantee there is at least one thing your talented employee wants that you can give.

You may want to begin with some popular questions for stay interviews:

• What about your job makes you jump out of bed in the morning?
  
• What makes you hit the snooze button?
  
• If you were to win the lottery and resign, what would you miss the most?
  
• What one thing that if changed in your current role would make you consider moving on?
  
• If you had a magic wand, what would be the one thing you would change about this department?
  
• If you had to go back to a position in your past and stay for an extended period of time, which one would it be and why?
  
• What makes for a great day?
  
• What can we do to make your job more satisfying?
  
• What can we do to support your career goals?
  
• Do you get enough recognition?
  
• What will keep you here? What might entice you away?
  
• What do you want to learn this year? How might you learn it?
  

SOURCE: Beverly Kaye, Career Systems International, Scranton, Pennsylvania, July 13, 2005.

LEARN MORE: How Convergys used ananalytical approach to determine how to keep employees around. Plus, otherideal questions for stay interviews. And12 questions to measure employee engagement.

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.

Ask a Question

Dear Workforce Newsletter

Dear Engineer Turned Analyst:

This is a very difficult scenario. Lay a foundation before diving into numbers and spreadsheets. Ask a few of your fellow business managers and human resources executives to provide advice and help when developing this plan.

Start by determining the organization’s attitude or philosophy toward talent. Is the company primarily interested in developing talent from within, acquiring experienced talent or in some hybrid of both approaches? Is it important toretain people or is turnover acceptable? What amount of turnover is acceptable? Does the organization want tohire college grads or only experienced people?

There are lots of other questions, but asking them should prompt your senior management to think about how people need to be regarded in your organization. Theattached diagram illustrates this.

The next step is to match this philosophy to your business needs, which in your case is achieving proper staffing levels for a given level of revenue within a given time span. Experience with other functions in the organization should give you some baseline targets, or at least an idea of what number you will need to achieve. You’ll have to factor in the time element and determine baseline minimal staffing levels as well as optimum levels.

Leave it to the business heads–although you can solicit input from them–to determine the amount of revenue each unit must generate. Once this is figured out, you can use past data regarding revenue per employee (assuming your organization has it) to extrapolate the number of people you’ll need to hire. You’ll need to make assumptions based on changing demographics, the impact of new technologies and the expense of recruitment and development when determining final numbers and costs.

Success is possible if you collaborate with others on the management team and use past data and experience to make projections. This should be a team effort.

SOURCE: Kevin Wheeler, Global Learning Resources, Fremont, California, July 13, 2005. The graphic is copyright Kevin Wheeler.

LEARN MORE: How toquantitatively measure whether your workforce is too large, too small or just right. Also:three items every organization should measure.

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.

Ask a Question

Dear Workforce Newsletter

First Advantage still has a big appetite. The company, which offers a wide range of business data services, has bought five firms so far this year in the field of employment screening.

The latest acquisitions, part of a broader strategy involving the purchase of more than 40 firms in the past several years, could help the company take advantage of fast growth in the employment background checking industry. But First Advantage faces a challenge when it comes to smoothly swallowing all the firms it has snapped up.

First Advantage aims to keep its annual client “churn” rate at less than 4 percent, says Bart Valdez, head of employer services operations. But at times a higher percentage of customers of acquired firms have left.

“I wish I had the magic bullet for integrations,” Valdez says. “They can be difficult.”

At first glance, St. Petersburg, Florida-based First Advantage seems an odd mishmash of a company. One wing helps managers of multifamily housing units perform background checks, and another conducts insurance fraud investigations. When it comes to employer services, the company’s offerings include background checking, drug testing, employee assistance programs and hiring management software.

First Advantage is majority-owned by the First American Corp., which provides business information including real estate data.

A focus on business data is the glue that holds together First Advantage’s various units and 4,100 employees, Valdez says. And he argues that the range of employer services offered by First Advantage lets it act as a one-stop shop for clients—and pitch more than one service.

“Twenty to 25 percent of all our new contracts are coming through as a cross-sale,” he says.

For the first quarter of 2006, employer services operations raked in revenue of $39.7 million, up from $29.9 million in the first quarter of 2005. First Advantage’s total revenue for the quarter was $194.3 million.

First Advantage is one of the five largest background checking providers, says Barry Nadell, co-chairman of the National Association of Professional Background Screeners industry group. Consolidation in the industry has been going on for several years, says Nadell, whose own firm, InfoLink Screening Services, was bought by risk consulting company Kroll this year. Kroll, another big player in the background checking field, is a unit of professional services firm Marsh & McLennan Cos.

Compliance and liability concerns are key factors behind the growth of the employment background checking industry, Nadell says. While less than 20 percent of businesses conducted significant background checks when hiring 10 years ago, 80 percent to 90 percent of firms now run a substantial background check that includes a criminal record review, according to Kroll.

Mark Marcon, an equity analyst at investment firm Robert W. Baird & Co., forecasts total revenue in First Advantage’s employer services operations to rise 20 percent this year, to $182.4 billion.

“The hiring environment is a key driver to the company’s core pre-
employment screening business,” Marcon wrote in an April report. “Over the past year, hiring conditions have improved substantially … .”

Colin Gillis, equity analyst at investment firm Canaccord Adams, says First Advantage’s purchase of smaller background checking firms is a way to acquire midsize customers. Its expanded operations overseas, meanwhile, reflect a bid to attract Fortune 1,000 clients. Among its acquisitions this year was Tokyo-based employment screening company Brooke Consulting.

A challenge for First Advantage, Gillis says, is establishing the company’s brand as a one-stop shop for employers and successfully cross-selling services. Otherwise, he says, the firm could end up as a “collection of businesses that don’t mesh.”

—Ed Frauenheim

The recent cash infusion at startup job board Market10 signals both boom times for employment sites and a vote of confidence in Market10 chief executive Rob McGovern, who also founded CareerBuilder.

But the company faces questions, including whether it will manage to attract job seekers as it opens for business in cities across the country this year.

Recruiting analyst Mark Mehler says Market10’s reliance on getting job seekers to answer pre-employment questions as part of its job-matching process will likely be a tough sell to people who already have plenty of options. “The challenge of all job boards today, because thousands exist, is to get the eye of the job seeker,” he says.

McGovern responds that those hunting for jobs can be persuaded to fill out his 15-minute questionnaire on skills, experience and preferences. In the test market of Washington, D.C., the percentage of visitors completing Market10’s survey rose to 80 percent from 50 percent after users were given clearer information about the length of the form, McGovern says.

He likens Market10 to relationship site eHarmony, where users are asked to fill out a 436-question survey to find compatible mates. “I think we’re doing a good job of proving that people will work a little harder to get a dramatically better result,” McGovern says.

In May, Market10 said it raised another $13 million in investment that brought the company’s total to $21 million. The company, based in McLean, Virginia, was founded last year.

McGovern says Market10 is a second-generation job board, in that it offers superior matching results. Market10 aims to beat other boards through the detailed questions it asks of both candidates and employers related to 10 “dimensions” of a good job fit, such as skills, compensation and willingness to travel.

For example, McGovern says, job seekers can’t just cram multiple abilities onto their match profile, as they often do on résumés, with the goal of catching the attention of a key-word search. Market10 requires candidates to rank their skills and work experience in order of importance.

Venture capital firm Menlo Ventures is in effect betting $8.5 million on Market10’s approach and McGovern’s leadership.

“We couldn’t be happier to be teamed with Rob and his experienced management team,” Menlo managing partner Sonja Hoel said in a statement.

Job board analyst Peter Weddle says the new cash for Market10 reflects the strength of the online employment site field.

“I suspect this investment only represents the tip of the iceberg for new ventures in this area,” Weddle says.

Weddle also is optimistic about job seekers’ willingness to take the time to fill out Market10’s form. Other sites have managed to pull that off, he says.

Mehler, though, questions whether businesses will trust that Market10’s matching methods are valid. McGovern says that corporate interest in using Market10 as an internal tool has been overwhelming, leading him to license the technology to recruiting software provider Peopleclick.

—Ed Frauenheim

Building shareholder value means assuming a new point of view on an organization. Knowing it from the inside out isn’t enough. It’s also necessary to know it from the outside in. How well do you understand the point of view of your company’s investors? Try this quiz, developed by Dave Ulrich and Wayne Brockbank, authors of The HR Value Proposition.

• Who are your company’s five major shareholders, and what percentage does each of them own?

  
  

• Why do those investors own your company’s stock? What are their investing criteria (i.e., dividends, growth, etc.)?

  
  

• What is your company’s tangible value? What portion of the company’s value is intangible?

  
  

• What is the company’s price/earnings ratio for the past decade? How does the P/E ratio compare with the industry average? How does it compare with the company with the highest P/E ratio in the industry?

  
  

• Who are the top analysts who follow your industry? How do they view your company compared with your competition?

  
  

Sharon Taylor
Senior vice president, corporatehuman resources, Prudential Financial

In 2002, Sharon Taylor was promoted to her current role just months after her predecessor had signed an HR outsourcing deal with Exult (now Hewitt Associates). It was one of the first major contracts of its kind, and although there were no benchmarks for guidance, Taylor decided to go ahead with the plan. Taylor recently spoke to Workforce Management staff writer Jessica Marquez.

Workforce Management: Why did you decide to proceed?

Sharon Taylor: The key reason I decided to move forward was that I realized that we both had a lot to lose—and everything to gain. We were among Exult’s first major clients whose work was going to move, and $33 million worth of work is not insignificant. Exult had to demonstrate that this model had staying power and was scalable. So in my mind, our risk was mitigated somewhat by the fact that if they fell on their faces, it would be a big black eye for the space and a body blow to this young company.

WM: You went from 541 employees in HR to 185 today, partially due to outsourcing. How did you prepare your staff?

Taylor: We were really honest. We worked hard to find opportunities for them. There were people who were extraordinarily angry at me because they felt that somehow by doing this, it was an affront to the profession. We did a lot to try to train people, but at the end of the day, there are some core competencies that we thought were there but weren’t. Managing a strategic alliance, from a vendor governance and relationship management perspective, is not the same as what these people were doing. There were some people, because of the jobs that they did or how well they did them, that we just assumed they could learn this. But that did not happen in all cases. Some people self-selected out, and sometimes we had to change some people.

WM: How are you gauging your success?

Taylor: We have operational metrics, like required service levels and customer-satisfaction metrics for our department, and employee feedback surveys. We are hitting almost all of our service-level agreement indices. Complaints are way down. In the first year we took $9 million off of our run rate and we will have achieved 20 percent baseline savings over time. And that will grow to 30 percent through the life of the contract.

WM: How would you like to raise the bar when your contract comes up for renewal?

Taylor: I would like to add assessment metrics. For example, we have outsourced staffing at certain levels. I want to look at retention and turnover as a measure of quality on the staffing front. How do we know that the outsourcer is providing us with the best candidates?

WM: Since 2001, Prudential’s overseas employee base has jumped from 10 percent to 45 percent. Do you have a global HR outsourcing solution?

Taylor: We have global benefits programs, like our stock purchase program, which Hewitt is supporting. But there are other things where a global solution has yet to be identified. Our growth globally has been dramatic and abrupt, so we need to refine our strategy and look at how it will manifest itself in the next five years. Then we can begin to explore global solutions that make sense.

Workforce Management, June 12, 2006, p. 12 — Subscribe Now!

Companies that do business with the federal government have mostly taken a position of “see no evil, hear no evil” when it comes to internal pay equity. Their thinking has been that the government can’t accuse them of having poor processes in place for assessing internal pay equity if they don’t have any processes in the first place.

But that’s changed now. On June 16, the Office of Federal Contract Compliance Programs, the agency that monitors federal contractors for discrimination on the basis of gender and race, issued new standards for assessing “systemic compensation discrimination.”

This now means that when they are audited, the 16,000 U.S. companies that do business with the federal government have to provide information gathered from a compliance self-evaluation or else certify that they have such processes in place.

The regulations, which are effective immediately, mean that the companies don’t just have to have processes in place, but they need to have an executive, usually a senior HR person, attest to them, says Brian Levine, a principal with Mercer Human Resource Consulting.

Levine says the OFCCP came out with the rules because the agency was frustrated about not being able to make its claims regarding pay equity stick. By forcing companies to have a process in place, it makes the matter more clear-cut, he says.

Mercer is advising clients to adopt the OFCCP’s own methodology for assessing pay equity. The agency uses a statistical technique called multiple regression, which is “onerous,” to apply, Levine says. But by using this standard, companies can better anticipate any issues the OFCCP might come across during an audit, he says.

Levine doesn’t believe that companies should share their processes in the event of an audit. Instead, Mercer favors having an executive certify that processes are in place.

“We are telling clients not to share the information because there are many unresolved confidentiality and privileged information issues associated with sharing individual employees’ data,” he says.

—Jessica Marquez

Abandoning defined-benefit plans for defined-contribution plans will economically hurt U.S. companies in the long run, says the former chief of the PBGC.

Bradley Belt, in an interview with Pensions & Investments on his last day as executive director of the Pension Benefit Guaranty Corp. in Washington, D.C., said one of his chief concerns is that corporations will use pending pension reform and potential changes to the Financial Accounting Standard Board’s Rule 87 as excuses to switch to defined-contribution plans.

“I’m concerned that companies are being very shortsighted if they are putting all their eggs in the DC basket” and less in defined-benefit plans, Belt said in an interview on May 31, his last day after three years at the PBGC. “You’ll have a situation in which employees of those companies won’t save adequately and won’t participate in their companies’ match programs. Down the road, those companies will have a lot of 65-year-olds who don’t have adequate savings for retirement, and therefore are not going to be able or willing to leave the workforce. This would happen just as a company might want to manage those individuals out and bring in younger, lower-cost workers.”

Belt also underscored the importance of a defined-benefit plan to attract talent.

“Each company needs to determine what the optimal compensation structure should be,” Belt said. “They want to be able to recruit the most talented employees. Historically, DB plans have been a very effective compensation tool and, more importantly, one that could be used to manage the exit of older workers at appropriate times.”

The final version of the pension reform bill, which has been debated by members of Congress since February, could prompt many U.S. corporations with defined-benefit plans to switch to a defined-contribution model. That’s because the bill is expected to implement stricter funding rules, change the way corporations can calculate the discount rate used to calculate their liabilities, and decrease the number of years companies have to fund their pension plans.

Additionally, a proposed change to FASB 87 that would eliminate actuarial smoothing could make the value of pension assets of a corporation more volatile in conjunction with their liabilities.

On June 1, Labor Secretary Elaine Chao appointed Vincent K. Snowbarger, the PBGC’s deputy executive director, as its interim executive director.

Belt suggested his permanent successor “develop a thick skin and wear a hard hat.”

“He or she is taking actions and making decisions that will protect the greater set of core interests, but inevitably will adversely impact other parties,” he said.

Belt presided over the agency’s first flat-rate premium hike, which became effective January 1. It was not well-received.

“There was an understandable reluctance of having to pay higher premiums by U.S. corporations, but the fact of the matter is the premiums had not been raised since 1991,” Belt said. “And that hike brought in a little over $60 million in additional revenues to the PBGC each year. Our loss in the (UAL Corp.) bankruptcy was almost $7 billion, which is about 10 years’ worth of flat-rate premiums in one fell swoop, so the premiums were clearly inadequate to cover expected future claims.”

Belt said he was proud that he helped guide the agency through one of its more difficult periods, which included the high-profile bankruptcies of Houston-based Enron Corp. and UAL Corp. of Elk Grove Township, Illinois, as well as 120 distressed terminations of corporate pension plans in 2005 alone.

“We used the relatively limited set of regulatory tools and authorities at our disposal to achieve some positive outcomes for stakeholders,” he said. “Most notably, in the Enron bankruptcy we were able to be proactive and avoided taking any loss for the insurance program or any cutbacks in the benefits for participants. United Airlines, unfortunately, terminated its pension plan. But as a result of being proactive in the settlement agreements we entered into, our recovery rate was substantially in excess of what is typically the case for the PBGC.”

United Airlines’ $15.2 billion defined-benefit pension plan was underfunded by $10 billion when the company declared Chapter 11 bankruptcy in 2003. It is estimated that the PBGC assumed about $7 billion in liabilities when it took over the plan in 2004.

In the future, the PBGC must create a plan to deal with risks of a downward credit cycle or recession, Belt said.

“My concern is that the PBGC has had record growth in its deficit and a record number of terminations in a very strong economic environment (2004 to 2005). That raises the question of what are the risks to the insurance program in a less benign economic environment,” he said. “If you have a change in the credit cycle or a recession, there is the potential for additional losses, and we haven’t done anything to address those risks.”

For House and Senate conferees negotiating a compromise on pension reform, the greatest challenge is creating rules that would force corporations to disclose the actual funding levels of their pension plans.

“The real tragedy is that when companies terminate their pension plans, there are real-world impacts. When a plan gets terminated, there are workers and retirees who have their expectations of retirement security dashed,” Belt said. “You also have companies that have acted more prudently in terms of managing their pension plans that may be on the hook to pay higher premiums as a result of the pension plan terminations, and ultimately, if premiums are not the answer, then taxpayers would be called upon to rescue the insurance program.

“The solution is that there needs to be more rational and stronger funding rules and greater transparency,” he said. “The bottom line is that you wouldn’t have a need for high premiums if pension plan losses are minimal. We wouldn’t be having this conversation if United’s pension plan were underfunded by $10 million instead of $10 billion, or if Bethlehem Steel’s pension plan were underfunded by $4 million instead of $4 billion.”

—Vince Calio, Pensions & Investments

The decision last month by the Internal Revenue Service to revoke the tax-exempt status of 41 credit counseling organizations was a reminder for employers to check the backgrounds of the financial counselors they hire, even if the organization is registered as a nonprofit.

Consumer credit companies offer financial education and counseling to individuals burdened by credit card debt. Most collect fees by guiding consumers into debt management programs, which attempt to help people pay credit card debt. The IRS determined that the 41 organizations, whose identities have not been revealed, had inadequate counseling. As a result, some are under criminal investigation.

Employers looking to help employees get out from a heavy debt load often look to nonprofit credit counseling and education organizations in good standing with industry associations to teach financial management skills, a benefit that is often bundled as part of an employee assistance program.

Privacy laws, and corporate culture, generally limit companies from becoming directly involved in helping their employees manage their finances beyond providing education and counseling.

“Companies want to be at arm’s length,” says Kathy Stoughton, a financial specialist at ComPsych, an EAP provider based in Chicago. “They don’t want to become paternal.”

Federal law requires individuals who are preparing to file for personal bankruptcy to meet first with financial counselors. David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, says most people simply need to be educated on how to change their spending habits.

“There are people living paycheck to paycheck who are spending $150 a month on Starbucks,” Jones says. “There are just bad spending patterns people need help, education and guidance with, and the great majority of people we speak to fall into that category.”

One in four American workers suffers from serious financial worry, according to a report published last year titled “Financial Distress Among Americans.” Conducted by E. Thomas Garman, a professor emeritus of personal finance at Virginia Tech University, the report estimates that 30 percent to 80 percent of employees spend time at work worrying about their finances, at a cost in annual productivity of $450 to $2,000 per employee.

Companies looking to hire a credit counselor to educate employees should make sure the company is in good standing with the industry’s two associations, the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies, both of which require their members to be federally tax-exempt organizations.

“The counseling and the education organizations do with consumers is what makes this a nonprofit service,” Jones says. Employers can also contact their state’s attorney general’s office or better business bureau to verify a credit counseling organization’s good standing.

Consumer credit organizations say the crackdown by the IRS was long overdue and anticipated. Many of the organizations whose tax-exempt status was revoked can nonetheless operate as non- profit organizations under state charters or as for-profit companies in states that allow them. At for-profit debt settlement companies, consumers stop paying their credit card debt while the company negotiates a reduced principal with the creditor. The companies charge a hefty fee, often as much as 30 percent of the principal owed.

The National Conference of Commissioners on Uniform State Laws recently drafted a law aimed at regulating both nonprofit credit counseling organizations and for-profit debt settlement companies. The group’s legislative director, John McCabe, says the law would rein in for-profit companies currently operating without oversight.

Others worry that the advice of a financial counselor would be tainted by the desire to make a profit. Employers should be aware of such conflicts of interest when hiring a financial counseling service. Organizations that make money through referrals to debt management companies should not be hired.

“Make sure you are clear on how they are compensated,” Stoughton says. “If it’s commission-based, there is a conflict of interest.”

—Jeremy Smerd