Author: Site Staff

An increasing number of companies are starting to automatically enroll existing employees, not just new hires, into their 401(k) plans.

Just a few years ago, the notion of sweeping new employees into a 401(k) made employers nervous, fearing that they would be held liable for their workers’ investments. But as the Internal Revenue Service has given guidance saying that it’s appropriate for employers to do this, more companies have embraced the practice.

A 2005 Hewitt Associates study found that 79 percent of the employers that offer automatic enrollment only do so for new hires, down from 89 percent in 2003. Meanwhile, 22 percent of companies offering automatic enrollment do so for all employees, up from 11 percent in 2003.

“A lot more people are saying autopilot is the way 401(k)s ought to be run, and so employers are more comfortable,” says Michael Weddell, a retirement consultant with Watson Wyatt Worldwide.

Kinder Morgan, an energy company in Houston, started automatically enrolling new hires in 2003, and extended the practice to current employees in October. All employees have the ability to opt out of the plan.

The firm has a cash-balance plan in which all 3,500 employees can participate, says Sandy Ward, manager of qualified plans. But given the uncertain future of the legality of these plans, Ward says she wanted to get its 401(k) participation rates up. “We really want to make sure our employees save enough for retirement,” she says.

Kinder Morgan saw its 401(k) participation jump from 60 percent to 75 percent when it began automatically enrolling new hires into its 401(k) plan, and hopes to see it exceed 90 percent by enrolling existing employees, Ward says.

Under the program, 3 percent of an employee’s salary is automatically swept into a balanced fund. The company decided on the low percentage because the average annual salary at Kinder Morgan is only $30,000, Ward says. “We are taking baby steps.”

Ultimately, she would like to raise the amount to 8 percent. Ward has not heard any negative feedback about the program so far, but she plans to conduct an employee survey next year.

Some companies, like Trinity Health, are shying away from automatically enrolling existing employees into a 401(k) plan because they are worried about backlash. The Novi, Michigan-based health care provider is considering automatically enrolling new hires into its 401(k), but not existing employees, says Silvia Frank, manager of the company’s defined-contribution plan.

“If current employees haven’t been contributing, it’s probably because they have some preconceived notion about 401(k)s, and they would probably react more strongly if we just swept them into the feature,” Frank says.

The cost of the employer’s match is another reason some companies are holding off on automatically enrolling existing employees into a 401(k), Weddell says. The average employer match is 50 cents for every dollar contributed by the employee, up to 6 percent of pay.

For Kinder Morgan—which contributes 4 percent of company stock into all employees’ 401(k)s, whether they contribute or not—this is not an issue, Ward says.

—Jessica Marquez

December negotiations over pension reform legislation may determine whether the Bush administration gets the new funding rules it is seeking. But if no bill passes, pensions will still be more costly for employers in 2006.

In mid-November, the Senate passed, by a 97-2 vote, a measure that would force companies to fully fund their pension promises by 2010, limit so-called smoothing of assets and liabilities to one year and require extra “at risk” pension payments by companies with junk-bond status whose plans are less than 93 percent funded. It also would allow airlines 20 years to reach full funding.

Earlier in the month, the House Ways and Means Committee approved its version of reform: a bill that would allow three years of smoothing, would define a company as “at risk” if its pension plan is less than 60 percent funded and would enforce full funding beginning in 2012. It has no airline provision. The full House is expected to vote on the bill during the week of December 5.

If no bill is approved by January 1, pension costs will increase as companies begin determining liabilities with the 30-year Treasury bond rate instead of the higher temporary corporate bond rate.

Both the House and Senate bills would raise premiums companies pay to the Pension Benefit Guaranty Corp. from $19 to $30 per participant. In a November report, the PBGC said that it had a deficit of $22.8 billion, down from $23.3 billion in fiscal year 2004.

Business lobbyists responded quickly, asserting that the figure showed the agency’s situation is not as dire as the administration claims.
But the PBGC also says that unspecified events occurring after September 30, the end of the fiscal year, would have raised its deficit to $25.7 billion. PBGC found that total underfunding for pension plans was $450 billion.

As House and Senate members meet to reconcile the pension bills, the White House is threatening to veto the final measure if it is not tough enough.

The Senate voted on pension reform only after Sens. Mike DeWine, R-Ohio, and Barbara Mikulski, D-Maryland, released their hold on the bill. Senate leaders promised that the two holdouts’ concerns about smoothing and credit ratings could be raised in the conference with the House.

“We think we got people’s attention,” DeWine said in an interview after the Senate vote. “We think we’ve got a good shot at this at conference, but there’s no guarantee.”

DeWine, who will be a conferee along with Mikulski, said that auto manufacturers and unions in his state have been “very vocal” about pension reform.

Under the Senate bill, a company like General Motors would have to make higher pension payments because it has junk-bond status–even though it says that its pension fund is healthy.

Business lobbyists argue that the Senate approach will make ailing firms sicker, increase funding volatility by limiting smoothing and ultimately force defined-benefit plans to shut down.

“For some companies, these changes are going to be dramatic,” says Kent Mason, a partner at Washington law firm Davis & Harman.

—Mark Schoeff Jr.

Dear Vexed:

Your management team recognizes the financial impact of high turnover, but line employees experience it firsthand on a daily basis in the form of inexperienced co-workers, accidents and lower-than-expected quality and productivity. Persuade management to demonstrate a commitment to lowering turnover by:

• Establishing a selection policy and practice that makes it extremely difficult to be hired by your organization.

  
  

• Setting turnover goals for the company and each manager, and include it as an essential portion of the managers’ performance assessments.

  
  

• Communicating turnover rates annually.

  
  

• Providing orientation to new employees, including clearly defined performance expectations, and training/development of skills for continued employment.

  
  

To demonstrate that low turnover benefits both management and staff employees:

• Solicit input from all employees to isolate the reasons why turnover rates are high. Conduct surveys and form focus groups that include a cross section of your workforce.

  
  

• If you compensate employees who refer applicants who are subsequently hired, delay the reward until the new employee completes at least one full year of service.

  
  

• Create ways to celebrate decreased turnover by department, being sure to reward both managers and employees.

  
  

• Celebrate continued service of employees with their co-workers, possibly including their families.

  
  

SOURCE: Lonnie Harvey Jr., SPHR, president, the JESCLON Group Inc., Rock Hill, South Carolina, Feb. 14, 2005

LEARN MORE:They’re Hired: Now the Real Recruiting Begins. Also:155 other items about retention.

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.

Dear Paying:



This is a common situation that requires you to examine two important issues. Do you:

• Want to increase the variability of employee pay based on individual performance?
• Deliver variable pay more than once a year (e.g., monthly or quarterly)?

Typical pay-raise systems use objective and subjective performance metrics to determine relative pay increases. A top performer may get a 4 percent to 5 percent raise, an average performer a 2 percent increase, while someone failing to meet expectations would get nothing. If this is how your pay raises are determined, then what you have is an annual variable-pay system in place, albeit one that provides only for pay increases based on performance.

Pay-for-performance systems, on the other hand, usually have two components: base salary and incentive, or variable, compensation. The variable-compensation portion is generally determined by objective and subjective measures of each employee’s performance relative to a pre-established set of goals. The incentive portion often includes a large cash component. Instead of 2 percent to 4 percent of annual pay, it could be as high as 30 percent to 40 percent of total cash compensation.

Companies typically use their annual pay-increase budget to fund the creation of a pay-for-performance system. This is done by holding annual salaries at their current levels and annually increasing the pay-for-performance budget with the funds normally reserved for annual pay increases. In the first year, the pay-for-performance (variable pay) budget may be only 3 percent, and then grow to 6 percent the next year and so on.

The specific formula you propose to management would be calculated by first determining the desired pay mix of base salary and incentive compensation. For example:

Next, you would determine the number of years it takes to fund the variable incentives using your current annual pay budget.

You would then have the beginning of a variable-pay system. Don’t forget to re-evaluate the appropriateness of the current metrics used to evaluate employee performance. Once you increase the amount of pay associated with performance metrics, be certain that these metrics are driving the right behaviors throughout your organization.

SOURCE: Andrew D. de Lannoy, principal, sales force effectiveness and rewards,Mellon’s Human Resources & Investor Solutions, New York City, December 23, 2004.

LEARN MORE:Can Pay for Performance Really Work?

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.

Dear Weighing:



Decisions regardinginternal promotion vs.external hiring are becoming more important to an organization’s success. As the economy improves, unemployment falls and baby boomers retire, competition for top performers intensifies. Employers need a strategic plan–one that includes both internal promotion and external hiring–to maintain a workforce with the required skills and knowledge to meet and exceed expectations.

Some combination of promotion and outside hiring is always necessary. Still, the advantages of providing promotion and personal growth opportunities far outweigh those of external hiring for both employees and the organization.

An organization’s workforce performs at a higher level when there’s a strong internal-promotion process. In contrast, when employees perceive that promotion policies are being ignored in favor of external hiring, their loyalty and personal motivation decrease. When little or no upward mobility is possible, employees feel disenfranchised. This places insurmountable hurdles before any company trying to achieve business results.

Many employers face this risk. Mellon’s employee-satisfaction benchmark studies found:

• 78 percent of employees indicate that, for accelerated career progression, it is better to be hired than groomed.
  
• 69 percent are unaware of the career-progression systems within their organizations.
  
• 64 percent would be willing to leave their jobs to follow a good mentor–suggesting that mentoring is not a strong suit for many companies.
  

There are times when external hiring is necessary. Advantages include the following:

• It adds new job skills or knowledge to the organization’s workforce.
  
• Those eligible for promotion don’t have a previous working relationship with managers, removing the specter of favoritism.
  
• Management perceives that employees have grown too insular or lack a sense of urgency, prompting them to bring in people who can change things.
  

SOURCE: Tom Casey, principal, human resources management, Mellon’s Human Resources & Investor Solutions, Boston, February 2, 2005.

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.

Human resources managers say that promoting diversity within the workforce contributes to the company’s bottom line, according to the Society for Human Resource Management’s 2005 Workplace Diversity Practices Report. But only 38 percent of managers surveyed say they measure the impact of their diversity efforts on return on investment. Large companies are more likely to measure diversity’s ROI.

Seventy-eight percent of human resources managers surveyed say their companies’ diversity initiatives reduced costs associated with turnover, absenteeism and low productivity.

Similarly, 74 percent say that their diversity efforts have improved the company’s bottom line by decreasing complaints and litigation and improving the organization’s public image.

Eighty-nine percent of employers look at how many diverse employees have been recruited to determine the effectiveness of their initiatives. Seventy-five percent say they look at the number of diverse employees retained, while 72 percent look at the number of diverse employees at all levels of the company.

The most prevalent diversity practice used by companies is allowing employees to take unpaid leave for religious or cultural holidays.

Only 12 percent of HR professionals say they tie diversity to management compensation, which the report says is the one of the most effective ways to promote diversity goals.

—Jessica Marquez

Some of Ed Beltram’s retired colleagues are seeking employment not because they miss going into an office each day, but because someday they might want to go to a doctor’s office.

Beltram, who was a human resources manager at Lucent Technologies for 28 of his 31 years with the telecommunications company, says that some Lucent retirees have seen their monthly health care premiums rise from $42 per month in 2001 to $516 per month and a projected $690 next year.

In January, the company stopped subsidizing medical coverage for dependents of management retirees who retired after March 1, 1990, and made more than $65,000.

Although premiums will rise again next year, the company asserts that increases for most retirees will be modest. Lucent says it refunded $14 million in health care premiums this year because costs for 2005 were lower than projected.

“Many people are going to work to pay for their health care benefits,” says Beltram, who is a leader of the Lucent Retirees Organization. One of his friends got a job as a teller at a bank, while another became an accountant for a small company.

The situation is causing Beltram and other members of the National Retiree Legislative Network to turn to Washington. Shortly after General Motors announced a tentative deal with the United Auto Workers last month to slash health benefits by $3 billion, much of it by cutting retiree benefits, the group was on Capitol Hill.

“We’re trying to drive home to Congress that these aren’t what some might consider liberal benefits,” Beltram says. “They’re actually deferred benefits that were earned through decades of service to companies. Right now, there is nothing … that prevents companies from breaking those promises.”

A bill that would prohibit group health plans from cutting retiree health benefits after employees have retired has been introduced for the third time by Rep. John Tierney, D-Massachusetts. It has 53 co-sponsors, nine of whom signed on after GM’s announcement.

The bill has support only from Democrats, and no hearing has been scheduled. Republicans who control the House Education and the Workforce Committee typically are wary of legislation that imposes mandates on employers.

Since 1993, the number of companies with 500 or more employees offering health coverage to pre-Medicare-eligible retirees has dropped from 46 percent to 28 percent, while Medicare-eligible coverage declined from 40 percent to 20 percent, according to a study by Mercer Human Resource Consulting.

“Even at the companies that are maintaining the benefit, retirees are paying more for that coverage,” says Derek Guyton, a Mercer health care principal. “Retirees are going to have to start thinking about saving money to pay for health benefits.”

Providing retiree health coverage is becoming difficult for Lucent, which has had to spin off businesses and shed employees over the last several years.

“None of these decisions come easy,” says Mary Ward, a Lucent spokeswoman. “We’re going to do whatever we can to balance the needs of retirees with the company’s ability to pay and remain competitive in a dynamic and challenging market.”

—Mark Schoeff Jr.

Workers in Delaware enjoy the best environment in the nation when it comes to job opportunities, job quality and workplace fairness, according to a recent study, “Decent Work in America,” conducted by the Political Economy Research Institute at the University of Massachusetts, Amherst. This is the first study that measures the relative performance of states by examining a variety of categories and attributes, says James Heintz, associate professor at the institute.

Using the newly developed Work Environment Index—a composite
of multiple factors that contribute to creating a good workplace—researchers found that employees in Delaware enjoy some of the best salaries, benefits and basic social protections in the country. New Hampshire, Minnesota, Vermont and Iowa, respectively, round out the top five best states for workers. Meanwhile, Texas, Arkansas, Mississippi, South Carolina and Utah are at the other end of the spectrum, with Louisiana ranking dead last.

Heintz says there are a number of reasons that could explain why certain states rank poorly in the index. In the case of Texas, for example, geographic considerations come into play. The state shares a border with Mexico and, thus, has a higher-than-average volume of migrant laborers. Since salaries and benefits for this group lag significantly behind mainstream employees, it probably contributed to Texas’ poor performance.

Meanwhile, racial dynamics, which create an unequal distribution of job opportunities, is the likely culprit in dragging Louisiana to the bottom of the list, Heintz explains. Research indicates that whites tend to have access to better professional opportunities, relative to minority groups, in the state.

—Gina Ruiz

Dear Desperate:



Your dilemma is common in family-held businesses. Successful entrepreneurs are tenacious, single-minded and willing to make great personal sacrifices for the sake of their companies. Unfortunately, those same qualities often pose obstacles to taking the company to the next stage of growth. Founders frequently identify so closely with their businesses that their personal lives are inseparable. This certainly sounds like the case at your company, where a 95-year-old is still at the helm and handling day-to-day issues.

I suggest you tie the case for better human resources management to corporate growth. Your founder may continue to ignore these issues unless he realizes the impact they have on the business now–or may have in the future. Linking morale with business results enables you to build a better case for change.

Start with internal indicators. While you state that sales in 2004 were roughly $100 million, you do not indicate whether this is greater than, less than or flat relative to previous years. If sales are flat or declining over the years, try to link that to concrete actions that were taken (or not taken) relative to your employees.

For example, does employee turnover correspond to revenue trends? Have sales decreased in the years that holiday bonuses were not given? Has the generational power play led to missed business opportunities? Perhaps there are additional industry benchmarks upon which to base your argument–for example, customer service statistics, market share data, your company’s growth versus that of competitors, etc.

Once you have outlined a fact-based case–where the cause and effect of workforce-management practices are clearly delineated–you will need to strategize as to who is best positioned to present this case to your founder. It may be best to enlist other key stakeholders, whether in key positions (such as the head of sales) or key people from the other generations of owners, whose own future livelihood depends on the success of the company.

Given your description of events, however, I am not certain that this will play well in your organization. Your founder sounds as though he has fairly rigid ideas about how to run his business and what’s been successful over the years. It may be difficult to persuade him to change his ways. It also sounds as though the next generation of leaders lacks the ability to step up to the plate.

If that’s the case, and you do not see a chance that things will change as the next-in-line family members take charge, you and others may be better served looking for new jobs elsewhere. Any company–whether privately held, family-run or public–that does not pay attention to people issues will ultimately fail.

SOURCE: Keith Swenson, managing director, Capital H Group, Chicago, Illinois, Jan. 19, 2005.

LEARN MORE:Irreplaceable You

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.