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CalPERS Reviews Benefits of Employees Making More Than $400,000

California Public Employees’ Retirement System (CalPERS) officials announced that they are reviewing the pension benefits of system participants who earn more than $400,000 a year.


Brad Pacheco, public affairs manager at the $204.4 billion CalPERS, said the review will ensure that all proper regulations are being followed in the rewarding of retirement benefits. Pacheco said it has yet to be determined how many of CalPERS’ 1 million active participants currently earn more than $400,000 a year.


Last week, CalPERS officials expressed surprise at a 47 percent raise given to Bell, California, City Administrator Robert Rizzo and other top city officials in 2005, but press reports indicated that CalPERS officials knew of the increases after an audit in 2006.


The raise was included in news reports that three Bell city employees were making a total of $1.5 million a year, including an $800,000 annual salary for Rizzo.


Pacheco said CalPERS was aware of the increases but could do nothing about them. He said normal procedures would require CalPERS to grant a waiver for a major salary increase, because pay hikes increase pension benefits. But he said CalPERS had no power over granting or denying the increase, if other similar employees also are receiving raises.


Pacheco said Bell officials told CalPERS several employees were in the management group that received similar increases, so CalPERS decided no waiver was needed.


“We followed all the existing pension rules related to Bell four years ago, but it is clear that we need to work toward strengthening our regulations and possibly state law,” said CalPERS chief executive Anne Stausboll in a statement. 


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


 


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Employers Slow to Restore 401(k) Plan Matching Contributions

Economists heralded FedEx Corp.’s decision to restore its matching contribution to employees’ 401(k) plans as a sign that the recession is ending, but surveys show that less than half of firms that reduced or suspended plan matches in recent years have restored them.


Citing an improved earnings outlook, Memphis, Tennessee-based FedEx last week said it would fully restore its 401(k) plan matching contribution effective January 1, 2011.


FedEx, which in 2008 had sweetened its match to 100 percent of employee deferrals on the first 1 percent of pay and 50 percent on deferrals up to 5 percent of pay in conjunction with a plan redesign, cited an earnings slump amid an ailing economy in suspending the match effective February 1, 2009.


FedEx wasn’t alone among major firms reducing or suspending their 401(k) plan matching contributions in 2009. Less than half have restored the reductions since then.


Although roughly the same number of employers suspended or reduced their 401(k) plan matches during another weak economic period from 2000-2001, benefit consultants say the rate of match restoration is a bit slower this time around.


As employers move to reinstate those contributions, some are altering the way they calculate them and, in some cases, linking them to company profitability, the consultants say.


Since the financial crisis came to a head in September 2008, between 8 and 18 percent of employers either reduced or suspended their match of 401(k) plan contributions, according to various surveys by benefit consultants.


For example, while Boston-based Fidelity Investments’ March survey of 293 plan sponsors pegged the suspension rate at 7.9 percent, Towers Watson & Co.’s April survey of 334 plan sponsors put the suspension rate closer to 13 percent, and 5 percent reduced the match.


The restoration rate is a bit slower than the economic downturn at the beginning of the decade, said Beth McHugh, vice president of market insights at Fidelity Investments in Boston. More than half of the 8 percent of plan sponsors that either reduced or suspended their matches in 2000 or 2001 reinstated them by the middle of 2002; that compares with just 44 percent as of March, she said.


Although Hewitt Associates Inc. said in a February survey that 80 percent of employers that suspended or reduced their company match last year were planning to restore it this year, only about one-third have done so, said Byron Beebe, Hewitt’s Cleveland-based U.S. retirement market leader.


“We did expect that a large number would put the match back in 2010,” Beebe said. Companies that restored the match usually accompanied other good company news, such as improved earnings, he said.


David Wray, president of the Profit Sharing/401k Council of America in Chicago, attributed employers’ hesitation in part to déjà vu in that it wasn’t long ago that they were implementing similar suspensions and cuts because of an ailing economy.


“It’s the lack of confidence in the future. Companies don’t like to make commitments to their employees and withdraw them. It’s not good for the morale of the workforce,” Wray said.


Particularly in industries recovering more slowly from the recession and credit crisis, those employers have been reluctant to reinstate their 401(k) matching contributions, said Jack Abraham, principal and head of the benefits practice at PricewaterhouseCoopers in Chicago.


“There are certain industries this time that are not recovering—for example, the construction materials industry,” Abraham said. “With prices depressed, they haven’t been able to reinstate those types of benefits because they’re still losing money,” he said.


To ensure that they don’t make promises they may not be able to keep, some employers are making 401(k) contributions contingent on company profitability, benefits consultants say.


“We are seeing some be discretionary about their match so they won’t put themselves in the position to make deadlines when they have to go through this again,” said Bill McClain, a principal at Mercer in Seattle.


Rather than matching employees’ regular payroll contributions, “they are contributing a percentage of pay at year-end depending on how well the company performs,” said Leslie Smith, senior vice president in the retirement practice at Aon Consulting in Somerset, New Jersey.


Overland Park, Kansas-based Sprint Nextel Corp., for example, which had matched employee 401(k) plan contributions up to 5 percent of salary, revamped its plan in March 2009 to match contributions only up to 4 percent of salary provided the company exceeds its operating income target by at least 10 percent, a company spokesman said.  


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


 


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30 Percent Workers Comp Rate Increase Proposed for California

Actuaries for the San Francisco-based Workers’ Compensation Insurance Rating Bureau of California have recommended a roughly 30 percent rate increase for policies incepting January 1.

The recommendation made Wednesday, August 4, by the WCIRB’s actuarial committee must be approved by the governing committee before it goes to the California Department of Insurance for approval or disapproval.


The state bureau’s governing committee is scheduled to meet August 11 to vote on the matter, a spokesman said.


Rising medical costs and the Department of Insurance’s past rejections of rate increases resulted in the need for an approximately 30 percent increase, the spokesman added.


Last year the Department of Insurance rejected the bureau’s call for a workers’ comp insurance rate increase of nearly 24 percent.  


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


 


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Dear Workforce What Are the Advantages and Disadvantages of Outsourcing Our Payroll Function?

Dear Both Pro and Con:
History actually provides some great lessons on the potential impact of a decision such as this. The health insurance savings benefit is only one potential value of this arrangement. The reduction in overall administrative costs stemming from having 50 fewer employees also would be sizable. Organizations that have outsourced employees, along with services, can realize cost savings and potentially some enhancement in services through expanded service capabilities—but you asked about possible downsides.

This particular outsourcing model, often referred to as “takeover outsourcing,” would have a profound effect on both the organization and the employees personally involved in this transition for several reasons. First, this type of transaction would normally require that you terminate these employees in order to “move” them to the new organization. Invariably when employees “lose” their identity as part of the company, there is a significant change effort for all parties. Even in the most benign “co-employment” scenarios, payroll staff must make the mental shift from being part of the organization to becoming service providers for the organization.

Second, many organizations that expect significant changes in performance often find deterioration due to the transition of people and a variety of factors that affect employee performance during this time. The following table summarizes many of these benefits and potential risks.

Pros Cons
Benefit cost savings Risk of the rebadged employee leaving and a reduction in service potential and institutional knowledge. Two immediate factors drive this deterioration: employees who leave because of the transition event, and future efforts of the outsourced payroll organization to reduce headcount.
Familiarity with client payroll Risk of losing the personal touch and “ownership” of employees versus contractors over the course of time.
G&A cost reduction (reduced headcount, facilities, overhead tied to 50 payroll people) What happens to the cost over time? Will the outsourcing fees increase to minimize the savings? Have service-level agreements, or SLAs, been established to guarantee similar levels of staffing, response time and interaction/resolution quality?
Are there any contractual limitations that allow the vendor to change delivery locations? Many vendors are looking to move back-office calculations and processing offshore to realize additional cost savings. What provisions do you have that would restrict this type of additional transition and potential future reduction in headcount?
What is the retained work that your own organization will still have to own? It is important to include the cost of retaining some expertise in your organization to manage the outsourcing relationship and governance process.
Remember that additional services outside of the “normal” payroll operations will likely carry with it a transaction fee or project cost. This often includes such items as:

• Mass salary changes
• Exception processing
• Special projects
• Off-cycle adjustments
• New-hire reporting
• CPI adjustments
• Volume (population) changes

As you consider potential savings, it is very important to carefully consider the potential out-of-scope costs that typically alter the value proposition significantly.

At their worst, “lift and shift” transitions move problems and inefficiencies from one organization to another. Although time (and turnover) may fix some of those things, the challenge here is determining the real value proposition. What is it that the outsourcer will be able to do that your company could not do, other than the removal of some overhead costs? Are your organization’s processes and policies ready for outsourcing? Generally it is advisable to consider the people, process and technology opportunities that your organization can realize as part of making your organization “outsource ready”—and then evaluate any potential gains that can only be realized by actually transitioning to an external vendor.

SOURCE: Daniel Vander Hey, Towers Watson & Co., Houston, June 3, 2010

LEARN MORE: A recessionary economy is prompting companies to consider outsourcing for staffing and other functions.

Workforce Management Online, August 2010 — Register Now!

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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Most Employers to Retain Health Care Benefits, Study Shows

While the vast majority of employers are rethinking their health benefits strategies in response to the passage of federal health care reform law, only a fraction are considering dropping benefits entirely, a survey by Fidelity Investments has revealed.


In a survey of 459 employers conducted June 10-30, Boston-based Fidelity’s benefits consulting group found that 84 percent of employers are taking a close look at their benefit packages in light of the health care reform law.


But when asked whether their organization is seriously thinking about dropping health care benefits, most employers—64 percent—said they were not, though 20 percent indicated they were considering no longer offering health care coverage to their employees.


A larger percentage of small employers, defined as those with 500 or fewer employees, than large employers said they were seriously considering eliminating health care coverage—22 percent versus 14 percent.


Instead, 55 percent of large employers, those with more than 500 employees, said they were considering implementing high-deductible consumer-driven health plans in response to the reform legislation. The percentage of small employers who said they were looking at such plans was 41 percent.


Employers also expressed concerns about the potential cost of the legislation, with 49 percent of smaller employers and 25 percent of larger employers saying they expect it will increase their plan costs significantly in the short term.


“Company executives are taking a close look at their overall benefit strategies in the wake of the new health care reform legislation,” said Sunit Patel, senior vice president of Fidelity’s benefits consulting business, in a statement.


“There is a lot of confusion out there about the real impact of the health care legislation and the accompanying costs,” he said.


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

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Plenty of New York Jobs Await Tech Workers

Fluent in geek speak? You’re hired.


While the latest unemployment numbers for New York City still show a gloomy prospect for many would-be workers, recent reports from Dice.com and Pace University show just the opposite for those in the information technology industry—employers can’t seem to fill competitive high-tech positions.


Some companies are even engaging in battles for hard-to-find tech talent, said Tom Silver, a senior vice president at Dice, a career website for technology and engineering professionals.


“Filling talent voids can be painful and expensive,” he said.


According to July’s Dice Report, New York-New Jersey was ranked No. 1 across top metro areas by the number of new job posts on the website, with more than 8,200 tech positions. That’s almost twice the number of postings for tech jobs in Silicon Valley (which came in at No. 3) and more than Chicago (No. 4), Los Angeles (No. 5) and Boston (No. 6) combined. Washington-Baltimore came in second place, with 7,400 posts.


“It’s the fifth straight month of companies posting more jobs on the site,” Silver said.


In Manhattan, the information technology job market showed remarkable strength during the second quarter, according to the Pace/SkillPROOF IT Index Report, also known as PSII. The index, which provides a snapshot of IT job openings at major firms, saw a 47 percent increase, from 74 to 110. It was the largest quarterly gain since the index began tracking data in 2004, according to the report.


Farrokh Hormozi, a professor of economics and public administration at Pace University, said the index behaves much like a leading economic indicator, in that the IT employment market rises and falls before the economy does. He sees the index growth as a sign that companies are feeling optimistic and are looking to “take advantage of the technological advancements.”


Indeed, while the overall unemployment rate for New York City was 9.5 percent in June, experts estimate the rate is half that, or even lower, for the high-tech industry.


The caveat, however, is that although demand for IT professionals is high, computer programming skills are not enough (on their own) to get a job, experts said. Business, sales or administration experience is also essential.


“Schools are preparing them in this capacity” to be able to wear many hats, Hormozi said. For instance, computer science students can take marketing classes, he said.


For IT professionals already in the workforce, Hormozi said that they can increase their value with a business or public administration certificate, rather than learning another programming language.


In fact, job postings for IT managers and network/data communications analysts were the largest contributors to the growth of the Pace index in Manhattan, while the Dice Report shows that the tech skills currently most wired for success are C#, Java/J2EE, and SAP or Oracle know-how.


Moreover, the companies engaging in battles for these coveted skills, Silver said, is likely to make retention the issue this year in technology departments.


“Companies need to think about how to build long-term relationships with technology professionals,” he said. “Understand that you have a lot of competition.”  


Filed by David Montalvo of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


 


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Obama Nominates Gotbaum Again as PBGC Director

President Barack Obama has once again nominated Joshua Gotbaum to be director of the Pension Benefit Guaranty Corp.


The president originally nominated Gotbaum, an operating partner at private equity firm Blue Wolf Capital Management in New York, for the top PBGC position in November, but the nomination stalled in the Senate.


Sen. Sherrod Brown, D-Ohio, blocked Gotbaum’s nomination as part of a dispute with the PBGC over the termination of pension plans sponsored by Troy, Michigan-based Delphi Corp.


Frustrated by the delay, Obama bypassed Congress while it was in recess this month and named Gotbaum as PBGC director. As a recess appointee, though, Gotbaum can serve only through the end of 2011 under Senate rules.


By renominating him on Monday, July 19, the president made it clear he wants Gotbaum to run the PBGC through the end of his term.


Gotbaum is expected to join the PBGC this week, an agency spokesman said.  


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


 


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Department of Labor to Conduct FMLA Study

The Department of Labor next year will conduct a survey on how employees are using the Family and Medical Leave Act, Labor Secretary Hilda Solis announced Tuesday, July 20.


The survey, to be done by the department’s Wage and Hour Division, is intended to “provide insight into how families” use FMLA leave, as well as information on regulatory changes, among other things, the Labor Department said.

The Department of Labor has done several surveys on the FMLA since 1993, when the FMLA legislation was approved—the Clinton administration’s first major domestic initiative to pass Congress.


The most recent survey, released in 2007, estimated that 8 to 17.1 percent of employees took FMLA leave in 2005.

The FMLA gives employees the right to take up to 12 weeks of job-protected unpaid leave a year because of certain family situations, such as the birth or adoption of a child, to take care of a sick child, or to care for their own medical problems.  


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


 


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Recently Acquired Hewitt to Buy Ennis Knupp

Hewitt Associates Inc. will acquire Ennis Knupp & Associates Inc., creating a global investment consulting heavyweight with nearly $3 trillion in assets under advisement, according to executives from both firms.


Terms of the deal were not disclosed.


The combined investment consulting business will be called Hewitt Ennis Knupp. The move marks Hewitt’s second involvement in industry consolidation in just over a week. On July 12, executives from Hewitt and Aon Corp. announced that Aon will buy Hewitt for $4.9 billion in cash and stock.


“We’ve been looking for some time to grow our capabilities around the world, especially in the U.S.,” and Ennis Knupp was just a “wonderful fit for our firm,” said Ari Jacobs, North American retirement strategy and solutions leader for Hewitt.


In a separate interview, Stephen Cummings, Ennis Knupp’s president and CEO, likewise said Hewitt was a perfect fit with his long-term plans for Ennis Knupp’s business.


Richard Ennis, a leading figure in the investment consulting industry who helped found Ennis Knupp 29 years ago, will retire, Jacobs said.


Cummings said that more than two years ago, he laid out “a pretty aggressive long-term vision” for Ennis Knupp’s board, with the goal of transforming a U.S.-focused firm into a “leading global provider of investment consulting services.”


Cummings, who will be the CEO of Hewitt Ennis Knupp, said the synergies between the two firms extend beyond the U.S.-international combination. Ennis Knupp has spent the past five years developing expertise in alternatives areas, including private equity, real estate and hedge funds, with capacity to serve more clients in those areas. Hewitt hasn’t built up its capabilities to the same extent and has a number of clients looking for more advice, he noted.


Cummings will report to Mary Moreland, Hewitt’s North American retirement and investment consulting leader. Other senior executives, including Bradley Smith, the leader of Hewitt Investment Group, will serve as principals, reporting into Cummings.


Jacobs said there are no plans to reduce staff, outside of a few overlapping support roles. He said Ennis Knupp’s 42 equity holders unanimously agreed to be bought out.  


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


 


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Workforce Staffing Could Hit Pre-Recession Levels in Two Years at Many Large U.S. Firms

Just over half of large, recently downsized U.S. companies plan to boost staffing and reach pre-recession levels by 2012, according to an Accenture survey released Monday, July 19.


The New York-based global management consulting firm’s annual Accenture High Performance Workforce Study also found that among U.S. companies surveyed, only 13 percent of executives said that they plan to reduce their employee base over the next 12 months.


The percentage of U.S. companies focused primarily on investment in growth-oriented activities, such as hiring, will rise from 24 percent today to 37 percent within the next 12 months, according to the survey, which was conducted by GfK NOP Ltd. from January to May. At the same time, significantly fewer U.S. companies will be focused on controlling costs: 18 percent in 2011, compared with 41 percent in mid-2009, according to the study.


Yet the planned growth won’t come easily. As in past booms, highly skilled workers will be at a premium.


“A lack of relevant skills may present a hurdle for companies as they position themselves for growth,” said David Smith, the survey’s managing director. “Companies need to rethink how they equip employees with the skills required to be competitive today.”


The survey included 117 senior executives at U.S. firms with revenue of more than $250 million. Overall, it involved 674 executives worldwide.


The survey also touched on a number of other workforce issues. Surveyed executives identified sales and customer service as the employee groups most important to their business. Yet those departments offer challenges, they added.


Among those executives who rated sales or customer service as one of their organization’s most important work groups, only 23 percent said their sales forces perform at a high level and only 34 percent said the same about their customer service workers.


—Rick Bell