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The IWorkforce Optimas-II Award-I Issue

Would you miss the Academy Awards? The Grammy Awards? The MTV Video Awards? No, not if you’re in the movie business or the music business.


So, if you’re in the HR business – you don’t miss the special Workforce Optimas® Awards issue.


The new breed of HR decision maker faithfully reads the Workforce Optimas® Awards issue looking for winning ideas to use in their own organizations.


The Workforce Optimas® Awards issue celebrates HR achievements and inspires the new breed of HR decision makers.



Since 1991, the annual Workforce Optimas® Awards issue has been a source of ideas, direction, and inspiration to HR leaders everywhere.


Why? Because this must-read issue celebrates HR’s success at solving some of the biggest business challenges of our time.


The new-breed of HR leaders at Levi Strauss, Bank of Montreal, Federal Express, Disney, Continental Airlines, Mirage Resorts, the City of Phoenix, Cirque du Soleil and more than 70 other organizations have pushed HR far beyond the paper-pushing, picnic-planning policy police of the outdated stereotype.


Winners have opened new global markets, improved opportunities for women, turned around failing business units, resolved contentious labor disputes, cleaned up the environment, streamlined government, created new models for health care delivery, and confronted workplace violence.


That’s real HR with a real impact.


The Workforce Optimas® Award recognizes HR’s vision and stature in the organization.


Every year, 10 additional winners are chosen and profiled in the Workforce Optimas® Awards issue in March. The selection criteria? Making their businesses better through HR – real HR with real impact.


Find out more information about the award and the winners.


Optimas® Awards Overview: The Optimas® Award epitomizes the new breed of HR management.


The Optimas® Winning Companies: Optimas® companies prove there isn’t anything HR can’t do.


Make sure your ad is front of the top 10 companies of the year – and the new breed of HR decision makers every where. Advertise in the March issue of Workforce.


 


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Federal Study Points to Widespread Underreporting of Injuries on the Job

A new government study adds to the growing body of evidence that employers and employees underreport workplace injuries and illnesses.


The report, released Monday, November 16, by the Government Accountability Office, appears to give credence to a yearlong federal program initiated October 1 that scrutinizes how certain employers keep records of workers hurt on the job.


Among the findings, the GAO found that employees often underreport injuries and illness for fear of losing their job or being disciplined. The report said 67 percent of occupational health practitioners reported observing workers who feared losing their job or disciplinary action for reporting an injury; 46 percent said this fear led workers to underreport injuries. Labor representatives criticized mandatory drug testing as another cause of underreporting, according to the GAO report.


The report said employer safety incentive programs, which offer bonuses to workers for creating safe work sites, can also lead employees to underreport injuries.


More than half the occupational health practitioners surveyed said they felt pressure from employers to play down injuries or illnesses, and nearly half—47 percent—felt similar pressure from employees.


The report was aimed chiefly at the inspection practices of the Occupational Safety and Health Administration. The GAO criticized OSHA for excluding certain dangerous industries, such as amusement parks and freight transportation in the coastal and Great Lakes regions, in its workplace inspections. OSHA did not always collect information about injuries from workers, which meant the agency relied solely on employer records while investigating a workplace incident.


The report gives political cover to the efforts started recently by OSHA to improve the accuracy of workplace injury and illness reports, said Brad Hammock, a partner at the Washington office of the law firm Jackson Lewis.


“The report bolsters the case that there is a real underreporting, under-recording problem,” said Hammock, who also writes the oshalawblog.com.


In a press release, OSHA itself agreed with the GAO’s criticism of the agency and cited the new program, the National Emphasis Program on Recordkeeping, as a solution.


“Many of the problems identified in the report are quite alarming, and OSHA will be taking strong enforcement action where we find underreporting,” Secretary of Labor Hilda L. Solis said in a press release.


The yearlong program will give federal workplace inspectors more latitude in their inspections of employer work sites. According to Hammock, inspectors are required to review any relevant record located on or off a work site; re-create an OSHA log and compare it with the employer log; visit off-site medical clinics to review relevant medical records; and interview the designated record keeper, a sample of employees and medical providers. Inspectors will also be expected to walk around the work site to look for violations in plain view.


The Bureau of Labor Statistics reported in early November that the number of nonfatal workplace injuries reported fell to 3.7 million last year from 4.2 million in 2008, but the GAO said that the data likely are incomplete.


In her statement responding to the GAO report, Solis said accurate reporting of workplace injuries and illnesses will help employers reduce the occurrence of injuries.


—Jeremy Smerd



Stay informed and connected. Get human resources news and HR features via Workforce Management’s Twitter feed or RSS feeds for mobile devices and news readers.



 

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Dear Workforce How Could We Ease Our Employees Transition to Retirement?

Dear Smooth Move:

There are many actions employers can take to facilitate the retirement transition for their valued employees.

Phased retirement. First (and this one is somewhat self-serving), offer phased retirement. Allow your seasoned employees to work part time, in temporary or project work, while they are making this change in their lives.

Honor and celebrate their accomplishments. Don’t wait until retirement time to appreciate the contributions of your older workers. Honor them periodically with special events and, during these events, have other employees tell stories about their great work, as well as the support they show their fellow workers. Profile these valuable workers in your newsletter. These actions set up the next strategy.

Have them share their expertise. Encourage your transitioning employees to teach the younger people how to do their jobs. This showcases their proficiency; but more important, it preserves your organization’s intellectual capital. You may want to use audio or video recording to enhance this process and create a permanent record.

Provide counseling. Take advantage of your company’s employee assistance program (if one is offered) to offer transition counseling. Be sensitive to the fact that this generation often does not take kindly to the need for counseling or psychological guidance. So call it “coaching” instead, which is much more acceptable. Or, seek out coaches who have experience smoothing the progress of this kind of transition.

Connect them with other job opportunities. If these former military personnel were involved in security for you, help them find part-time jobs in the private security field. If not, help them find appropriate part-time jobs, perhaps even volunteer jobs, if they can afford it. Most retiring baby boomers do not want to stop working altogether, and most retired military also have pensions.

Establish an alumni association. Invite them back periodically for special events. Keeping in touch in this way may also give you a leg up in creating a pipeline for new recruits.

SOURCE: Joyce L. Gioia, The Herman Group, Austin, Texas

LEARN MORE: Retirement is a major life change that can be stressful.

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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 Dear Workforce Newsletter
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Dear Workforce How Can Our HR Department Elicit Useful Feedback on Its Performance

Dear Interested:

 

When preparing to conduct a survey there are several things you should consider even before you formulate questions to ensure a good result.

Plan to:

• Ensure that the people completing the survey are a representative sample of your employee population as a whole.
• Select a survey sponsor/champion who can drive respondents to the survey.
• Determine and communicate what will be done with the results.
• Provide a feedback loop to the respondents.
• Choose an effective communication vehicle for the survey. In your messaging, include the objective for the survey, intended use of responses, and a process for ensuring confidentiality.
• For this type of survey, develop a question list that will take five to 15 minutes to complete.
• Identify other competing initiatives within the organization that may dilute the response rate and negatively affect “mindshare.” Factor in the length of time the survey will remain open.

After preparing to conduct your survey, you can turn your attention to formulating the actual questions by thinking about:

• Data you really need to know. Consider what it is you really want to know once the survey has been completed. What is it that you were really looking to find out? Did you ask the right questions in the right way to retrieve that data?
• Phrasing of questions. Use a rating scale (usually a three- to five-point satisfaction or importance or frequency scale) or multiple-choice questions to trigger meaningful responses. Keep open-ended questions to a minimum of two or three.

Include identifier questions. These determine how you will be able to “cut” or analyze group and subgroup responses.

Examples:
• Department
• Length of employment
• Title and position
• Gender
• Any other type of identifier that you may wish to filter results by

Also include content questions. Keep in mind the desired time frame for the survey.

Examples:
• How familiar are you with the HR services offered?
• How many HR services do you use?
• What role are you expecting HR to fulfill?
• How often are these services used?
• Which services are most important to you?
• Which services are least important to you?
• How satisfied are you with the services that you use?
• How would you rate the quality of the interaction between you and your HR representative?
• How convenient are the online services to use?
• What would you like to see improved and how might you improve it?
• How would you like to see the information from this survey used?
• Do you have other comments?

SOURCE: Michael Haid and Dr. Deborah Schroeder-Saulnier, Right Management, Philadelphia, June 24, 2009

LEARN MORE: Faced with mounting layoffs, some HR professionals probably would rather not know what their employees are thinking. A recent Workforce Management study found many HR managers are under stress like never before.

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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Dear Workforce Is Our Forced Ranking System Still Valid

Dear Preventing Rank Performance:

 

It sounds like the economy is affecting your business and you’re trying to get more from your employees—possibly even trying to find a way to help make decisions on eliminations. If you are not currently using forced ranking, don’t start. There is a better way—better for you as a manager, better for your employees, and better for your organization.

Forced ranking systems are a part of the performance management landscape, whether you agree with them or not, but they should not be used as the only instrument for evaluating talent. Although the “rank and yank” approach of forced ranking does require that managers differentiate performance, it can have a negative effect on employee engagement. Rather, it should be one tool in a sound performance management system, balanced by tools that uncover the symptoms behind underperformance. There is no guarantee you will end up with a workforce that embodies your corporate values or sustains high performance because of a genuine desire to contribute.

As you evaluate your talent, consider a performance management system that requires managers to set clear performance expectations, defines what “high performance” means, uses feedback as data, and features ongoing discussions around development. One of the challenges with forced ranking systems is that they don’t always evaluate employees against the organization’s defined standard for high performance.

Rather than starting off with the premise that some percentage of your workforce, which you have carefully selected through your hiring process, is inadequate and will never improve, consider this alternative. In direct contrast to forced ranking, managers who use a capacity-building approach understand that performance is not fixed.

In other words, most people can develop new skills and capabilities and learn to be highly effective through focused effort. To evaluate current performance and to build tomorrow’s teams, capacity-building managers measure an employee’s talents and passions against the needs of the organization. The aim is to gain better insight on who is the right fit for your organization, both now and in the future.

If your organization is already committed to a forced ranking system, incorporate the capacity-building approach into your ongoing development activities. This will help ensure that you will not lose valuable talent because their potential was overlooked. Raising the performance of all employees means that when you do have to cut, the remaining workforce is more capable of picking up the slack and has the desire to continue increase their contribution.

SOURCE: Cheryl Huddleston, senior consultant, Novations Group Inc., Boston, July 27, 2009

LEARN MORE: The Problems With Forced Ranking and Forced Ranking: A Good Thing for Business further amplify the pros and cons.

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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 Dear Workforce Newsletter
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Hearing Indicates Emergency Paid Leave Bill May Be Modified

Advocacy groups and employers expressed concerns about an emergency paid sick leave bill designed to help workers who are stricken with the H1N1 flu at a Capitol Hill hearing on Tuesday, November 17.


The Emergency Influenza Containment Act would guarantee up to five paid sick days for employees who are told by their supervisors to go home or stay home because of a contagious illness.


The measure was introduced on November 3 by Reps. George Miller, D-California and chairman of the House Education and Labor Committee, and Lynn Woolsey, D-California and chair of the workforce protections subcommittee.


At the hearing, Debra Ness, president of the National Partnership for Women and Families, argued that employees should decide when to use the sick leave.


“I think we need to tweak it here and there,” Woolsey said of the bill. “It really should not just be left up to the employer.”


At least one other Democrat also had misgivings about companies determining when employees should take days off for illness.


An emergency sick leave measure introduced November 17 by Sen. Christopher Dodd, D-Connecticut, and Rep. Rosa DeLauro, D-Connecticut, addresses the issue.


The Dodd-DeLauro bill, modeled after DeLauro’s Healthy Families Act, would guarantee up to seven paid sick days for workers to use to treat their own flu-like symptoms or to care for a sick child. Under the Miller-Woolsey bill, employees could only take time off for their own illness.


Under Dodd-DeLauro, the employee, not the employer, would determine when to take sick leave, although Department of Labor regulations could require certification.


Each bill would go into effect within 15 days of being signed into law and would sunset after two years.


“This temporary legislation will slow the advance of H1N1 being spread through the workplace and encourage open communications between employees and their employers on sick leave policies,” Miller said. “This emergency measure will not, and should not, supplant the need for comprehensive paid sick leave policies. But I believe it will be a circuit breaker needed to get this virus under control, while protecting workers, employers and the public.”


A witness representing the business community, however, asserted that the Miller bill could short-circuit paid time off policies that many companies have in place.


Bruce Clarke, president and CEO of Capital Associated Industries in North Carolina, said that it’s not clear whether or how the federally mandated sick days would mesh with existing PTO plans and other leave programs.


“If employers are mandated to provide a certain level of a specific leave benefit, they must decide whether to add that on top of existing employer leave policies or to reduce the existing in order to meet the new mandate,” Clarke said in prepared testimony.


Clarke also resisted the idea of employers directing employees to stay at home if they are sick. That could put companies in the position of violating privacy laws.


In exchanges with House labor panel members, Clarke defended the private sector’s response to the H1N1 outbreak. He said companies have shown creativity in helping employees deal with their health issues.


“The human resources professionals we work with every day are on top of it,” Clarke said. “These companies … care about their employees.”


He cited Bureau of Labor Statistics data showing that 93 percent of full-time workers and more than half of part-time employees have access to paid sick leave. But Miller pointed to government statistics that indicate that 50 million workers lack paid sick leave.


“There’s a universe of people out there who can be and are fired for missing a day of work for any reason,” Miller said.


Ness, who maintains that employers with PTO programs would satisfy paid sick leave requirements, argued that a federal leave safety net is necessary for low-wage workers.


“We need a basic labor standard,” she said.


During the hearing, Miller seemed as interested in culling information about the potential effect of the emergency sick leave bill as he was in promoting it.


“We’re going to go over this testimony,” Miller said in an interview. “Some of the [suggestions] were helpful.”


—Mark Schoeff Jr.



Stay informed and connected. Get human resources news and HR features via Workforce Management’s Twitter feed or RSS feeds for mobile devices and news readers.

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Michigan Sen. Stabenow Opposes Employer Mandate in Federal Health Reform Package


U.S. Sen. Debbie Stabenow, D-Michigan, said Monday, November 16, at a Detroit Economic Club breakfast meeting that she opposes an employer mandate that could be a key component in a final health care reform bill.


Instead of an employer mandate that the U.S. House recently approved as part of its package, Stabenow told an audience of about 200 at the Southfield Westin that the Senate bill would require companies with 50 or more employees to pay a “fee” to help subsidize their workers’ mandated health insurance coverage.


The “fee” could range from $400 to $750 per employee who would be eligible for federal tax subsidies to help pay for their health insurance coverage.


“Our goal is to make health insurance affordable for small businesses,” Stabenow said. “Tax credits would be used to offset 50 percent of their costs.”


The House bill, approved November 7, mandates that companies with more than 25 employees provide employee health insurance. The Senate is expected to begin debate on its bill this week.


Under both the House and Senate bills, individuals would be required to purchase health insurance. Medicaid would be expanded for certain low-income people, and tax credits and subsidies would be given to help others pay for health insurance premium costs.


“We want to make sure the tax credits are enough [for businesses and individuals],” said Stabenow, a member of the Senate Finance Committee. “Costs are capped at 12 percent of gross income [for individuals]. I want to lower that to 10 percent.”


She said businesses and individuals are already paying for a “hidden tax” that is slowly reducing real wages and making companies less competitive in the global marketplace.


“If we do nothing, over the next 10 years business will see health insurance rates double and it will cost us 3.5 million jobs [nationally],” said Stabenow, noting that health insurance a decade from now would cost businesses $28,000 for a family of four.


Health insurance premiums in Michigan have risen 78 percent over the past eight years while wages have grown just 5 percent, she said.


Responding to a question about why the Senate is taking so long to vote on a bill, Stabenow said politics and policy differences have come into play.


“I think some people don’t want the president to succeed,” she said. “We need all of you to hold our feet to the fire [and stick to the policy issues].”


Stabenow cited one recently approved bill—the Worker, Homeownership and Business Act—that could have been voted on in one day, but took more than a month to get through the Senate because of Republican parliamentary delay tactics.


Besides extending the $8,000 first-time homebuyer tax credits through April 30, the bill expands the business-friendly “net operating loss carry-back provision,” which was initially approved earlier this year in the American Recovery and Reinvestment Act.


The provision allows any business with a loss in either 2008 or 2009 to claim refunds of taxes paid within the prior five years.


“The biggest problem for businesses is access to capital,” Stabenow said. “This will put $32 billion back into the economy and allow businesses to reinvest.”


The Senate also proposes a 40 percent excise tax on so-called Cadillac health insurance plans that are valued at more than $8,000 for individuals and $21,000 for families of four. The proposed tax on the plans would raise $202 billion, which is more than half the new funds needed to help pay for extending insurance coverage to about 30 million of the 47 million uninsured.


While the tax is aimed at health insurers, Stabenow said she is concerned the tax could hit middle-class, especially union workers who have negotiated rich benefit plans.


“We want to make sure these taxes on insurance companies will not be passed on to consumers in higher premiums,” she said.


One of the keys to driving down costs is the creation of a health insurance exchange that would allow private insurers to create four levels of insurance products, including a basic benefit plan, and compete for business in the individual or small-business market.


“This will not be available to people with employer-based health insurance,” Stabenow said. “About 17 percent to 18 percent of people will have access to the exchange.”


Stabenow also supports creation of a nonprofit public health insurance option to compete against private plans. A decision on including the public option in the Senate bill is expected to be made this week.


“This will have a tremendous impact on improving quality and lowering costs,” Stabenow said.


Stabenow was also asked why the federal government thinks it can create an affordable and sustainable public insurance option when Medicare is projected to become insolvent in 2017.


“The public option is not a single-payer, Medicare-type system,” she said. “It will be designed to be self-sufficient through a combination of government subsidies and [contributions from those insured].”


Stabenow said health reform legislation is also intended to lower Medicare costs by reducing overpayments, enhancing fraud and abuse controls and reimbursing providers based on quality instead of quantity.



Filed by Jay Greene of Crain’s Detroit Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Federal Pay Limits Create Storm at AIG



American International Group Inc. CEO Robert H. Benmosche’s reported threat to quit last week—and subsequent pledge to continue his work at AIG—set the stage for a battle over pay curbs, while underscoring the enormous challenges AIG still faces, observers say.


Concerns that Benmosche might step down came after a Wall Street Journal report on November 11 that said he was considering resigning because of executive compensation constraints imposed by the U.S. government, and particularly the most recent review by Kenneth Feinberg, the Treasury Department’s special master for Troubled Asset Relief Program executive compensation.


According to the report, which cited anonymous sources, Benmosche told directors he was “done” with the job he took in August—becoming AIG’s third CEO since its 2008 bailout—because the pay policies hurt his ability to retain top executives.


The report touched off a wave of speculation, and hours later Benmosche sought to calm concerns with a memorandum signaling he planned to stay at AIG.


The chief executive told employees he was “totally committed to leading AIG through its challenges,” while acknowledging that he has been frustrated by negotiations to devise an executive compensation plan that is “fair.” He called the pay issue a “barrier that stands in the way of restoring AIG’s value” and repaying its government debt.
Benmosche told employees he would continue “to fight on your behalf” and said the company is involved in ongoing discussions with Feinberg.


Last week’s development “raises the stakes,” said Bill Bergman, an analyst with Morningstar Inc. in Chicago. “AIG has made their case public, and it’s clear they intend to fight this issue.”


Benmosche’s reported threat to step down might have “simply been the result of emotions boiling over,” but it could signal that the former MetLife Inc. CEO is “under even more pressure than he anticipated when he took the job,” said Mark Lane, a research analyst with William Blair & Co. in Chicago.


Last month, Feinberg ordered pay cuts averaging 50 percent for the top 25 executives at seven companies that had received Treasury funding, including AIG, among other changes.


The rules applied for the rest of 2009, but were expected to be used as the basis for a compensation program for 2010, Feinberg said. In addition, he is expected to rule on pay structures for the next 75 highest-paid employees by year’s end.


“There is likely a lot of push and pull going on, and it’s possible that the solutions being offered by the government are even more severe than anticipated,” said John A. Challenger, CEO of executive recruiter Challenger, Gray & Christmas Inc. in Chicago.


Observers said there are strong pay arguments on both sides.


“On one hand, there is a lot of political pressure; but on the other hand, the restrictions mean AIG is at a serious competitive disadvantage,” Lane said.


The issue of executive compensation has become even more acute as the economy begins to recover and other opportunities emerge for staff, observers say.


“I think there will continue to be an exodus of talent,” Lane said.


“I don’t think you will see a hundred employees walk out the door, but there will be some departures, and it will likely be the key players who decide to leave,” said Richard V. Smith, senior vice president at Sibson Consulting in New York. “These are the exact people you need on your team to rebuild the company.”


Beyond any short-term financial incentives, “employees are going to have to believe they have a future in the company,” said Morningstar’s Bergman. And AIG still faces the massive challenge of rebuilding its franchise and “inspiring confidence” in its future, he added.


AIG is working to sell assets, streamline its operations and improve profitability in an effort to repay the government after it received a 2008 bailout package of up to about $180 billion, in which the government took a roughly 80 percent stake in the company.


Benmosche, who came out of retirement to take the top job at AIG, is a “very driven CEO, and he does want to succeed,” said John Wicher of John Wicher & Associates Inc. in San Francisco. But from the beginning, the new CEO “made it pretty clear he was going to do things his way,” Wicher said.


For example, Benmosche disagreed with previous CEO Edward Liddy’s approach to asset sales and, instead, implemented a slower approach to restructuring, believing it would generate more money.


In addition, AIG has rebranded its property/casualty business, formerly AIU Holdings, as Chartis Inc., in an attempt to separate and ultimately spin off the unit.


Improvements seen
While observers say it’s too soon to judge Benmosche’s performance, they note that the company is showing signs of stability.


AIG this month posted a second consecutive quarterly profit. A recovery in the value of its investments helped, although its underlying insurance operations reported lower revenues. Following the results, New York-based Moody’s Investors Service said in a statement that the insurer has made progress on its restructuring plan and “will likely be able to repay the government loan.”


Had Benmosche quit, the move likely would have had a destabilizing effect on the organization, observers say. “It is in the board’s best interest to keep him in there. They do not want to go through this process all over again,” Lane said.


At the same time, “his willingness to fight demonstrates he is not just going to roll over, and that might actually boost morale,” Wicher said.


Meanwhile, AIG vice chairman Jacob A. Frenkel retired last week.


In a November 10 memo, Benmosche wrote that although Frenkel, who joined AIG in 2004, “had been contemplating this change for some time, Jacob had agreed to stay on to help AIG through its challenges. Now that AIG has stabilized, Jacob has decided to move ahead with his retirement.”




Filed by Colleen McCarthy of Business Insurance, a sister publication of Workforce Management. Business Insurance senior editor Mark A. Hofmann contributed to this report. To comment, e-mail editors@workforce.com.


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PBGC Deficit Nearly Doubles to $22 Billion


Hammered by huge losses and lower interest rate assumptions, the Pension Benefit Guaranty Corp.’s deficit in fiscal 2009 nearly doubled, jumping to $22 billion from $11.2 billion in 2008.


The deficit in the PBGC’s insurance program for single-employer plans soared to $21.1 billion, up from $10.7 billion in fiscal 2008, while the deficit in the agency’s insurance program covering multiemployer pension plans climbed to $869 million, up from $473 million in 2008.


The big jump in the agency’s deficit is a dramatic reversal of fortune.


Starting in 2005, the agency’s financial position, aided by a strong economy, steadily improved. Its deficit, which hit a record $23.5 billion in 2004, declined each year.


That run of good fortune came to an abrupt end in fiscal 2009.


While the PBGC in 2008 didn’t incur a single loss even close to $100 million from a plan termination, it was hit by several in 2009, including its second-biggest loss. The agency estimated that its takeover this year of massively underfunded pension plans sponsored by bankrupt auto parts manufacturer Delphi Corp. will cost it nearly $6.3 billion.


And the agency could be hit with more big losses.


It says its potential exposure to future losses from financially weak companies was about $168 billion in fiscal 2009, which ended September 30, up from $47 billion the prior year.


“Exposure to possible future termination means that we could face much higher deficits in the future. We won’t fail to meet our obligations to retirees, but ultimately we will need a long-term solution to stabilize the insurance program,” PBGC Acting Director Vince Snowbarger said in a statement.


The agency’s insurance program is supported by premiums paid by employers with defined-benefit plans, as well as by investment income earned on those premiums and assets in failed pension plans it takes over.




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


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Caterpillar Settlement Could Make 401(k) Advisors Vulnerable to Lawsuits Over Fees


Caterpillar Inc.’s announcement last week that it has reached a tentative settlement over the fees it charged its 401(k) plan participants may be bad news for plan sponsors, their advisors and mutual fund companies.


Not only could the settlement open the door to lawsuits against plan sponsors, but it also might put pressure on large companies to move away from using retail mutual funds in their 401(k) plans, experts said.


On November 5, Caterpillar agreed to pay $16.5 million to settle a lawsuit that alleged its 401(k) plans charged its employees unreasonable and excessive fees.


The suit, which was filed in 2006, was one of a dozen lawsuits against companies over 401(k) fees filed by the law firm Schlichter, Bogard & Denton.


While some of those suits were thrown out by the courts, the fact that Caterpillar settled is a signal to plaintiff’s attorneys that they have a leg to stand on in future litigation, noted Bart R. Bonga, vice president of Rothschild Investment Corp., a financial advisory firm that works with retirement plans.


“This is a watershed,” said Don Stone, president of Plan Sponsor Advisors, whose firm also works with retirement plans. “It says that a lot of these large companies would rather settle than go through the agony and years of possible litigation. I think there will more of these cases.”


But that doesn’t mean participants will always be victorious in these cases, said Greg Ash, head of the Employee Retirement Income Security Act litigation group at Spencer Fane Britt & Browne.


The Caterpillar case was a bit unique in that one of the company’s affiliates was managing some of the funds in the 401(k) plan, Ash said.


“There was a hint of self-dealing there that you don’t find in many other cases,” Ash said.


That won’t keep plaintiff’s attorneys from filing cases anyway, he said.


“I think this will at the very least drive the settlement levels up,” Ash said.


The Caterpillar settlement also has implications for the mutual fund industry, because in the settlement the company said it would no longer use retail mutual funds in its 401(k) plan. Instead, the firm will use cheaper options, like separate accounts and collective trusts.


“I think this settlement raises the question whether plan sponsors should be using retail mutual funds if there are other options available,” Stone said.


Caterpillar’s settlement of Martin v. Caterpillar Inc. is pending before the U.S. District Court of Illinois.


Filed by Jessica Toonkel Marquez of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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