Category: Benefits

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Hostess Brands to Terminate Pension Plan as Part of Liquidation

Hostess Brands Inc., Irving, Texas, will terminate its defined benefit plan, and the Pension Benefit Guaranty Corp. will assume its liabilities, said Lance Ignon, Hostess spokesman.

The news follows Hostess’ announcement on Nov. 16 that it will close its business and sell off all its assets.

Hostess suspended payments to the 42 multiemployer pension plans to which it contributes in August 2011. “For active employees, the circumstances differ for each MEPP, so (participants) should contact the administrator of the MEPP” in which they participate, Ignon said in an email, citing an employee Q&A document. He could not provide further information by press time.

The company’s IBC Defined Benefit Plan had about $56 million in assets and $111 million in liabilities as of April 30, according to the PBGC.

“PBGC exists to safeguard retirement security in uncertain times, and that’s what we’ll do for the 2,300 men and women in Hostess’ single-employer plan if the company liquidates. The plan is underfunded by about $55 million,” said J. Jioni Palmer, PBGC spokesman, in an emailed statement.

“Hostess belongs to 42 multiemployer plans, but its liquidation wouldn’t cause those plans to immediately become insolvent. PBGC doesn’t take responsibility for multiemployer plans, but instead gives financial assistance to the plans that can’t pay benefits,” Palmer said.

Kevin Olsen writes for Pensions & Investments, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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401(k) Plan Balances Hit Record High for 2012: Fidelity

Aided by strong investment results, employees’ 401(k) average account balances hit a record $75,900 at the end of the third quarter of 2012, according to an analysis released Nov. 8.

For the three month period ending Sept. 30, employees’ average account balances jumped 4.2 percent from the prior quarter, and 18 percent compared with the end of the third quarter of 2011 when account balances averaged $64,300, according to Fidelity Investments.

Strong investment results accounted for 78 percent of the third quarter account balance increase, and 22 percent was attributable to participant action, such as boosting contributions, Fidelity said.

In fact, 4.6 percent of plan participants increased their deferral rate during the third quarter, compared with 2.8 percent who decreased it.

The Fidelity analysis, which is based on 12 million 401(k) plan accounts in more than 20,000 employer plans, shows how the accounts have recovered from the Great Recession of 2008-2009, when account balances were battered by the plunge in the equities market.

At $75,900, the average account balance at the end of the 2012 third quarter is up by more than 64 percent compared with end of the first quarter of 2009 — considered the bottom of the last economic downturn — when the average account balance was $46,200.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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American Airlines Freezes Its Pension Plans

American Airlines Inc. froze its four massively underfunded pension plans Nov. 1, an action that put to an end a long-running saga over the plans’ future.

That saga began nearly a year ago when American’s parent, Fort Worth, Texas-based AMR Corp., filed for Chapter 11 bankruptcy reorganization.

In January, American said it would seek bankruptcy court approval to terminate the plans, which have about 130,000 participants.

“American’s pension plans are very expensive; we spend more on them than our competitors spend on their retirement plans. We simply do not see a way we can secure the company’s future without terminating our defined benefit plans,” the airline said January in a statement.

The airline’s intended action ran into strong resistance from the Pension Benefit Guaranty Corp., which would have had to pick up billions of dollars in benefits that the company promised to the plans’ participants but did not fund.

“Before American takes such a drastic action as killing the pension plans of 130,000 employees and retirees, it needs to show there is no better alternative. Thus far, they have declined to provide even the most basic information to decide that,” PBGC Director Josh Gotbaum said at the time.

In the face of that pressure, American in March reversed course and said it intended to freeze the plans and would beef up 401(k) plan contributions.

Through that decision, the PBGC, which reported a record $26 billion deficit in fiscal 2011, was spared what would have been its biggest loss in its 38-year history. According to PBGC estimates, the four American Airlines plans have about $8.3 billion in assets and $18.5 billion in promised benefits.

If the plans that cover pilots, flight attendants, transport workers and other nonunion employees had folded, the PBGC would have been liable for about $17 billion in benefits, resulting in an $8.7 billion loss.

That would have eclipsed the previous PBGC record loss, $7.4 billion in its 2005 takeover of five United Airlines’ pension plans.

The freezing of American’s plans will have no impact on its retirees who will continue to receive promised benefits. However, active participants no longer will accrue benefits. Less than half of plan participants were accruing benefits, an American Airlines spokesman said. American, though, will make an automatic 401(k) plan contribution for pilots equal to 11 percent of their pay, and will match other employees’ contributions, up to 5.5 percent of compensation.

The PBGC’s Gotbaum described the freeze as a “mixed result” for American’s pension plan participants. “Today marks a mixed result for the people of American Airlines. We of course are pleased that they will get to keep the pension benefits they have already earned, but it is unfortunate that going forward their retirement benefits will not provide the same level of security as a traditional pension,” he said in a statement Nov. 1.

American Airlines’ pension freeze means that except for a pension plan covering non-pilot employees once sponsored by Continental Airlines—later acquired by UAL Corp.—all major airlines’ pension plans have been frozen or taken over, at a cost of billions of dollars, by the PBGC.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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Illinois Pension Plans on Road to Ruin: Report

Illinois’ state pension plans are heading toward insolvency without any major pension reform, according to a report by the State Budget Crisis Task Force, led by former New York Lt. Gov. Richard Ravitch and former Federal Reserve Board Chairman Paul Volcker.

Pension costs are projected to take up 25 percent of the state’s budget in fiscal year 2015, up from 8 percent in 2008 and 20 percent in 2012. Each of the state’s five pension funds, with an estimated $85 billion in combined unfunded liabilities, is less than 41 percent funded. More than 60 percent of the state’s total outstanding debt is due to pension bonds.

Illinois already has one of the highest debt per capita rates in the country. It sold $10 billion in pension obligation bonds in fiscal year 2003 and again had to sell bonds in fiscal 2010 and 2011 to cover legally required contributions that were still below those actuarially required.

“The primary cause of the state pension systems’ underfunding is that the state does not impose the same obligation on itself that it imposes on local governments, and for decades its employer contributions have been below annually required amounts,” the report states. “Illinois has planned so poorly that it had to borrow to make its scheduled pension contributions for FY 2010 and 2011, which were below the (actuarially required contribution) amount.”

Political gridlock among state legislators has prevented any meaningful pension reform since 2010 when the General Assembly created a second tier of reduced benefits for employees hired after Jan. 1, 2011. The report acknowledges this will help with long-term savings, but does nothing to reduce the existing unfunded liability.

“Because the state’s resources are limited, some type of reduction in pension benefits appears inevitable, despite the difficulties in making any type of change,” the report states. “Both spending cuts and revenue increases probably will be needed. Pension reform is necessary to salvage the benefits of future retirees.”

The state constitution currently protects any reduction in employees’ promised benefits.

Compounding matters is that the three largest pension systems — $36 billion Illinois Teachers’ Retirement System, $13 billion Illinois State Universities Retirement System and $11 billion Illinois State Employees’ Retirement System — use an assumed rate of return of about 8 percent. Lower discount rates will soon be required in Illinois under new rules approved by the Governmental Accounting Standards Board. Under the new rules, the Illinois Teachers’ Retirement System would be 18 percent funded as of July 2010.

The state’s other pension plans are the $63 million General Assembly Retirement System and $60 million Judges’ Retirement System.

The task force was assembled to understand the extent of fiscal problems faced by the states in the aftermath of the financial crisis. The task force studied California, Illinois, New York, New Jersey, Virginia and Texas.

Kevin Olsen writes for Pensions & Investments, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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Kimberly-Clark Offers Lump-Sum Pension Benefits

Kimberly-Clark Corp. is offering about 10,000 former employees who are eligible for but not yet receiving monthly pension benefits the opportunity to convert their future annuity to a lump-sum benefit.

The Dallas-based company said Oct. 24 that the vested benefit obligation associated with the former employees is about $570 million, equal to 15 percent of the company’s benefit obligation for the pension plan.

Participants will have until Nov. 21 to make the election. The lump sum payments will be funded from plan assets and will be made by the end of 2012.

Roughly a dozen other big well-known employers have made annuity-to-lump-sum benefit conversion offers in recent months, including Equifax Inc., Ford Motor Co., General Motors Co., NCR Corp. and The New York Times Co.

When pension plan participants take lump-sum benefits and are no longer covered by the plan, their former employers do not have to worry about how interest rate fluctuations and investment results could affect how much they will have to contribute to their pension plans to fund future annuity payments.

In addition, when participants take lump sums and move out of a pension plan, employers can reduce certain fixed costs, such as the payment of sharply rising premiums to the Pension Benefit Guaranty Corp.

For more information on lump-sum offers and other pension de-risking strategies, go to Business Insurance‘s solution arc on what companies need to know about reducing pension risk.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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Benefit Tech Tools Aim to Turn Employees Into Smart Shoppers

Few industry watchers took notice last year when Automatic Data Processing Inc. bought a small North Carolina-based developer of employee benefit decision tools. Yet the September 2011 acquisition of Asparity Decision Solutions appears to be a savvy move for the human resources software and services company as more organizations look for ways to turn employees into smart health care shoppers.

The trend toward health care consumerism—a movement to empower users with information to help them wisely choose plans, providers and treatments—is giving rise to online decision-support tools that help employees find the best benefit plan for their needs. A growing number of companies including PepsiCo Inc. and oil-recovery firm Safety-Kleen Systems Inc. which is an Asparity customer, are offering them. In fact, about 65 percent of employers provide these tools, a 2012 Towers Watson & Co. survey shows.

With annual health care insurance premiums costing about $15,000 for a family of four, according to a 2012 survey by the Kaiser Family Foundation, it is likely the priciest purchase an employee can make in a given year, aside from buying a house, says Tim Clifford, vice president of benefits services for ADP, which is based in Roseland, New Jersey. “Yet we dive right in and say I’ll buy the one I bought last year,” he says.

Not surprisingly, employees can find the benefit-enrollment process overwhelming. More companies are asking workers to pay a greater share of the costs and presenting them with new plan choices, such as high-deductible health plans, which can be complicated and confusing.

“You’re asked to do more at work and suddenly you’re being asked to take more responsibility in this area, and people are shutting down,” says Joann Hall Swenson, health engagement consultant at Lincolnshire, Illinois-based Aon Hewitt. “It’s complicated and we haven’t had to think about that in the past, and now suddenly employers want us to be good consumers. Keeping it short and simple is really critical.”

Most employees are on autopilot when it comes to benefit-plan selection, shows a recent survey by insurance company Aflac. An overwhelming number—89 percent—say that they elect the same benefit options every year. And that lack of engagement can cost $750 a year—the amount that more than half of the 2,000 workers surveyed estimate they waste each year by choosing the wrong benefit plan. On top of that, only 16 percent of workers were confident about their benefits choices in 2012 compared with 24 percent in 2011, the survey shows.

Clifford says that providing decision-making support, like Asparity’s suite of online tools, is critical in helping employees make the right choices. The program ranks and compares health plans according to individual needs and preferences.

Federal employees have been using Asparity since 1998 to help them choose from among 20 medical-plan options, including dental and vision care. The Durham, North Carolina-based company began offering these tools to private-sector employees in the early 2000s, company officials say.

The tools guide employees through the decision-making process starting with a survey of how many times in the year a user expects to incur charges for various services including routine office visits, outpatient surgery and X-rays. From there users pick the health-plan features that are most important to them and the program ranks the plans according to price and provides a detailed comparison with estimated out-of-pocket costs. It allows users to make tradeoffs between one feature and another, such as no copayments versus a certain coverage level for chiropractic care.

“Without a decision-support tool, employees will go into a system and choose Plan A or B, but it’s very hard to compare the plans and see all the difference in costs in all these choices,” Clifford says. “You need to know based on [your] … situation healthwise which one of these plans will have higher or lower out-of-pocket costs. These tools have cost calculators so you can input your anticipated health history and the tool will stack up the different plans as well as show you the contribution rate.”

The goal of these tools and of health care consumerism in general is to overcome the biggest challenge to controlling health care costs—changing employee behavior.

“Employers been tinkering with wellness programs for years and experimenting with different ways to control costs, but at the end of the day changing behaviors is at the root of how health care costs are driven and that’s what we are trying to get at,” Clifford says.

Rita Pyrillis is Workforce’s senior writer. Comment below or email editors@workforce.com.

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Fewer Employers Offering Defined Benefit Pension Plans to New Salaried Employees

The percentage of the largest U.S. employers that offer a defined benefit pension plan to new salaried employees continues to fall, according to new research.

As of June 30, 30 percent of Fortune 100 companies offered a defined benefit plan to new salaried employees, according to New York-based Towers Watson & Co. That’s down from 33 percent at the end of 2011, 37 percent in 2010 and 43 percent in 2009.

As recently as 1998, defined benefit plans were the norm among the nation’s largest employers, when 90 percent of Fortune 100 companies offered the plans to new salaried employees.

Since then, large employers have moved away from the plans. “Large employers have been reassessing their retirement offerings for some time. … The shift is motivated by several factors, including employers’ desire to reduce overall retirement costs — perhaps due to higher compensation and benefit costs elsewhere, especially health care — perceptions that workers prefer more portable plans, market trends, and the belief that such a shift reduces financial risk,” Towers Watson said in an article posted Oct. 2 in The Insider, a company publication.

In addition, as more companies have moved away from defined benefit plans, the competitive pressure on employers to continue to offer the plans has declined, said Alan Glickstein, a Towers Watson senior retirement consultant in Dallas.

The move away from defined benefit plans has been especially pronounced for traditional plans, in which the benefit is typically based on employees’ years of service and employees’ salary during their last years of employment.

Just 11 Fortune 100 companies offered a traditional defined benefit plan to new salaried employees as of June 30, down from 14 in 2011, 17 in 2010 and 19 in 2009.

By contrast, during the 1980s, defined benefit plans were the norm among Fortune 100 companies. In 1985, for example, nearly 90 percent of Fortune 100 companies offered a traditional defined benefit plan to new employees.

The prevalence of hybrid plans, typically cash balance plans, also has sharply declined. As of June 30, 19 Fortune 100 companies offered hybrid plans to new salaried employees. That’s unchanged from 2011, but almost 50 percent less compared with 2004, when 35 Fortune 100 companies offered the plans. While hybrid plans have defined benefit and defined contribution plan elements, legally they are defined benefit plans.

While a handful of big employers, including Dow Chemical Co. and The Coca-Cola Co., have set up new cash balance plans in recent years, new formations have been more than offset by other Fortune 100 companies, including Bank of America Corp., SunTrust Banks Inc. and Wells Fargo & Co., which began to phase out their cash balance plans.

As employers have moved away from defined benefit plans, the overwhelming majority of Fortune 100 companies now offer only a defined contribution plan to new salaried employees, according to Towers Watson.

As of June 30, 70 percent of the Fortune 100 offered only defined contribution plans, up from 67 percent in 2011, 63 percent in 2010 and 57 percent in 2009. By contrast, as recently as 1998, just 10 percent of Fortune 100 companies offered only defined contribution plans.

On the other hand, as employers have shifted to an all-defined-contribution-plan approach, they have added certain defined benefits plan features to those plans, Glickstein noted.

For example, a rising percentage of employers have added automatic enrollment features to their defined contribution plans. That feature is aimed at those employees who don’t respond to company requests to enroll. Unless they specifically object, such employees then are enrolled with a percentage of their salary — based on the employer’s design — contributed to the plan, assuring the growth of employees’ defined contribution plan account balances.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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Equifax to Offer Lump-Sum Pension Conversions to Eligible Former Employees

Equifax Inc. disclosed Oct. 1 that it will offer the opportunity to convert future annuities to either a lump-sum benefit or a reduced annuity that would begin in December to about 3,500 former employees who are eligible for but not yet receiving monthly pension benefits.

The offer is being extended to those individuals who terminated employment prior to Jan. 1, 2012, but have not yet started to receive benefits.

The benefit liability associated with that group represents about 20 percent of Equifax’s total pension plan liabilities, which were about $630 million as of Dec. 31, 2011, the Atlanta-based company said in a filing with the U.S. Securities and Exchange Commission.

Eligible participants will have from Oct. 8 to Nov. 16 to make elections, which are voluntary.

The payments will be funded with plan assets.

Other employers that have made annuity-to-lump-sum benefit conversion offers in recent weeks include Visteon Corp. and The New York Times Co.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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NFL to Freeze Referees’ Pension Plan Under Labor Agreement

The National Football League will freeze its pension plan covering referees at the end of the 2016 season under an agreement reached Sept. 26 that settles a highly publicized labor dispute.

The NFL had sought to immediately freeze the plan, which it said was too expensive. But under the compromise agreement with the National Football League Referees Association, the plan will continue for five more seasons for current officials.

Retirement benefits will be provided through a defined contribution plan to new referees immediately and for all officials beginning in 2017.

Under the defined contribution plan, the NFL will make an automatic contribution to each game official, averaging $18,000 per official, with the amount increasing to $23,000 in 2019. The NFL also will partially match contributions that referees make to their 401(k) plan accounts.

With an agreement in place, “It’s time to put the focus back on the teams and players, where it belongs,” NFL commissioner Roger Goodell said in a written statement.

“We are glad to be getting back on the field for this week’s games,” NFLRA president Scott Green said in a written statement.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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Archer Daniels Midland Joins Growing Ranks of Employers Offering Pension Lump Sums

Archer Daniels Midland Co. has disclosed that it will offer between 7,000 and 7,500 former employees who are eligible for but not yet receiving monthly pension benefits the opportunity to convert their future annuities to a lump-sum benefit.

The program, which will be funded with pension plan assets, “could reduce its global pension benefit obligation by approximately $140 million” to $210 million and improve its pension underfunding by about $35 million to $55 million, the Decatur, Illinois-based agribusiness giant said Sept. 20 in a filing with the U.S. Securities and Exchange Commission.

ADM’s offer comes after one made this week by Van Buren Township, Michigan-based automotive industry supplier Visteon Corp. to about 10,000 former employees.

In addition, The New York Times Co. announced last week that it is making such an offer to about 5,200 plan participants.

Other well-known employers that also have made annuity to lump-sum benefit conversion offers in recent months include Ford Motor Co., General Motors Co. and NCR Corp.

When pension plan participants take lump-sum benefits and are no longer covered by the plan, their former employers do not have to worry about how interest rate fluctuations and investment results could affect how much they will have to contribute to their pension plans to fund future annuity payments.

In addition, when participants take lump sums and move out of the pension plan, employers can reduce certain fixed costs, such as the payment of sharply rising premiums to the Pension Benefit Guaranty Corp.

Jerry Geisel writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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.