Category: Benefits

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American Airlines Asks to End Retiree Health, Life Benefit Coverage

American Airlines Inc. and parent company AMR Corp. have filed suit in U.S. Bankruptcy Court asking for a ruling to allow the airline to stop providing retiree health and life insurance to current retirees.

In its suit filed July 6 in U.S. Bankruptcy Court for the Southern District of New York, American and AMR said they never promised to provide benefits for life and reserved their rights to modify the plans.

“Because the retiree health and welfare benefits are not vested, and because modifying retiree health and welfare benefits to reduce costs fall within American’s sound business judgment, American may unilaterally modify health and welfare benefits for current retirees,” the airline argued in the suit.

American, which filed for Chapter 11 bankruptcy reorganization in November 2011, said it intends to freeze three of its four massively underfunded pension plans.

It also intends to freezea fourth plan—one covering its pilots—assuming the Internal Revenue Service finalizes a proposed rule that would allow employers that have filed for bankruptcy to remove plan participants’ right to receive their accrued benefits as a lump sum rather than as a monthly annuity.

Without such a change, American said it fears that a high number of pilots eligible to retire early would take their accrued benefit as a lump sum and retire, adversely affecting the airline’s ability to operate.

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

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Officer Hit By Car While Walking to Get Coffee Due Workers’ Comp

An Oregon police officer who was hit by a car while walking to get coffee is entitled to workers’ compensation benefits because the accident happened in the course of her employment, the Oregon Court of Appeals has ruled.

Carolyn McDermed was a police lieutenant for the city of Eugene, Oregon, court records show. She worked for the department’s internal affairs office, and most of her duties included office work.

In April 2008, McDermed was struck by a car while she was walking to get a cup of coffee across the street from her office. She suffered multiple injuries to her head, right foot and chest.

The police department denied McDermed’s workers’ comp claim, arguing that she was injured during a “solely personal mission.” But the Oregon Workers’ Compensation Board awarded benefits to her after finding that McDermed’s injuries arose from her employment.

On June 27, the Oregon Court of Appeals unanimously upheld the board’s ruling. In its decision, the appellate court said that McDermed was still at work during her coffee run, since she was expected to perform community policing duties while not in her office.

“When claimant was on duty and on the street, the street was her ‘work environment’—and any injury she suffered either as a result of distinctly work-related risks, or of neutral risks associated with that environment to which the conditions of employment exposed her, compensably ‘arose out of’ her work,” the appellate court ruled in upholding the benefits award.

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

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The Last Word: Health Care Reform’s Hurry-Up Is Just Beginning

Anticipation surrounding the Supreme Court’s decision on health care reform has kept HR executives in a frustrating state of suspended animation for much of the year.

So I figured that on the cusp of the high court’s ruling, health care reform would be the overwhelming topic of discussion once I was among the 12,000 or so attendees at the Society for Human Resource Management’s confab in late June.

But I didn’t think I’d be chatting about it before I hit the 64th annual soiree in Atlanta.

No sooner did I get on the plane in Chicago that I met an HR director from a 400-employee specialty hospital in Omaha, Nebraska, who also was headed to the conference. It took no time to realize our expectations paralleled each other’s: She wanted to learn about health care reform, and I wanted to cover the anticipation and detail the collective HR world’s reaction to the court’s ruling on the Patient Protection and Affordable Care Act.

As it turned out, we were not alone in the search for a guiding light to illuminate our path to health care reform enlightenment. At the baggage carousel I overheard two other people talking about the pending ruling. I guessed they were SHRM attendees. They concluded their discussion with one woman turning to the other, uttering an exasperated sigh, “I just wish they’d get it over with.”

Well, they were expected to—the day after the conference ended. Once it was apparent early into SHRM’s first full day on June 25 that a ruling wouldn’t be handed down until June 28, several sessions on health care reform—which not surprisingly were packed to the gills—buzzed with tweets and talk about the delay.

Those justices sure know how to build the suspense.

Call it what you want: impatient anticipation, anxious annoyance, eager hope for the future or outright dreaded fear of the unknown, but health care reform is the gift that indeed will keep on giving. To say health care reform is landmark, game-changing legislation that alters the way HR departments implement benefits is an understatement. Not only was the HR director I met seeking some measure of clarity on how she and her staff would implement it for hospital employees, but also she knew health care reform would alter her field in general.

In the six years I’ve been at Workforce Management, I cannot recall an issue that created the angst and heartburn that health care reform has stirred up for HR practitioners.

Still, there’s a familiar feel to the furor facing the profession. Shake-ups around people management aren’t new—something I’m especially aware of as Workforce Management celebrates its 90th year of publishing. Once again, we are writing about something that measurably reshapes the responsibilities of HR departments across the board.

As I spent two days late last year reading over the archives of Workforce Management and its predecessor, Personnel Journal, what struck me most was no matter how much it seems the role of HR leaders has changed throughout the years, the more it remains the same.

Whether it was 1946 or 1996, it seemed issues that are bandied about today were the same basic concerns of personnel managers and HR executives throughout the past 90 years.

Issues such as employee engagement, managing problem workers and coping with unions has been keeping HR managers reaching for the Bromo-Seltzer for decades.

Perhaps most important, HR people have tussled with legal compliance. The implications of 1938’s Fair Labor Standards Act and 1964’s Title VII continue to reverberate today.

Health care reform will likely be no different. Whatever the nuances of the Affordable Care Act ultimately may be, HR departments and benefits managers will be on the front lines of corporate compliance and implementation.

With benefits enrollment season approaching, HR directors like my new acquaintance from Omaha will be understandably busy. Our state of suspended animation around health care reform has now expired, and a new frustration around having to move fast is just beginning.

Rick Bell is Workforce Management’s managing editor. Comment below or email editors@workforce.com.

Workforce Management, July 2012, p. 58 — Subscribe Now!

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Ford Retirees Criticize Lump-Sum Payment Offer Vs. Monthly Pension Checks

A group of Ford Motor Co. retirees is calling for rejection of the automaker’s offer of a lump-sum payment instead of monthly pension checks, the Detroit Newsreported June 27.

The Ford Actions Impacting Retirees Alliance, or FAIR, hired a team of lawyers, consultants and accountants to review the proposal Ford made this month, and in a letter to its members, advised against accepting the buyout, the newspaper reported.

By the end of the summer, Ford will offer between 12,000 and 15,000 of its white-collar retirees in the United States the option to receive a one-time payment instead of their monthly pension checks. There are about 98,000 white-collar Ford retirees.

Retirees are not required to accept the lump-sum payment, and Don Whitehouse, president of FAIR, which is headquartered in Madisonville, Kentucky, told theNewsthat the letter to the organization’s members says that the pension system is the most fair choice for the retirees.

“There is no possible way that we can receive better returns on investments with the existing stock market, CDs or any other financial choices without taking a loss and Ford Motor Co. knows that very well,” the letter read, according to theNews.

FAIR didn’t immediately respond to an interview request. The organization has more than 3,000 members, according to its website.

The automaker has $15.4 billion in unfunded pension liabilities that it hopes to reduce through the buyout offer.

While the plan may make sense for Ford, Whitehouse told theNewsthat only one retiree has told him that he planned to accept the lump-sum offer.

“I’ve only had one person—of all the people we’ve been in contact with — who said he’d take the buyout no matter what,” Whitehouse told theNews. “His wife died, he has no kids and he has cancer. His doctor gave him three months to live.”

Joseph Lichterman writes for Automotive News, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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General Motors Retiree Group Rips Plan to Unload Pension Plan

A group representing General Motors Corp.’s salaried retirees has sharply criticized GM’s plan to replace their pensions with an annuity handled by an insurance company.

The General Motors Retirees Association, in a June 13 letter addressed to GM CEO Dan Akerson and posted on the organization’s website, says it’s concerned that GM’s plan to shift the pension plan for white-collar retirees to Prudential Insurance Co. of America will eliminate federal insurance of their pension income.

“It is a matter of depriving [retirees] of the financial security that they earned,” wrote the association’s president, Jim Shepherd.

This month GM said it will spend $2.5 billion to $3.5 billion to buy a group annuity contract from Prudential to cover the pension payments of GM’s 118,000 salaried retirees and dependents. GM also said it would offer a lump-sum buyout option to 42,000 of those retirees.

The GM Retirees Association says that all salaried retirees—those who take the buyout and those who are shifted into the annuity—would lose the coverage provided by the federal Pension Benefit Guaranty Corp.

“You are abandoning the hard-earned benefit of an ERISA-protected pension promised to thousands upon thousands of GM retirees in return for their commitment and loyalty,” Shepherd writes in the letter, referring to the Employee Retirement Income Security Act.

A GM spokesman said the company received the letter and has called members of the association to discuss their concerns. He confirmed that Pension Benefit Guaranty Corp. will not back the pension plan once it is shifted to Prudential in January.

The spokesman said there are other protections built into its contract with Prudential. The insurer is required to form a separate fund to hold the pension assets, which would not be subject to any future claims by Prudential creditors. And annuities generally have coverage through state guarantee funds. Those protections vary by state.

“This is the first communication we’ve received from a group with concerns,” the GM spokesman said. “We take it seriously, and we’re working on getting them the appropriate response.”

The annuity deal is a core piece of GM’s strategy to reduce the risk of its massive pension obligation, which Akerson identified this week as one of the top risks the automaker faces, behind its sustained losses in Europe.

GM said the buyout offer and the shift of its salaried pension plan to Prudential should cut its U.S. pension liability by about $26 billion, a major step in its bid to reduce the $134 billion in global pension obligation on its books.

GM’s move to eliminate such a large pension liability by moving it to a group annuity contract is unprecedented, according to Pensions & Investments, a sister publication of Workforce Management.

“This is by an order of magnitude, the single largest [pension buyout] transaction both in the U.S. market and globally,” said Ramy Tadros, New York-based partner at Oliver Wyman Group, told the magazine. “They are the first ones to go through this and test the market reaction to a move like this.”

Under the plan, those who retired before Oct. 1, 1997, as well as any of the 42,000 who decline the buyout offer, will have their benefits paid by Prudential starting in January. The amount of the monthly checks would remain the same.

In April, Ford Motor Co. said it will offer 90,000 U.S. salaried retirees and former employees the option of receiving a lump-sum pension payout. It has not disclosed any plans to shift any of its pension plans into an outside group annuity.

The GM Retirees Association letter was reported June 15 by the Detroit Free Press.

Mike Colias writes for Automotive News, a sister publication of Workforce Management. Comment below or email editors@workforce.com.

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Employee Benefits Broker Hylant Group Acquires Employee Benefits Agency AGIS

Further bolstering the Hylant Group Inc.’s position as a leading employee benefits broker and consultant, the firm has acquired AGIS, an independent, full-service employee benefits agency with offices in Birmingham, Michigan, and Orlando and Jacksonville, Florida.

While financial terms of the transaction, announced June 12, were not disclosed, the companies reported that AGIS’ Birmingham office will transition to Hylant’s Detroit office, bringing additional expertise and experience to Toledo, Ohio-based Hylant’s expanding southeast Michigan operation and making Hylant one of the largest employee benefit operations in that state.

Hylant acquired AGIS’s Indianapolis office in 2011 and embarked on a corporate restructuring strategy this year.

Founded in 1978, AGIS has more than 1,000 clients and 75 employees producing less than $20 million in revenues. Hylant, founded in 1935, is a full-service insurance brokerage with 14 offices in Ohio, Michigan, Illinois, Indiana, Tennessee and Florida. Hylant’s combined property/casualty and employee benefits premiums total more than $1.25 billion.

As a result of the acquisition, AGIS clients will now have access to the full range of resources available to them through Hylant’s employee benefits practice, as well as Hylant’s other risk and industry specialty practices, including property and casualty, risk management and insurance services, the company said in a statement.

“The acquisition of AGIS demonstrates our commitment to the employee benefits space. Our clients will continue to need access to consulting expertise and services as the landscape of health care and employee benefits services continue to evolve,” said Michael Hylant, CEO of Hylant Group, in the statement. “The level of leadership, talent and company culture of AGIS supports our plans for strategic growth in our existing offices and our new Orlando and Jacksonville locations.”

“Joining the Hylant family broadens the scope of services we are able to provide to both our existing and new clientele. The strength of our merged teams results in a greatly expanded pool of talent from which to draw and apply expertise to the insurance needs facing employers in Michigan and Florida,” said Andria Herr, national president of AGIC, also in the statement.

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

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Employee Bonuses Driven By Customer Loyalty at General Motors

Mark Reuss wants General Motors employees to make customers so happy with their GM vehicle that they come back for another one. So he’s paying his workers extra when that happens.

Reuss, GM North America president, has instituted a new compensation structure that ties a portion of salaried workers’ bonus pay to GM’s customer loyalty in both sales and aftersales service at dealerships. It covers all GM North America salaried employees, including 29,000 in the United States, from engineers and vehicle designers to field reps.

Reuss says it’s the first time in his 26-year career—and likely in GM’s history—that the company will pay employees based on how well GM retains its customers.

“That is the ultimate result of why we’re doing all of this, right? People come back and buy our cars and trucks,” Reuss said.

The latest move builds on Reuss’ unrelenting mantra of customer loyalty over the past two years, ever since he was given sales responsibility for North America.

Reuss wants GM employees to look beyond the narrow scope of their job descriptions and keep their ultimate focus on the customer. In the past, divisional barriers meant that even if employees in one area were hitting their targets it often did not translate into success for GM.

“Everybody had their own metrics, which somehow were all green,” or positive, Reuss says of the old GM. “But, weirdly, when we added it up, it was pretty red.”

For 2012, salaried workers in North America will get a year-end bonus if GM hits an internal customer-retention goal. The company uses both third-party sales data and internal numbers to set a loyalty target, a spokesman says.

The customer-retention piece is now part of a broader compensation system GM implemented in 2011 that pays salaried workers a bonus for hitting a companywide target for vehicle quality. Reuss added the customer component for 2012. Employees were notified of the change in May.

The spokesman would not say how much money GM is offering for hitting the targets.

To drive home the point that customer-loyalty efforts transcend the dealership, Reuss last month added vehicle-quality duties to the responsibilities of his customer-experience czar, Alicia Boler-Davis. That gives the one-time plant manager oversight of both the quality of GM’s vehicles rolling off the assembly line and the level of customer satisfaction at its dealerships.

Chevrolet dealers have been asked to visit Walt Disney Co. resorts for tips on how to treat customers. Cadillac dealers have been immersed in the ways of the Ritz-Carlton luxury hotel brand.

But it is inside GM’s 650-person field sales division that the customer-centric pay structure probably reflects the most striking departure from GM’s past. For many years, zone managers and sales reps were expected to move the metal at any cost. Twisting dealers’ arms to take cars they didn’t want was routine.

Today, many dealers say they rarely are pressured to take cars. That’s partly a byproduct of GM’s restructuring: The 2009 bankruptcy and new United Auto Workers contracts pared production capacity and eliminated suffocating legacy costs such as the Jobs Bank, which paid workers whether they were building vehicles or sitting idle in union halls. So GM no longer has an incentive to produce more cars than demand requires simply to keep cash coming in.

But Reuss wants more from his sales force. He expects sales managers and reps to partner with GM dealerships to achieve his goal of making GM’s brands No. 1 in customer service within two years.

From his office desk on the 38th floor of GM’s Renaissance Center headquarters, Reuss plucks a freshly printed PowerPoint document, dated May 30, that amounts to a road map for changing the culture inside his sales operation. It’s filled with “GM values” such as employee engagement and “customer zealotry.” 

Mike Colias writes for Automotive News, a sister publication of Workforce Management. To comment, email editors@workforce.com.

 

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U.S. Workers Short on Long-Term Disability Coverage


Uninsured medical expenses are a major factor in about half of all personal bankruptcies and home foreclosures in the United States. Yet American workers are increasingly unprotected from the risk of long-term disability as employers scale back workplace benefits, according to a new survey conducted for Sun Life Financial.

Long-term disability insurance replaces a predetermined portion of an employee’s income if a qualifying disability, injury or illness lasts at least three to six months—depending on the policy.

But a growing number of employers no longer pay for basic long-term disability insurance. Instead, many employers offer employees the option to purchase group coverage themselves. Based on a survey of more than 2,000 workers nationwide conducted by Kelton Research for Sun Life, which sells disability insurance, more than 60 percent of workers offered such voluntary group insurance decline to purchase coverage.

Similarly, more than half of workers who are offered the option to supplement their employer-paid group coverage at their own expense decline to do so, according to the survey.

“Because employers are footing less and less of the overall group insurance bill, workers in our country must take proactive steps to mitigate the financial risk of long-term disability,” said Michael E. Shunney, senior vice president and general manager of Sun Life Financial’s U.S. employee benefits division. “By encouraging workers to learn how to protect themselves and their families against income loss from long-term disability, we hope this survey helps the American workforce plan for more than a lifetime of financial security.”

Though workers pay the full cost, voluntary group insurance allows them to pay lower group insurance rates and obtain coverage without extensive medical underwriting.

What’s more, the benefits are tax-free for a qualifying long-term disability plan, assuming that premiums were paid with after-tax dollars. By contrast, employer-paid long-term disability benefits are subject to income taxes.

Mary Beth Franklin writes for InvestmentNews, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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Investment Executive Aims to Put Retirement Security on Election Agenda

In a presidential election that already has seen days dominated by parsing whether one candidate can be compared with an Etch-A-Sketch and whether another has mistreated a dog, Putnam Investments chief executive Robert Reynolds wants to turn the conversation to something more substantial: whether most voters can retire comfortably.

Reynolds laid out a three-point plan—making Social Security solvent, providing employer savings programs to everyone who pays Social Security taxes and raising workplace savings rates to 10 percent—that he said should be addressed in every federal campaign.

“Implementing these reforms in the real world will take leadership,” he said at a Financial Services Roundtable event in Washington on Wednesday.

“And those of us in retirement services need to both provide it and demand it from candidates seeking public office,” Reynolds said. “All of us in the retirement policy arena … should press our political leaders in this election year for a full, open debate on retirement policy.”

After the election, a lame-duck Congress must decide whether to extend hundreds of millions of dollars in tax cuts approved during the Bush administration and set to expire Dec. 31. Personal rates, as well as capital gains and dividends rates, are set to increase if lawmakers don’t act.

The post-election pileup is an example of Congress’ refusing to make tough decisions on taxes, spending and entitlements, according to Reynolds.

“This ‘fiscal cliff,’ as some people call it, is the result of multiple Congresses and administrations kicking the can down the road,” he said.

“Now the bill is coming due,” Reynolds said. “That’s why we do need to have a great national debate this year about deficits, debt and ways to reboot economic growth, so that the next president and the next Congress can earn a mandate for serious action from the American people.”

Congress is likely to turn its attention to broader tax reform next year.

Reynolds is trying to lay the groundwork for that debate, too.

“Making Social Security solvent and dispelling the uncertainty about its future should be the top priority for bipartisan reform next year,” he said.

Reynolds warned Congress not to touch retirement savings tax deferrals in its efforts to lower tax rates, broaden the tax base and reduce the deficit.

“National solvency and personal solvency go together,” he said. “We should never pit one against the other, but that is exactly what some in Washington want to do.”

Retirement savings tax deferrals, including IRAs and 401(k) accounts, are known as “tax expenditures” in federal budget parlance. They are among the tax breaks that are defined as costing the government revenue each year.

In fact, the favorable tax treatment for retirement savings puts them among the top three tax expenditures.

“They are deferrals, not permanent tax breaks,” Reynolds said. “Every penny will eventually be withdrawn and taxed as ordinary income, even though most of the assets being drawn down will likely come from dividends, interest and capital gains.”

In order to boost workplace savings, Reynolds backs legislation that would establish automatic IRA payroll deductions.

He tried to address two aspects that Republicans have used to argue against such a measure: Workers would not be forced to participate and employers would be compensated for start-up costs.

Most members of Congress understand the urgency of the retirement savings issue, according to Steve Bartlett, president and chief executive of the Financial Services Roundtable. The problem is that they too often use the issue to attack their opponents, making cooperation more and more difficult, he said.

“Our job, politically, is to convince them that their constituents expect them to do the right thing,” said Bartlett, a former House member from Texas.

Addressing the retirement issue forthrightly will help both parties, Reynolds said in an interview.

“If you do fix retirement security in this country, you suddenly have a real sense of confidence and hope,” he said. “People will look forward to the future and not fear it.”

Mark Schoeff Jr. writes for InvestmentNews, a sister publication of Workforce Management. To comment, email editors@workforce.com

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Ending a Defined Benefit Plan Takes Shutdown Strategy, Experts Say

There isn’t an application yet for terminating a defined benefit plan, but there is plenty of guidance.

“There are enough plan sponsors with frozen [defined benefit] plans who want out,” says Mike Clark, a consulting actuary in Principal Financial Group’s Pittsburgh office. “There is a desire for simplicity and guidance to get to the endpoint.”

Principal is one of several firms with road maps for plan sponsors looking to terminate their defined benefit plans. Principal broke its “how to” into two phases: “Best Practices for Building a Termination Strategy” and “Winding Down Your Hard-Frozen Defined Benefit Plan.”

Before a plan can be terminated, it needs to have all the funds necessary to pay benefits to employees. Once that happens, plan sponsors can start the process of shutting down the plan.

A large part of the second phase is helping participants know about the choices they will need to make, says Cathy Toner, senior manager in the strategic retirement consulting group at Vanguard Group Inc., which also offers plan shutdown guidance. When the plan terminates, it is important participants understand the difference between the freeze and the shutdown.

“They’ve already heard the tough news about the plan freezing,” Toner says. Participants “should understand they are no longer accruing benefits.”

For several years, more plan sponsors have been joining the trend of opening defined contribution plans and freezing defined benefit plans. According to data from consulting firm Towers Watson & Co., since 1998, 42 of today’s Fortune 100 companies have frozen or closed their defined benefit plans.

Freezing a plan doesn’t mean everything stops. A “soft freeze” is typically not open to new employees, but existing participants still accumulate benefits. A “hard freeze” or “close” is when new hires can’t join and benefit increases for existing participants stop.

Terminating the defined benefit plan is the next step. The final phase of a 2006 federal law that determines the calculation used to exit participants from the plan comes into effect this year. The new interest rate used to calculate participants’ payouts when terminating a plan will make it more affordable for plan sponsors, experts say.

Participants typically get two choices in a termination: receive a lump-sum or an annuity payment. It can be a tough for some participants to figure out which option works best, Toner says.

Last year, the Valley Forge, Pennsylvania-based investment company launched Vanguard Pension Reinvestment Services, a program designed to help participants of terminated defined benefit plans make better decisions about their retirement money.

“It may be the biggest chunk of money they’ll ever get, so it’s important for [participants] to make the best decision for their situation,” Toner says. “Most people need a little help.”

Patty Kujawa is a freelance writer based in Milwaukee. Comment below or email editors@workforce.com.