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San Francisco Mandates Transit Benefits

Employers with 20 or more employees in San Francisco will be required to offer commuter benefits to their workers under an ordinance passed Tuesday, August 12, by the city’s Board of Supervisors.


The ordinance gives employers three options.


They can:


  • Set up a program under IRS Code 132(f) into which employees can make pretax contributions to pay for mass transit. The maximum monthly contribution set by the IRS for 2008 is $115 for a transit pass.

  • Pay for employees’ transportation expenses, through such steps as buying transit passes.

  • Set up a van-pooling program for employees.

The mayor has 10 days to decide whether to sign or veto the measure.


If the mayor approves it, as is expected, it will take effect 120 days later.


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



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San Francisco Transit Break Would Reduce Payroll Taxes

San Francisco employers are likely to face new legislation requiring them to provide employees with the opportunity to use pretax earnings to pay for passes on public transportation.


The commuter benefits legislation is expected to be approved by the city’s Board of Supervisors this month. It is the latest in a string of mandates enacted in the past two years that include mandatory paid sick leave, an increase in the minimum wage and, this year, a requirement for employers to provide health insurance for employees or pay into a city health care fund.


“The perception of a mandate has not been helpful for us,” says Rob Black, vice president for public policy at the San Francisco Chamber of Commerce. “On the whole, we think it’s good for businesses to offer these programs, which have tax benefits to employers and employees, but because it’s a mandate it’s harder for us to get businesses to participate.”


The legislation was introduced by Supervisor Ross Mir¬karimi. If approved, it is likely that Mayor Gavin Newsom, whose Department of the Environment supports the legislation, will sign it into law.


“It’s a way to help increase public transit in San Francisco,” says Jeremy Pollock, a legislative aid for Mirkarimi. “It’s a benefit for employees that shouldn’t cost employers anything.”


The cost of administering the plan is offset because of the tax savings employers reap. By purchasing transportation passes with pretax dollars, an employee’s taxable earnings decrease, which reduces payroll taxes owed by employers.


A similar measure in New York City failed to pass in 2003.


With high gas prices and mounting environmental concerns, cities can be expected to step up their pressure on employers to help reduce congestion and pollution, says Dan Corbett, vice president for transportation development for WageWorks, a San Mateo, California, company that offers pretax benefits programs for employers.


“More places are looking at employer requirements to reduce congestion, traffic and pollution,” Corbett says.


While the city’s legislation may benefit employers, a principle may also be at stake, says Jamie Allen, a partner in the San Francisco law office of Jackson Lewis.


“The concern with this type of legislation is, here is another example of the city and county of San Francisco … not being particularly cognizant of businesses’ need to be operating their business as they see fit,” he says.


The economic and environmental value of the commuter benefits program may be undercut by the requirement behind it, Black says.


Black believes education would go a long way toward promoting public transportation. Employers would be more likely to offer the program voluntarily if they understood its tax advantages, he says.


Employers may comply with the proposed mandate, but the backlash may lead them to do nothing to make sure their employees take advantage of it. The Chamber of Commerce has asked the city to provide a one-year window between enacting the law and its enforcement to give the organization more time to educate employers. But Black says he expects a time frame closer to three to six months.


“The idea is, let’s get employers to actually buy into marketing it to employees,” he says. “Just because they offer it doesn’t mean anyone knows about it or they take you up on it.”


—Jeremy Smerd


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Chrysler to Expand Detroit Plant, Add 400 Jobs

Chrysler LLC is spending an additional $1.8 billion on new vehicle programs, including an expansion of its Jefferson North (Detroit) Assembly Plant, vice chairman and president Tom LaSorda said.


Jefferson North will get a new body shop and a paint-shop upgrade for a new generation of vehicles for the start of production in 2010.


In prepared remarks for his speech Wednesday, August 13, LaSorda said the expansion and new vehicle program will help create 400 new jobs in Michigan.


LaSorda did not reveal the vehicles, but he told Detroit radio station WJR-AM 760 it would be a car-based SUV. He was speaking at the Management Briefing Seminars in Traverse City, Michigan.


The plant currently builds the Jeep Grand Cherokee and Jeep Commander.


LaSorda also said Chrysler has identified $1 billion in nonearning assets it plans to sell. He said the automaker is halfway toward achieving that goal. The plant will be flexible to allow multiple different vehicle models to be built on the same assembly line, LaSorda indicated. The expansion adds 285,000 square feet.



Filed by David Barkholz of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Needed A Cure for Americas Ailing Health Care System

Ask your clients what keeps them awake at night, and I bet many will say the skyrocketing cost of health care.

That is why the first order of business for the next president of the United States is to fix the health care system.


We are all aware that fiscal stimuli are needed to revive the economy, and it has been well documented that the next president will face this nation’s first trillion-dollar deficit.


Nonetheless, health care reform comes first.


No matter who resides in the White House in January, the health care crisis must be resolved.


If it isn’t, the American standard of living will decline as workers and households continue to pay for health insurance through lower wages and higher costs.


Clearly, Americans can’t continue to handle the inefficiencies of health care. They deserve changes in the system that will reduce cost, improve quality and ensure access to health care.


To that point, about 20 percent of respondents in a 2007 survey of 18,000 people said they had put off or had gone without needed medical treatment at some point during the year because of concerns about costs. While the uninsured reported the highest rate of delaying treatment, a significant number of people with health insurance also delayed necessary care.


That is alarming information.


Also alarming is that 47 million Americans—nearly 16 percent of the population—have no health insurance. Meanwhile, U.S. health care spending is expected to nearly double by 2017, reaching $4.8 trillion and consuming 19.5 percent of the gross domestic product (four times the defense budget).


The health care system isn’t sustainable, and therefore, it isn’t surprising that in many surveys, voters have identified health care as the leading domestic issue for the government to address and for the presidential candidates to discuss in the campaign.


Voters of course have the right to hear the candidates’ positions on reducing the cost of health care and health insurance, and expanding coverage to those millions of uninsured Americans.


Sen. John McCain of Arizona, the presumptive Republican nominee, thinks that controlling costs is key to making health care more affordable, saving Medicare and Medicaid, and protecting health benefits for retirees. He sets three primary goals: paying only for quality care, offering diverse insurance choices responsive to individual needs, and restoring a sense of personal responsibility.


McCain advocates market solutions such as allowing companies to provide insurance nationwide.


He thinks that individuals should have a variety of plans from which to choose and would offer tax credits and health savings accounts to help pay for them.


Sen. Barack Obama of Illinois, the presumptive Democratic nominee, has proposed a universal health plan that would provide coverage to every American, through both public and private means. His plan would mandate that all children have health care coverage.


Those who have insurance through their employers or who qualify for Medicaid or the state children’s insurance programs would be able to keep that coverage.


For others, Obama would create a public insurance program. People couldn’t be turned away because of illness or pre-existing conditions.


Both plans need to be critically reviewed.


Incremental reform will fail to address the problem. An overhaul of the system is needed, and that means identifying solid ideas for meaningful and long-lasting reforms.


Perhaps the answer is a compromise.


A recent study by some health care professionals outlined the benefits of universal health care. However, the study also recognized that much of the economic success that the United States has enjoyed is attributed to a free-enterprise system.


Therefore, the study suggested, marrying these two seemingly disparate concepts will be critical to solving the ills of health care.


McCain and Obama: Are you paying attention?

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IBM India Places a Premium on Training and Integrating New Hires

Each time executives at IBM India have a meeting, the discussion quickly turns to the development of its burgeoning staff.

“The third sentence is always [about] training,” says David Tai, IBM’s director of HR Learning for India/South Asia.


Tai leads the effort to integrate new hires into IBM’s rapidly expanding operations, which are headquartered in Bangalore and include five other sites around the country where the company provides technology services and conducts research.


In 2002, IBM India employed 4,900 people. It added about 20,000 employees in 2007, reaching a total of 73,000—making it the second biggest IBM location in the world, after the U.S.


“It’s something that has never happened before, this hypergrowth,” Tai says. “It’s a multifaceted challenge.”


To find job candidates, IBM looks at a wide range of Indian higher education institutions—from first tier to third tier. It casts its net widely in a country that has “400 million talents” younger than 21, Tai says.


IBM works with colleges to identify candidates before they graduate. That outreach, combined with IBM’s reputation as a place to grow, helps keep the pipeline full.


“They’re very motivated to be productive,” Tai says. “In India, learning and career are the two things they want.”


Even though new hires have passed an English exam and other aptitude tests, they’re not necessarily ready to hit the ground running from day one.


“Once they are in, we use a very rigorous methodology to develop their skills,” Tai says.


The IBM India training department has grown from a staff of three in 2004 to 60 in 2008. Globally, IBM spends $600 million annually on training.


One of the first objectives in India is to change a cultural mind-set that values hierarchy. New employees tend to wait and see what the boss does rather than take the initiative.


“Once they understand they are the center of gravity, they can come up with projects; they can drive things,” Tai says.


Empowerment also extends to career development. During the first three days of orientation, employees are introduced to IBM’s business units and how they work together on a global scale.


They become familiar with Blue Pages, an intranet listing of all employees, their skills and their projects. In their first 30 days, they also meet one of the company’s Royal Blue Ambassadors—IBM staffers who help new colleagues assimilate. In addition, they can access an internal wiki that promotes peer-to-peer learning.


For long-term guidance, employees can turn to a Blue Knight, an IBM manager who has been certified in helping others understand IBM career paths. There’s also a corporate internal Web page called Blue Dawn that lists all technical professions at IBM.


The point of these efforts is to reinforce the notion that IBM is a “globally integrated enterprise,” in the company’s words.


“The key thing is to identify where the talents are and mobilize the talents for the customer,” Tai says.


That kind of flexibility means that an employee who joins IBM as a Java programmer or as an Oracle or SAP specialist can move into IT architecture design or nanotechnology.


The fluidity increases employee engagement. “They like to stay in IBM because they get to work on several professions versus just one job,” Tai says.


Fostering that connection may help IBM stand out among other employers in India. Since the economic liberalization of 1991, workers, armed with education, have more control over their destinies and tend to look out for themselves.


“There is no loyalty to the company they’re working for,” says Mahashweta Nandi, a consultant in the Bangalore office of Ma Foi, an international placement company.


The door swings both ways. “The company doesn’t think much about the employees,” Nandi says. “Companies have more choices.”


But the churn may be subsiding. The U.S. economic downturn could result in a 20 percent to 30 percent reduction in hiring by Indian IT companies, says Anil Kumar, a Ma Foi director.


“Nevertheless there will be continued demand for talent in telecom and IT infrastructure, network security [and] software architecture,” Kumar says.


IBM India doesn’t seem to have taken significant hits in the slowdown. In the most recent quarter, IBM revenue in emerging countries grew by 21 percent.


The rapid hiring pace—estimated at one new employee every 14 minutes last year—is likely to continue, keeping the demand high for training.


“We have to change from a car engine to a jet engine,” Tai says.

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Ambitious Plan for Workforce Education Faces Washington Inertia

When David Perdue was chairman and CEO of Dollar General Corp., the company couldn’t satisfy the high demand for new locations.

One of the reasons was a lack of qualified employees to staff the discount retailer. “It limited to some degree the rate at which we built our own stores,” Perdue says.


Perdue now chairs the National Commission on Adult Literacy, which is urging Congress to significantly expand funding for workforce education and training programs and overhaul the way they’re administered.


The plan, outlined in a June 2008 report, “Reach Higher, America,” calls for $20 billion in annual funding for the workforce system by 2020. The goal is to use that investment to train 20 million people each year, up from the current 3 million.


Such a dramatic increase will require a political commitment similar to that seen in support of the GI Bill and for sending a manned space flight to the moon.


Commission officials say that the spending is more than justified by the need to upgrade U.S. work skills.


Cheryl King, the study director, says that 88 million of the 150 million people in the American workforce have at least one educational or language barrier that limits their job prospects. For instance, 18 million lack a high school education.


Even the 51 million people who have a high school diploma often fall short of the qualifications necessary to land work that provides a higher quality of life.


“The jobs that are going to be in demand over the next decade that pay living wages require [an] educational background beyond high school,” says King, who is president of Kentucky Wesleyan College.


The Workforce Alliance, a Washington organization that promotes funding for training, says that 45 percent of all jobs by 2014 will be in the “middle-skill” range, meaning they require more than a high school education but less than a four-year college degree.


The group praised the literacy commission report for highlighting that millions of Americans lack the educational background required for those jobs.


“This report helps us advance a case, an economic argument, for why workforce development matters and why we need to invest to build a skilled workforce,” says Rachel Gragg, federal policy director at the Workforce Alliance.


To achieve that goal, the commission is recommending substantial reform to the Workforce Investment Act, the federal training law, and better coordination between the disparate entities that participate in workforce development and adult education, like state agencies and community colleges.


“We’re calling for a significant redesign of federal and state funds earmarked for adult education and workforce training,” King says. “We’re asking Congress to take a fresh look at this.”


When that will happen is unclear. Congress has not updated the Workforce Investment Act since it was enacted in 1998. As a consequence, problems with the workforce system have not been fixed, critics say.


But a bill to reauthorize the law has stalled and is not likely to be placed on the congressional calendar before the end of the year. That means that Congress, as it has for several years, will again fail to make reforms. A number of logistical and policy disputes have stymied progress.


Gragg says her organization would support any effort to get the Workforce Investment Act moving again. “I don’t have the sense that those dynamics have changed,” she says.


Meanwhile, targeted workforce readiness measures have been introduced. They include a proposal by Reps. Rahm Emanuel, D-Illinois, and Jim Ramstad, R-Minnesota, to establish employer-matched portable education and training accounts. Another bill, written by Sens. Sherrod Brown, D-Ohio, and Olympia Snowe, R-Maine, would provide specialized training grants for regional emerging industries.


Reps. Ruben Hinojosa, D-Texas, and Patrick Kennedy, D-Rhode Island, are working on legislation that incorporates some of the literacy commission report’s recommendations. For instance, it would put a greater emphasis in the Workforce Investment Act on postsecondary education and job training; allow incumbent workers to access those programs; revise state funding formulas to reflect demographics; and increase the use of technology in skills training and education.


Focusing on a different workforce development area, the Financial Services Forum, a group of 20 CEOs of financial companies, recently recommended a $5 billion annual increase in education and training benefits for workers who lose their jobs because of international competition.


These efforts notwithstanding, a breakthrough on training policy this year in Congress is unlikely.


While Washington drags its feet, states are trying to tackle workforce challenges on their own. In Indiana, 931,000 working adults have an educational deficiency that limits their employability, according to a study by the Indiana Chamber of Commerce. They lack some kind of required credential—a high school, associate’s or bachelor’s degree—for jobs in demand.


The key to addressing that problem is to help people transition to higher skill levels, according to Mark Lawrance, senior vice president of the Indiana chamber.


But that process is undermined by the disparate nature of training initiatives. Federal and state programs for workforce development and adult basic education “tend to operate in silos,” Lawrance says.


The chamber is helping Indiana businesses cut through the clutter with Ready Indiana, a concierge service that points them toward national, state and community training options to upgrade their employees’ skills.


Lawrance says the state is poised to make progress in integrating training efforts because state government and business are working together.


“In Indiana, we have all the key parties at the table,” Lawrance says.


A national focus on workforce development is possible, according to Perdue, the literacy commissioner’s chairman. It’s happening in India, and Perdue, who has been working to launch a retail business there, has seen it firsthand. The Indian government prioritizes elevating labor-market skills, he says.


“They’re really very serious about it,” he says. That attitude increases the urgency for improving workforce development in the U.S.


“We’re getting left behind because we have so many kids who are not getting the minimal level of education and training,” Perdue says.

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Monster Moves Ahead

Monster Worldwide is taking steps to put a stock option scandal behind it and offer customers better job matching, but a weak hiring climate still threatens the job board giant.

In late July, the company reported progress toward the resolution of lawsuits related to Monster’s past stock option practices. Monster also announced the acquisition of recruiting software firm Trovix as well as partnerships with employment screening specialist HireRight and e-learning services provider Cornerstone OnDemand.


Nate Swanson, an analyst with investment firm ThinkPanmure, calls the Trovix, HireRight and Cornerstone OnDemand deals “baby steps toward reinventing Monster’s value proposition, providing companies with higher-quality candidates, as opposed to just high volumes.”


But a worsening job market remains a threat to Monster’s financial health. The company reported a 9 percent increase in revenue for the quarter ended in June, to $354 million, and earnings growth of nearly 8 percent, to $30.8 million. But Monster’s own gauge of U.S. online job demand fell in July.


“We anticipate that we will continue to operate in a difficult environment in the near term,” Monster CEO Sal Iannuzzi said in late July.


Monster weathers troubles
   A pioneer in the online job board field, Monster has weathered a wave of troubles the past few years. These include a decision to cut hundreds of jobs, a major data breach and concerns that traditional, comprehensive job boards are declining in importance. Monster also was among the companies accused of backdating and improperly accounting for stock options—a scandal that has tarnished the reputations of former Monster executives including ex-CEO Andrew McKelvey.


But Monster has been working to lay the backdating issue to rest. In July, the company announced a tentative settlement agreement in a class-action suit that would cost Monster about $25 million. The company also said that the New York state Supreme Court granted preliminary approval of a settlement of related lawsuits.


In a statement, Iannuzzi said: “We are extremely gratified by these developments, look forward to the resolution of the remaining actions relating to the company’s historical stock option granting practices as quickly as possible, and are eager to focus our energies on the continued evolution of the company.”


Iannuzzi has outlined a vision of expanding Monster’s reach to include online professional hubs. He also says Monster can capture many more customers.


Customers in the past have dinged Monster for the quality of its matching technology. The company hopes to improve in that area with its $72.5 million purchase of Trovix, which has developed “semantic search” technology designed to analyze résumés and job descriptions. Both employers and jobs seekers will benefit from the addition of Trovix, Monster says.


“The implementation of this technology will allow Monster to provide unparalleled match capabilities, taking us beyond keyword search into contextual search,” Darko Dejanovic, Monster’s global chief information officer, said in a statement.


HR technology consultant Jacqueline Kuhn agrees that the Trovix software improves on keyword searches. In other words, if an employer is looking for a software engineer, Trovix may return résumés that use the phrase “computer scientist.”


“They’ve got some outstanding recruitment technology,” Kuhn says, “particularly their search engine for searching résumé content.”


But Gerry Crispin, co-founder of recruiting advisory firm CareerXroads, disputes the idea that Trovix’s contextual search capability puts it above other products in the recruiting software field. Crispin says that of the 80 companies in the CareerXroads Colloquium—a group of corporate recruiting professionals that meets several times during the year—none uses Trovix.


“They’re not a player,” Crispin says.


New features for employers
   Through the HireRight partnership, Monster will let employers buy background screening services as part of their current candidate management experience on Monster.com. Monster’s deal with CornerStone OnDemand is designed to provide online courses to job seekers.


Crispin sees the Monster moves as part of a push by players in the recruiting arena to offer a wider range of services. Customers want to reduce the number of vendors they deal with, he says.


“What you see is a major trend toward mash-ups of employer-related services,” Crispin says.


It’s an open question, though, how much such services are in demand right now. U.S payrolls continue to shrink, a trend that threatens the job ads that are a key source of revenue for Monster. Monster’s own U.S. employment index fell for the month of July.


“The decline in U.S. online recruitment activity during July is likely due in part to the seasonal summer slowdown that is typical of this time of year; however, the breadth and depth of the contraction in July also suggests further softness in the country’s underlying demand for labor,” Jesse Harriott, vice president of research at Monster Worldwide, said in a statement.


There are also signs the international economy is slowing, a scary development for Monster. Monster’s “Careers International” revenue—which reflects the firm’s career-related services in Europe and Asia—has been growing fast and now accounts for 44 percent of the company’s revenue.


Iannuzzi, however, has pledged to treat a downturn as a chance to expand Monster’s market share. He repeated that stance in late July.


“We are committed to investing in critical areas that will provide a superior job-seeker experience and deliver the best products and services to our employers,” Iannuzzi said. “We are increasingly optimistic about our long-term growth prospects and believe that our ongoing investments and recent developments with respect to the resolution of some of our key outstanding litigation will benefit our customers, shareholders and associates now and in the future.”

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SHRM CEO HR Crucial During ‘Unprecedented’ Economic Time

At a time of economic turbulence, Laurence G. O’Neil has firsthand experience in the industries that are at the eye of the storm—health care, energy and financial services.


He has been an HR executive in each of those sectors. As the new president and CEO of the Society for Human Resource Management, he wants to help the field contribute to solving the problems facing the economy.


“It is an unprecedented time for our country and our businesses,” O’Neil said in an interview with Workforce Management on Tuesday, August 12. “The need for HR and for SHRM has never been greater. There’s a strong convergence between SHRM’s values and my values and the advancement of the profession.”


O’Neil was named SHRM’s chief executive on Monday, August 11. He officially takes on his new role October 1. Between now and then, he and his wife will be transitioning from California to the Washington, D.C., area, where SHRM is located.


O’Neil replaces Susan Meisinger, who served as SHRM president and CEO from 2002 until June 30. She announced her retirement in January, citing the need to spend time with ill family members.


After reviewing more than 400 candidates, SHRM selected O’Neil, who was most recently senior vice president and chief human resources officer at Kaiser Permanente, a $40 billion not-for-profit health care organization with 158,000 employees.


His experience also includes 17 years at Bank of America, where he was executive vice president and chief human resources officer of global corporate and investment banking. He also directed the bank’s HR functions in Asia.


During his 28-year HR career, O’Neil also has been a managing director at the executive search firm Heidrick & Struggles, an HR manager at Pacific Gas & Electric Co. and manager of international compensation at Wells Fargo Bank.


“He’s been in good industries for the future of the economy,” said Fred Foulkes, a professor of organizational behavior at the Boston University School of Management and a member of the SHRM Foundation board.


Foulkes worked with O’Neil at the Human Resources Policy Institute, an organization based at Boston University that comprises 50 top HR leaders. O’Neil served on the organization’s steering committee.


“He’s a very solid thinker,” Foulkes said. “He has a deep interest in learning.”


O’Neil is a good fit for SHRM, Foulkes said.


“He has a passion for HR,” he said. “It’s a great way to cap off a career.”


One of the high points of O’Neil’s arc was the most recent one—his time at Kaiser Permanente. He worked there from 2002 until the second week in January.


O’Neil overhauled the company’s people management practices by implementing HR service centers and improving labor relations. It was part of an overall effort to revitalize Kaiser Permanente to respond to a changing health care market.


“He was a key part of a team that did a lot of positive things,” Foulkes said.


O’Neil, 59, said he accomplished his goals at Kaiser and helped hire and train his successor.


“It was the right time to move on to the next chapter of my life,” he said.


He turned over a new page early this month, when he accepted the SHRM position. He was introduced to the staff on August 11, his first visit to headquarters in Alexandria, Virginia.


O’Neil praised Meisinger for leaving behind a solid foundation.


“My first impression is that I’m a lucky new CEO,” he said. “I’m thrilled to be here.”


SHRM has 245,000 members and generated $105.4 million in revenue in 2007. It has about $160 million in reserves.


“He’s taking over an organization that’s extremely strong,” Foulkes said. “There’s no kind of crisis. He can take it to the next level.”


—Mark Schoeff Jr.


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Auto-Annuity Could Stretch 401(k) Savings

With automatic enrollment into 401(k) plans now the norm among employers, many say that defined-contribution plans are looking a lot like defined-benefit plans these days. A proposal by the Retirement Security Project could make them even more similar.

In June, the Washington-based think tank published a paper proposing a way that companies could automatically enroll a portion of retiring employees’ 401(k) assets into a lifetime income option that would provide them with monthly payments.


Under the plan, a portion of a retiring employee’s 401(k) assets would automatically be swept into an annuity product chosen by the employer unless employees opt out of the program. Retirees not opting out would stay in the plan for a trial two-year period, during which they would receive monthly payments from their 401(k) plan, according to the paper. After two years, retirees could choose to continue with the plan or cash out.


The goal is to make sure retirees’ savings last them through retirement, says Lina Walker, research director of the Retirement Security Project, a joint venture between the Brookings Institution and Georgetown University.


Too often, employees cash out their 401(k)s when they retire, she says. And while it might not be a big issue now since many retiring employees have both defined-benefit and defined-contribution plans, that won’t be the case in a few years, Walker says.


“Most people retiring now have both a 401(k) and a defined-benefit plan, so the whole issue of improving the payout options within a 401(k) hasn’t been a big deal,” Walker says. “But that’s not going to be the case 20 years from now.”


By having a two-year trial period for retirees to receive monthly payments, the plan could help change the mind-set of many retiring employees who are hesitant to keep their money in an annuity product, she says.


“We know that a lot of people undervalue lifetime annuity products because they don’t understand how they work and often the pricing isn’t transparent,” Walker says. “This could make it easier for them.”


Industry experts applaud the proposal for highlighting how 401(k) plans could better address the income needs of retirees.


“Everyone is always talking about how it’s too bad that employees always take lump sums out of their 401(k) plans, but no one is doing anything about it,” says Judith Mazo, senior vice president and director of research at Segal. “This is a practical way to address the situation.”


However, Mazo and other industry experts say it’s going to take a lot for employers to want to add annuities to their 401(k) plans because of fiduciary concerns as well as the administrative burden.


“Employers have not shown any sign of wanting to default employees into an annuity,” says Dallas Salisbury, president of the Employee Benefit Research Institute.


Salisbury also says it’s going to be difficult for insurance companies to price an annuity product if the account holders can cash out after two years. Usually the pricing of annuities is based on the life expectancy of the account holders.


“It appears to me this isn’t feasible,” he says.


But executives at MetLife, which offers annuities to 401(k) plans, say they could price the two-year trial product.


“MetLife would view pricing the trial annuitization feature of providing liquidity at the end of two years as being comparable to providing a death benefit equal to the value of the annuity during that two-year period,” says Jody Strakosch, national director, institutional income annuities. “This is a minor cost and is easily incorporated into the price of the annuity.”


However the issue of employers being willing to offer this program is going to be a weighty challenge for the proposal, says Melissa Kahn, vice president of government and industry relations at MetLife.


While the paper proposes safe harbors for employers, there’s a need for added incentives, she says.


Walker concedes that there are issues to be worked out. But she hopes the paper will initiate some conversation.


“We don’t have all of the answers,” she says. “But the basic concept is there.”


—Jessica Marquez


 

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Double-Digit Rise in Health Plan Costs Projected

Employers’ health care costs are expected to increase by more than 10 percent in 2009, according to research from Aon Consulting Worldwide.


The survey of more than 70 leading health care insurers, representing more than 100 million insured individuals, forecasts an average 10.6 percent increase in health care costs for the 12-month periods beginning this year between April and September.


According to the survey, actuaries expect costs to increase by 10.6 percent for health maintenance organization plans, 10.5 percent for point of service plans, 10.7 percent for preferred provider organizations and 10.5 percent for consumer-directed health care plans.


The increases are slightly lower than those projected a year ago and are the lowest since the study began in 2001. In 2007, forecasters saw a 10.9 percent increase in health care costs, and a 16 percent increase in costs was projected in 2002, the highest rate since the study began.


“While the medical trend rate is still more than twice the consumer price index, it is encouraging to see that health care cost rate increases are continuing to slow down,” John Zern, Chicago-based Aon Consulting’s U.S. health and benefits practice director, said in a statement. “This is a step in the right direction for companies nationwide that continue to feel significant health care price pressures.”


The study also found prescription drug costs are expected to increase 9.2 percent, down slightly from the increasing trend of 9.5 percent a year ago.



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