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Federal Watchdog Calls for Greater 401(k) Fee Transparency

Retirement plans should be required to provide greater transparency regarding fees associated with 401(k) investments, according to a new report by the investigative arm of Congress.


The likely incoming chairman of the House Education and the Workforce Committee, Democratic Rep. George Miller of California, said he would hold hearings next year on the issue.


In a study released November 30, the Government Accountability Office recommended that Congress amend retirement security law to make it easier for participants to compare the costs of 401(k) investment options. It also called for service providers to disclose fees they earn for referrals to mutual funds and other products, and for plan sponsors to submit a fee summary to the Department of Labor.


“The information on fees that 401(k) plan sponsors are required by law to disclose is limited and does not provide for an easy comparison among investment options,” the GAO wrote.


Workers are hurt by hidden costs, Miller asserts. He highlighted a portion of the report showing that small differences in fees can curb fund gains by tens of thousands of dollars.


As an increasing number of Americans rely on 401(k) plans, “it’s critical that workers’ hard-earned savings not be wasted on excessive fees,” Miller said in a statement.


The business community says it supports greater disclosure, but cautions against undermining confidence in 401(k) investments at a time when most workers save too little for retirement.


“You want to be practical and thoughtful,” says Lynn Dudley, vice president of retirement policy at the American Benefits Council. “The vast majority of 401(k) funds are pretty straightforward. The last thing you want to do is create an unstable environment. You could scare participants into opting out.”


The investment industry is already working with the Labor Department to increase fee transparency, says David Wray, president of the Profit Sharing/401(k) Council of America. Wray welcomes congressional hearings.


“The system can stand the scrutiny,” he says. “You’ll see that the fee levels are reasonable.”


Congress encouraged growth of 401(k) investments by approving an automatic enrollment mechanism in pension reform law that was signed by President Bush in August. The number of participants in 401(k) plans has grown from fewer than 8 million 20 years ago to 47 million in 2005. Assets total more than $2 trillion.


The fact that Congress will hold hearings on opaque fee structures shortly after facilitating 401(k) participation is not inconsistent, according to one expert.


“There is no conflict between those two things because Congress in both cases is trying to make it easier for individuals to save and to make the decisions necessary to save in 401(k) plans,” says Mark Iwry, a non-resident senior fellow at the Brookings Institution and senior advisor to the Retirement Security Project. “They’re both intended to promote savings.”


For now, the 401(k) fee discussion isn’t partisan. Steve Forde, spokesman for current House workforce chairman, Howard “Buck” McKeon, R-California, says his boss “will look forward to examining this issue in greater depth.


“Under a Republican Congress, we’ve made great progress in strengthening retirement security and increasing participation in 401(k) plans,” Forde says.


—Mark Schoeff Jr.

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Guatemala Sees Rapid Growth In Call Centers

Cultural affinity and proximity to the United States combined with a government effort to promote English education have led to an expansion of call centers in Central America’s largest country.


“The call center industry is growing very rapidly mainly because of the large, highly skilled bilingual labor pool that we have in Guatemala,” says Mario Lopez, commercial manager of Transactel, an outsourcing company. “Our clients have told us that Guatemalans are great listeners, and that gives us an edge in customer services and sales.”


The number of outsourcing agents in Central America—for both international and domestic services—will grow from 21,000 to 40,000 by the end of next year, according to a study by the Zagada Institute, a consulting firm that focuses on emerging markets in Latin America. The region is attractive to companies looking for call center support for their businesses, which cater to the large Hispanic population in the United States.


Help Desk Now, Esso and Telefonica have call centers in Guatemala. Representatives from PeopleSupport Inc., a Los Angeles-based business process outsourcing provider, traveled to Guatemala City early this month to assess the investment climate there.


The company already has an operation in Costa Rica, which is known for its educated population and political stability. Guatemala, by contrast, is struggling with rampant violent crime.


Costa Rica is “a much more successful country than anyplace else in Central America,” says Sidney Weintraub, the William Simon Chair in Political Economy at the Center for Strategic and International Studies in Washington, D.C.


Guatemala is trying to compete with Costa Rica, where productivity is more than twice as high, by focusing on being bilingual.


“All universities in Guatemala have English as a requirement for graduation,” says Carolina Castellanos, executive director of the American Chamber of Commerce in Guatemala. The 17,000 college students in the country who can speak English are an important talent pool for call centers.


Further training is provided by the Instituto Guatemalteco Americano, which sponsors English classes tailored to meet the needs of call centers.


“You can know English, but that doesn’t mean you can speak English,” Lopez says.


For a large portion of Guatemala, however, being bilingual doesn’t mean speaking English and Spanish. It means speaking Spanish and indigenous languages. Improving the skills of Mayan descendents, most of whom are mired in poverty, may help determine how quickly Guatemala develops.


“This is important for indigenous people because they’re still focused on manufacturing and agriculture,” Lopez says.


Another factor in the country’s growth may be the Central American Free Trade Agreement, which in addition to providing new markets for Guatemalan products also promises to foster the service sector and bolster the rule of law.


In the meantime, many Guatemalans are embracing call center work as a path toward prosperity.


We are agent-focused,” Lopez says. “They see in short- and medium-range time the chance to grow into supervisor or manager positions.”


—Mark Schoeff Jr.

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New Monster Product Aimed at Franchisee Hiring Headaches

A job-posting process that often hampers hiring for companies with franchises spread across the country could be getting a makeover if Monster gets its way.


Monster is launching its National Account Suite, which seeks to streamline the recruitment process and quell the push and pull that often exists between corporate headquarters and franchisees, says Mike Madden, the company’s senior vice president of product.


The suite makes use of existing technology to the meet the recruitment needs of specific employers, says Peter Weddle, CEO of Weddle’s, a research firm and consultancy in Stamford, Connecticut. Such customization is the wave of the future, he says.


“This product spells the next evolution of online recruitment services,” he says. “Companies will be tailoring technology to better meet the needs of their recruiting clients.”


Essentially, Monster is mimicking something newspapers created over time. As papers evolved, they developed classified advertisement products that cater to specific industries, such as real estate and automobiles, Weddle explains.


Monster, which launched its suite in November, believes there will be significant interest from clients because it is the only product of its kind in the industry, Madden says.


“There are about 2 million franchise businesses in the U.S.,” he says. “It would be great if we could get 30 to 50 percent of that market.”


Monster’s product aims to reduce recruitment gridlock. Though each company differs in its policies, the job-posting process generally is slowed because hiring managers at franchise sites must get approval from corporate headquarters each time they want to post an opening.


Often, headquarters will contend that it’s a necessary step to control recruitment expenses. Local hiring managers have complained that the process is cumbersome, time-consuming and ineffective, particularly in industries where turnover is high, like chain restaurants.


Monster’s new product offers a compromise. Franchisee hiring managers will no longer have to seek approval from corporate headquarters before posting a job. That will enable them to more easily hire the help they need. Corporate headquarters, meanwhile, don’t have to worry about overspending at the franchise level because the price of the subscription has been pre-negotiated.


The subscription, typically lasting a year, gives local hiring managers access to self-service tools that let them control the content and the frequency of job postings. Customizing the ads at the local level is important because hiring managers can use language that resonates with the community in which they are trying to hire, Madden explains. The entry base price is $800 to $1,000 for a year’s subscription, he says.


Local managers will be able to quickly post a job opening, even proactively managing future needs in the workforce pipeline. Posting a job can take 24 to 48 hours, compared with a week or more with the traditional checks and balances.


—Gina Ruiz

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Medical Tourism A Ticket to Lower Health Care Costs

Carl Garrett signed up to have his employer, Blue Ridge Paper Products, send him to India in September for a gallbladder operation that would have saved the company money while putting some in Garrett’s pocket as well. But the trip was canceled after Garrett’s union threatened to file an injunction. And rather than become a pioneer in a burgeoning industry, Garrett and Blue Ridge Paper became its first victims—a symbol of the challenges facing employers who are looking to save money on health care.


    In a scathing letter to Congress, United Steelworkers president Leo Gerard listed a number of reasons why traveling overseas for health care is a benefit with an image problem.


    “No U.S. citizen should be exposed to the risks involved in international travel, possible exposure to less than sanitary conditions, lack of oversight, forfeiture of legal rights and little, if any, recourse in the event of problems. These are all unwarranted risks to which Americans should not be subjected,” Gerard wrote. “The willingness of employers to offer incentives for assuming these risks is frightening. The right to safe, secure and dependable health care in one’s own country should not be surrendered for any reason.”


    While thousands of Americans annually travel abroad to India, Thailand and Mexico for elective surgeries that meet or exceed U.S. standards but are performed for a fraction of the cost, large self-funded employers, facing increasing health care costs, have been hesitant to use this option to save money. One reason is that large companies fear being vilified like Blue Ridge Paper.


    But concerns regarding image are just one part of the puzzle. Employers wanting to offer this new benefit to employees must also consider health and legal risks. Employers need to decide whether doing so violates ERISA; whether the employer will be held liable if something goes wrong in the operating room; how an out-of-country network is to be administered; and whether the employee or employer will pay taxes on items not traditionally exempt, such as airline travel and hotels.


    While savings are hard to quantify, they could be substantial. Mercer Human Resource Consulting has estimated that the surgeries most likely to be “offshored”—a term of art for the industry also known as medical tourism—in the fields of orthopedics, cardiology, neurology and urology represent at most 2 percent of total U.S. health care spending, or about $40 billion. (According to the Centers for Medicare and Medicaid Services, national health care expenditures totaled $1.9 trillion in 2004 and are projected to reach $2.16 trillion for 2006.)


    Reducing its share of those costs is what prompted Blue Ridge to consider sending Garrett to India.


    Garrett, a machinist at the Canton, North Carolina, company, is the kind of employee who takes every opportunity to save on medical care. In 1999, with the company’s health care costs increasing 18 percent a year, Blue Ridge was bought and spun off by a venture capital firm. As part of the company’s transition to a 45 percent employee stock ownership program, the union agreed to a 15 percent wage cut and seven-year wage freeze.


    Blue Ridge then launched a diabetes management program that waived co-pays on medicine in hopes of reducing overall health care costs. Garrett, his job intact but with less money, saved hundreds of dollars on diabetes prescriptions he got for free.


    The company’s annual health care cost increases had slowed to 3.5 percent by 2005. That’s when Garrett heard his employer was considering sending employees to India for elective surgeries. Part of the company’s savings would go back to employees. Garrett volunteered to have his gallstones removed and, while he was at it, have his rotator cuff fixed. The company would save about $80,000 on the two surgeries, and Garrett, for his trouble, would receive $10,000 of the savings.


    Then the union got word of the deal.


    “We said fine,” says Bob Williams, a spokesman for Blue Ridge Paper, of the company’s decision to acquiesce to the union’s concerns. “We were trying to work from a collaborative approach.”


Assuaging fears
    Not consulting with the union was a mistake, but the pitfalls probably wouldn’t have ended there. David Frazzini, a principal at Mercer Health and Benefits, which represents about 10 large self-insured companies exploring medical tour­ism, says the newness of the industry and the misconceptions about it require employers to consult with those in the company who have an emotional and fiduciary stake in employee health benefits. That includes union and nonunion employees, company boards and others.


    “There are still issues of perception, and those are real considerations,” he says. “It’s a new topic and new things scare people. Stakeholders would have to be in agreement to make this play.”


Medical tourism may fource American hospitals to lower prices to become more globally competitive.
“Outsource me. I just want to be busy and do what I love to do.”
–Cary Passik, private practice cardiothoracic surgeon on Planet Hospital’s list of American doctors

    Companies catering to this potential market are aware of employers’ concerns and are doing what they can to offer products to allay worries.


    Making sure medical care is of the highest quality is the first step toward sending employees abroad for surgeries. Such due diligence is part of the service provided by medical tourism companies and health insurers, some of which are beginning to offer out-of-country networks of hospitals and doctors. Because every major health insurer has doctor and hospital networks around the globe for companies with expatriate employees, finding quality care is not as difficult as it might seem.


    Doctors or hospitals outside the U.S. must meet standards similar to those for medical providers stateside, executives from medical tourism companies say. In 1999, the same organization that created the Joint Commission on Accreditation of Healthcare Organizations, the universal standard for hospital accreditation in the U.S., launched an international accreditation and quality improvement program called the Joint Commission International. The International Organization for Standardization, a nongovernmental organization, has also established guidelines that employers can use to determine whether hospitals meet internationally recognized safety standards.


    The benchmark for doctors is board certification within their specialty, either in the United States or the United Kingdom.


    “So the quality modifiers are the same in the U.S. as they are overseas,” says Rudy Rupak, the founder of Planet Hospital, a medical tourism company. Rupak says knee replacement surgery in India costs $3,500, compared with an average 2003 cost of $31,000 in the U.S., according to the American Academy of Orthopedic Surgeons.


    Beyond quality, there is a cultural gap. Accreditation and board certification do not replace the emotional connection between doctor and patient, Rupak says. For that reason, he has developed what he calls his “Best of Both Worlds” program. In it, an American doctor delivers pre- and post-operative care and travels abroad to perform the surgery.


    Cary Passik, a cardiothoracic surgeon in private practice in New Haven, Connecticut, where he is also the associate section chief at Yale New Haven Hospital, believes medical tourism may force American hospitals to lower prices to become more globally competitive. Being on Planet Hospital’s list of American doctors may also help him make up for the decline in the volume of surgery his three-man practice has experienced in recent years.


    “Outsource me,” Passik says. “I just want to be busy and do what I love to do.”


Removing the middleman
    The circumstances fueling interest in overseas medical care have made employers and doctors like Passik strange bedfellows. Both view hospitals as expensive middlemen between doctors and patients.


    For every coronary bypass surgery Pas­sik performs, he is paid $2,800. That compensation stays the same, regardless of how much the hospital charges the patient or his insurer, a number he says ranges from $25,000 to $50,000. And if the person is not insured, Passik says, he does not get paid.


    The cost of bringing an American specialist would be passed on to the patient. But in the end, a knee surgery performed by an American doctor abroad would total about $7,000.


    “Hospitals don’t do anything for me except give me a place to practice,” Passik says.


    Passik hopes medical tourism will help create a health care market that offers individuals and employers more competitive rates. But to achieve this market change, enough employers must buy into the concept of medical travel to create the kind of critical mass that moves markets.


    Employers will need indemnity against lawsuits from employees with a medical malpractice claim, and they will need to integrate the overseas option into their existing benefits plan. Rupak says his company may offer a liability policy that protects employers from lawsuits.


    The solutions may depend on whether health insurance carriers enter the market. These companies would be best equipped to handle the legal and administrative hurdles of medical tourism.


    Smaller health insurance companies, like HealthNet in Woodland Hills, California, offer special plans for employers along the Mexico border. United Group Programs, a Boca Raton, Florida, company, is another regional health insurance company among the first to offer an out-of-country network to both fully insured companies and employers that offer “mini-medical” plans, which pay for a portion of the cost of surgery. The company, which has partnered with Planet Hospital, has about 300 clients from large companies with 10,000 or more employees, but only a handful, such as staffing company Manpower and DaimlerChrysler’s Mercedes-Benz dealerships, have expressed an interest in exploring the option.


    Major health insurance carriers, including Aetna, Blue Cross, Cigna, UnitedHealth Group and WellPoint, offer hospital networks for overseas members. None, however, have offered an-out-of-country hospital and doctor network for members stateside. Several say they are exploring the idea.


    Ultimately, the biggest impediment may be employer reticence, not a lack of willingness from employees to go abroad. If the incentives are right—waived co-insurance fees, a free trip for a companion or a share in the savings—employees will likely be enthusiastic, those in the industry say. Employers require more coaxing.


    United Group Programs vice president Jonathan Edelheit is enthused about his company’s out-of-country network. His customers, however, are not so openly enthusiastic. All declined to be identified for this article.


Workforce Management, November 20, 2006, pp. 1, 29-33 — Subscribe Now!

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I Am NOT a “Business Partner”

It’s fairly common for HR professionals to call themselves “business partners.” I hate the term. It hinders HR’s success.

    “Business partner” is a term that was invented by academics for HR people. The term “partner” confuses people in corporations because, unless your organization is a professional services firm, the term “partner” is just not used. Even those within professional services firms think of a “partner” as an “owner,” which most HR people certainly are not.


    I would avoid using the term “business partner” for a variety of other reasons, including:


  • Top management and CEOs often find it strange, because other staff functions don’t use the term “partner.” The CIO is not an “information partner,” nor is the CFO a “finance partner.”


  • It doesn’t describe what we actually do. Most titles are descriptive of a service. Business partner makes it sound like we are the partner in charge of business operations. Actually, that’s what the COO does.


  • Few HR people can define “business partner” or even agree on what it means. To be perfectly frank, when I visit corporations, I find more often than not that the people who use the term are “wannabes.”


  • Using the term demonstrates that you truly don’t understand what “partner” means. Partners have skin in the game. They are accountable not for working hard, but for producing results. If by using the term “business partner” you are actually seeking to be an equal partner with your colleagues, then you need to focus more on producing results that impress them, rather than worrying about your title or even getting that much-discussed seat at the table.


    The overuse of this invented term, I fear, can be attributed to wishful thinking. Calling yourself a partner doesn’t make it true. I could call myself the president of planet Mars, the customer service champion or HR business partner, but eventually I would learn that it is my actions and my results that determine the level of respect I receive, not some made-up title.



Should we change our title … again?
    Our function is now called “human resource management” because we didn’t like the term “personnel.” The HRM title implies that we manage “resources,” i.e., employees. To shift it again to become the “business partner function” would lead to further confusion. “Business partner” leaves out the crucial element of what we do: We manage human or employee resources in order to make them more productive.


    If I were going to make up a term for proactive HR people who have a significant business impact, I would use the term “leader” or “internal productivity consultant.” At least those terms imply that we are not trying to just catch up, but instead say that we want to lead the corporation in matters related to people management. Real leadership is obvious. If we are really experts in preventing and solving people management problems, managers will seek us out and find us, no matter what our title, rank or location.



Achievement says more than any title
    My recommendation to HR professionals is to stop using the “business partner” designation. And, for that matter, stop relying on external HR certifications to build your credibility. Demonstrate your expertise through actions and approaches that make it apparent to everyone that you are indeed an expert in forecasting, preventing and solving people management problems.


To accomplish this, use the language of business: money.
    If HR wants to gain respect, it needs to stop inventing terms like “engagement” and “empowerment.” Instead, it should focus on converting the results of HR actions in the areas of hiring, deployment, motivation, innovation and training into hard business dollars. Then everyone will understand and directly compare the impact of HR efforts with those of the marketing, finance, sales and supply-chain organizations. HR must begin to act like an organization that’s based on Six-Sigma, quarterly results and metrics. It needs to employ a decision-making approach that is used in other, more credible business functions like finance, engineering, supply chain and marketing.


    You need to be proactive. True leaders don’t wait for things to happen; they forecast upcoming problems and act to prevent or mitigate the damage. They also seek out opportunities to improve workforce productivity and present them to managers in such a way that the managers want to invest their own money in these HR programs.


    You need to build a competitive advantage. Provide the business with a competitive advantage in workforce productivity by continually comparing what you do in HR with your competitor’s people management practices. Nearly everything in business is a competition, and HR should not be exempt from this rule.



Final thoughts
    HR people have spent a lot of effort attempting to become business partners. I urge you to aim higher and continue up the ladder to the next rung, which is to become producers of measurable business results. What would you call HR professionals who acted this way? Start with the words “experts,” “respected” and “problem solvers.” And yes, you would call them leaders.

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Dear Workforce How Do We Use Performance Tools to Keep Employees Motivated

Dear Motivation Skeptic:

This is a great question that highlights the need for performance management systems to go beyond merely setting objectives and conducting periodic reviews. Although these are important steps that help identify top performers, the real power of performance management lies in the daily ongoing coaching and feedback that should take place as well. It is here that your leaders connect with their people and build a motivating work environment.

Motivation of employees is built around three factors:

  • Do employees have focused work–is there direction, support and accountability for what they do?

  • Employee value–are they growing and viewed as unique, and do they have a sense of ownership?

  • Is their work environment harmonious and collaborative?

  • These factors nearly always outweigh compensation.

So how do you create such motivation? Certainly one way is using your performance management system as an ongoing coaching process for providing focused work. Make sure leaders are guiding and supporting associates toward meeting objectives (not just at the annual review). Adjust objectives when they no longer fit the direction of the business or the person so that accountabilities are relevant.

There are many ways to recognize, value and create a collaborative workplace. They include recognizing individual and team accomplishments, spotlighting collaboration, creating team ground rules based on respect and creativity, breaking down silos, rotating assignments, creating and following through on personal development plans, being honest, asking for feedback and living up to those company values.

There is no one right answer, however, as different companies have different cultures and constraints. But the people who know best are your own. Brainstorm with them about innovations that will work in your organization. A key tactic for retention is for leaders to ask individuals what they like and don’t like about their jobs and the company. Tell people you want them to stay. You may not be able to address all the concerns and ideas you receive, but knowing you care works wonders. And you will find that one size does not fit all. Managers need to create environments that motivate a diverse workforce. Gimmicks won’t work, but good leadership will.

Perhaps the single greatest thing you can do is to grow leaders who are great coaches and listeners, and who use those skills at every opportunity. Although this may not seem like an innovative strategy, it will be more unique than you think.

SOURCE: Jeff Eilertsen, Development Dimensions International, Pittsburgh, February 27, 2006.

LEARN MORE: Another Dear Workforce article discusses the linkage between employee performance and compensation. Another discusses the challenge of moving from a paternal culture to one that relies on performance measurement.

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

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Digital Medical Record Initiative Aims to Cut Health Care Costs

The digital health records Intel plans to create with the help of other large employers are expected to save companies as much as 6.7 percent in total health care costs, a nearly fourfold savings increase over current systems, says a consultant who has worked with Intel on the project.


Intel, along with Wal-Mart, British Petroleum and several other employers, is scheduled to announce on Wednesday, December 6, a plan to provide employees with digital health records and create a data warehouse that can be used to store them, according to Brian Golden, a consultant with Mercer Health and Benefits. The records will differ from current models because they will exist independent of any particular health insurance company or medical provider, according to people familiar with Intel’s plan.


While other efforts are under way to create digital health records, the coalition is yet another sign that employers do not have the patience to wait for the health care industry to bring itself into the 21st century while health costs increase every year.


“They obviously don’t want to sit around and wait to make it happen,” says Laurel Pickering, executive director of the New York Business Group on Health.


Representatives of Wal-Mart and Intel declined to comment.


Most health experts agree that electronic health records would improve medical quality by flagging redundant treatments and making it easier to read prescriptions and doctor’s order forms. The records also would provide detailed information about past courses of treatment, lab and radiology tests, and other aspects of an individual’s medical history that can be used to diagnose and treat new illnesses. As many as 98,000 people die each year from medical errors that could be avoided with the help of digital prescriptions and medical record keeping.


Intel has been working on the project, called P3HR, for some time. When the public announcement is made Wednesday, Intel plans to rename it Dossia, a source says. The company has registered a Web site, Dossia.org, under the name of Omid Moghadam, the director of Intel’s personal health record program.


Though its efforts to develop a system that is widely adopted may eventually pay dividends, it is touting the project as a public service. That is partly why the collaboration will take the form of a nonprofit organization whose members make a $1.5 million contribution.


While most current health records are populated by an insurance company’s claims data, Intel’s health records will contain more useful information that could result in significant cost savings, Golden says. Eventually the personal health records will tell consumers when a generic drug is available; whether a better and more cost-efficient doctor is available; and whether the dosage of a medicine is too high.


The initial phase will last from 2007 to 2009, at which point the project will be running on its own, Golden says.


“What Intel is trying to do is build a public consortium of data that would be utilized as a personal health record,” Golden says.


The fee to join the association will drop as more employers get on board, until the price tag to offer employees digital health records becomes nominal, Golden says. In this sense, the collaborative will resemble another employer coalition, Care Focused Purchasing. That effort, led by Boeing and Lowe’s, is focused on gathering data on doctors to rate their performance.


The individual consumer will be at the center of a network that connects patients to doctors, pharmacies and hospitals. The employers involved in the collaborative hope that by acting together they can use their massive employee base as an incentive to compel medical providers to adopt compatible technology. Some details of the plan were first reported November 29 in The Wall Street Journal.



The personal health record, or PHR, differs sharply from the electronic health record, which is simply a record of a health service in digital form. These records exist at hospitals, doctor’s offices, pharmacies and health insurers. The personal health record is a digital file owned by individuals containing their health information from various medical providers.


“What is required to make the personal health record work is a network, and this consortium might be trying to do that,” says David Lansky, senior director of health programs for the Markle Foundation. “The PHR would be the place where information is pulled together and made available to other parties to the extent the user wishes.”


Questions remain regarding who will own these records, who will be responsible for paying to maintain them in digital warehouses, what they will look like and how to ensure the records can be read by the hundreds of different medical computer software currently on the market. Privacy advocates also worry about the vulnerability records may have to hackers.


“I’m not sure what the ownership model is, but that will be a critical thing to watch,” says Kenneth Mandl, co-director of the Center of Excellence in Public Health Informatics at Harvard University.


Despite the challenges, Lansky says personal health records in general have the potential to transform the health care system.


“This is a dramatic idea. So far we’ve relied on doctors, hospitals and pharmacies. The big idea is that instead of relying on those institutions to move information around, the patient is the manager of his information.”


—Jeremy Smerd


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New Law May Enable More Firms to Offer Workers Face-to-Face 401(k) Advice

Silgan Containers isn’t slacking when it comes to giving its employees educational materials and online tools to help then plan for their retirement. But despite that, the company found that the word wasn’t getting through. Only 63 percent of the company’s 3,800 eligible employees invest in its 401(k) plans.


    There is something else, though, that’s almost as disturbing to Tony Cost, vice president of human resources. Twenty percent of the plan’s assets are invested in a stable-value fund—far too conservative an option for most employees of Silgan, where the average age is 47. The company makes cans and other food containers and is based in Woodland Hills, California.


    “I hear in the news about people retiring with $60,000 in their 401(k) plans, and I just feel that more needs to be done,” he says. That amount doesn’t even come close to being enough to cover the expenses of the average 65-year-old couple today, research conducted by Fidelity Investments shows. Out-of-pocket health care costs alone for such a couple over the course of their retirement would be roughly $200,000 today, according to Fidelity.


    Cost believes that in addition to getting employees on the right financial track, offering face-to-face advice would help his company, and other employers, attract and retain talent.


    “I think offering retirement savings advice can contribute to employees’ sense of belonging and give them a sense of security,” he says. “People who sit in my chair have to be thinking about these things as a matter of recruiting and retention.”


    And while online advice tools are helpful, Cost doesn’t think that most employees are using them. “The number of hits to our Web site is not the kind of number that makes me a happy guy,” he says. He wants to provide employees with some hand-holding so that eventually they might be more comfortable using online tools.


    Cost voices sentiments that can be found at hundreds of companies that offer 401(k)s. But until recently, there have not been many cost-effective ways for employers to offer face-to-face advice to employees who are spread out across the country. Under previous legislation, these companies couldn’t ask their 401(k) plan record keepers to provide advice. It was viewed as a potential conflict of interest, since these providers could just steer employees into their own funds.


    But the recently passed Pension Protection Act changes all that. Under the law, 401(k) plan providers can now offer advice to 401(k) plan participants under two scenarios. The first involves the Web. The second scenario allows 401(k) plan providers and money managers to offer face-to-face advice, provided that participants are charged a flat fee for it.


    Experts anticipate that the change in legislation will prompt all major 401(k) providers and money managers to begin offering face-to-face advice. Fidelity Investments has already seen an increase in calls from employers about such offerings, says Jeffrey Carney, president of Fidelity Institutional Retirement Services Co. To accommodate that demand, Fidelity refers employers to advisors through its Fidelity Retirement Income Advantage program, which it launched two years ago.


    The Boston-based financial services firm plans to further integrate its online tools to allow its representatives to assist employees, either on site through its walk-in centers or over the phone.


“The demand for face-to-face advice has always been there, but now providers have a channel to deliver it.” –-Dirk Pantone, College of
Financial Planning

    One issue with the new law, however, has many money managers and 401(k) providers waiting for more guidance. And that’s the matter of fees. By forcing companies to charge a flat fee, it might be difficult for providers to make a profit from offering face-to-face advice, says Dirk Pantone, vice president of business development for the College of Financial Planning, which trains financial advisors. Traditionally, advisors charge 1 percent of the client’s investable assets, which means that they can earn more as their clients’ accounts grow.


    Despite this, Pantone estimates that all the major 401(k) record keepers will start training their call center representatives to give advice to employees. And Pantone says he is seeing an increase in interest from financial advisors in the College of Financial Planning’s six-month retirement planning course, which teaches financial advisors the ins and outs of the retirement plan market.


    The course already has 1,992 graduates this year, more than double the number of 2005 graduates.


    “The demand for face-to-face advice has always been there, but now providers have a channel to deliver it,” Pantone says.


Potential challenges
    Choosing a financial advisor for employees can be a daunting task for employers. It’s particularly challenging in the post-Enron era. That company’s flame­out, brought to a kind of closure by last month’s 24-year sentence for CEO Jeffrey Skilling, put fiduciary liability at the front of employers’ minds.


    To begin considering the choice of advisor, companies need to put together a list of reasonable candidates, says David Wolfe, a partner in the Chicago law firm of Gardner, Carton & Douglas. They need to examine the business models of each of these companies and understand how they generate revenue and apply fees, he says.


“Employers need to go about this process and monitor these advice-givers just like they would with an investment manager,” he says.


    The potential for being held accountable for the guidance given to employees is the No. 1 reason that many companies haven’t offered face-to-face advice so far, says Leslie Smith, director in the total rewards practice at Deloitte Consulting.


    Sixty-three percent of companies that don’t offer financial advice choose not to do so because of concerns around fiduciary liability, according to Deloitte.


    That’s exactly the reason that Silgan Containers might in the end decide against offering face-to-face advice, Cost says.


    “Clearly, the fiduciary question weighs heavily on me and my colleagues,” he says. “If we take a conservative position, we won’t go forward with this idea because of the anxiety caused by the Enrons of the world. Some of us really want to help our employees, but we are hesitant to pull the trigger.”


    Such concerns didn’t stop Basic American Foods, a Walnut Creek, California-based food services company, from mandating that all of its 1,700 employees meet with a financial advisor before they enroll in one of the company’s 401(k) plans.


    “There are several benefits to offering face-to-face advice,” says Sally Smedal, treasurer and controller. First, offering financial advisors to employees helps to ensure that they will be able to retire when it’s appropriate, she says.


    “Also, I think employees feel better about themselves and better about the employer,” she says. “So they are more likely to stay with you.”


    Four years ago, Basic American was struggling to increase the participation of hourly workers in its 401(k) plan. Only 45 percent of these workers were enrolled in the plan. Basic American didn’t believe that online tools would work. The company didn’t think the Web would be the best way to reach the company’s Hispanic employees, who make up 60 percent of the workforce, Smedal says.


    Language was just part of the issue.


    “If you understand the Hispanic culture, there is a lot of mistrust of anyone managing their money for them,” Smedal says. Also, it is common in the Hispanic culture for older relatives to rely on their families to support them after they retire, so they don’t necessarily see the reason to save the money themselves, she says.


    The face-to-face sessions help Hispanic employees to realize they can trust the company’s efforts on their behalf. They also better understand that it’s important to save for retirement, whether they retire in the U.S. or go back to their home country, Smedal says.


    Basic American began requiring all new hires to meet with a representative from Charles Schwab & Co., the company’s 401(k) plan record keeper. The company had offered the face-to-face sessions since 2001, but they weren’t mandatory.


    During the sessions, Schwab’s financial planners, who speak Spanish and English, spend about 30 minutes with each employee, going over their risk profile and suggesting funds.


    The service is part of Schwab’s total 401(k) package, so there is no extra fee for Basic American to pay. But the company does have to absorb the costs of taking its hourly workers off the floor. For the first couple of years, those costs averaged $15,000 annually. But that has now leveled out to $2,000 to $3,000 a year.


    The cost seems to be worth it. The company has seen 401(k) participation among its hourly workers jump to 65 percent since it began offering the service, Smedal says.


    The company keeps close track of fees and revenue-sharing to make sure it understands how Schwab is making money from the service, she says. “We keep track of what they are netting in terms of profit to make sure it’s appropriate,” Smedal says.


Choosing the right model
    Some employers may decide to work with independent financial advisors to offer advice to employees, experts say. Doing this helps them avoid potential conflict-of-interest issues, says Mark Berg, a financial advisor with Timothy Financial Counsel in Wheaton, Illinois.


    Berg says his firm has seen a rise in demand from employers in recent years. “HR likes us because they don’t have to be concerned about conflicts of interest since we have nothing to sell,” he says.


    Timothy Financial charges $210 an hour.


    Some financial advisory firms have discussed creating financial advisory networks to accommodate large employers with employees in different locations around the country, says David Wray, president of the Profit Sharing/401(k) Council of America.


By offering advice, “employees feel better about themselves and better bout the employer. So they are more likely to stay with you.”
–Sally Smedal, Basic American Foods

    But many independent financial advisors might shy away from this market because they don’t see how they can make money, says Paul Yossem, vice president of qualified plans at Wheeler/Frost, a San Diego financial advisory firm.


    That might mean that 401(k) plan providers and money managers will dominate this business, observers say. If that’s the case, companies just need to make sure they understand every aspect of the providers’ revenue-sharing agreements and fees, Wolfe says.


    Some employers may refer employees to walk-in centers, where they can go visit with a financial advisor, Smith says. But that doesn’t get rid of the potential for conflict of interest.


    Cost and Silgan’s consultant, Mercer Human Resource Consulting, continues to weigh the pros and cons of offering face-to-face advice.


    The easier route would be to just automatically enroll employees into a target-date fund, but Cost thinks that doesn’t really get employees thinking about their retirement.


“Automatic enrollment into target-date funds is an option,” he says. But Cost doesn’t want to do that just because everyone else is. “We want to challenge the norms and see if something else can be done,” he says.


Workforce Management, November 20, 2006, pp. 34-35 — Subscribe Now!

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International Recruiting Applicant Screening in Developing Markets

The White House sent Steve Casteel to Iraq for two years to recruit 200 people to rebuild the Interior Ministry under the Coalition Provisional Authority. In Iraq and in his previous position as chief of intelligence for the U.S. Drug Enforcement Administration, Casteel learned how to screen candidates in Latin America and the Middle East.


    “Recruiting in Iraq is not that different from recruiting in Jordan or Egypt, or China, for that matter,” Casteel says. “You can use any databases that are available–military and police data, for example–but in the end you have to rely on local contacts to research an applicant’s reputation and history in the community. You can’t just use a Western approach.”


    Casteel is now senior vice president for international business development at Vance International Inc., an investigation and security consulting firm based in Oakton, Virginia, with 3,200 employees worldwide. His approach to screening and background checks will become increasingly relevant as globalization accelerates in 2007 and corporations pursue a broader mix of geographies and less familiar locations.


    Business reports indicate that companies will continue the trend toward staffing new facilities with local nationals instead of expatriates.


    “Multinationals have found that they can reduce costs and eliminate many problems by hiring locals,” Casteel notes. “Shell, for example, has moved to local hiring in Nigeria.”


    As Shell has discovered in Nigeria, however, recruiting in the developing nations requires extreme due diligence.


    “By far, the biggest risk in recruiting in less-developed markets is corruption, most likely in the form of political corruption but also, in some locations, organized crime,” Casteel reports.


    In 2005 alone, Shell Nigeria investigated 74 cases of employee fraud and ethics violations, ending in the dismissal of 24 career and contractor staff, warning letters to 49 employees and delisting for six contractors. In addition to the recruiting difficulties that arise from corruption among candidates and employees, Shell is also plagued by local scam artists who make bogus offers of employment at Shell Nigeria and then shake down job seekers for money or personal financial information.


Digging deeper
    “The biggest weakness among companies that are recruiting in the developing countries is their lack of knowledge about the local market and their willingness to rely entirely on cheap background checks,” says Bob Sikellis, managing director and associate general counsel at Vance. “In the U.S., the quality of standard pre-employment screening is good enough for entry-level positions. But outside the U.S., the quality is abysmal. The databases are simply not available.”


    Instead, companies must develop the capacity for deeper pre-employment investigations, often working with local partners. Even then, the company must know which local security companies do quality work.


    “In Iraq, there are 52 security companies, and you need one that has local operations in the city where you need to recruit,” Casteel notes.


    “Companies need to be very cautious and do full due diligence on the security companies they choose to work with,” Casteel says. “Just because a local vendor seems to take a Western approach and shows up in a business suit does not mean you will get high-quality work. This is true anywhere.”


    The client company should ask the security firm exactly what information they will provide.


    “And, as the Hewlett Packard case demonstrates, the security firm should also explain exactly how they will get that information,” Sikellis says.


    The fact that negligent hiring lawsuits are uncommon abroad does not reduce the need to screen applicants carefully.


    “To focus on the potential for negligent hiring lawsuits or other legal actions is a dangerously narrow approach,” Sikellis says. “Outside of the U.S., the ability to remove employees is so limited that you want to be extremely careful about who you hire. In many countries, a company that removes an employee faces long unemployment payments and other significant costs.”


Local demand
    Originally, the push for screening in the developing markets was driven by the multinationals, but now local employers are increasingly recognizing the need for background screening, according to Chuck Papageorgiou, executive vice president of international services for First Advantage, a risk mitigation and business solutions provider. The company, based in St. Petersburg, Florida, employs 4,500 people, with 1,200 outside the U.S. devoted to employee screening.


    Papageorgiou reports that screening by local employers in the developing markets has accelerated during the past three years, driven by different factors in each country. In India, for example, the rise of diploma mills has generated a new focus on education credentialing.


In other developing countries, concerns about cyber-crime, corruption and terrorism have spurred local employers to institute screening policies along with the multinationals that operate there.


    In addition, developing-market BPO providers that work for financial institutions must screen applicants to meet their contractual obligations.


    “Some of the contracts are very explicit,” Papageorgiou says. “This is spreading to other industries, especially design firms and manufacturers with high-value intellectual property. Also, more companies are screening all management applicants because they see credentialing managers as very important.”


    India’s outsourcing industry has been rocked by cases of data theft and fraud. KPMG’s 2006 survey on fraud in India reports high levels of deception in CVs, fueled by unethical practices at placement agencies. In March 2006, Wipro cleaned house after discovering major screening shortcomings in the placement agencies it used.


    The National Association of Software and Service Companies, the trade group representing the Indian IT software and services industry, launched a national skills registry in early 2006 that provides information on employees’ backgrounds. Job candidates authorize release of the information to employers.


    Papageorgiou does believe that other nations will soon follow with the same level of self-policing.


    “But we are seeing professional associations in some countries building membership rosters, and we can work with this information to verify certifications,” he says.


    According to Papageorgiou, companies in India are also plagued by scammers posing as recruiters who demand money and personal financial information from job seekers.


    In both India and China, candidates and employers can no longer rely entirely on familiar village contacts to make recommendations. Dramatic increases in worker mobility in recent years leave candidates and employers more vulnerable fraudulent practices


Living with limitations
    In some countries, full accurate screening is simply not possible.


    “We deem screening in these countries as ‘nonreliable’ for background information,” Papageorgiou says. “The limits on the amount of information available about candidates may enter into site location discussions, and some companies may decide that they cannot expand into these areas.”


    “There are many ways to get information in many countries if you are willing to break the law, which we are not,” Papageorgiou says. “We advise clients of these restrictions and then use research teams to gather as much information as possible on criminality, for example. The key is to make sure that the client is well aware of the limitations.”


    In India, the crime rate is relatively low and some information is available about most job applicants.


    “If all the education and employment checks are clean, it is highly likely that the candidate is clean,” Papageorgiou says. “In other locations, a clean check may not mean the same thing.”


    In China, educational and professional qualifications, employment history and employment performance history can be secured, but criminal record checks are more difficult.


    First Advantage is developing statistical models that provide some indication of the probability of criminal records and other negative factors for specific groups of applicants. These models are in place in some locations and in development for others.


    First Advantage abandoned the idea of screening candidates abroad from offices in the U.S., and now has offices staffed with its own employees in the Philippines, Singapore, China, Japan, India, New Zealand, Australia, Canada and the United Arab Emirates. It will open an office in South Korea by the end of 2006 and new offices in Europe, Africa and the Middle East in 2007.


    The international portion of First Advantage’s screening services now represents 25 percent to 30 percent of its total screening revenues. The company expects 20 percent growth in the international portion in 2007.


    “In this industry, it is extremely expensive to have a physical presence on a worldwide basis, but there is a competitive advantage in expanding our international presence,” Papageorgiou says. “In addition, the market for screening is relatively saturated in the U.S.; the real growth in screening is abroad.”


    For clients, the biggest advantage in using screening firms that have a physical presence overseas is speed and more control over compliance. Also, firms with offices abroad may be more effective in managing costs because they utilize their own staff and operations.


    In any developing market, screening must be tailored for the specific risk level, legal environment and infrastructure, and executives should be aware of any limitations.


    “When a company moves into a new location, it must develop a market-entry strategy,” Sikellis says.


    “Recruiting should be part of the discussion and HR should have a seat at the table.” Sikellis says. “HR executives need to analyze the personnel risks and maintain a close relationship with legal counsel while they do this.”

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Congress Unlikely to Lift Immigration Caps in December

An effort to increase the number of visas for highly skilled immigrants is likely to fail during the lame-duck session of Congress, although the issue is sure to be revisited next year—perhaps as part of comprehensive immigration reform.


Democratic and Republican aides say legislation to raise H-1B visa caps probably won’t be attached to an appropriations bill in December, since most government funding measures have been pushed to next year.


In addition, a desire by some House Republicans to link H-1B caps to a mandatory employer verification system may force the issue into a broader immigration measure.


Advocates say the cap must be raised immediately from 65,000 to at least 115,000. The current limit was hit before October 1. No more slots are available until next October.


“American companies cannot afford to wait to retain the workers they need and to attract more workers,” says Lynn Shotwell, executive director of the American Council on International Personnel.


At Ingersoll-Rand, an industrial and construction equipment maker, the challenge is to find candidates with specialty technology degrees like design engineering.


“They’re very critical employees,” says Elizabeth Dickson, manager of immigration services at Ingersoll-Rand. “Your candidate pool is largely foreign nationals.”


When one of the company’s business units wants to make an international hire, Dickson often delivers bad news.


“I have to tell them there are no H-1Bs until October,” she says. “That’s hard for them to comprehend.”


Ingersoll-Rand is part of Compete America, a coalition of more than 200 companies and organizations that is lobbying to raise H-1B caps.


Others in Washington, however, are concerned that foreign workers are forced to accept low wages and U.S. applicants are denied job opportunities because of H-1B visas.


“Reforms need to be on the table before any discussion of lifting the caps comes up,” says Ron Hira, vice president of the Institute of Electrical and Electronics Engineers-USA. “There are fatal flaws in the program.”


Congressional action on immigration of highly skilled workers may come next year in a bill sponsored by Sen. John Cornyn, R-Texas, and Rep. John Shadegg, R-Arizona. The measure would raise the H-1B cap to 115,000 and the green card limit from 140,000 to 290,000.


Elements of the bill may be included in a broader measure, as they were in this year’s comprehensive Senate immigration bill.


Conservative House Republicans refused to negotiate the differences between an enforcement-only House bill and its Senate counterpart this year. The fate of immigration in a Democratic-controlled Congress is hard to predict.


Some incoming Democrats are so-called economic populists who might be inclined to focus on how H-1Bs could hurt U.S. workers. But party veterans might support raising the caps.


“There’s not a clearly articulated Democratic Party position,” Hira says.


Ingersoll-Rand has a firm stance.


“Most of our competitors are in Europe and the Asia-Pacific region. They can hire [foreign nationals],” Dickson says. “If you want to remain competitive, you want to hire the best and brightest.”


—Mark Schoeff Jr.