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Posted on April 10, 2009June 27, 2018

Firm Punts Picnic, Dance to Avoid Job Cuts

Chicago law firm Schiff Hardin said it would cut costs with an early retirement program and other moves, including canceling the company picnic and holiday parties.


The actions are designed to avoid the kind of mass layoffs rippling through the legal industry, said managing partner Ronald Safer.


“We’re not going to do that,” he promised. But in a memo to colleagues, he noted: “As always, we will critically assess the performances of everyone at the firm—partners, associates and staff—as part of our commitment to professional excellence.”


And Schiff will adopt a cost-cutting measure gaining momentum at law firms hit by the recession: It plans to delay until January 1 the start date for this year’s entering crop of law school graduates.


Safer wouldn’t quantify the overall amount of projected savings.


The 375-lawyer firm, whose revenue fell slightly last year, will require all attorneys to bear the full cost of health and disability insurance coverage—part of an effort to spread the pain that at other firms is focused on junior attorneys losing their jobs, Safer said.


“It may sound trite, but we have a consensus. … It’s the [equity partners] who are going to take responsibility for it,” he said. In his memo, Safer said retirement incentives would be offered to non-attorney staff members who turn 60 before July 1.


The firm also will cancel its “attorney dinner dance” this year and replace the equity partners’ retreat with a business meeting in Chicago. Summer associates, or interns, also will feel the pain. Schiff said this year’s program would be shortened to eight from 12 weeks and be more “content focused.”



Filed by Steven R. Strahler of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Posted on April 10, 2009June 27, 2018

Researching ‘Comparative Effectiveness’ of Treatments

Tucked inside the recently signed economic stimulus package is a line item that is much smaller than the $19 billion slated to bring doctors into the information age. But the provision could go a long way toward helping employers spend their health care dollars more wisely.


The federal government has committed $1.1 billion to compare the effectiveness of different drugs, medical devices and surgeries to treat the same illness.


This “comparative effectiveness” research could eventually help employers identify the most cost-effective and beneficial health care treatments, and then steer patients toward them. Employers could save money and improve the health of patients by paying for procedures that are considered to be of great benefit while not covering treatments that have proved to be of little value.


Without comparative effectiveness research, decisions about what treatments to use often “depend on anecdotal evidence, conjecture and the experience and judgment of the individual physicians involved,” according to a policy paper published by the Congressional Budget Office in 2007.


For example: Which is the more cost-effective and better treatment for a patient suffering from acid reflux disease, one of the most common conditions affecting older Americans? Is it medicine or surgery? In 2005, the federal Agency for Healthcare Research and Quality, in its first comparative effectiveness review, said drugs can be as effective as surgery in preventing stomach acid from being regurgitated.


The agency continues to review the effectiveness of treatments for other diseases or conditions, such as the use of noninvasive procedures to detect breast cancer. In 2006, the agency reported that four types of tests—magnetic resonance imaging being one of them—were not accurate enough to replace biopsies.


“The research could lead to objective criteria that says these treatments work and these do not,” says Jim Winkler, a health care consultant with Hewitt Associates. The lack of comparative effectiveness research helps explain why the quality and cost of care varies drastically across the country, the CBO report said. Higher spending does not necessarily lead to improved patient health.


Differences in health care costs across the nation are based not on differences in quality, but in large part on a payment system that rewards doctors for using health care treatments, irrespective of whether they work or are appropriate, according to a report published in February by the Dartmouth Atlas, a health research organization affiliated with Dartmouth Medical School. Comparative effectiveness could lead to payment reforms that reward doctors for following national guidelines on the most effective treatment options.


The $1.1 billion for the research in the economic stimulus package represents a significant jump in funding. In 2006, the federal government appropriated $319 million for comparative effectiveness research. The increased funding has been lauded by those paying for health care: employer groups and health insurance companies.


“Currently, patients and their physicians have little, if any, independent, reliable information comparing the efficacy of various procedures, therapies or devices,” says Helen Darling, president of the National Business Group on Health, in a statement.


Conservatives—including the American Enterprise Institute, Rush Limbaugh and Betsy McCaughey, a former lieutenant governor of New York who galvanized opposition to the Clinton health plan in 1994—have opposed the research, saying it will insert the government into decisions made by doctors and their patients.


Biotechnology and medical device makers, which could stand to lose money if their technology is deemed less effective, have teamed up with the Alliance for Aging Research, Friends of Cancer Research and minority and women’s groups to form the Partnership to Improve Patient Care to ensure the legislation does not keep patients from getting the care they need.


National effectiveness guidelines could empower patients who use personal health records. Through software tied to their records, they could learn of best treatment options for their health needs, says Jay Sanders, a doctor and president and CEO of the Global Telemedicine Group in McLean, Virginia.


“A patient needs something more foolproof than what’s between their physician’s ears,” he says.


Workforce Management, April 6, 2009, p. 26 — Subscribe Now!

Posted on April 9, 2009June 27, 2018

California Comp Board to Revisit Controversial Decisions

California Gov. Arnold Schwarzenegger said it is “absolutely right” for the California Workers’ Compensation Appeals Board to reconsider two controversial case decisions.


The board made an unusual announcement, saying Monday, April 6, that it would reconsider en banc decisions it made earlier this year in Wanda Ogilvie v. City and County of San Francisco and in the consolidated case of Mario Almaraz v. Environmental Recovery Services and Joyce Guzman v. Malpitas Unified School District.


The board in both cases ruled that a schedule adopted in 2005 for rating permanent disabilities can be rebutted with certain evidence.


But those decisions quickly came under fire from payers and the governor for putting upward pressure on workers’ comp rates.


“It’s absolutely right for the Workers’ Compensation Appeals Board to reconsider its earlier decision, and its decision to do so shows that board members recognize the importance of this issue,” the governor said in a statement Tuesday, April 7. “It is important that we assist California workers injured on the job, and it is also important that we protect businesses to be sure they can weather the current economy and create jobs.”


The board said it will reconsider its prior decisions so that interested parties can provide it further briefing and amicus briefs.



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



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Posted on April 9, 2009June 27, 2018

How Payers of Health Care Are Using Telemedicine

In 2006, emergency room doctor Elliot Justin gave a young patient a diagnosis that sent the patient’s mother into a rage.

“I told her, ‘Your child is fine,’ ” Justin said.

What enraged the mother was not the cut on the child’s face, which required only a little antibiotic ointment, but the effort it took to come to that simple conclusion. The mother had spent her day trying to get some face time with a doctor, shuttling from her pediatrician’s office to an urgent care facility to, finally, an emergency room in New Jersey. Along the way she was told incorrectly that her child’s cut required the expertise of a plastic surgeon.

“The mother got angry because she had gotten run around,” Justin recalls. “Why couldn’t the she have just sent a JPEG of the kid’s face?”

Doing so could have saved her from taking a day off and from the expense of an emergency room visit. Justin’s solution was to create SwiftMD, a health care service that allows patients to see a doctor using online video within one hour of requesting an appointment.

Based in Bozeman, Montana, where Justin now lives, the company is part of a growing field of telemedicine, which refers to any health care delivered to patients using information technology. Not all telemedicine services provide remote access to doctors like SwiftMD does. Some simply use software to help patients monitor their illnesses. What separates telemedicine from health information Web sites is software that provides personalized feedback on a patient’s health. The goal is to use technology to provide more personalized, cost-efficient health care.

In some cases this means connecting patients with health care providers remotely or, when a doctor is not needed, using software to provide continual feedback about a person’s health—for example, their daily blood pressure or blood sugar levels. That highly customized information helps patients manage their health so they, and the employers who pay for their care, don’t have to spend money and time visiting a doctor.

“We must require patients to be their own primary care provider,” says Jay Sanders, a doctor who has been practicing the ever-evolving field of telemedicine since the 1960s.

Some Medicaid and Medicare programs, a few health insurers and a small but growing number of employers are paying for various forms of telemedicine. With billions more dollars budgeted for telemedicine—the exact amount has not been detailed—as part of the recently passed $787 billion stimulus package, the field is poised for wider acceptance as a means to provide medical care that is thought to be timely, convenient and cost-effective.

The idea of telemedicine—the transmission of medical care and information electronically—has long been envisioned. In a recent lecture in New York, Sanders made this point by showing a cover of a British newsmagazine, Radio News, that announced in its headline “The Radio Doctor—Maybe.” The cover shows a child on the edge of his bed, staring at what looks like a television, and sticking out his tongue. In the television’s picture, a doctor makes his diagnoses. The set seems to print out what looks like a prescription. The magazine was published in 1924, four years before the first television sets were sold.

Envisioning telemedicine, however, has been easier than putting the technology into practice—and reimbursing doctors for providing care like online or e-mail consultations. But as it has become easier to access the Internet than a doctor, the field has developed to the point where both private and public health care payers are beginning to reimburse doctors for online care.

Medicare, the single largest health care payer in the U.S., covers telemedicine in limited circumstances, often to allow patients in rural areas to access specialty care without having to go farther afield than their local hospital or clinic. The Department of Veterans Affairs has also pioneered telemedicine programs to help veterans manage chronic illnesses.

Health insurers Cigna and Aetna reimburse doctors for care given online using software from RelayHealth, an Atlanta-based health technology company. The Web-based software is designed to interview patients and then use their answers to pinpoint a diagnosis. RelayHealth is available to any patient of a doctor who uses the service in his or her practice. At Cigna, that totals about 15,000 doctors out of some 500,000; at Aetna, it’s about 6,000.

“Telemedicine isn’t necessarily our strategy,” says Ken Tarkoff, a general manager at RelayHealth. “Our strategy is to provide better connectivity in health care.”

RelayHealth is intended to help doctors’ practices run more efficiently. Lab results automatically populate a person’s electronic health record. The software’s design helps doctors offer feedback to a patient based on their lab results while automating common requests such as setting up appointments, paying bills and making medication refill requests, services that are free for the patient. Questions from a patient are automatically forwarded first to a nurse at the doctor’s practice, who analyzes the question before deciding whether to forward it to a doctor.

RelayHealth says its 21,000 doctors represent several million patients. Of those patients, a million are actively managing their online health records. The most active patients are those with chronic illnesses, Tarkoff says.

Doctors are paid when they provide care for a patient. Aetna pays doctors $30 for a Web visit; Cigna pays $35, compared with about $70 for an in-office visit. Patients pay their standard co-pay or co-insurance.

SwiftMD offers a similar capability, but rather than connecting a person to their primary care doctor, the service connects patients with doctors trained in emergency medicine who can provide care at times when a person’s doctor is unavailable. Unlike RelayHealth, SwiftMD’s doctors use Internet video to assess patients.

The company, which went live in February, has signed up its first customer, the New York City locals of the International Union of Operating Engineers. The union’s 9,000 members have use of the service, at a cost to the union of $120 per member annually, Justin says. He says that so far, doctors’ response times have averaged 12 minutes.

The software SwiftMD uses prompts doctors to follow widely accepted guidelines for how specific ailments, injuries and illnesses are to be cared for, which Justin says is a recipe for improving the quality of patient care and avoiding unnecessary medical expenses. It’s not meant to replace emergency care, but to help patients avoid unnecessary ER and office visits for everyday issues.

Justin says he is working to provide evidence of cost savings for his new service. Researchers say little data exists yet to conclusively determine whether telemedicine saves money and under what conditions.

Steven Shea, a professor of medicine in biomedical informatics at Columbia University, says telemedicine will most effectively manage chronic illnesses when patients receive care from a doctor they know who has access to their medical records. Shea says employers might be better off compensating doctors for telephone and e-mail consults rather than outsourcing that care to a third party. “There’s no doubt that the cheapest and best way [to get care] is for a patient to call their own doctor, even when the doctor is reimbursed for it,” Shea says.

A recent analysis by Veterans Affairs, however, showed that its home telehealth program produced major cost savings. The program was particularly successful in giving veterans in rural areas access to doctors and for helping to teach veterans to better manage their chronic illnesses.

The VA’s telehealth program cares for 35,000 veterans and is the largest in the world. The study looked at the health outcomes of 17,025 telehealth patients and found a 25 percent reduction in the number of days in the hospital and a 19 percent reduction in hospitalizations.

Boston-based data storage company EMC has embraced telemedicine to help its employees better manage high blood pressure, a key indicator of other potential health problems. Two years ago, with help from the Center for Connected Health in Boston, the company set up a program to see how far it could enable patients to manage their hypertension without the help of a doctor.

Using special blood pressure cuffs developed by the Centers for Connected Health that plug into a computer, 400 EMC employees volunteered to take their blood pressure three times a week. The information automatically populated an online health record, tracking the changes in a person’s blood pressure over time. The center’s software provided continual feedback that showed each individual how their blood pressure changed in response to circumstances in their life: changes in diet, stress at work, a good night’s sleep.

The feedback helped people change their behavior to produce the blood pressure levels they sought. Doug McClure, corporate manager for operations and technology at the Center for Connected Health, says the key to getting people to change is to constantly measure what you are trying to change, like weight, blood sugar or blood pressure.

“Want to lose weight?” McClure says. “Take a measurement regularly. It creates a contract with yourself about change.”

What McClure calls a feedback loop is meant to keep people engaged. It’s normal for blood pressure to go up and down; the important thing is to understand why and then change the patient’s behavior to produce the desired result.

Delia Vetter, senior director of benefits for EMC, says the company finished the pilot program in December 2008 and, with the help of health data management company Ingenix, is analyzing the results to determine whether the efforts improved people’s health and reduced health care costs.

She says she expects the recoup $2 for every dollar spent, and that even without the official analysis complete, her company’s efforts have been worthwhile and will continue regardless. Vetter says technology is more effective than plan design in changing people’s behavior.

“If you are getting medicine for free, how is that teaching you how to be a better health care consumer, and how to live a healthier lifestyle?” she says. “When you are providing education, constant reinforcement and new, innovative ways to manage their health, you keep on the forefront of their minds how to live a healthy lifestyle.”

Posted on April 9, 2009June 29, 2023

Data Breach Threats From Within Growing

While the external hacker is something companies have learned to defend against, the threat of internal data breaches is growing.


Insurance and cyber security experts say a computer-savvy employee who thinks his or her job may be in jeopardy may be more inclined to tap the organization’s database for information that may be useful in a new job with a competitor.


Worse, the employee could attempt to take revenge on his or her employer as job cuts abound during the recession, experts say.


“I think it’s safe enough to assume that, as people are put under greater and greater emotional stress, additional people may lose their moral compass and do things and take data that, in normal circumstances, they might not,” said Alan E. Brill, New York-based senior managing director of technology services at Kroll Ontrack, a division of Kroll Inc., a consultant unit of Marsh & McLennan Cos. Inc.


“But we have to live with the circumstances that we’re in; and if we’re in a higher-risk environment of people doing that, I think we have to be able to respond to that and provide the tools and technology to do so,” Brill said.


Brill said Kroll already is seeing a higher rate of incidents involving employees taking sensitive company data—either before or after they’ve been let go—that they intend to use to better themselves with another employer or start a competing business.


Brian Lapidus, a colleague of Brill and the Nashville, Tennessee-based COO of Kroll’s fraud solutions division, said there were about 1,000 more data security inquiries to Kroll in December than just last July.


“We’re seeing more [data] breaches and we’re seeing more activity from those people who have been victims of a breach,” Lapidus said.


A study that Ponemon Institute LLC released last month found that more than 88 percent of all data breaches involved insider negligence, while the remaining 12 percent were the result of a malicious act. The study also found that the cost of data breaches to companies rose in 2008 to an average $202 per record compromised, up 2.5 percent from 2007 and 11 percent from 2006.


According to Traverse City, Michigan-based Ponemon, “the investment required to prevent a data breach is dwarfed by the resulting costs of a breach.” While the external hacker is something companies have learned to better defend against, the threat of internal data breaches is growing.


Insiders gain access to the data through lax controls and monitoring of network systems, a direct effect of cutbacks in security software and information technology support staff, Brill and other cyber risk analysts say.


“The ability to stop an insider who has access is not really practical,” said Mike Rothman, senior VP of strategy with Acton, Massachusetts-based IT consultant eIQnetworks Inc. “The tools have been put in place to monitor [systems], but I think that IT workers have such a long list of activities to do on a daily basis … you can overlook the monitoring when you have other tangible projects that people are waiting for action on.”


Software programs capable of sweeping systems for irregular data flows are available, Rothman said. It is becoming more “critical” to run automated network scans as companies cut back on data security staffing, he said.


But the attacks are becoming more complicated and intelligent, cyber risk specialists say.


Alex Horan, director of product management for Boston-based Core Security Technologies, said hackers are using “more talented” malware—or malicious software—than in the past and that the attacks have gone beyond the viral e-mail or embedded link to what appear to be safe software downloads.


In a data breach at Princeton, New Jersey-based Heartland Payment Systems Inc., investigators uncovered the breach in January but found that malware had been installed more than a year earlier, according to statements by Heartland executives.


The malware was specifically designed to take certain information and was relatively undetectable. Heartland executives said they did not know how the malware was installed or how much data was taken from the payroll processing operation.


“It’s an attacker knowing the organization and the type of data it holds,” Horan said. “[The hacker] is not sending out a billion e-mails hoping that someone will click on the e-mail. It’s now a more targeted approach.”


Brill agreed, adding that malware is becoming more specialized and, in most cases, is undetectable by the software that fights malware as it is something software companies have not seen before and cannot defend against.


Network security, especially for organizations that use a third party to manage databases, is becoming more important to companies, said Mark Steinhoff, New York-based a principal in Deloitte & Touche’s security and privacy practice.


Deloitte recently surveyed global top 100 financial institutions, banks and insurers and found that 36 percent of the respondents were more concerned with internal breaches, while 35 percent of all respondents were concerned with internal and external breach threats.


“When you look at what organizations are most concerned about, it’s both the internal and external threat,” Steinhoff said. “The insider threat is getting more attention, but the tools to protect against it are still evolving.”


The recent attention surrounding data breaches is puzzling to Kevin P. Kalinich, Chicago-based co-national managing director of Aon Corp.’s financial services group for professional risks.


“There have always been data breaches,” but recent developments in state and federal laws that require data breaches be made public have generated more attention and the incorrect belief that data breaches are rising, he said.


Kalinich said studies have shown that “people feel less guilty about taking electronic data” than hard-copy files and data breaches may indeed increase.


“Organizations have to be aware of economic turmoil and specifically its effects on their employees,” advised Tracey Vispoli, vice president and manager for the financial fidelity and cyber solutions unit at Warren, New Jersey-based Chubb Group of Insurance Cos.


“I think people need to be more worried about [internal data breaches] than in the past. The trends are changing and essentially you have a workforce that is more disgruntled and more upset than in years past, and I think that is something that will be a looming issue in the years ahead,” she said.

Posted on April 9, 2009June 27, 2018

Collaborating With Unions Can Help Control Health Care Costs

Employers and unions often go head to head on negotiating health care issues. But we have seen that if employers can work together with their unions to establish a health care plan, three goals can be achieved: a cost-efficient program that gives employees quality, affordable health care; healthier and more productive employees and dependents; and a better labor-relations environment.


In industries with an entrenched unionized workforce, there is often a sense of entitlement to quality health care, but no sense of personal responsibility.


The traditional way that companies engage unions on health care matters is through collective bargaining. However, this approach neither gets the unions to buy in to the benefits plan nor does it instill a sense of individual responsibility over an employee’s health care. A more engaging process is one that takes place outside of the traditional collective bargaining process and that emphasizes collaboration, not negotiation.


Key management and union officials must actively participate in this collaborative process. If an employer has an excellent working relationship with its unions, management should initiate a dialogue directly with the unions’ leadership. If the relationship isn’t solid, then an employer (with or without the advice of its unions) should retain the services of an impartial third party to help facilitate the process. Key management must participate to show the unions that the collaborative process is important to leadership who can operate with some authority during the process. Similarly, union leaders must participate in order to indicate to management, as well as to their own union members, the importance of this dialogue.


During this process, management and union leadership should be treated as equal partners in this endeavor. Both parties need to understand the dynamics of health care in general and the employer’s benefit plan in particular. The company should benchmark the plan against its peers on a national, regional and industry basis so that both sides understand how it compares. In addition, management should be prepared to indicate where the savings from a more cost-efficient program may go—to shareholders, increased salaries, fewer layoffs and increased staff, for example. Honest and direct dialogue about the current program’s shortcomings and successes must take place in order for the union leadership to buy in to this process of collaboration.


Each phase of the process should have specific goals. Through the education phase of the process, key management and union officials learn together about health care trends and how the employer’s plan benchmarks against others in their region or industry. Then the health care benefit program is redesigned by management and union officials working in collaboration. As part of the effort to engage employees to become better consumers of health care, the new benefit program must have a strong disease management program, wellness and prevention programs and a strong communications plan—components that are often missing in some collectively bargained programs.


During the maintenance or monitoring phase, a health care advisory committee composed of management and union leadership should be established to allow employees to continue their ownership of the health care program. This phase is important to the long-term cost savings of the program.


For our clients that have used this collaborative process, the relationship between labor and management has improved. This process has been very successful in the public-sector environment, for example. At one school district that adopted this collaborative approach, more than $100 million has been redirected from health care costs into areas at the core of educating the district’s children. The management and unions at that school district use the health care committee as an example of how they can work effectively together and have successfully used this collaborative concept as a model in other areas of the organization.


Collaborating with employees through their unions is an effective means to create an affordable and quality health care program for an organization’s employees and to have that program be cost-efficient, create a healthier and more productive workforce, and create a better labor-relations environment.

Posted on April 8, 2009June 27, 2018

Employer-Provided Wireless Devices Benefit or Electronic Leashes

Employees view receiving mobile devices, such as BlackBerrys, from their companies as a benefit, but at a large price, according to a recent survey of 627 employees commissioned by WorldatWork.


One-third of employees surveyed said that they view receiving wireless devices from their companies as part of their total rewards package. Half of employees surveyed said they felt that these devices signify their status or importance at the company.


But at the same time, 42 percent of employees said they believe that by getting the devices, they are expected to always be available. Three out of four respondents said they never turn their devices off. Most employees surveyed said they use their wireless devices between one and five hours per day during what they consider nonwork time.


“Basically employees view this as a double-edged sword,” said Kathie Lingle, director of the Scottsdale, Arizona-based Alliance for Work-Life Progress, a division of WorldatWork.


On one hand, employees seem to value receiving the devices from their companies, she says. On the other hand, the devices make them feel “like they have a noose tied around their necks,” Lingle said.


To address this, companies need to put policies in place, she said. For example, accounting firm Ernst & Young has a policy that says employees are not expected to look at their e-mail on weekends.


“They are very concerned about overwork and making sure that employees know that there are some boundaries,” Lingle said.


However, such corporate policies are pretty rare, she noted.


“I suspect that it’s more common for companies to hand out these devices than to create policies around their usage,” Lingle said.


And given the current economic climate, Lingle doubts that employees are going to approach their HR managers anytime soon about creating such a policy.


“Employees are worried about losing their jobs, so they aren’t about to bring this up,” she said.


—Jessica Marquez


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Posted on April 8, 2009June 27, 2018

Confidence Falls for 63 Percent of Defined-Contribution Savings Plan Participants

A BGI-sponsored survey shows 63 percent of defined-contribution plan participants have grown less confident in the past year about reaching their retirement goals.


Just less than 50 percent of all participants surveyed said their employer should offer an investment option with guaranteed income in retirement. For those who are worried they will never be able to retire, 61 percent said a guaranteed income option would improve their 401(k) plan.


Forty-one percent of respondents are unsure they will be able to retire as planned, and 46 percent are worried they will never be able to retire.


Among those worried they might never be able to retire, 41 percent plan to delay their retirement and 58 percent plan to work until they die, according to the survey.


Almost half of all participants surveyed said they would save more to make up for their losses of the past year, but only one in four who say they’ll never be able to retire said they would save more and 19 percent of those worried they will never be able to retire said they have no idea how to recover their retirement losses.


Only 4 percent indicated they will stop DC contributions, and half of all participants said they will not make any changes to their DC accounts in the next 12 months.


The survey, “401(k) Participant Attitudes, Behavior, and Intentions,” was sponsored by BGI and the Boston Research Group. It polled 1,000 active 401(k) plan participants during March.



Filed by John D’Antona Jr. of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Posted on April 7, 2009June 27, 2018

GM Bankruptcy Would Expose $13.5 Billion Pension Liability

A General Motors bankruptcy could become a nightmare for the federal government’s Pension Benefit Guaranty Corp.


That’s because the automaker could dump as much as $13.5 billion in unfunded pension liabilities onto the U.S. agency that takes over troubled pension plans—the largest ever from a single company—if GM were unable to fund its U.S. defined-benefit plans and terminated them.


The claim would be almost twice as large as the current record of $7.5 billion from the 2005 termination of the Chicago-based UAL Corp.’s United Airlines pension plans.


For this to happen, GM would have to terminate its plans and PBGC officials would have to agree to cover all the unfunded pension liabilities of the company’s U.S. hourly and salaried plans. Together, the plans had a combined $84.5 billion in assets and $98.1 billion in liabilities as of December 31, according to its 10-K report.


GM officials are considering, among other options related to a restructuring, filing for Chapter 11 bankruptcy protection or some sort of specialized government-backed bankruptcy protection. That way, GM could slash its debt and seek concessions from the UAW, including cuts in its retiree-health obligation.


“GM is a benefits-paying organization masking itself as an auto company. The real function of the company is trying to pay pensions and retiree health care. They could produce a car to compete with Toyota but couldn’t pay the retiree liabilities they agreed to many years ago,” said Donald G.M. Coxe, chairman of Chicago-based Coxe Advisors. Coxe doesn’t invest in GM.


GM expects that it won’t have to contribute to its U.S. plans until 2013 or 2014, according to a Securities and Exchange Commission filing in February. Its U.S. plans were overfunded by a combined $20 billion as recently as December 31, 2007, according to the company’s annual report.


The GM defined-benefit plans have less than $1 million in GM stock, according to the report.


GM’s hourly and salaried 401(k) plans have combined assets of $20.3 billion, including $1.4 billion in GM stock, as of December 31, 2007, according to a report filed last June. Based on a 91 percent drop in the share price since then, that stock would be worth $126 million now.


Last November, State Street Bank & Trust, Boston, investment manager for the GM company stock fund in the 401(k) plans, stopped participants from purchasing stock in GM because of its financial difficulty.


The PBGC estimates its exposure to contingent liabilities of the Detroit 3 automakers— GM, Ford Motor Co. and Chrysler—totaled $41 billion as of January 31. The net claim exposure represents what the PBGC estimated it would have to cover.


The Detroit 3’s total pension liabilities have skyrocketed since September 30 because of the market meltdown, said Gary Pastorius, a PBGC spokesman. On that date, the PBGC had estimated total contingency liabilities of $46.7 billion, including $20.9 billion from automobile and other manufacturing companies. These liabilities represent the total unfunded vested benefits.


Ford had $37.4 billion in assets in its U.S. pension plans and $43.1 billion in liabilities as of December 31, according to its 10-K report. Ford this year expects to contribute $1.5 billion to its pension plans worldwide. It didn’t provide a U.S. plan breakout.


Chrysler had U.S. defined-benefit assets of $21.6 billion as of September 30, according to Pensions & Investments’ January 26 report on the largest U.S. retirement funds.


Chrysler’s pension plan was overfunded by $3.1 billion as of December 31, 2007. At that time, it was 113 percent funded with pension assets of $26.2 billion and pension liabilities of $23.1 billion. An updated funding level wasn’t available.


Cerberus Capital Management owns 80.1 percent of Chrysler.


As of September 30, the latest data available, the PBGC’s single-employer program has a $10.7 billion deficit, with $61.6 billion in assets and $72.3 billion in liabilities, Pastorius said.


The PBGC paid out $4.3 billion in benefits for the year ended September 30. It collected $1.5 billion in employer premiums in the same period, bolstering its financial position, he noted.


Coxe said GM stock and bond investors are in a weak situation.


“When you have a market cap at $1.074 billion, what you have is a low-cost leap” for potential investors speculating on a rise in value, he said. “The market is saying not many investors are willing to take it.”


Bondholders “would still be stuck trying to pay for all” the retiree health care liabilities unless a U.S. bankruptcy court would terminate the obligations, Coxe said, even if the bondholders secured the company or major assets in a potential bankruptcy reorganization.


Filed by Barry B. Burr of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com

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Posted on April 7, 2009June 27, 2018

IRS Guides Employers on COBRA Rule Change

New guidance clarifies for employers the key question of when an employee has been involuntarily terminated and thus is entitled to new federal subsidies to pay for COBRA health care premiums.


Last week, the Internal Revenue Service in Notice 2009-27 [] provided broad definitions and specific, real-world examples of involuntary terminations.


In addition, the IRS’ 27-page notice resolves numerous other questions raised by employers about the new subsidies, which Congress created—at a $25 billion cost—as part of a massive economic stimulus bill legislators passed in February.


The subsidies, through which the federal government pays 65 percent of eligible beneficiaries’ COBRA premiums, are available to employees who are involuntarily terminated, except in cases of gross misconduct, from September 1, 2008, through December 31, 2009.


Beneficiaries are entitled to the subsidies for up to nine months or until they become eligible for new group coverage or Medicare. In all, lawmakers estimate that about 7 million people and their families will be able to retain health insurance coverage because of the subsidies.


Benefits experts welcomed the guidance for formalizing the IRS’ positions and for providing needed details.


“It is good to have this in black and white,” said Rich Stover, a principal with Buck Consultants in Secaucus, New Jersey.


“It is surprising in its breadth. A fair amount of detail was provided in various forums. But it really was impossible to keep track of everything,” said Andy Anderson, of counsel with Morgan, Lewis & Bockius in Chicago.


The key aspect of the guidance is clarification about what constitutes an involuntary termination—the trigger that makes an individual eligible for the subsidy.


Clarity on involuntary termination “is the big one here for employers,” said Sharon Cohen, an attorney with Watson Wyatt Worldwide in Arlington, Virginia.


The IRS’ definition of an involuntary termination is when an employer invokes its authority to terminate employment “where the employee was willing and able to continue performing services.”


The guidance also makes clear that there can be situations in which the involuntary termination standard would be met even though the employee initiated a termination. That could occur if the termination was due to employer action that results in a “material negative change in the employment relationship for the employee.”


The guidance provides several examples of how a material negative change could entitle a COBRA beneficiary to the subsidy.


Under one example, an employee elected to retire because he knew he would be terminated. That employee would be considered to have been involuntarily terminated.


Under the IRS guidance, an involuntary termination “is far more than an employer letting an employee go,” said Tim Stanton, a shareholder with Ogletree, Deakins, Nash, Smoak & Stewart in Chicago.


The guidance clarifies several other issues.


For example, employers do not have the right to deny the subsidy to higher-paid individuals who are not eligible for the subsidy because of their incomes. Unless those individuals sign a waiver revoking their right to the subsidy, they could take it, though they later would have to return it to the government.


In addition, beneficiaries can be eligible for the COBRA premium subsidy multiple times.


Take the example of an employee who is let go on March 1, 2009, opts for COBRA and receives the 65 percent premium subsidy.


Then, on October 1, 2009, he starts a new job, enrolls in the new employer’s health care plan, ending his COBRA coverage. On November 1, 2009, he is terminated and again takes COBRA. That individual would have a new right to nine months of federally subsidized COBRA coverage.


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


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