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Mitigating Fiduciary Risk in a Down Market

Employers who sponsor both defined-contribution and defined-benefit retirement plans are deeply concerned about the market crisis affecting plan investments. The credit and housing crises, the downturn in the stock market and the rise in fiduciary litigation all have brought increased attention to employer-sponsored retirement plan fiduciaries. The dramatic increase in ERISA litigation in recent years is causing plan sponsors and fiduciaries to take a fresh look at who is serving in a fiduciary capacity and whether those individuals are prudently performing their duties. Plan fiduciaries should understand their duties and accurately document their prudent execution. By understanding the extent of their fiduciary status and duties and properly documenting actions taken, fiduciaries can minimize the liability inherent in their fiduciary status.

Virtually all investment options in employer-sponsored 401(k) and other retirement plans have been affected by recent market issues. ERISA requires that plan fiduciaries act with the care, skill, prudence and diligence of an expert in the marketplace and for the exclusive benefit of the participants and beneficiaries with respect to ERISA plan investments. Plan fiduciaries must act quickly and prudently to deal with the market issues and to protect the plan assets. Prudence is largely a matter of process, and doing nothing is not an option. In assessing a plan fiduciary’s prudence in a particular action, a court will examine the decision-making process and how the fiduciary went about reaching a decision, as opposed to the result of the decision.

Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control. Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title. A plan’s fiduciaries will ordinarily include the trustee, investment advisors, all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan or the plan assets.

Plan fiduciaries should consider the following suggestions in the current market environment:

Analyze impact, review procedures and get advice: Plan fiduciaries should have a detailed investment policy, conduct frequent and detailed investment reviews, and hire professionals as necessary to give advice regarding the procedures and the actual investment performance. While ERISA does not explicitly require that plan sponsors adopt an investment policy, a fiduciary should have a thoughtfully developed process for selecting investment options; should follow that process; and should periodically review and, if necessary, revise the process.

The investment policy, if properly designed, shows that the plan has in place a reasonable strategy for selecting, monitoring and, when necessary, altering plan investments. If the investment policy is reasonable, and if the policy is followed, the plan fiduciary will generally have complied with ERISA’s fiduciary duties, even if investments did not perform as well as expected. If the plan does not have an investment policy, it may be difficult to demonstrate that the fiduciary complied with ERISA’s procedural demands. Additionally, any flaw in the investment policy or procedures or failure to periodically review and update the investment policy can result in fiduciary liability.

Plan fiduciaries are required to fulfill their duties in light of “the circumstances then prevailing,” meaning that they must take current market conditions into account. It does not mean that they should ignore the plan’s investment policy, but a prudent fiduciary will consider how current conditions could affect the plan’s investments. Waiting until the next regularly scheduled meeting of the plan fiduciaries might not be considered prudent in light of the market’s volatility. Even if the plan fiduciaries decide that no action is necessary, evidence that they engaged in such an evaluation will show that they are acting prudently in light of current circumstances.

Plan fiduciaries must engage in a prudent selection process when choosing plan advisors. It is important to review the credentials and tenure of advisors, know their reputation and client portfolio, and make sure that they are sufficiently invested in the plan. That means they should call or send information quickly when market issues arise, make recommendations to hold special meetings or take action between meetings if market conditions dictate a quick response and generally take an active role rather than just appearing at quarterly meetings with information.

The bottom line to staying on top of the situation is to have solid procedures, quality expert advice, sufficient detail to really understand the investments and make informed decisions, detailed documentation and meeting notes to reflect the discussions and decisions and fiduciaries who take the job seriously. Remember that the issue is not necessarily whether the fiduciary made the “right” decision, but whether the fiduciary was prudent and diligent in conducting a review (“procedural due diligence”) and made a choice that a reasonable, prudent person similarly situated could have made.

Do your homework by monitoring your appointees and other fiduciaries: Plan sponsors and plan fiduciaries often select a vendor or advisor and then switch to “autopilot,” expecting the vendor or advisor to fulfill its duties to the plan with no further input or oversight. A prudent plan fiduciary will never become too complacent or comfortable with the vendors, advisors or employees assigned to handle tasks. It is important that plan fiduciaries understand the role of each person or entity providing services to the plan and check from time to time to verify that they are performing appropriately.

Fiduciaries should maintain a current “matrix” of duties, responsible parties and delegations. This matrix should be updated regularly when the parties or their duties change. The plan sponsor should verify that appropriate indemnification provisions have been negotiated and are in signed agreements. This documentation is essential to the plan sponsor and other plan fiduciaries understanding their roles and responsibilities.

The plan’s “fidelity bond” must cover losses to the plan by fiduciaries (so the sponsor/administrator must be certain that the bond covers all individuals who may cause a loss, unless a special exception applies). However, the plan’s fidelity bond does not cover liabilities of the plan fiduciaries. In many instances, plan fiduciaries do not have insurance to cover the expenses and judgments or settlements against them, placing those individuals or entities at extreme risk. Some do not even have an indemnification in place for protection. This is the ultimate example of “better safe than sorry.” Employees of the plan sponsor serving in a fiduciary capacity should carefully consider any uncovered exposure they may have and take action to mitigate this exposure.

Plan fiduciaries may not rely blindly on the investment advice they receive. Instead, they must review, evaluate and understand the advice. The plan fiduciary must: investigate the expert’s qualifications; provide the expert with complete and accurate information; and make certain that reliance on the expert’s advice is reasonably justified under the circumstances.

A plan fiduciary is not justified in relying wholly upon the advice of others, since it is the fiduciary’s duty to exercise his own judgment in light of the information and advice received. After carefully reviewing the advice provided by their experts, plan fiduciaries must determine whether that advice is well-founded and is appropriate for their plan and, if so, take measures to implement the advice.

Educate plan participants: The average employee probably does not understand “market corrections” and “rebounds” and may not heed the advice to “remain calm.” An individual who sees a 50 percent drop in his or her plan account may panic or become angry, and could seek revenge by calling the government or an attorney. While comfort in numbers is not always the best defense, in the current situation most plans—and investments in general—are in the same unfortunate situation of suffering significant losses.

A typical 401(k) plan gives participants the opportunity to choose funds from a broad range of investment alternatives. These plans are often designed to be ERISA Section 404(c) plans, under which plan fiduciaries are not liable for losses that result from participant investment elections. While meeting the minimum Section 404(c) disclosure requirements is critical, it is still advisable for employers to further educate and reassure plan participants during these challenging economic times. Employees are bound to be nervous about their retirement assets and silence may only increase their apprehension. From a practical perspective, better-educated participants should make better investment decisions, resulting in greater job satisfaction and financial security. The message that plan participants must understand is that, despite best efforts, plan fiduciaries are like all types of investors: They probably could not have prevented this market situation or the losses being suffered by plan investments.

But if your money was invested with Madoff: If a plan fiduciary is in the unfortunate situation of having plan assets invested in a fund or with an individual or entity that is involved in a scandal, or if in any situation the fiduciary is concerned about liability or ramifications of actions, the best course is always to seek legal counsel before taking action. “Better safe than sorry” definitely applies in this case.

Plan fiduciaries should consider any steps available to make the plan participants whole, such as participating in lawsuits. However, fiduciaries should weigh the costs to the plan against the potential for recovery in such lawsuits before participating.

Fiduciary responsibility: It is always critical to understand who serves in a fiduciary role for a plan and to whom fiduciary obligations have been delegated. It’s important to know whether an appropriate written delegation or administrative agreement has been executed and the responsibilities of each person or entity. But those issues become even more critical in situations where the risk of litigation increases.

We are in such a time now. It’s not hard to imagine an employee who is upset that he lost 50 percent of his money and is certain that someone didn’t do their job right. His thinking might go like this: “I’ll sue everyone and get the right one eventually.” If the roles and delegations are clear, it is more likely that the individuals and entities have appropriate indemnifications and insurance to deal with the liability. No one is happy when they discover that they have liability with no indemnification or insurance.


Conclusion
Although employers have many important issues to face due to the turbulent market conditions, it is important to be diligent and prudent in conducting fiduciary business and to confirm that all plans and arrangements are being administered in compliance with legal requirements. Plan fiduciaries should ensure that they are properly documenting the decision-making process and that they are obtaining professional advice when necessary. Plan fiduciaries should also make sure they are properly indemnified and insured in the event they are sued.


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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Aetnas Odyssey Comes Full Circle

Staying in business for nearly 160 years requires endurance and the ability to adapt. That need is acute in the ever-changing health care industry. Few U.S. health insurers have weathered more storms, or arrived at their destination more circuitously, than Aetna Inc.


Launched as a small regional insurance company in 1850, Aetna grew into a behemoth and a bellwether of the U.S. economy. In 1990, Hartford, Connecticut-based Aetna was listed as one of Fortune magazine’s most admired companies.


But after plunging into the murky confluence of financial services, insurance and health care, Aetna practically sank of its own weight. By 2000, the insurance giant was nearly out of business.


Aetna had miscalculated its market, loading up on acquisitions of HMOs in the late 1990s at a time when the country’s managed-care landscape was dramatically reshaping itself. By the end of the decade, Reagan-era HMOs had fallen out of favor with the public, leaving Aetna with a slate of products and services its customers no longer wanted.


“Aetna was in a heap of trouble,” says Deborah Kelley, Aetna’s director of learning services and a 25-year company veteran. “Our customers were mad at us, our member [hospitals] were mad at us and the doctors were mad at us.”


But the low point actually proved to be Aetna’s start on the road to recovery. The journey began in 2001 after a new team of top executives, led by current CEO Ronald A. Williams, was installed to engineer a turnaround. High on the priority list: bringing order to Aetna’s scattershot approach to learning and development.


The new regime issued a mandate: Employees would be required to maintain a yearly performance scorecard, developed in partnership with their managers. It helps determine whether an individual is competent to handle the job and provides a guidepost for development.


Although unaware of it at the time, Kelley says Aetna was embarking on a radical, if profoundly simple, path: Clarify expectations and hasten peak performance. In hindsight, she jokes that had company leaders realized the painstaking work involved, the project might not have gotten off the ground.


“We did it in the days before people knew how hard it really is,” says Kelley, who gets invited to speak about Aetna’s sojourn at business conferences. “If I were in the audience listening to us explaining how we did what we did, I’d probably want to run away and hide.”


Hiding isn’t an option for Aetna. Although its work is far from complete, the 35,000-employee firm boasts a sophisticated set of processes for evaluating people according to “the Aetna way,” including performance and behavior.


It’s not the only reason for Aetna’s revival, but renewed appreciation for employee skills is credited with helping Aetna regain its stride. After seven years spent developing competencies, instituting performance scorecards and forcing people to confront their career goals, Aetna is back in contention. Despite the global economic slide, Aetna in 2008 posted revenue of $31.6 billion, a one-year jump of 14 percent.


And despite healthy revenue growth, Aetna is not immune to economic pressure. Shortly before Christmas, the company said it would cut 1,000 jobs—about 3 percent of its workforce—in response to continued turmoil in U.S. financial markets.


In terms of market capitalization, $11.5 billion Aetna is the third-largest U.S. health insurer, behind UnitedHealth Group Inc. ($26.68 billion) and WellPoint Inc. ($18.95 billion).


Like many marquee companies, Aetna is engaged in a Darwinian struggle to survive. To remain among the fittest, the company plans to ratchet up the pressure on managers in 2009, including a new “dual rating” strategy that assesses their leadership and business skills, Kelley says.


Compliance breeds commitment
Aetna has roughly 1,300 distinct jobs, with each one mapped to a list of specific competencies. Scorecards are used to analyze whether people are competent to perform their job tasks. The idea is to help people take stock of their skills and see how they measure up.


Although the scorecards are mandatory, Kelley says employees have come to embrace them. But it wasn’t always that way.


“For the first couple of years, employees were identifying their own behaviors. When we introduced competencies [for each job], it was a relief to them. Now they have help thinking through which behaviors are critical,” Kelley says.


That in turn leads to more meaningful conversations between employees and managers. As a result, employees are moving from “compliance to commitment” in the scorecard process, with managers playing a key role.


“We have managers asking [how] to identify not only an employee’s performance, but also the potential for role change and retention risk—conversations that managers would normally avoid having with employees. But this approach not only makes those conversations possible, but expected,” Kelley says.


Tamara Pinckney, a payroll services manager, aspires to be an executive at Aetna. Having a full set of competencies to work on makes that lofty goal more attainable.


“Competencies have provided me with a clear direction on the expected roles and responsibilities of my position. It ensures that I am successful in my role and assists me with setting expectations for my team,” Pinckney says.


Longing for learning
Aetna’s past trials and tribulations led to its increasing reliance on technology systems to deliver training and manage performance. All formalized learning comes through Aetna Learning Center, a learning management system provided by Mountain View, California-based SumTotal Systems. Kelley says that this ensures “consistent processes” and avoids duplication.


“If it’s not through the learning center, it doesn’t count,” Kelley says.


Likewise, employees are “intrigued” by Aetna’s talent management system, which is provided by Authoria Inc. of Waltham, Massachusetts, Kelley says. It enables employees to search for jobs within Aetna and be notified by e-mail when a position matches their qualifications.


Leaders face a pair of new requirements in 2009: completing leadership curricula with two levels of certification. The first level, known as foundations, focuses on performance management, with an advanced level on talent management.


The certification training is designed to ensure that managers obtain baseline sets of skill, Kelley says. Roughly half of Aetna’s 5,400 managers have attained certification, with the remainder expected to complete the work this year.


“I think it helps us much more effectively identify, select, motivate, develop and move talent across the organization,” Kelley says.


Pinckney has earned certificates in talent management and performance management, along with Aetna’s Performance Improvement certification, “which is equivalent to a Six Sigma Yellow Belt,” Pinckney says.


Like most organizations, Aetna has a system for rating the business performance of managers. Aetna this year is implementing a second score for leadership, separate from the foundation and advanced certification programs. The two scores won’t be averaged, thus giving Aetna a clear snapshot of which areas individual managers need to address.


Changes to performance rankings typically make employees nervous, and that’s probably the case with some Aetna managers. That’s not so for Crystal Baldwin, who is manager for call-center operations at Aetna RX Home Delivery.
“I believe this approach will assist in my professional growth by providing a bird’s-eye view of my strengths and areas of opportunity [to improve], as it relates to my coaching and mentoring skills,” Baldwin says.


Aetna started the dual rating last year for executives, but all leaders will receive two scores beginning in 2009.


“The combination positions us to move the needle. We’ve got aggressive goals, so this is how we know if things are working,” Kelley says, including goals of increasing membership, boosting revenue and hitting other financial and performance targets.

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Study Step Therapy May Lead to Higher Health Costs

Step therapy, a common cost-containment tool that substitutes less expensive generic medications for costlier brand-name drugs, actually may lead to higher overall health care costs, a study concludes.


The study, which focused on anti-hypertensive drugs, found that benefit-plan members subject to step therapy incurred $99 more in quarterly health care expenditures than a comparable group. Moreover, plan members in step therapy programs also had more inpatient admissions and emergency room visits, the study found.


“When step therapy is implemented, there is an associated increase in inpatient and ER visits and a reduction in prescription drug use,” said Tami L. Mark, lead author of the study and director of analytic strategies at Thomson Reuters Healthcare in Washington.


She suggested this might be caused by patients not filling their prescriptions.


“You go to a doctor and the doctor prescribes a drug—not knowing that it has to be a generic—and you find out it’s not covered or more expensive than you had expected, so you don’t fill the prescription,” Mark said.


To prevent this unintended consequence from occurring, she advised employers to make sure doctors know about step therapy requirements.


“I think you have to evaluate how it’s actually being implemented and what the overall impact is. Maybe the way it’s being implemented is not as intended and needs to be reconsidered,” she said.


The study compared the health care costs of 11,851 employees and dependents at two companies with benefit plans that required step therapy with 30,882 employees and dependents of two companies that did not.


Data for 2003 through 2006 came from MarketScan Research Databases kept by Thomson Reuters.


The study, “The Effects of Antihypertensive Step Therapy Protocols on Pharmaceutical and Medical Utilization and Expenditures,” was published in the February issue of the American Journal of Managed Care.


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


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The High Cost of Buyouts

Tough economic times aren’t fun for anyone in the HR profession. During economic downturns, the HR budget is often the first to be cut, and no matter how well labor costs are contained, the function is routinely blamed for any fallout from even the smallest of layoffs. Given the climate, HR leaders shouldn’t make matters worse by utilizing what are commonly know as “voluntary” buyouts (as opposed to the nonvoluntary variety, also known as layoffs) that might result in your most valuable talent walking out the door.


    Buyouts have become quite popular these days. Noted companies such as Disney, Nissan, Sprint Nextel, Best Buy and IBM have recently used them to shed excess labor. They are favored by many in management because they allow managers to avoid making tough decisions and having emotional conversations with individual employees who need to be laid off. On the surface, buyouts seem like a win-win because no one gets emotional and the firm gets to cut labor costs, but buyouts may actually cause more problems than they solve.


Buyouts can be damaging and expensive
   Buyouts are an approach that let wimpy managers cede control of what should be a strategic decision to employees—the people who probably do not possess the knowledge or interest to make decisions that place the needs of the organization first. By letting employees self-select, you risk losing high-value employees who always have options, leaving you with low-value employees who probably can’t go anywhere else.


    Employees with mission-critical skills know who they are, and they know that their skills give them options even in the toughest of times. The same goes for another group: those who have always demonstrated an ability to do more with less. If a disproportionate share of employees from either of these camps opts out, they will carry with them any chance of your buyout program producing a positive ROI in the medium and long term.


    The reasoning is simple: Rarely do high-value employees receive compensation proportionate to their increased level of contribution. While you may shed labor resources with slightly greater compensation than average and below-average workers, you lose substantially more in terms of organizational capability, which is expensive to restore.


    Paying experienced employees to leave means losing many seasoned and knowledgeable workers who provide organizational capability. Their loss will likely cause serious economic damage in the long term, because ability to solve problems under pressure within your firm’s culture is not something easily replaced. Under voluntary circumstances, such employees are more likely to leave. Experienced workers are in more demand and usually have more incentive to leave because they are offered much larger buyout packages based on seniority.


There goes Tiger Woods
   In addition to losing experienced and resourceful people, there’s another problem with the volunteer approach, and perhaps the biggest one. The employees who are most likely to accept a buyout are probably your top performers. They’re smart—they realize that for months, possibly even years following a major reduction in force, life inside the organization won’t be fun. Development budgets will be cut, capital growth plans will be postponed, and pretty much any opportunity to innovate and grow will be limited. Faced with stagnation, those with options are the ones most likely to take the money and leave. Top performers know that even in a down economy, they will have numerous opportunities, so the last thing you want to do is offer them a large incentive to resign.


    Fortunately, firms such as Charles Schwab and Boeing have learned lessons from the mistakes made by others. This time around, they are abandoning buyouts and instead focusing their efforts on retaining experienced top performers. Another indication that many executives have learned a valuable lesson regarding consciously retaining experienced skilled workers is that the Bureau of Labor Statistics reports a 3 percent increase in the number of workers 55 and older who were employed last year. During that same period, the number of employed people ages 25 to 54 fell by nearly 3 percent.


    HR often institutes detrimental practices such as hiring freezes, pay freezes and buyouts without identifying their many unintended consequences. Rather than letting employees make a workforce reduction for you, HR must to learn to prioritize skills, individuals and positions, and to quantify the costs in dollars of losing valuable employees. Executives must know the actual dollar costs of paying your best people to walk out your front door.

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COBRA Subsidy Model Notices Released

The Labor Department issued a set of model notices Thursday, March 19, that employers can use to describe federal premium subsidies available to employees who lose their jobs between September 1, 2008, and December 31, 2009.


Under economic stimulus legislation signed into law last month by President Barack Obama, involuntarily terminated employees must pay only 35 percent of the COBRA premium and the federal government will pick up the remaining 65 percent. The subsidies are available up to nine months, until a terminated employee is eligible for coverage from a new employer or from Medicare.


The law also required the Labor Department to publish model notices by March 19 that employers can send to beneficiaries advising them of the subsidy and how to enroll for the subsidized coverage.


The Labor Department has provided four model notices, each tailored to a specific situation.


For example, the so-called “full notice” would be sent to beneficiaries who lost group coverage between September 1, 2008, and December 31, 2009. A so-called “abbreviated notice” would be for beneficiaries now receiving unsubsidized COBRA.


Another model notice applies to individuals who lost their jobs between September 1, 2008, and February 16, 2009—the date before the stimulus legislation was signed into law—and declined to opt for COBRA at the time. That notice, which must be provided to beneficiaries by April 18, informs them of their new right to opt for COBRA.


The fourth notice describes the right of individuals working in states with so-called “mini-COBRA” laws, which apply to employers with fewer than 20 employees, to also receive COBRA subsidies.


Aside from the model notices, which benefits experts say many employers are likely to provide to beneficiaries, the Labor Department has resolved several questions employers have raised about the new subsidy in a question-and-answer format.


For example, the Labor Department says beneficiaries can be required to pay 35 percent of the full COBRA premium, which includes a 2 percent administrative fee.


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


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Wellness Programs Seen as Key Benefit, Survey Finds

Employers are stepping up communication with their employees about wellness and employee assistance programs available to them and are not planning to make significant cuts in their budgets for those programs, a survey shows.


“Despite pressure to reduce costs in many other areas of operations, 45 percent of respondents report increasing their wellness communications to highlight available services that can assist employees with issues brought on by the economic downturn,” said Ruth Hunt, a principal in Buck Consultants’ communication practice in New York, in a statement.


Hunt co-directed the survey with Barry Hall, Buck principal and global wellness leader, during the Fourth Annual Employer Health & Human Capital Congress, which took place in Washington last month. The survey was conducted interactively involving 200 audience members attending one of the meeting’s general sessions.


“Our findings suggest that wellness has ‘come of age’ as a vital benefit offering, especially during financially difficult times,” Hall said in the statement.


He said 53 percent of survey respondents reported an increase in the use of wellness services since the financial crisis began.


Among other survey findings:

• 19 percent plan to increase spending on wellness programs.
• 59 percent have experienced no budget changes, but are anxious about the possibility of having to make future cuts.
• Among those expecting cuts, 78 percent said that those involving wellness programs will be no greater than any reductions affecting other corporate spending areas.


Before the conference, Buck conducted a separate survey of 52 employer delegates to examine the culture of health—the creation of a workplace culture that promotes healthy lifestyle choices—in today’s workplace.

Those findings include:


● Only one-third of respondents report having a culture of health today, while 87 percent intend to pursue this philosophy.
● Measuring outcomes is the top priority for enhancing wellness programs among 56 percent of respondents.
● Forty-seven percent of respondents reported the biggest barrier to achieving a culture of health in their organizations was getting a commitment from top management.


Results of the surveys have not been formally published.


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


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AIG to Bonus Babies ‘Do the Right Thing’

In a feverish effort to defuse public fury, American International Group Inc.’s chief executive said he has asked employees who recently received more than $100,000 in bonus payments to “do the right thing” and return at least half of their money. He said some have already done so.


“We’ve heard the people,” CEO Edward Liddy told a congressional panel Wednesday, March 18.


Still, Liddy stood by his stance that AIG had no choice but to pay $165 million in what it called retention bonuses to hundreds of employees at the derivatives division that caused the company’s collapse in September.


He said the division’s portfolio of toxic assets remains huge—at $1.6 trillion—and it could “explode” unless AIG keeps experienced staff to wind it down.


Otherwise, he warned, the insurer, now 80 percent owned by the federal government, will be unable to ever repay the nearly $180 billion it has borrowed from taxpayers.


“I know $165 million is a lot of money,” Liddy said. “But in the context of the $1.6 trillion book [of toxic assets] and the money already invested in us, we thought it was a good trade.”


He added that he balanced the risks associated with denying the bonuses and alienating staffers with “blindly following legal advice.”


Members of Congress seemed pleased that some AIG staffers are being asked to give back bonus money, but questioned why they ever got it in the first place.


Rep. Barney Frank, D-Massachusetts, said AIG should have denied the payouts and forced the employees into the difficult position of suing for them. (His office has released the full language of the company’s retention-bonus contract.)


Frank also said he would seek a subpoena for the employees’ names unless Liddy provided them, something Liddy said he wouldn’t do, citing his concerns for the employees’ safety as public anger rises over details of the AIG bailout. New York Attorney General Andrew Cuomo has issued a subpoena for the same information.



Filed by Aaron Elstein of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Industry Group Wants Money Market Mutual Fund Safeguards

The Investment Company Institute is proposing sweeping changes to restore confidence in the $3.9 trillion money market mutual fund industry, including more transparency, tighter control over investments and prohibiting investments in second-tier securities.


Among the recommendations released yesterday by a working group of the Washington-based institute are proposals to create new daily and weekly minimum-liquidity requirements, to require regular stress testing of money fund holdings and to reduce a portfolio’s average maturity limit to 75 days, from 90 days.


The working group included such firms as the Vanguard Group, Fidelity Investments, Legg Mason and JPMorgan Asset Management of New York.


The group would also like to prohibit all investing in so-called second-tier investments, or those securities that have been given the second-highest short-term rating category by two ratings agencies.


Currently, money funds can hold up to only 5 percent of the portfolio in second-tier investments. These securities represent 6 percent of the commercial-paper market, according to the ICI.


“Our belief is that the recommendations strengthen an already-strong industry,” said J. Christopher Donahue, president and chief executive of Pittsburgh-based Federated Investors, which has $407 billion in assets under management, including about $355 billion in money market assets.


“There weren’t any fundamental problems with money funds. The problem was liquidity in the market,” he said.


The money-fund sector experienced a run by investors last fall after the Reserve Primary Fund, offered by Reserve Management of New York, saw its net asset value dip below $1 and “broke the buck.”


The working group’s proposals to reduce the average maturity limit of money fund portfolios and to add transparency about investors are designed to avoid runs on the funds, Donahue said in an interview.


“A lot of the recommendations are what funds are already doing,” said Peter Crane, president of Crane Data, a Westborough, Massachusetts-based research firm. “I think the recommendations overall are very positive. I suspect these Band-Aids will be enough, as the patient is up and walking anyway.”


The working group is also proposing that funds disclose the concentrations of their client bases as well as give funds’ boards the authorization to suspend redemptions and purchases temporarily if a fund is in danger of losing its $1 net asset value.


“The biggest news is what they didn’t say anything about, which is insurance,” Crane said. “Money funds are weaning themselves off of the Treasury insurance and not taking the shift toward private insurance: That is the main issue going forward.”


Most fund firms are participating in the Department of the Treasury’s guarantee program, launched September 19, which offers insurance to cover investments made up to that date. The program is set to expire April 30.


The ICI has asked the Treasury to extend the program through September 19.


“I think the Treasury will extend it to September of this year,” said Connie Bugbee, managing editor of iMoneyNet, a money fund research firm also based in Westborough.


“I think the feeling is that if they take it away in April, there could be another run. I do think that you will see more Treasury funds opt not to have the insurance. But you’ll see it stay on prime-money funds and tax-exempt muni funds.”


The working group did not recommend a continuing federal insurance scheme after September.


“It would be destabilizing to other intermediaries, including depository institutions,” Paul Schott Stevens, the ICI’s president and chief executive, said in a conference call today.


All the recommendations are necessary to restore investor confidence, Bugbee explained.


Whether they will impose additional operating costs and mean lower yields for investors is not known.


“There are no free lunches,” Donahue said. “You’re going to have some give and take here. But it’s hard to relate that to basis points at this point.”


Crane was more optimistic, saying: “There shouldn’t be noticeable changes in yield. I doubt all of these recommendations would even cost a basis point.”


The recommendations were endorsed by the ICI’s board of governors for adoption as general industry practices. Members of the working group have already agreed to adopt them voluntarily.


Filed by Sue Asci of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Dear Workforce What Impact Does the Stimulus Bill Have on Payroll-Benefits Administration

Dear Befuddled:

It’s natural to feel overwhelmed by the implications of the American Recovery and Reinvestment Act of 2009 (more commonly referred to as the “stimulus package”).

We expect that the new law will require employers to consider and implement multiple changes to their tax withholding, reporting and record-keeping procedures for employees. Here are the two most immediate changes you need to be aware of and take action on:

“Making Work Pay”: This provides workers a rebate/credit for the 2009 and 2010 tax years of the lesser of $400 for individuals and $800 for couples, or 6.2 percent of earned income.

The credit will be received by workers in their net paychecks through adjusted tax withholding tables no later than April 1, 2009. This means that you need to begin using these new tables (see IRS Notice 1036 and Publication 15-T) to process your payroll by this deadline. If you use an outside payroll provider, check with this vendor to ensure they’ve made the appropriate changes. At Paychex, we have implemented this change and are processing client payrolls using the adjusted tax tables.

Premium Assistance for COBRA Recipients: This allows COBRA beneficiaries to pay 35 percent of their premiums, with employers absorbing the remaining 65 percent (which are reimbursable through a credit on payroll taxes). In order to report and calculate subsidy amounts, and for employers to receive the credit, the IRS has redesigned Form 941, Employer’s Quarterly Tax Return, effective for the first quarter of 2009.

To make things more complex, there’s also a special 60-day election period for individuals who would be eligible for the assistance, but who weren’t enrolled in COBRA at the time the stimulus package was signed into law. What’s more, employers can choose to allow eligible individuals to be covered under a different plan offered by the employer than the one they were enrolled in prior to their involuntary termination.

And There’s More: You should also keep your eye on additional economic proposals under consideration, such as raising the federal minimum wage to $9.50 an hour by 2011 and allowing withdrawals from retirement accounts of 15 percent up to $10,000 without penalties.

Again, if using an outside payroll or benefits provider, make sure your vendor is actively following these changes and is ready to implement any new developments.

SOURCE: Marty Mucci, Paychex Inc., Rochester, New York, March 10, 2009

LEARN MORE: Among the wide-ranging effects of the federal stimulus bill are changes to COBRA provisions.

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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DC Assets Fall in 2008; Share of Retirement Assets Rises

Total U.S. defined-contribution assets dropped 21 percent last year to $3.8 trillion, but the percentage of retirement assets coming from DC plans rose to an all-time high of 49 percent, according to a Spectrem Group report.


Also in the report released Wednesday, March 18, “Retirement Market Insights 2009,” Spectrem wrote that U.S. retirement assets tumbled 24 percent in 2008 to $7.86 trillion.


The overall share of retirement assets from DC plans grew from 47 percent in 2007.


Assets in corporate 401(k) plans, which account for 71 percent of all corporate DC assets, declined 23 percent to $1.94 trillion.


Total DB assets were $4.03 trillion in 2008, down 27 percent from the previous year.


The report was based on data taken from public and private sources, as well as from Spectrem, as of December 31.


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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