Pension funding relief for airlines lands in Iraq funding bill

By Jerry Kalish on Posted in Defined Benefit Pension Plans, Pension Protection Act of 2006

Earlier this month I asked the question Technical Corrections to the Pension Protection Act of 2006. Another bite of the apple? Would special interest groups be able to accomplish now what they couldn’t accomplish in the PPA? Right question, wrong bill. The just passed Iraq spending bill included a provision giving funding relief to American Airlines and Continental Airlines. (The bill also included a provision that increases the minimum wage by $2.10 a hour, the first increase in almost 10 years.)

The rationale was that airlines like American and Continental which are financially struggling were being treated unfairly compared to United Airlines and US Airways who received approval from the bankruptcy courts to terminate their pension plans.

The Iraq funding bill allows the airlines to assume an 8.25% rate of return on their investments over the next 10 years, instead of 6% required by the PPA. The White House estimated that airlines may reduce their pension contributions $2 billion over 10 years, spokesman Tony Fratto said.

Sen. John Cornyn, Republican Senator from Texas where both airlines are located, who  supported the change was quoted as saying:

Passage of this provision will be of enormous benefit to the thousands of citizens who are depending on this nest egg when they retire.

We’ll see whether this will result in a smooth landing.

“I’m from the government, and I want you to come to work for us.”

By Jerry Kalish on Posted in Public Employee Plans

That’s obviously a twist on the old joke. But it’s not a joke. This country faces new and difficult challenges, and we need the best and the brightest more than ever to work for the federal government. Two organizations, the Partnership for Public Service and American University’s Institute for the Study of Public Policy Implementation (ISPPI) have teamed up to help make that happen. They produce the The Best Places to Work rankings — the most comprehensive and authoritative rating of employee engagement in the federal government.

Agencies and subcomponents are ranked on a Best Places to Work index score, which measures overall employee engagement. The agencies and subcomponents are scored in 10 workplace environment (“best in class”) categories such as effective leadership, employee skills/mission match and work/life balance.

There is also the Overall Index Scores for Employee Satisfaction and Engagement which measures the performance of agencies and agency subcomponents related to employee satisfaction and engagement. And the winners are:

  • Large Agencies: Nuclear Regulatory Commission
  • Small Agencies: Federal Mediation and Conciliation Service
  • Agency Subcomponents: Office of Inspector General (Treasury)

Here is a link to the complete rankings.

“Ten-shun, ten-shun, please. Have your pencils and scorecards ready for the correct lineup.”

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, Individual Retirement Accounts

Diehard Cubs fans will know who this is. It’s Pat Pieper, the legendary Cubs’ field announcer, who for 59 years started each game with the announcement above. But that was back in the day when you could look at the number on the back of the uniform and know who that was and what position he was playing. Now let’s fast forward today to the “players” involved with retirement plans, that is, the individuals and firms that provide investment services to plan sponsors and employees. It’s a little more difficult and got more so recently.

The Consumer Federation of America provided some  help in  its publication, Cutting Through the Confusion, where to Turn for Help with your Investments (PDF). It explains the differences between:

  • Investment advisors who are regulated by the Securities and Exchange Commission, and are subject to a fiduciary duty;
  • Brokers who are regulated by the NASD and the New York Stock Exchange, and are subject to a suitability requirement; and
  • Financial planners who are not separately regulated as planners but are regulated depending on the services they provide, e.g., investment advice or sale of securities.
  • Insurance brokers who are regulated by the individual State Insurance Commissioners, and are subject to those rules and regulations.

It’s not that clear, of course, since different standards can apply when investment providers serve as both investment advisors and brokers. Well, they used to be. The SEC’s 2005 rule exempting brokerage firms that charge asset-based fees from investment advisory regulations under specified conditions was recently overturned by in a 2-1 decision by the U.S. Court of Appeals for the District of Columbia Circuit in Washington.

The brokerage firms are now figuring out how to handle the 1,000,000 investors who have approximately $300 billion in fee-based brokerage accounts particularly if investors don’t make a choice between available investment accounts.

Understand now?

The picture above is that of Pat Pieper gathering straw hats showered by fans on September 1, 1932. This was before the Wrigley field bleachers were built. He started his career in the first Wrigley season in 1916, and announced the lineups with a megaphone until the public address system was used starting in 1932. Let’s treasure these pictures of Wrigley field since as a result of the Tribune ESOP transaction, the team will be sold and not the ballpark which may wind-up as a real estate development.

One way to deal with an underfunded public employee retirement plan – create a two-tier benefit system

By Jerry Kalish on Posted in Public Employee Plans

Public employee retirement plans are wholly underfunded. Some states like Kansas with over $5 billion in unfunded liabilities are trying to deal with it by increasing its contributions and issuing pension obligation bonds. Kansas is going one step further. Kansas Senate Bill No. 362 creates a two-tier retirement benefit system so that some public employees are more equal than others. The Bill increases the retirement age and employee contribution rate in the Kansas Public Employees Retirement System for employees hired after July 1, 2009.

Sound like a plan? The flip side is that future workers who retire under what has been called a reform plan will receive an automatic 2 percent cost-of-living increase every year starting at age 65. Maybe part of the cost will come from a recently passed casino gambling bill which allows Kansas to become the first state to officially own gambling facilities.

Are we still in Kansas, Dorothy?

Hat tip to Nancy at RetirementThink.

Technical Corrections to the Pension Protection Act of 2006. Another bite of the apple?

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, Pension Protection Act of 2006

On May 3, 2007, the House of Representative’s Education and Labor Subcommittee on Health Employment, Labor, and Pension held a hearing to consider technical corrections to the Pension Protection Act of 2006 (PPA). Technical corrections are designed to fix mistakes and inconsistencies that were inadvertently included in original legislation. Subcommittee Chairman Rob Andrews (D-NJ) indicated that the hearing was to be the first of a series, and invited other groups and individuals to identify other technical corrections that Congress should make to the PPA. In the past, it hasn’t been unusual for substantive tax changes to be included in technical corrections acts – particularly for those special interest groups that didn’t get their legislative objectives accomplished the first time around. We’ll see what happens here.

Life (insurance) after death

By Jerry Kalish on Posted in Public Employee Plans

Why tax payers get upset. A California water agency added benefits to the contract of its general manager, including a $20,000 life insurance policy, about 13 hours after his death according to a story in the San Diego News. It hasn’t been confirmed that the Board members knew that general manager was dead when they voted for benefits that included medical coverage. The employee’s widow received the life insurance benefit but is not receiving health benefits. The County district attorney’s public integrity unit is investigating.

What’s jam got to do with GM’s 401(k) plans?

By Jerry Kalish on Posted in 401(k) Plans

Choice, or rather, too many. General Motors has picked up on recent academic research that indicates that having too many investment choices in a 401(k) plan can lead some participants to pick the most conservative investment option and discourage others from participating at all. GM will be paring the number of 401(k) fund options from over 80 to less than 40.

The academic research goes back to 2000 when social psychologists Sheena Iyengar, PhD, a management professor at Columbia University Business School, and Mark Lepper, PhD, a psychology professor at Stanford University, were the first to empirically demonstrate the downside of excessive choice.

Their research showed that when shoppers were given the option of choosing among smaller and larger assortments of jam, they showed more interest in the larger assortment. But when it came time to pick just one, they were 10 times more likely to make a purchase if they choose among six rather than among 24 flavors of jam.

Dr. Iyengar then sought to examine consumer choices with higher stakes. Would a greater investment in the outcome mean people would make different or better choices? To do that, she and Wei Jiang, PhD, a finance professor at Columbia Business School, analyzed the number of fund options in 401(k) plans. They found that more options led people to act like the jam buyers: the greater the number of options, the more cautious people were with their investment strategies, or didn’t participate at all.

And so what’s a plan sponsor to do then. Barry Schwartz, a professor at Swarthmore College, may provide some help. In his book, The Paradox of Choice: Why More Is Less, Professor Schwartz says that "satisficing" is the best option. In layman’s terms, that’s the first choice that fits our preference as opposed to exhaustively scanning all options until finding the perfect, or "maximizing" one.

Whether the new offshoots of the Pension Protection Acto of 2006 – target maturity funds, automatic enrollment, and investment advice – will help accomplish that remains to be seen.

Is there a helicopter parent hovering over your office?

By Jerry Kalish on Posted in 401(k) Plans

Call me old fashioned but I couldn’t wait to declare my independence from my parents. But this is a different day and a different generation. The term “helicopter parent” is now being used with more and more frequency in the media to describe parents who hover around their children who are part of the so-called millennial generation, now ages 8 to 29. This group is made up of 80 million people in the United States born between 1978 and 1999.

And now as this generation is entering the workforce so are their parents. Sue Shellenger in The Wall Street Journal Online tells us that Helicopter Parents Now Hover at the Office. The millennial generation brings new challenges to the workplace and presents challenges for HR professionals integrating them into the workforce as Kathryn Tyler tell us about The Tethered Generation in the May, 2007 issue of HR Magazine.

So what does this have to do with 401(k) plans? Everything, if we want them to understand the importance of saving and investing, and to participate in our benefit programs. They have been using email, instant messaging (IM) and cell phones since childhood and adolescence, and we had better start rethinking the dynamics of communicating benefits.

Another laptop theft. This time personal data on 160,000 current and former Neiman Marcus employees

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans

All too often we hear about another laptop stolen with sensitive information on it. And all too often it’s personal data about employees. The latest is the retailing giant Neiman Marcus. The Company recently announced that a notebook computer containing personal information on 160,000 current and former employees was stolen. The stolen notebook belonged to a pension benefit firm hired by the Company. The personal information included individuals’ names, addresses, Social Security numbers, birth dates and salaries.

Neiman Marcus declined to identify the consultant whose laptop was stolen. The Company said it was not the company’s regular pension benefits administrator, Fidelity Investments. The stolen computer contained detailed personal information on employees and former employees who were in the pension plan as of  Aug. 30, 2005. Neiman Marcus promptly notified their employees and offered to provide one-year of credit monitoring services.

Since last October, I’ve written about 3 laptop thefts involving employee personal and benefit plan data:

It’s 10:00 in the evening. Do you know where your 401(k) plan is?  Savannah accounting firm has laptop with employee data stolen during trip to New York. Go figure!

The British equivalent of Chutzpah: 3 laptops stolen from London Metropolitan Police with payroll and retirement plan data on over 150,000 Met police officers.

Identity theft made simple. Just leave employee retirement plan data on a laptop: 2 laptops stolen with information on 40,000 current and former Chicago public school employees left unattended in conference room.

In all these casess, the common response was that it was no problem since the data was  encrypted. But a key question went unanswered. Why was so much private data allowed to be on laptops in the first place? And Plan Sponsors, you better start asking your service providers how they protect your data. It’s the prudent thing to do.

 

NFL gets sacked by IRS on employee/independent contractor issue

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans, Independent Contractor or Employee

Here is another example about the importance of properly classifying your employees. Frank Steinberg in his New Jersey Law Blog tells us that the NFL Loses to IRS regarding how the League had been treating their 70-plus Drug Program Agents [DPA’s], who collect urine samples for the drug testing program. The IRS recently ruled that the DPA’s are league employees, not independent contractors as previously treated by the NFL. Mr. Steinberg also links us to the story as reported by the New York Daily News. The ruling could cost the NFL millions in employment taxes and benefits.

Here are links to two posts I did on this topic:

Who’s your employee: inquiring minds and the IRS want to know

What to do when an independent contractor is really an employee
 

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