Month: October 2008

Greenspan today testified before the House Committee of Government Oversight and Reform and called the recent economic crisis a “once-in-a century credit tsunami.” The American Benefits Council has issued a warning, indicating a coming benefits tsunami:

The following is an internal report from the chief actuary of one defined benefit plan service provider:

“Our projections are showing DB plans due to get slaughtered in their next round of actuarial valuations. Lest we forget, asset smoothing has all but been eliminated so their unfunded liability will see a $1 for $1 increase for their investment losses this year….I haven’t heard this consistent level of concern from plan sponsors in 20 years. Just to throw a real example out there, a large [organization] has gone from 114% funded for the 1/1/2008 year down to restricted (i.e., below 80% funded) as of yesterday….You have to assume we’ll be doing a lot of freezing amendments next year.”

The benefits system has never seen this level of concern before. Unless something is done — quickly — massive funding obligations will trigger benefit freezes on an unprecedented scale. And freezing does not eliminate current funding shortfalls, so companies will be forced to direct huge resources to their plans, which will cost many jobs and prevent companies from making essential investments in their businesses.

Some evidence of this in today’s news: “GM Suspending Benefits.”

The Third Circuit Court of Appeals has issued a decision, in Sinacole v. iGate Capital which agrees with the 2d, 7th and 11th Circuits in invalidating a DOL regulation concerning FMLA leave. In the case (which has been deemed “Not Precedential”), the Third Circuit held that the Department of Labor regulation was invalid to the extent it deemed an employee “eligible” for FMLA leave even if the employee did not work at least “1250 hours in the past 12 months.” Excerpt:

It is the sole province of the Congress to establish the scope of employees who have rights under the FMLA.

From the Boston Herald.com:

A staggering $3.2 billion IOU to pay off health and other benefits lavished on city worker unions has come due in Boston as the city grapples with a budget crisis that’s raising fears of massive layoffs and service cuts and even tax hikes for Hub residents and businesses.

The huge payout – much of it incurred during the 15-year tenure of Mayor Thomas M. Menino – is forcing the city to more than double its spending on benefits over the next five years, to $220 million, or roughly one-tenth of its current $2.4 billion budget. . .

The $3.2 billion covers the current cost of health care and life insurance benefits promised to present and future city retirees. The tab is high because health care costs are soaring, which caused the IOU to grow more than $500 million in the past two years.

From the CorporateCounsel.net Blog:

“At our “3rd Annual Proxy Disclosure Conference” yesterday, Corp Fin Director John White delivered an important speech – entitled “Executive Compensation Disclosure: Observations on Year Two and a Look Forward to the Changing Landscape for 2009” – during which John talked briefly about how the TARP’s executive compensation provisions could potentially spill-over and impact the many companies not directly subject to TARP. Specifically, John addressed the TARP provision that requires participating financial institution’s compensation committees to meet with the senior risk officers of the institution to ensure that the incentive compensation arrangements do not encourage the senior executive officers to take “unnecessary and excessive risks that threaten the value of the financial institution.” Here is an excerpt from John’s remarks on this topic:

Most of you are not from financial institutions, so let’s talk for a moment about non-participating companies. This new Congressionally-mandated limitation on having compensation arrangements that could lead a financial institution’s senior executive officers to take unnecessary and excessive risks that could threaten the value of the financial institution obviously applies on its face only to participants in the TARP.

But, consider the broader implications and ask yourself this question: Would it be prudent for compensation committees, when establishing targets and creating incentives, not only to discuss how hard or how easy it is to meet the incentives, but also to consider the particular risks an executive might be incentivized to take to meet the target — with risk, in this case, being viewed in the context of the enterprise as a whole? I’ll let you think about what Congress might want. We know what our rules require. That is, to the extent that such considerations are or become a material part of a company’s compensation policies or decisions, a company would be required to discuss them as part of its Compensation Disclosure and Analysis. So please consider this carefully as you prepare your next Compension Discosure and Analysis.

Also, more broadly speaking, I expect that current market events are already affecting many companies’ compensation decisions and thus should be affecting the drafting of their upcoming Compensation Disclosure and Analysis. Regardless of whether your company participates in the TARP and consequently finds itself having to make new material disclosures, you should not merely be marking up last year’s disclosure. Instead, you should be carefully considering if and how recent economic and financial events affect your company’s compensation program.

For example, have you modified outstanding awards or plans, or implemented new ones? Have you reconsidered the structure of your program, or the relative weighting of various compensation elements? Have you waived any performance conditions, or set new ones using different standards? Have you changed your processes and procedures for determining executive and director pay, triggering disclosure under Item 407? These questions and more should be addressed as you consider disclosure for 2008.”

For those who are interested in knowing what a government-run, universal health plan might do to health care in this country, one need only look across the border here.

Some folks in Arizona want to make sure that no one takes away their freedom of choice when it comes to health care. On November 4th, Arizona will vote on Proposition 101. The measure, called the Freedom of Choice in Health Care Act, would amend the state constitution to include language restricting Arizona’s ability to limit or dictate individual health-care choices, and to make government-mandated universal health care illegal. Here is the language of the Proposition:

Because all people should have the right to make decisions about their health care, no law shall be passed that restricts a person’s freedom of choice of private health care systems or private plans of any type. No law shall interfere with a person’s or entity’s right to pay directly for lawful medical services, nor shall any law impose a penalty or fine, or any type, for choosing to obtain or decline health care coverage or for participation in any particular health care system or plan.

Read more about the initiative here.

From CNN’s iReport (via Robert Bluey) here:

Informed Choice celebrates children speaking simply and more wisely than elders by recording their observations about one the most serious choices facing contemporary America – the Presidential Race.

In their wisdom and (unintentional) humor, stripped of partisanship and informed choice, the children lampoon the cult of popularity based solely on physical attributes. Their purity is a mirror reflecting the American voter’s obsessions, boredom, judgments of race and age.

With only pictures of candidates McCain and Obama as their guide, the Informed Choice interviewees certainly surprise and amuse even the most strident viewer / voter, regardless of political affiliation.

Apparently, Argentina’s President Cristina Kirchner has signed a proposal nationalizing the country’s private pension funds. The Wall Street Journal reports here that this is being seen as a “grab for cash and power amid the global economic crisis.” Excerpt:

Argentine stocks fell by more than 11% in reaction to news that the government plans to nationalize private pension funds.

Details of the proposal — which must be approved by the country’s legislature — were not immediately available. It was signed by Ms. Kirchner, along with Labor Minister Carlos Tomada and Amando Boudou, the head of the national social security system, ANSES. But an announcer during the televised signing ceremony described it as a project to “eliminate” the “capitalization system,” a reference to the defined-contribution plans run by 10 private funds known as AFJPs.

In a speech following the signing ceremony, Mr. Boudou said the reform would “rescue Argentine retirees from uncertainty.”

This Bloomberg article here indicates:

About 55 percent of the 94.4 billion pesos held by the country’s 10 private pension fund managers are in government debt, according to the pension regulator’s Web site. Nationalization would allow the Fernandez administration to write off the government bonds held by the funds, said Javier Salvucci, an analyst with Buenos Aires-based Silver Cloud Advisors.

More from this BBC article here:

Amado Boudou, head of the National Social Security Administration, which will take over the funds, said the “failed experiment” of private pensions was finished.

But the pension administrators defended the system, saying it had a “solid mechanism” that had seen an “almost constant growth trend in the 14 years of its existence”.

Union leaders have welcomed the nationalisation move. The commissions on the pensions and the lack of a guaranteed minimum pension has made the private system unpopular with many Argentines.

All of this sounds a bit reminiscent of some of the comments being made about our country’s retirement system and the push to have a universal pension as discussed here and here, a proposal which I wholeheartedly reject.

Some language from a proposal being advocated (the parallels seem obvious to me):

Short term, I propose that since 401(k) accounts and the like are financial institutions — the bank about where 38% of the workforce can intend to save for their retirement — Congress let workers trade their 401(k) and 401(k) – type plan assets (perhaps valued at mid-August prices) for a Guaranteed Retirement Account composed of government bonds (earning a 3% return, adjusted for inflation). When the worker collects Social Security, the Guaranteed Retirement Account will pay an inflation adjusted annuity, based on the accumulated funds.

How would this work? Take a 55 year old who had $50,000 in his 401(k) account in August and faces job loss and eroded assets because of the erosion of his retirement accounts. Let him swap out the $50,000 for a guarantee of $500 per month. The economy is probably in a recession, but a guaranteed income from his former 401(k) removes a source of financial anxiety, and — this is not trivial – it end fruitless discussions with brokers and financial sales agents, who are also desperate for more fees and are often wrong about markets. . .

The sooner we admit that our 30 year experiment with 401(k) accounts has failed the sooner we can use these precious government subsidies efficiently and equitably.

From USA Today “Couple’s retirement dream leaves materialism behind.” Excerpt:

The Feudos say they probably wouldn’t have mustered the moxie to strike out in a radically different direction had they not consulted Will Rogers, a financial adviser in Augusta, who devised their retirement plan in 2002.

In reviewing the couple’s retirement assets, Rogers told them they needed to save more aggressively, pay down debt and consolidate accounts that were scattered in various financial institutions.

It was during this time that they and Rogers discovered an overlooked pension plan.

“When we researched their past employment, it turned out Bonnie only needed to work a few more days in her former school district to be vested,” Rogers recalls.

View this video here on how “26,000 Americans have walked off and left $75 million in pension money from previous jobs.”

Two websites to visit if you are looking for a lost pension:

PBGC’s website

National Registry of Unclaimed Benefits

See also this booklet located on the PBGC’s website entitled: “Finding a Lost Pension.” Excerpt:

This booklet provides help in defining, planning and conducting a search for a “lost” pension. There are no guarantees of success. Perhaps the only certainty is that, without an effort to locate the pension fund, whatever money may be owed to you will never be yours.