401(k) Plan Participants Can Now for Fiduciary Breach
For the full text opinion, follow this link: LaRue v. DeWolff, Boberg & Assocs., Inc.
Posted By Diane Pfadenhauer In Compensation & Benefits , Retirement | Permalink
Over 47,000 Take GM's Buyout Offer
Between GM & Delphi, 47,600 employees have elected to take the buyout offered a few months back. I recently commented on the enormity of this plan here. According to the New York Times, almost one third of GM's hourly employees and one half of Delphi's took the offer. Ultimately GM plans to eliminate over 30,000 employees and the results of this offering will enable it to meet that goal earlier than expected. Some additional facts:
About 30,400 G.M. workers, who had at least 26 years on the job, took early retirement packages that include payouts of up to $35,000 and full benefits. The remaining 4,600 will receive either $70,000 or $140,000, depending on their experience, but give up all their benefits except their pensions;
Employees at both G.M. and Delphi who accept the deals have seven days to change their minds. Mr. Wagoner said that window had closed for nearly all of those who said they planned to leave and that he did not expect the final number to change significantly.
The program will cost G.M. about $3.8 billion but save it $8 billion a year. G.M. lost $10.6 billion last year.
GM's Buyout Offer - Staggering Numbers
General Motors recently announced its plan to shed 30,000 workers. To achieve this goal, company is offering incentives to encourage employees to leave. Workers eligible to retire who leave now will get $35,000. Those who leave and sever all ties (i.e. forego retirement benefits) will get $140,000 if they have more than 10 years of service, $70,000 if less than 10 years of service. Doing the math, it seems staggering that a company could view spending BILLIONS of dollars as a way to save money over the long haul. This just goes to show the sheer size of GM, which lost over $10 billion last year alone. For more on this, go here.
This, by the way, is an effective use of an early retirement incentive program. For more on ERIP's, see my article on this subject here. It's a strategy that can be useful for organizations far smaller than GM.Posted By Diane Pfadenhauer In Compensation & Benefits , Corporate Turnaround , Retirement | Permalink
Rethinking the Security of Your 401(k)
Public Pensions Rise While Private Pensions Fall
There has been a great deal of discussion of late regarding the trend in the private sector to scale back on pension and retirement offerings. This article discusses the opposite trend occurring in the public sector - an trend upward in pension and retirement benefits for public sector employees. According to the article:
- A December study of 85 big public pensions in all 50 states ‚Äî covering three-fourths of public employees nationwide ‚Äî found that governments continued to enhance benefit formulas, ease early retirement and improve other benefits from 2000 through 2004 despite states' financial problems. The increases were enacted on top of even larger benefit changes approved from 1996 to 2000. The study, conducted by the Wisconsin Legislature, is one of the most comprehensive on the issue.
- Average annual benefits for retired state and local workers grew 37% to $19,875 from 2000 to 2004, the most recent data available, according to the Census Bureau. The rising payments reflect the early retirement of baby boomers, who started to qualify for full benefits in 2001, at age 55, under most government pensions.
At the same time, "the portion of the private workforce enrolled in plans that pay monthly benefits for life has fallen from 39% in 1980 to 18% in 2004, according to the Employee Benefit Research Institute."
Seems to me that our elected representatives may be giving away the store, rather than dealing with reducing costs now. It's easier to give away something that will come due when you are not around to be responsible for it. On the other hand, private sector employees will continue to feel the consequences of reduced private sector retirement benefits as their tax dollars fund these lucrative public sector benefits.Posted By Diane Pfadenhauer In Compensation & Benefits , Retirement , Trends 1 Comments | Permalink
IBM Continues Trend of Freezing Pensions
IBM just recently announced that it will freeze is defined benefit pension plan as of 2008 for all of its existing employees. IBM follows in a continuing trend by other seemingly healthy employers who have chosen to freeze their existing pension plans and focus on their 401(k) plans. These include NCR, Circuit City (in 2004), Hewlett Packard and Verizon (2005) and now IBM in 2006. According to this article, quoting research by Watson Wyatt, 89% of Fortune 100 companies offered traditional defined benefit plans in 1985. By 2001, however, that number had fallen to just over 50% by 2004.
I suspect we'll likely see this trend continue. As a result, there will be more pressure on HR professionals to provide greater educational resources to employees as they assume more of the risks associated with planning for their own retirements.Posted By Diane Pfadenhauer In Compensation & Benefits , Retirement , Trends | Permalink
Early Retirement Incentive Programs
When organizations are faced with the need to reduce their workforces, they often immediately think of layoffs. Early Retirement Incentive Programs (ERIP), however, are often a viable alternative to traditional layoffs and less disruptive to organizations. So, why don't people think of an ERIP more often? Well, when you put actuaries, plan administrators/fiduciaries and benefits lawyers in a room together, the results usually completely overwhelm anyone else there! So, my colleague, Heidi Hayden, and I have prepared this step-by-step guide which will serve as a road map for any organization considering any ERIP. Happy reading (it's a LONG one)!Posted By Diane Pfadenhauer In Compensation & Benefits , Employment Law , HR Strategy , Retirement | Permalink
Happy Birthday Social Security
- The Social Security trust fund currently holds about $1.7 Trillion in special treasury bonds.
- The annual cost of Social Security benefits represents 4.3 percent of Gross Domestic Product (GDP) today and is projected to rise to 6.4 percent of GDP in 2079
- Medicare's annual costs are currently 2.6 percent of GDP, or about 60 percent of Social Security's. They are now projected to surpass Social Security expenditures in 2024 and reach almost 14 percent of GDP in 2079
- In December 2004, 39.7 million people were receiving OASI benefits, 7.9 million were receiving DI benefits, and 41.7 million were covered under Medicare
More on My Retirement Savings Soapbox
I recently posted regarding the lack of retirement savings and the fact that many people haven't a clue as to how much they'll need in retirement. Metlife recently completed it's Employee Benefits Trend Study, discussed here, and noted similar trends: that 40% of workers between the ages of 21 and 30 lacked retirements goals and savings. Of those between 31 and 40, 23% admitted that they haven't started to save.
As employers shift from defined benefit pension plans to defined contribution plans, more of the burden will fall on these very employees who haven't yet started to save. Not only are they not saving, but many individuals of all ages haven't a clue as to how much they'll need.Posted By Diane Pfadenhauer In Retirement | Permalink