The Kansas City Star
The slumping economy is beginning to crack the foundations of employee benefits, with such bellwether companies as General Motors Corp. leading the way.
The carmaker, which is seeking a financial bailout from Congress, is cutting back company contributions to employees’ 401(k) retirement accounts and eliminating health-care benefits for its salaried retirees.
GM plans to eliminate medical benefits for salaried retirees age 65 and older on Jan. 1. Given the severity of its financial problems, the automaker says it simply no longer can afford to provide full coverage for its retirees.
Even before the credit crisis that further crippled the auto industry, GM said in July that it would cut nonunion retiree health benefits as part of a plan to bolster liquidity by $15 billion through 2009. Rivals Ford Motor Co. and Chrysler LLC already have cut costs from retiree benefits for the white-collar work force.
“Our goal is not just to change GM’s bottom line from red to black,” GM Chairman Rick Wagoner said at the time the benefits cuts were detailed. “Our goal is to change GM for the long haul. In short, our plan is not a plan to survive. It is a plan to win.”
Other big-name companies — including Frontier Airlines, Cushman & Wakefield and Dollar Thrifty — also suspended their 401(k) matches recently.
Experts said they don’t yet see a “me too” climate in which other employers will cut benefits because ground has been broken by some of the best-known U.S. companies. Even so, GM historically has been a standard setter on compensation issues across the economy.
“It’s a limited group of companies at this point,” said Dallas Salisbury, president of the Employee Benefit Research Institute in Washington. “Those actions are mostly in companies facing dire financial circumstances. … They’re trying to make the adjustments they need to keep people employed and stay in business.”
To be sure, cutting benefits is preferable to cutting jobs. In an economy that’s shed 1.2 million payroll jobs since the first of the year, experts say, workers should do well to remember that remaining employed is better than bemoaning nips and tucks in benefits.
Nonetheless, a growing percentage of workers and retirees are feeling a pinch in benefits, bonuses and other perks.
At GM, which last year spent $4.6 billion on health-care benefits, retirees will shift to Medicare coverage and supplemental health insurance. In return, GM will boost monthly pension payments to those retirees by $300, which will amount to about $240 or $255 after taxes.
That increase does not appease retired GM employee Jack Dickinson and others, who argue that the higher costs will be devastating for many retirees on a fixed income.
“It is literally impossible to even come close to replacing the benefits we once had with GM with that pension increase,” said Dickinson, who runs the GM retiree Web site www.overthehillcarpeople.com to address the issue.
Dickinson, a retired GM service-parts employee, said his group and others will take their cause to Congress, seeking legislation to protect retiree benefits. He said his group recently allied with the nonprofit National Retiree Legislative Network to lobby the incoming Obama administration.
Without collective bargaining rights, employees who want to fight benefits losses have little option, other than voting with their feet — choosing, if possible, to work for employers with better benefits packages.
“If a company is fighting to survive, that creates one set of issues. But if it’s concerned about profitability rather than survivability, most employers will make decisions — like keeping a 401(k) match — on a longer-term basis so they don’t end up with good people walking out the door,” he said.
A Watson Wyatt Worldwide survey last month found that only 6 percent of U.S. employers have cut or plan to cut their 401(k) contributions this year.
And benefits analysts note that those kinds of cutbacks can be cyclical. In the 2001 recession, some employers, such as Ford and Goodyear Tire & Rubber, temporarily cut or eliminated their 401(k) contributions and then reinstated them when the economy improved.
To be sure, access to a 401(k) plan remains an enticing benefit, regardless of whether the company contributes, because employees can defer paying taxes on their contributions.
More broadly and probably permanently, though, the Watson Wyatt survey found, 46 percent of employers are asking workers to pay more for their health care benefits.
The trend toward requiring employees to cover more of their insurance costs or eliminating coverage for retirees shows no sign of abating.
Another sign of the economic times is that takeaways are showing up in small, but psychologically affecting, ways. For example, about 4 in 10 employers told the Watson Wyatt survey that they’re downscaling or canceling their holiday parties.
“Changes are clearly in the wind,” Paul Platten, a Watson Wyatt practice leader, said about they survey results. The challenge for companies, he said, is to balance cost controls with employee morale.
In that regard, most employers are keeping severance benefits as strong as they were three years ago, said Catherine Lufkin, vice president of client services at Right Management in Overland Park.
“Companies are very concerned about how long it will take folks to find re-employment,” she said. “And they’re concerned about their long-term brand in the market. They want to keep a good name with the people they let go, because they feel they may hire them back in 18 months or so.”
WorldatWork, a human resources organization, reported that voluntary severance packages typically pay one or two weeks of pay for each year an employee worked, often up to a maximum of 26 weeks.
Other companies, though, have cut off severance payments to former workers — including Lehman Brothers, after it filed for Chapter 11 bankruptcy protection.
Jim Klein, president of the American Benefits Council, said the biggest benefits challenge may be on the horizon — particularly with the required funding of defined-benefit pension plans.
“Given the economic turmoil, the most serious thing will be massive obligations — that they didn’t expect — that some companies have to put into their defined-benefit plans because of what has happened in the stock market,” he said. “That means that some companies that are strapped for cash now will have to redirect cash into pension plans instead of job retaining and job investments.”
http://www.kansascity.com/105/story/887826.html
01234111408399