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Reality hits the New York Times. The economics of business in the real world leading to a pension freeze

26 Apr

The Newspaper Guild of New York reports on current labor negotiations with the New York Times. The Times, in the face of economic reality it is facing in running its business, is proposing a freeze of the defined benefit pension plan for its employees.

While I personally think such steps are reprehensible, they are the reality of this day and age and a step many private employers have taken. They do so because such plans are costly, liabilities are large and subject to fluctuation in interest rates and funding is subject to the whims of the stock market. Promises are easy to make, paying for them is another matter.

But there is some irony in such a proposal from the New York Times. The Times was not sympathetic to actions by various governors trying to address the same issues at the state level and in many cases not nearly as aggressively as the Times has proposed.

NYT blogger Paul Krugman saw the state issue as a scam claiming state workers paid sufficiently toward their pensions because they did so through low wages, ignoring the fact that states still didn’t have the cash to fund generous pension promises.

You can be as liberal and socially conscious as you like. You can sympathize with union workers, you can seek to provide a safety net for every human being on the planet, but sooner or later all those promises and good wishes run smack into reality. Those promises must be affordable now and in the years ahead and they must be paid for by a broad base of participants in society. Anything less simply does not work.

There are many who have learned this truth the hard way. General Motors, Greece, California, New Jersey, Wisconsin … and the New York Times come to mind.

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Is a defined contribution health plan in your future?

11 Apr

Whether it is Medicare or your employer health benefits plan, unlimited benefits and unlimited costs are not going to last. The current concept zeroing in on both plans is the defined contribution. This is vastly different from the current defined benefit approach … Think 401(k) plan versus a traditional pension plan.

To learn more about what this may mean to you, read this blog post on Health Insurance Illuminated.

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Your employer based health care benefits are going to change. Intentional or not the Affordable Care Act will change your benefits

26 Mar

The great debate about health care reform for millions of Americans with employer based coverage is whether they can keep the coverage they have and like. It is true that there is nothing in the Affordable Care Act that takes employer-based coverage away. However, there is much in the Act and because of the Act that will cause employer based coverage to degenerate and ultimately vanish in its current form.

The most recent factor is the attempt to accommodate religious organizations with regard to contraception. Proposed rule making tries to accommodate insured and self-insured plans but in the process is turning the entire idea of self-insured coverage (and in fact, the very concept of insurance) on its head which may well disrupt the existing process. Here is a link to the proposed rule.

Collectively the new mandates, compliance rules and other requirements are adding additional cost and complexity to employer plans thus providing additional incentive to escape the health care benefit business.

The change in tax status for employer sponsored retiree prescription plans has already caused restructuring of those plans.

The coming health insurance exchanges will provide more employers with the incentive to drop coverage and pay the fine. Even if employers boost earnings to partially compensate for this loss of benefits, future wage costs are far easier to manage than health care costs thus enhancing the incentive.

In addition, there is an initiative starting private exchanges for large employers that has indirectly been advanced the Affordable Care Act. These exchanges will be offered to employers in lieu of operating their own plans. The employer provids a defined amount toward the cost of coverage and the employee selects coverage from among the insurance plans in the exchange. The bottom line is that employees do not get to keep their current coverage in concept or in practice.

Add to this the fact that health care costs are going to continue to increase more than general inflation or wages and you have the perfect storm to undue seventy-five years of employer health benefits. No, it’s not going to happen over night, but within the next ten years your health care coverage will be very different.

Just as with retirement benefits, remember the words “defined contribution.”

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What you should know about executive pay

5 Mar

President Barack Obama delivering remarks on n...

I'll never be overpaid (unless I can ge that rap thing going).

During the liberal left enlightenment we have become obsessed with executive pay, the wealthy, millionaires and billionaires, all 400 or so of them.  During the health care debate you were told the pay of health insurance executives was a cause of high premiums (utter nonsense by the way). Notably absent from the target wealthy were the  entertainment and sports elite and their multimillion dollars pay days, lavish life styles, private planes along with a few college presidents and football coaches who earn over a million dollars a year. Don’t get me wrong, if you can make millions dunking a ball into a net or singing garbage mouth “music” that demeans women and any other rational person, more power to you.  It’s not them who are dumb.

Before we continue let me say some executives are overpaid, some are greedy and most receive extra compensation in the form of bonuses for work that should be part of their job in the first place. In addition, in many cases the assessment for meeting incentivized goals is questionable at best. But if you think about it, that is true for most of us only on a smaller scale. Building up OT, extra long breaks, calling in sick or just goofing off on the job are all forms of over compensation.

However, whether or not an executive is overpaid is a problem for the organization’s board of directors and its shareholders. They must determine if they are getting value for their money, if performance is reflected in their investments and what it takes to attract and retain the executives they want to run the company. Relatively few executives receive the headline grabbing $100 million payouts and most of the reported compensation packages are misleading because they include far more than what most of us think of as pay, in other words all those big bucks are not in the paycheck. Regardless of an executive’s pay, it has an insignificant effect on the cost of products and services or health insurance premiums.

I know all this because I was a VP of Compensation and Benefits for a Fortune 500 company where I drafted and negotiated employment contracts and designed compensation plans for executives and below.

Where did it come from?

If you are going to be envious of or just disgusted with executive pay you should know what it is. Aside from the few hedge fund managers who make the occasional billion, most corporate compensation packages are made up of several components which may include all or several of the following: base pay, deferred compensation, stock options, restricted shares, supplemental pensions, bonuses, performance shares and the like.

When you look at all this stuff you see that the majority of compensation is not cash in the paycheck and most is deferred to a future payout which may or may not occur. In theory at least and if administered correctly the big payout will come with the growing success of the company which benefits shareholders and ultimately all employees.

Stock options give the executive the ability to convert options into stock in the future at a fixed price and benefit from the gain. Let’s say I give you 1,000 options to buy XYZ stock at $50 a share any time after three years have lapsed, but after ten years they expire and are worthless. How much did I give you? For you to receive any value the price of the stock must be above $50 when you exercise the shares during the period between three years after you receive the options and when they expire. For you to benefit you must help create value for all shareholders. So, what may appear to be $50,000 in compensation will only be that amount if the price of the stock doubles (benefiting all shareholders).

Other forms of stock compensation (restricted shares, performance shares) do provide immediate value, but the number of shares actually given to the executive depend on meeting both short and long-term performance goals typically tied to the company’s results such as earnings per share, return on investment, total shareholder return or something like that; often comparing results with other companies in an industry. In addition, there are vesting periods of several years before the executive has a right to the shares of stock.

Deferred compensation is often reported as part of the compensation package too, generally when an executive leaves a company, but deferred compensation is just what it says, it is money earned, but not taken by the employee. Instead it is deferred to some future date. Let’s say you earn $50,000 a year but tell your employer to defer $5,000 each year. Since the employer is using the money he would otherwise pay you, he is going to pay you interest.  At some point when you leave the employer, you will receive your money plus the interest.  During the period you are still employed, there is no guarantee you will ever be paid as the money now held by the employer is subject to creditor demands and if the employer gets into financial trouble all your deferred compensation is lost.  Sound like a good deal?  Most of the time it is and it defers paying income taxes, but given the likely trend in tax rates, money paid at some point in the future may pay a higher tax.

There is one other major element in executive pay and that is pensions.  Because of federal limits on the amount that can be paid from a qualified pension plan, most large corporations provide a supplemental reinstatement pension plan to allow an executive to receive a pension using the same formula used for other employees, some of which may be above IRS limits because of their pay.  Compensation above $250,000 per year cannot be counted when funding a qualified pension plan and no pension from a qualified plan can be above $200,000 a year.  When you hear about huge payouts upon an executive retiring that amount will include the present value of the pension earned by the executive even though it will most likely be paid over his or her lifetime. For example, let’s say you have a pension of $3,000 a month and you retire at age 62.  The lump sum value of that pension based on current annuity rates is about $546,000.  Of course if you were earning a million dollars a year and your pension was a million dollars a year the lump sum value would be about $15,000,000.  That is the amount you will hear about as part of their total compensation.  Keep in mind that if the retired executive dies within a short time of leaving the employer, he may never receive the total amount promised. Oh, about that fair share thing, in addition to normal income taxes on their pension, the person receiving one of these special pensions must pay Social Security and Medicare taxes in advance on the lump sum value of the pension even if they don’t live to receive the full value. In our example, that amount is $217,500.

That is a simple explanation of executive compensation.  The reality is the subject is immensely complicated and subject to rules and regulations from a variety of federal departments. Legions of consultants, tax advisors, and lawyers make a living from advising corporations about executive compensation matters.

Between base pay, cash bonuses, stock award and retirement benefits some executives receive a great deal of compensation, a great deal. One could argue that they are overpaid and in many cases they are, but does that mean their pay should be the business of the federal government beyond compliance with the scores of applicable laws?  Should executive pay be used by politicians to foster their own agendas and mislead Americans as to the implications of this compensation?

If a person in business earning a total of $10,000,000 a year is a problem, then we should also have a problem with movie stars, sports stars and anyone else who earns an amount that makes them stand out among us mortals.  It’s not easy to accept that any one person can be worth $10 million a year in compensation when the average family income is around $50,000.  These folks are an easy target, they make for good rhetoric and needless to say most of us would like to earn a tenth of what they do.

However, don’t be fooled by the class baiting we are seeing in politics today. It’s not what someone else has earned that matters, it is what opportunities you have to do the same that matters.  Most of the wealthy in this Country earned their wealth whether we agree with their value added or not. And most of the highest net worth Americans got that way through increasing stock value, and they brought along millions of average people with them.

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No child must be “dependent” to be eligble for the parents health insurance, regardless of age. Regulations under the Affordable Care Act do not define “adult”

1 Mar

Happy Children Playing Kids

They are all eligible

Prior to the enactment of the Affordable Care Act health benefits plans used language similar to this to explain who is eligible for coverage.

 Be sure you have enrolled only eligible dependents for your medical and dental coverage, which includes your spouse, natural children, and stepchildren, foster children dependent on you for support and maintenance, and legal wards. You must have a marriage certificate, birth certificates, or court papers to support each dependent’s status.

 Similar language is still used in some plans and it is quite misleading.  The words dependent or dependents are no long appropriate in any case when it refers to any child regardless of the child’s age.  The problem with using “dependent” in this context is that it may prevent employees from enrolling an eligible child or cause disenrollment of a child who is still eligible.  This is most likely to happen as a child graduates from high school around age 17 or 18 when it is questionable whether they are an adult or not.

In fact, no child has to be a dependent and there is no definition of “adult” in the regulations. Here is what the regulation says (note the last sentence I put in bold).

 Preamble to May 13, 2010 interim final rule:

Many group health plans that provide dependent coverage limit the coverage to health coverage excludible from employees’ gross income for income tax purposes. Thus, dependent coverage is limited to employees’ spouses and employees’ children that qualify as dependents for income tax purposes. Consequently, these plans often condition dependent coverage, in addition to the age of the child, on student status, residency, and financial support or other factors indicating dependent status. However, with the expansion of dependent coverage required by the Affordable Care Act to children until age 26, conditioning coverage on whether a child is a tax dependent or a student, or resides with or receives financial support from the parent, is no longer appropriate in light of the correlation between age and these factors. Therefore, these interim final regulations do not allow plans or coverage to use these requirements to deny dependent coverage to children.

Because the statute does not distinguish between coverage for minor children and coverage for adult children under age 26, these factors also may not be used to determine eligibility for dependent coverage for minor children.

 

You can find more on the rules for children here
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The $2.00 really dumb bet

31 Dec

The Virgin Credit Card, issued by Virgin Money...

Corporations are not people, but people are corporations and it appears a large number of people are just plain stupid. Witness Verizon’s attempt to charge $2.00 for paying your bill on line or via automatic credit card charge. Both methods improve a company’s cash flow,  payment collection and save administrative costs compared with processing checks or cash. In addition, Verizon and other corporations have been encouraging paperless transactions for years. Who told them to accept credit card payments in the first place, electric and gas utilities don’t.

While the $2.00 fee idea has been withdrawn, how dumb was it to create the flack in the first place in an anti business environment and when Americans are being continuously told how bad off they are in this economy.
Dumb, dumb, dumb.

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Reporting value of employer-provided health benefits on W-2 effective January 2012 … Is taxation of health benefits far behind?

30 Nov

Starting in 2012 employers will be required to report the  cost of employer-provided health care benefits in box 12 of your form W-2.  The amount will use code “DD”.

The amount shown on the W-2 is for information purposes and is not taxable . .  . for now.  However, do not lose site of the fact that the tax-free status of health benefits is the single largest revenue loser for the federal government.  The Simpson-Bowles Commission recommended a gradual phase out of this tax break.

Employer Provided Health Care Insurance: Exclusion capped at 75th percentile of premium levels in 2014, with cap frozen in nominal terms through 2018 and phased out by 2038; Excise tax (on high cost plans) reduced to 12%.

Given the failure of the super committee of Congress to accomplish anything, this employee tax benefit is a prime target for dealing with the federal deficit.  A change is unlikely to come all at once and it may be income sensitive, but it is hard to see how this plum will be left on the tree for much longer.

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Teachers are underpaid, teachers are overpaid, what’s your perspective?

16 Nov

Are teachers underpaid, overpaid or is their bowl of porridge just right?  Take a position and I can find you statistics to support it. The fact is you can’t realistically find other jobs fully comparable to a classroom teacher. After all, what job in industry has to put up with a parent who thinks her C student belongs in an AP course? What other job virtually requires you to buy your own supplies?

People don’t go into teaching to get rich and people wouldn’t keep going into teaching if they were not adequately compensated; that’s total compensation, not just pay. I’d like a job with eight weeks off in the summer, snow days, and a week off here and there during the year. I wouldn’t like a job managing a few dozen kids for hours on end or reading a couple of hundred eighth grader’s attempts at prose while watching Desperate Housewives.

Is a pension better than a 401(k) plan, you betcha. Is paying little or nothing for health insurance better than paying 25-30% of the premium, again affirmative. Is individual job security through tenure better than employment at will, it kinda is. Are government backed health benefits in retirement at any age retirement is permitted better than “you are on your own” before age 65, I’m guessing it is.

Let’s run some numbers. Say you are a teacher earning $60,000 a year. You work 180 days a year or a total of 1440 hours. That means you earn $41.66 an hour (yes I know, you actually work more hours, but so do people in the private sector if they want to keep their job and advance). Now let’s look at a training manager in a large company also earning $60,000. She works 264 days a year less 10 days vacation and say 8 holidays. That’s a total of 1968 hours meaning she earns $30.48 an hour or 36.6% less than the teacher. Or to put it another way, the corporate trainer would need base pay of $81,960 to be even with the teacher plus about an additional 15-20% to be even in total compensation and benefits.

Now look at the reality of pensions. It’s true most teachers pay a significant portion of their pension. However, that is comparable to the 6% to 8% of pay private sector workers must contribute to get a full employer match on a 401(k) plan.  A teacher earning $60,000 likely will have a pension of 70% of pay at full retirement age. To equal that pension initially, the worker with a 401(k) plan needs about $585,000 (to buy an annuity) and that does not provide a survivor benefit or inflation adjustment.  The typical teacher pension provides both. Many teachers also have a 403b plan to supplement their pensions.

But you know what, none of the above matters. What matters is what is affordable to the people footing the bill. In the private sector that is the business owner or shareholders. In the public sector it is taxpayers. You can argue all you want about who is over or under paid, what job is unique or more valued than another, but what matters is the ability to pay for the expense that is created.

Public employees are clearly at a disadvantage because there are limits on public spending and taxing (or there should be) and that is the essence of the problem.  The debate and crisis we are seeing today is a result of politicians and union leaders forgetting that fact and now faced with high costs and tremendous long-term liabilities which fall squarely on the shoulders of taxpayers.

Making the argument that teachers, police officers and firefighters “deserve” more is quite irrelevant, as irrelevant as the AARP saying seniors earned their untouchable Social Security and Medicare benefits.  

The head of the NJ teachers union earns $250,000 a year, the President of the United States earns $400,000 and according to the Bureau of Labor Statistics latest data, the average salary of a registered nurse in the United States is $67,720. The average teacher salary varies widely by state, but appears to be around $55,000. In some higher income states it is $60,000 or more.

So, are teachers overpaid?  Pick your facts.

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The empty promise – “if you like the health benefits you have, you can keep them.” Annual enrollment for 2012 and the loss of grandfathering under the Patient Protection Affordable Care Act

17 Aug

Tell me it isn't' so

During the health care reform debate the point was repeatedly made that workers who liked their benefits would not lose them, they could keep the benefits they had. Somebody should have checked with employers first before making that promise.

While it is true that the Affordable Care Act does grandfather existing plans and thus exempts them from some requirements of the law, such as providing preventive services without deductibles or co-payments applied, there is a catch. Employers can maintain their grandfathered status only if they do not make changes to their plan.

Here are changes that will cause a plan to lose its grandfathered status:

Elimination of a Particular Benefit

Increase in Coinsurance

Increase in Deductible or Out-of-Pocket Maximum ((by more than medical inflation plus 15%, as measured from 3/23/10)

Increase in Copayment: (by more than greater of: (1) $5 (adjusted for medical inflation), or (2) medical inflation plus 15%, as measured from
3/23/10)

Decrease in Employer Contribution (if an employer decreases its contribution rate toward the cost of coverage by more than 5 percent below the contribution rate on March 23, 2010)

Changes in Annual Limits

- No Previous Limits: (if the plan imposes a new overall annual limit on the dollar value of benefits that did not exist before the law).
- Previous Lifetime Limits: (if there is new overall annual limit that is less than the value of an existing lifetime limit)
- Previous Annual Limits: (if the existing annual limit is decreased)

Here is the dilemma employer’s face; either they maintain grandfathering to avoid additional costs because of benefit mandates under the law or attempt to manage costs and make changes to the plan design and/or cost sharing. As we approach the 2011 open enrollment period, employees will quickly find out what decision employers have made. The choice is not hard.

 Making benefit changes such as raising deductibles or the percentage of premiums paid by the employee will save more money than the additional cost of the new mandates (at least until HHS expands the mandate). It’s the old give with one hand and take with the other. Nobody should be surprised at this outcome.

When the “promises” were made that you could keep the plan you like, the regulations had not been written that eventually mitigated the value of grandfathering, essentially making it impossible for employer and other plan sponsors to maintain the grandfathering status.

When you receive your open enrollment material to make benefit selections for 2012 do not be surprised if the plan you like has disappeared or changed substantially. You see, the “affordable” part of the Patient Protection Affordable Care Act is still missing.

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More money for the Early Retiree Reimbursement Program (ERRP) S.1088 – not likely.

1 Aug

Congressional portrait with U.S. flag in the b...

Image via Wikipedia

The Patient Protection and Affordable Care Act provided $5 billion to reimburse employers for a portion of the cost of early retiree health insurance coverage.  The idea was to help assure that with the enactment of PPACA employers did not drop this coverage for early retirees and perhaps drive more Americans to government subsidized coverage.   More than 5,400 plan sponsors had been accepted into ERRP as of March 17, 2011.  As of May, 2011 more than $2.4 billion had been distributed.  HHS stopped accepting ERRP applications on May 6 because of the expectation that payment to the enrolled employers would deplete the fund.

Hey, you voted for me.

Senator John Kerry (D-Mass.) has introduced the Retiree Health Coverage Protection Act (S. 1088). The legislation would add $5 billion to the Early Retiree Reinsurance Program (ERRP), bringing total funding up to $10 billion.  Senator Kerry believes additional funding “could be used to allow more employers to participate in the program and to further reduce the cost of the retiree health coverage.”

“Reduce the cost of the retiree health coverage?”  Reducing the cost of anything does not mean shifting the cost to someone else, in this case taxpayers or more accurately U.S. Treasury bondholders, at least not outside of Washington, DC.   This legislation will never become law, but it does provide an insight into the thinking of some (many) members of Congress.  In the midst of a fiscal crisis, a $14 trillion and growing deficit and out of control spending, a U.S. Senator proposes giving $5 billion to some of the largest corporations in the U.S. while many of these organizations are criticized over record earnings and hoarding cash and, by the way, regularly continue to cut retiree benefits. 

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What is the chance employers will drop health benefits in 2014?

28 Jun

McKinsey & Co is under attack because it released a survey indicating a significant number of employers will drop health benefit coverage for employees when the Affordable Care Act exchanges are available in 2014. The study’s conclusions are not consistent with administration or CBO projections (especially related cost projections).

Will employers make such a move, is it beyond their power or will?  Well, doubters should look at what employers have done in the past in the name of saving money and preserving earnings.

Is this what TR meant by a square deal?

Retiree health benefits have been capped or eliminated, retiree spousal coverage has been dropped, employees have been shifted into high deductible plans, pension plans frozen, 401k matches stopped and much more. In other words, when it comes to meeting shareholders expectations,  commitments to employees are an easy target and a low priority.

Consider the 100-year-old company with a pension plan in effect since 1911. Even during the great depression it maintained its pension plan trimming pay and pensions by 10% and reinstating both cuts after three years.  The twenty-first century is a different world. Employees of this company who still have the pension benefit are told their promised benefit will be frozen and future benefits will accrue under a new less generous formula. So, a 55-year-old trying to plan a future retirement suddenly finds the pension to be several thousand dollars a year less than expected.

According to the Employee Benefits Research Institute: EMPLOYMENT-BASED COVERAGE REMAINS DOMINANT SOURCE OF HEALTH COVERAGE, BUT CONTINUES TO ERODE: Employment-based health benefits remain the most common form of health coverage in the United States. In 2009, 59 percent of the nonelderly population had employment-based health benefits, down from 68.4 percent in 2000.

Legally of course there is no obligation for an employer to continue these benefits.   However, employers conveniently forget that future benefits are part of total compensation over an employees career.  Employees paid for these benefit promises through lower cash wages, a point employers have no trouble pointing out when promoting the value of the compensation package.

How is cutting the pension a worker ten years from retirement is counting on any different from telling an executive the stock options he received nine years ago as part of his total compensation now must be forfeited? Answer, one happens and one doesn’t. 

Employers have a right and obligation to manage costs and to assure that promises made can be kept.  Sometimes that means changing those obligations for new hires to begin a lower cost structure, it always means keeping a reasonable level of total compensation costs, but it should not mean changing the deal for long-term employees who have little time to adjust and had every reason to believe they could rely on that portion of their total compensation that was earned over ten, twenty or thirty years.

So, do you still think employers faced with ever escalating health insurance costs will pass up the opportunity to save thousands of dollars per employee by putting them in exchanges?

Let me also blow up the myth held by many economists and other experts that employers will feel any obligation to make up lost benefits with higher wages. Those savings have and will continue to go to the bottom line.

 

[Note: someone is going to say, ok, how is this any different from what the states are attempting to do to their workers, you support those changes.  Yes, I do because those benefits have been mismanaged and abused for decades, they are consistently well above the competitive market and unlike private employers, including in the example above, states have not attempted to manage their costs over the years and rather took little or no action until a crisis was born.]

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NLRB says employers have less time to express views on unionization…so what are they waiting for?

24 Jun

Quick, get the file, we have to talk to employees

Employers and their associations are bent out of shape over a new NLRB ruling that greatly shortens the time an employer has to respond to an organizing drive and make it’s case for employees not to unionize. Opponents say this political move by the NLRB ”eviscerates an employer’s legitimate opportunity to express its views about collective bargaining .”

Really now, and exactly what prevents an employer from making its case in deeds and actions every day it is in business? An employer that must go into defensive mode with enhanced communications upon learning of a unionization drive is…stupid.

An employer with a work environment that provides fair and competitive compensation, that treats workers with respect and consideration and continuously is open and honest in its communications has little need to be concerned there is too little time to respond to union efforts.

Union leader makes strong argument against public sector collective bargaining

19 Jun

New Jersey Governor Christie with the help of some Democrats is ready to approve several changes in state worker benefits and pensions to help close a growing funding gap of tens of billions of dollars. Needless to say the unions are not pleased, but I think the following quote reported by Bloomberg.com is most telling, accurate and an excellent point for why collective bargaining is not appropriate in the public sector.

Union members hissed and booed as Sweeney, who is sponsoring the measure in the Senate, testified. “You’re not my brother,” one person yelled, a reference to his union position. The hearing was later delayed after state police led out two dozen union members who chanted “union rights are human rights” and “kill this bill” as Bob Master, political director for the Communications Workers of America, spoke against the measure.

“Real Democrats would have killed this bill,” Master said. His union represents about 40,000 state workers and is the largest union for New Jersey government employees. The organization has been pushing for any changes in its members’ health-care contributions to be done through collective bargaining, not legislation.

Call me cynical but in this case “real Democrats” and collective bargaining with the folks who financed their campaigns is what got NJ into this mess in the first place.  Now key Democrats are doing the right thing fixing the mess.  It’s about time the citizens of NJ and other states in a similar mess support the politicians trying to fix years of deals with the unions, underfunding of promises and overly generous benefits that are not affordable by  the citizens who are footing the bill. 

State workers deserve a fair and competitive total compensation package consistent with that of their fellow citizens, recognizing the jobs they do, the hours they work and the relative security of their positions, no more, no less.

Moran: Real leadership sang louder than N.J. unions’ tired refrains

More employers will drop health insurance following a trend in retirement benefits

9 Jun

If you are a regular reader you know I am a great believer in unintended consequences. You may also know that during the health care reform debate I said that the legislation was constructed in such a way that employers would be encouraged to drop their coverage, pay the fine and thereby shift employees to the exchanges even if it meant providing employees with an additional payment toward the premium. Given that most Americans would be entitled to a federal subsidy toward the cost of coverage this would result in more costs than projected for the federal government.

For many workers and their employers this is a win-win situation as it is for policymakers seeking more government control over the system (perhaps the intended consequences). It may not be such good news for the federal budget and assumed savings from health care reform.

A recently released study conducted in early 2011 by McKinsey and Co and reported in McKinsey Quarterly reports the following:

Overall, 30 percent of employers will definitely or probably stop offering ESI (employer subsidized insurance) in the years after 2014.

Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.

At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.

Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering ESI, although about 60 percent would expect increased compensation.

One thing is very clear, the world of employee benefits is rapidly changing because of cost pressures and legislation. Pensions have all but disappeared, health benefits are dwindling and shifting costs to workers and even government workers are facing significant changes.

There are only two choices left; employees will be completely on their own for their security needs or there will be more government involvement. Neither is appealing for several reasons.

Employers may see short-term benefits, but in reality they are making a big mistake by losing control, risking higher taxes, creating a detached workforce more distracted by life’s security needs, and dealing with an employee base finding it more difficult to retire.

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