HR
News and Information
September 7, 2005
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TABLE OF CONTENTS NEWS IN THE COURTS
FROM IPMA-HR HR Bulletin
SITE OF INTEREST ON THE WEB
2006 SEGAL HEALTH PLAN COST TRENDS SURVEY
NEWS IN THE COURTSConspiracy
to Suppress Workers’ Wages
Employer
Can Fire Employee Who Cursed At Supervisor When FMLA Leave Denied Facts - An employee requested intermittent FMLA leave because of her migraines. She was supposed to work a 40-hour workweek, and the company had a hard time accommodating her unpredictable absences, which lasted anywhere from part of a day to several days. Her doctor, however, continued to provide certifications stating that she suffered from a "serious health condition." So the employer granted the leave requests, at least for a while. The employer then questioned one of the employee's certification forms — specifically, the Form WH-380, which is provided by the U.S. Department of Labor (DOL). It seems that while the doctor certified that the employee would suffer from "intermittent short-term disabilities" that would prevent her from working, he had also answered "no" to question 5-b on the form, which asks whether it "will be necessary for the employee to work only intermittently or . . . on a less than full schedule as a result of the condition." Darn right I said no, said the employee — otherwise, you'd have the perfect excuse to knock me down to a part-time schedule. Well, said the employer, you can't have it both ways. You can't request intermittent leave and at the same time deny that you can work only intermittently. After consulting with its lawyer, the employer denied the leave request, saying the documentation was deficient, and returned the paperwork to the employee. The employer told the employee that if she corrected the paperwork, her request would be reconsidered. But she refused to change her answer to question 5-b, insisting that she could continue to work on a full-time basis, except when she was having a migraine. The debate went on for a while and led to several heated arguments between the employee and her supervisor, one of which included the employee admittedly telling her supervisor to "quit fucking with [her]." After that exchange, the employer fired the employee for unprofessional conduct, use of obscenity, and violation of the company's workplace violence policy. The
employee waited two and a half years, then finally filed a lawsuit against
her employer in federal district court for wrongful denial of her leave
request and retaliatory discharge under the FMLA. Under the Act, an
employee typically has only two years after a violation has occurred
to file a complaint but may take up to three years if she can prove
that the employer's violation was "willful." In other words,
to keep her claim from getting kicked out of court, the employee in
this case had to show not only that her employer broke the law but that
it did so "intentionally or recklessly." Court's ruling - The Sixth Circuit agreed with the trial court's decision that the employer hadn't willfully violated the FMLA. But the final result of this case is less interesting for employers than some of the court's observations in responding to the employee's arguments. First of all, said the court, we're not so sure that the employee's angry profanities directed toward her supervisor constituted genuine, protected "opposition" to an employment practice under the FMLA. And even if she had a good-faith belief that her rights were being violated, she could have chosen better ways to get her point across. In other words, you have a right to prohibit and punish disruptive workplace behavior, no matter what has caused the employee to become so upset. The court also gave short shrift to the employee's argument that the employer should be punished because it supposedly tried to force her to take a part-time job. First of all, the court pointed out, the DOL medical certification form that led to the disagreement is truly confusing, and it's easy to believe that the employer was honestly uncertain about whether the employee's representations about needing intermittent leave were contradictory and not in compliance with the FMLA certification requirements. Second, even if the employer's scheduling concerns were part of why it insisted on getting a "yes" answer to question 5-b, there was no proof that this factor had anything to do with the firing decision. After all, the employer didn't just deny the leave and fire her outright. Instead, it explained its position to the employee and gave her a chance to correct the deficiency. The court did caution, however, that under the FMLA, an employer may not force an employee to take more time off than is needed. Finally, in comments near and dear to the editors of this publication, the Sixth Circuit stated that the employer's consultation with an attorney suggested that it was making a good-faith effort to meet its obligations under the FMLA. And since the employer was acting in good faith to try to figure out what the heck it should do, there was no willful violation. The Tennessee Employment Law Letter (Vol. 20, No. 2, February, 2005)
Supreme
Court Broadens Age Discrimination Claims The U.S. Supreme Court has ruled that the federal Age Discrimination in Employment Act (ADEA) allows older workers to sue for age discrimination when an employer's age-neutral policy, practice, or other employment action unintentionally discriminates against them. These so-called "disparate impact" claims have long been allowed under Title VII of the Civil Rights Act of 1964, but in recent years, many federal courts of appeals have found that they aren't allowed under the ADEA. The good news is that the Court's decision provides a long overdue answer to an issue that has remained murky ever since the ADEA was passed in 1967. The bad news is that employers in many states are now subject to liability for disparate impact claims in situations in which previously no liability existed. Let's take a look at this important new decision and what it means to you. Legal background - In general, the federal discrimination laws recognize two types of discrimination claims. "Disparate treatment" claims arise when employers intentionally treat employees differently because of their race, sex, religion, national origin, or other protected characteristic. In this type of claim, employees must prove that their employer intentionally discriminated against them because of their membership in a protected class. On the other hand, a "disparate impact" claim arises when an employer takes an action that's neutral on its face but has the unintended effect of discriminating against a protected class of employees or applicants. For example, requiring employees to be able to lift 100 pounds may discriminate against women, the disabled, or older workers even if the employer had no intent to discriminate. The ADEA generally prohibits employers from discriminating against employees who are age 40 or older. Unlike Title VII, the ADEA specifically allows employers to take an employment action that would otherwise be considered discriminatory if it's "based on reasonable factors other than age." This provision lies at the heart of the confusion over whether disparate impact claims are allowed under the Act. Facts - In 1998, the city of Jackson, Mississippi, adopted a pay plan in which it granted raises to all city employees. One of the stated purposes of the plan was to ensure equitable compensation to all employees regardless of age, sex, race, or disability. The following year, the city granted additional raises to all of its police officers in an effort to make their starting salaries more competitive in the region. Officers with less than five years of tenure received proportionately larger raises (when compared to their former pay) than those with more than five years of tenure. Because most of the officers who were over 40 years old had more than five years of service, they generally received proportionately smaller raises than those who were under 40. A group of those older officers sued the city under the ADEA for both disparate treatment and disparate impact. The only issue before the Supreme Court was whether they could pursue their disparate impact claims. The trial court and federal appeals court had held that they couldn't because disparate impact claims aren't available under the ADEA. Court's ruling - The Supreme Court's ruling is procedurally complicated, but the long and short of it is that a majority of the justices concluded that the ADEA does recognize disparate impact claims. Ironically, however, the Court also held that the police officers who filed the lawsuit couldn't actually prove that the city had violated the ADEA and dismissed their claims. So why did the Court recognize a disparate impact claim under the ADEA but not recognize the officers' claims in this specific case? It all goes back to that provision of the ADEA that allows employers to treat employees differently for reasonable factors other than age. Basically, the Court said that even when an employment action results in a disparate impact against older workers, the employer won't be liable if there was a reasonable basis for the action. In this case, the city gave younger officers proportionately higher raises than their older co-workers to make starting salaries more competitive with other police departments in the area. The Court basically said that was a good enough reason to avoid liability under the ADEA. Smith v. City of Jackson, Mississippi, No. 03-1160.
The Supreme Court has been busy lately when it comes to federal employment law. The day before it recognized disparate impact claims under the ADEA, it also recognized a private claim for retaliation under Title IX of the Education Amendments of 1972. That's the federal law that bars discrimination in educational programs that receive federal assistance. The case involved a public-high-school girls' basketball coach who complained to his supervisors that his team was receiving less funding and access to facilities than the boys' team. The coach was subsequently fired, and he sued the school board for retaliation under Title IX. Both the trial and appellate courts dismissed his lawsuit under the rationale that Title IX doesn't authorize retaliation claims. The Supreme Court reversed that decision and gave the coach the chance to take his case to trial. A majority of the justices concluded that retaliation against an employee for complaining about sex discrimination is, in itself, a form of sex discrimination under Title IX. Jackson v. Birmingham Board of Education, No. 02-1672. The Tennessee Employment Law Letter (Vol. 20, No. 5, May, 2005)
Employee
Fired For Cause Must Be Paid For Accrued Vacation Tennessee’s Wage Regulation Act provides that the final wages of an employee who quits or is discharged should include “any vacation pay or other compensatory time that is owed to the employee by virtue of company policy,” but what exactly does that mean? The issue also comes up frequently when drafting employee handbooks. For example, can an employer enforce a policy providing that a departing employee forfeits accrued leave under certain circumstances? Both the commissioner of the Tennessee Department of Labor and Workplace Development (TDOL) and the Tennessee Attorney General’s Office recently issued decisions shedding some light on the issue. Facts of TDOL decision - An employee of an automobile dealership was fired for cause. Under the dealership’s policy, employees accrued vacation time at a rate of three weeks per year. The employee demanded payment for the accrued, unused vacation, but the dealership denied the request based on a provision in its employment handbook that employees fired for cause forfeit all accrued, unused vacation. The employee complained to the TDOL, which issued a formal opinion and order from the commissioner of labor interpreting the Tennessee Wage Regulation Act as it applied to the employee’s claim.Commissioner’s ruling - The commissioner confirmed that Tennessee law doesn’t require employers to provide paid vacation to employees. The commissioner also stated that if an employer does provide vacation, it may set the terms for how vacation accrues. Typically, that’s done by a written policy in an employment handbook. If there’s no written policy, the TDOL will look to the practices of the employer and understanding of the parties. But once the accrual policy is set, said the commissioner, and employment is accepted on that basis, the employer has created a term of employment that can’t be changed without the agreement of both the employer and the employee. Well, argued the dealership, what about our handbook provision stating that employees fired “for cause” forfeit any accrued vacation? That doesn’t do it, said the commissioner. Why not? Well, the handbook also contains the standard provision indicating that it isn’t a binding contract and can be changed at any time by the employer. And if the handbook isn’t binding on the employer, said the commissioner, it isn’t binding on the employee, either. The commissioner then stated that when considering this issue in the future, the TDOL will first look to the terms of any written contract of employment (including a mutually binding handbook provision) or collective bargaining agreement. If there’s no such contract, the employee is entitled to be paid whatever vacation he has accrued at the time of discharge regardless of what the employee handbook has to say about it. The commissioner ruled in favor of the employee, ordering the dealership to hand over the vacation pay, and assessed a $500 penalty against the dealership for “willful and knowing” violation of the Tennessee Wage Regulation Act. Milton Gamble v. Sonic Automotive d/b/a Crest Cadillac, Docket No. 220009-04/05.
And That Goes For Sick Leave, Too Coincidentally, at about the same time the TDOL was looking into the issue of whether accrued leave can be forfeited, the Tennessee attorney general issued an opinion on another “gray area” issue surrounding the payment of final wages to departing employees — namely, do the “final wages” owed to an employee under the Tennessee Wage Regulation Act include accrued sick leave? And it appears the answer is yes. While the attorney general’s opinion is rather sketchy and assumes, without deciding, that sick pay qualifies as “other compensatory time” under the Act, it states that a discharged employee “will be entitled to payment for accumulated sick leave under the private company’s policy or under a labor agreement.” Opinion No. 05-059. The Tennessee Employment Letter, (Vol 20, no. 9, Sept. 2005)
FROM IPMA-HR HR BulletinNew
EEOC Publication Addresses Employment Rights of People With Cancer Under
Disabilities Act: Issuance Coincides with 15th Anniversary of Landmark
Anti-Discrimination Law Commission Chair Cari M. Dominguez released the document during an event sponsored by the National Council on Disability commemorating the 15th anniversary of the passage of the ADA. President George H.W. Bush signed the landmark legislation on July 26, 1990, banning discrimination on the basis of disability in employment, state and local government programs, and places of public accommodation. Noting that approximately 40 percent of the more than one million Americans diagnosed each year with some form of cancer are working-age adults, and nearly 10 million Americans have a history of cancer, Chair Dominguez said: “Because of the significant advances in detection and treatment, cancer no longer is the ‘death sentence’ it was a century ago. Yet people recently diagnosed with cancer and those with a history of cancer still experience discrimination at work based on old stereotypes and unfounded fears. Simple accommodations, like leave or a flexible schedule to allow for treatment, make it possible for many people with cancer to continue to be valuable contributors in the workplace.” The new question-and-answer document, which is the fourth in a series of publications on the ADA’s application to specific disabilities, addresses such topics as:
The document helps to advance the goals of the New Freedom Initiative President George W. Bush’s comprehensive strategy for the full integration of people with disabilities into all aspects of American life. The New Freedom Initiative seeks to promote greater access to technology, education, employment opportunities, and community life for people with disabilities. An important part of the New Freedom Initiative strategy for increasing employment opportunities involves providing employers with technical assistance on the ADA. Information about other EEOC activities under the Initiative also is available on the agency's web site at www.eeoc.gov. In addition to enforcing Title I of the ADA, which prohibits employment discrimination against people with disabilities in the private sector and state and local governments, and the Rehabilitation Act’s prohibitions against disability discrimination in the federal government, EEOC enforces laws prohibiting race, sex, color, national origin, religion, and age discrimination in employment.
Hewitt
Study Shows Nearly Half of U.S. Workers Cash Out of 401(k) Plans When
Leaving Jobs Hewitt’s study of nearly 200,000 workers who participate in their 401(k) plans found that 45 percent elected to take a cash distribution once they left their jobs. The remainder either kept their savings in their current employer’s 401(k) plan (32 percent) or rolled the money over to a qualified IRA or other retirement plan (23 percent). Age Factors into Employee Cash-Out Decisions - Hewitt’s study shows a direct correlation between age and tenure and employees’ decisions to cash out of their 401(k) plans. The highest incidence of cash distributions was among young employees (66 percent) age 20-29. Employees who were older and more tenured were more likely to preserve their retirement wealth—either keeping their assets in their current employer’s plan or rolling it over. Still, more than 42 percent of workers age 40-49 elected to cash out of their 401(k) plans upon leaving their jobs. Employees With Smaller Plan Balances More Likely to Cash Out - Not surprisingly, Hewitt’s study showed that size of balance was a factor when it came to workers’ tendencies to cash out of their 401(k) plans. Nearly three-quarters (72.5 percent) of workers with 401(k) plan balances under $10,000 took a cash distribution. When 401(k) plan balances were between $10,000 and $20,000 at termination, cash-out rates were much lower. Still, nearly a third (31 percent) of these employees elected to take their 401(k) distribution in cash.With more than 60 years of experience, Hewitt Associates (NYSE: HEW) is the world’s foremost provider of human resources outsourcing and consulting services. The firm consults with more than 2,300 companies and administers human resources, healthcare, payroll and retirement programs on behalf of more than 300 companies to millions of employees and retirees worldwide. Located in 35 countries, Hewitt employs approximately 20,000 associates. For more information, please visit www.hewitt.com.
State and Local News
Legislative
Update When Congress returns, the Senate is expected to devote a significant amount of time to the confirmation hearings of Supreme Court nominee, Judge John Roberts. In addition to confirmation hearings, and final passage of the spending bills, Congress is expected to consider pension issues. On
July 26, the Senate Finance Committee passed a bill, S. 219, the “National
Employee Savings and Trust Equity Guarantee” Act—or NESTEG. The bill
includes several public sector provisions including repeal of the 10
percent early withdrawal tax on distributions from defined benefit plans
to qualified public safety employees who separate from service after
age 50, allowing defined benefit plans, like defined contribution plans
and IRAs to accept after-tax rollovers, and clarification of the purchase
of service credit provisions. The House version of this bill, H.R. 2830,
does not include the public sector provisions. IPMA-HR is actively
monitoring more than a dozen issues as they move through the legislative
and regulatory process and details are available online on the IPMA-HR
Web site:
Cash
Balance Pension Plans and Legal Issues The conversion to a cash-balance plan raises several issues including, age discrimination, the “wear-away” effect and the “whipsaw” effect. The CRS report addresses the last two—age discrimination has been covered in an earlier report. The wear-away effect occurs when an employee under a defined benefit plan is placed into a cash-balance plan and the new account shows a dollar figure that is less than what the accrued benefit the employee had earned under the defined benefit plan. “Whipsaw” is when an employee who leaves employment prior to normal retirement age receives a lump-sum payment that reflects the current account balance in a cash-balance plan and that dollar figure is lower than the present value of accrued benefits expressed as an annuity beginning at normal retirement age. The Internal Revenue Service has extensive rules for pension plan changes and conversions, including the anti-cutback rule that prohibits employers from decreasing accrued benefits or eliminating or reducing early retirement benefits. Employees have sued arguing that cash-balance conversions violate these rules as well as the Age Discrimination in Employment Act (ADEA). According to the CRS report, it appears that no court has found that the conversions violate the ADEA or that the impact of wear-away violates the IRS rules governing plan conversions. There are efforts currently pending in Congress and proposals by the Treasury Department to limit the impact of the wear-away and whipsaw effects. A
copy of the CRS report is available online at:
Employers
Report Higher Retention Among Employees with Internship Experience Nearly 80 percent of the employers responding to NACE’s 2005 Experiential Education Survey reported higher retention among their college hires who have internship/co-op experience—even if the college hire gained that experience with another company—versus those who had no such experience. Nearly as many (76 percent) said they see higher retention among those who have come directly from their own internship or co-op program compared with all other college hires. “This is a clear indication that hiring students with internship or co-op experience can increase the efficiency of the organization and positively affect the ‘bottom line’ by lowering costs associated with turnover,” says Marilyn Mackes, NACE executive director. On average, responding employers reported that, among their college hires from the college class of 2004, more than three in five hires (61.9 percent) had internship experience, and about half as many (32.2 percent) came into the organization with co-op experience. Since 1956, the National Association of Colleges and Employers (NACE) has been the leading source of information about the college job market. For more information, go to www.naceweb.org.
Medicare
at 40: Past Accomplishments and Future Challenges Medicare was enacted in 1965 with the passage of Title XVIII of the Social Security Act. The AARP report states that the value of the Medicare program was evident from the start. “Before Medicare, older persons had either inadequate or no health insurance at all.” explained AARP Director of Policy and Research John Rother. “Older Americans trying to buy health insurance were often denied coverage based on age or pre-existing conditions. Others simply could not afford the cost of coverage,” he said. “The choices they had before Medicare were bleak. They could deplete their savings, seek assistance from their children, look for charity care, do without other life essentials or forgo care altogether,” Rother added. In 1963, 44 percent of Americans ages 65 and older were uninsured. Within 11 months of Medicare’s implementation, 19.1 million people were enrolled in the hospital and other inpatient services component (Medicare Part A). Nearly 18 million, or 92 percent of persons age 65 and above, signed up the first year for physician and other outpatient services (Medicare Part B). In 2003, less than one percent of those age 65 and older lacked health insurance. Medicare virtually eliminated uninsurance among older persons. One important milestone in the program was reached in 1972. Persons with disabilities who did not qualify for Medicare or Medicaid also faced daunting problems getting health care. Amendments were made to Title XVIII of the Social Security Act to extend Medicare eligibility to individuals with disabilities and to those with End Stage Renal Disease. In 1973, two million people enrolled on the basis of their disability and by 2004, 6.4 million people with disabilities were enrolled. Rother said, “The link between coverage and improved access to health care thanks to Medicare is well known. Medicare’s coverage for hospital and medical services offers beneficiaries access to medical and scientific advances that have transformed health care. The program has contributed to greater life expectancy and financial protection against potentially large acute care expenses.” Today’s threat to financial security is the high cost of prescription drugs, which until 2006, were not covered by Medicare. “The program has added a voluntary drug benefit that can really help people save on out-of-pocket drug costs,” Rother said. “AARP will be providing information to our members and helping those who will benefit from the new drug plans.” Medicare has also contributed greatly to improving the quality of health care in the US. It has played a leading role in publishing and disseminating information about the performance of health plans, hospitals, nursing homes home health agencies and dialysis centers. Looking ahead, there are many future challenges for Medicare. Similar to the healthcare sector in general, Medicare’s health expenditures are estimated to grow by 7.3 percent annually between 2006 and 2014. With spending increases, the program’s premium amounts will increase as well. Unlike most private health insurance plans, Medicare does not have cost sharing limits. Out-of pocket costs can be expected to grow and will continue to consume more of retirees’ Social Security benefit. Chronic health conditions, which are prevalent among Medicare beneficiaries, are also very costly to Medicare as well as the individual. The report found that 82 percent of those in Medicare have one chronic condition and visit an average of four physicians per year. Those with five chronic conditions visit 13.8 physicians annually. As the number of chronic conditions increases, so do the number of prescriptions written for beneficiaries. Those with two chronic conditions fill an average of 18 prescriptions a year. Those with five or more conditions fill an average of 40 prescriptions a year. AARP is a nonprofit, nonpartisan membership organization that helps people over 50 have independence, choice and control in ways that are beneficial and affordable to them and society as a whole. For more information, go to www.aarp.org.
Labor
Department Clarifies New Language in Regulations Under the Fair Labor Standards Act (FLSA), employees who satisfy the definition of an executive, administrative or professional employee and meet the salary levels (more than $23,600 per year) will be exempt from the overtime requirements if they are paid on a salary basis. An executive employee is one (1) whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; (2) who customarily and regularly directs the work of two or more other employees; and (3) who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight. When the Department of Labor issued revised regulations in August of last year, the definitions were changed slightly, but the intent of those changes was not always clear. In this letter, the Department of Labor was asked whether or not, in the definition of an executive employee, the changes made to the definition of “management,” “concurrent duties,” and “directly and closely related” were meant to alter who could be considered an executive employee, or were only intended to clarify the language in the regulations prior to last year’s revision. In this letter, Acting Administrator of the Wage and Hour Division Alfred Robinson explained that the definition of management was broadened to include non-supervisory duties. According to the letter, “it is the Department’s position that the executive exemption and the definition of management were not previously limited to ‘supervisory’ functions before the update.” Therefore, this change was intended only as a clarification. Similarly, the letter states that “The inclusion of the ‘concurrent duties’ language in section 541.106 [relating to executive employees] clarified the prior regulations regarding this issue and reaffirmed that the time spent simultaneously performing exempt and nonexempt work qualifies as exempt time under the federal regulations that were in effect on October 1, 2000.” Finally, as to “directly and closely related” the department clarified that the definition of this term was merely moved from one section to another and that there was no substantive change intended. A copy of the opinion letter is available on the Internet: http://www.dol.gov/esa/whd/opinion/FLSA/2005/2005_08_02_19_FLSA_29CFR541.pdf
Washington
Post Article Reports Boring Jobs are No Fun In the Aug. 10 article, “Boredom Numbs the Work World: Lack of Stimulation Infects Humble and High-Ranking Jobs Alike” on page D1, by Amy Joyce, a Washington Post staff writer, Sirota Consulting LLC reported that of more than 800,000 employees at 61 organizations worldwide, those with “too little work” gave an overall job satisfaction rating of 49 out of 100, while those with “too much work” had a rating of 57. Joyce wrote that 55 percent of all U.S. employees are not engaged at work, according to Curt W. Coffman, global practice leader at the Gallup Organization. Gallup Organization (www.gallup.com) is a large polling group that measures, among other things, employee engagement. While boredom on the job may not sound so bad to some, Douglas LaBier, a business psychologist who runs the Center for Adult Development in Washington, said it’s “one of the biggest contributors to work-related stress,” wrote Joyce. Employees aren’t the only ones who suffer, according to the article. Employers suffer too. LaBier was quoted as saying “It casts a pall on the whole organization and can create a demoralized atmosphere. It blocks creativity, which can undermine any company, which can keep it from staying abreat of the marketplace, competition. When you have that boredom, that can produce a kind of pervasive cloud. It can build like a critical mass that hurts the company’s performance and market position.” Boredom on the job can also be dangerous in some jobs. To keep those who check X-ray machines at airports from getting bored, screeners are rotated every half hour or so, according to Yolanda Clark, Transportation Safety Administration spokeswoman. “For many workers, however, a shift change ever 30 minutes are only a dream,” wrote Joyce.” “For them, the only remedy to combat boredom may be to find new work.” Joyce wrote of one woman who started her career as a government contractor in the early 1990s left the federal aviation world to join alumni affairs at Washington College. She now is a marketing and development coordinator for a small museum near Annapolis and she also writes children’s books. Another employee, Bruce Barlett, who once worked as the deputy assistant secretary for economic policy at the U.S. Treasury under George H.W. Bush left his job to become an economist with the National Center for Policy Analysis. To read this article in its entirety, go to www.washingtonpost.com (registration required). WorldatWork
Salary Budget Survey, 2005-2006 During the past two years, salary increases in the United States had fallen considerably. However, this year, salary budgets increased by 3.7 percent, meeting last year’s predictions—something that hasn’t happened since 2001. As a result, respondents are optimistic about the budget’s future, predicting another increase of 3.8 percent in 2006. WorldatWork explains, “This year’s rise in salary budget increases is closely in line with the U.S. inflation rate; total salary budget increases are only slightly above the change in the Consumer Price Index (CPI) for the previous 12 months.” Respondents indicate a rise in the percentage of employees who will receive an increase in base pay this year (from 87 to 92 percent), and a drop in variable pay by one percent (77 to 76 percent). Stock-based compensation remained popular, as 73 percent of organizations that have stock report using it in their compensation programs. WorldatWork expects this popularity to decline due to changes in accounting rules. Similarly, Canada experienced an average total salary budget increase of 3.5 percent in 2005, one tenth of one percent higher than predicted a year ago. WorldatWork reports, “In most organizations, merit increases constitute the largest share of the total budget increases at 3.1 percent. General increase and cost-of-living adjustment increases are second-most common.” Respondents predict no movement in merit increases next year, and expect a smaller increase of 3.4 percent for 2006. Ninety-one percent of employees will receive a base salary increase, as opposed to 86 percent in 2004. Further, 88 percent of organizations use a variable pay compensation plan, offering individual incentive awards as well as awards for an entire organization. Unlike the stock-based incentive programs in the United States, Canadian stock programs are gaining popularity, up four percentage points from last year (74 to 78 percent), and availability is steady. WorldatWork is one of the world’s leading not-for-profit professional associations, “focusing on human resources disciplines associated with attracting, retaining, and motivating employees.” WorldatWork and its member organizations provide a number of services, including education, certification, publications, and surveys like the Salary Budget Survey outlined above.
Survey:
Half of U.S. Employers Plan to Allow Employees to Carry Over Unused
Flexible Health Care Spending Account Money: New Rules Allow Leftover
Funds to Pay for Healthcare Expenses in New Year However, the survey of 318 employers found that only 34 percent of respondents plan to extend the grace period to allow participants in both the health care and dependent care flexible spending accounts (FSA) to carry over unused money. Ninety-seven percent of the companies surveyed offer both a health and dependent care FSA. Employers use FSAs to give employees the opportunity to set aside pre-tax money to fund anticipated health and dependent care expenses for a year—such as child care expenses. In May, the Treasury Department and Internal Revenue Service issued guidance permitting (but not requiring) employers to amend plans to give health and dependent care FSA participants a grace period of up to two and a half months to incur eligible expenses that can be paid from the previous year’s salary contributions. The grace period is designed to provide some relief from the use-it-or-lose-it rule, which requires employees to forfeit any money remaining in their FSAs at the end of the plan year. Dependent Care FSAs: Employers planning to not offer the grace period to dependent care participants cited several reasons for their decision, including:
Additionally, 67 percent said they were concerned the grace period would cause inadvertent tax problems for dependent care FSA participants. A participant in a dependent care FSA with a grace period could exceed the $5,000 annual limit on tax-free reimbursements, resulting in additional federal income and employment tax liability. Another 54 percent cited the concern that the grace period also could create Form W-2 reporting problems for employers. IRS officials have said employers will have to report participants’ actual reimbursements from dependent care FSAs with grace periods. But dependent care FSA participants usually can file claims for the previous year until well after the January 31 deadline for issuing Form W-2. No grace period: Employers not extending the grace period to either health or dependent care FSA participants offered a variety of reasons for not doing so, including:
The survey also asked respondents to specify other reasons for not offering the grace period to health or dependent care FSA participants. Several respondents said they were planning to implement consumer-driven health plans with health savings accounts (HSAs) in 2006, and individuals participating in the health FSA this year would not be eligible to fund HSAs during the grace period. Others cited various administrative problems, and some expressed doubts about whether the grace period would change employee behavior. Many Still Undecided: The incidence of employers offering the grace period could increase significantly in the future because just over a quarter of surveyed employers said they were undecided about the grace period, and:
When Available: A large majority of those offering the grace periods will make them available this year, with large majority offering them for the maximum amount of time:
The Deloitte/ERIC 2005 FSA Grace Period Survey was conducted from July 18 through July 26, 2005. A total of 318 employers from the private sector and the government participated in the Internet-based survey. Sixty-one percent of respondents have at least 2,000 employees, and 19 percent have more than 20,000 employees. For more information, go to www.deloitte.com.
Experts
Examine Factors Threatening Retirement Security EBRI researchers and nearly a dozen other experts examined the different forces at work that threaten Americans’ economic security in retirement as they discussed three topics: Social Security overhaul, 401(k) enrollment and accumulations, and health savings accounts. An article summarizing the forum was published recently in the August EBRI Notes, entitled “Retirement Income Security: A Look at Social Security, Employment-Based Retirement, and Health Savings Accounts.” The article, available on the Web at www.ebri.org, reported that speakers at the forum: Agreed that healthcare expenses should be considered a key component of any retirement savings plan. These now often neglected expenses are likely to be higher than most individuals anticipate and could add 20 percent or more to the amount of pre-retirement income workers need to replace in retirement. Health savings accounts can get workers started, but are not the complete answer, according to a study presented at the forum. Supported the idea of automatically enrolling all workers who are eligible to participate in 401(k) plans. Automatic enrollment could have a dramatic impact on the amount available for retirement income, especially for low-income workers, according to another study presented at the forum. Forum participants also heard results of a model projecting the amount of wealth that could be accumulated through a lifetime of participating in employment-based 401(k) plans. Expressed widely divergent views on President Bush’s proposal to restructure Social Security to set up individual accounts within the current program. Some speakers argued for maintaining Social Security as a defined-benefit system, while others said individual accounts are the key to offering workers the opportunity to accumulate more retirement wealth than Social Security will provide. EBRI research presented at the forum explored the effects of several possible changes in Social Security. Established in 1978, EBRI is an independent nonprofit organization committed exclusively to data dissemination, policy research, and education on economic security and employee benefits. EBRI does not take policy positions and does not lobby. For more information about EBRI, go to www.ebri.org.
Department
of Homeland Security Personnel Regulations Enjoined The Homeland Security Act authorized the creation of the department and included a provision protecting the collecting bargaining rights of employees. According to the District Court, the rules violate the law by permitting the department to override collective bargaining agreements in certain instances and by reducing the authority of the Federal Labor Relations Authority to consider employment disputes. The court’s decision said other parts of the regulations are valid, including the limits on the topics covered by bargaining, the new role of the Merit System Protection Board. The ruling is expected to have a major impact on federal HR. The Department of Defense is in the process of adopting similar rules, called the National Security Personnel System (NSPS) and the Bush Administration has proposed government-wide reforms. John Palguta, vice president of policy and research for the Partnership for Public Service, a nonprofit organization dedicated to revitalizing public service, said, “The recent court order putting a halt to at least part of the Department of Homeland Security’s plan for major HR reforms underscores the magnitude of the challenges in this type of reform effort.” Palguta continued, “As DHS and the Administration consider their response to the Court opinion, it would be my hope that the baby not be thrown out with the bath water. Some of the proposed changes, such as the replacement of the 1949 era General Schedule pay system with a more market-sensitive approach to pay setting are long overdue. “It’s not that the HR provisions of the Homeland Security Act are ill-advised, but rather the proposed implementation of those changes may not have struck the right balance in every instance. We don’t need new legislation but perhaps a new look at where some of the balance points are to be placed in implementing those legislative reforms. And it appears that this is just what the Court has ordered.”
Mutual
Funds and the U.S. Retirement Market in 2004 Assets in individual retirement accounts (IRAs) and defined contribution plans, the two largest components of the U.S. retirement market, continued to outpace the growth of other types of retirement plans. In 2004, they had a combined growth rate of 13 percent, compared with seven percent for other retirement plan assets. They now account for more than half of all retirement assets, up from less than 40 percent in 1990. The findings are reported in the August 2005 issue of Fundamentals, an ICI research brief. The 2004 survey also found that investors saving on their own and through employer-sponsored defined contribution plans are increasingly choosing lifestyle and lifecycle funds, a move reflected in the rapid growth of these funds over the last several years. Assets in these funds totaled $103 billion in 2004, up from $69 billion in 2003 and $44 billion in 2002. Retirement assets accounted for about two-thirds of the total assets in these funds in 2004. A lifestyle fund invests in a mix of equity and fixed income securities to maintain a certain risk level and generally contains “conservative,” “moderate,” or “aggressive” in the fund’s name; a lifecycle fund typically rebalances the asset mix to an increasingly conservative portfolio as the target date of the fund approaches. Four out of 10 U.S. households own IRAs, and overall IRA assets climbed to a record $3.5 trillion at year-end 2004. Another $3.2 trillion are held in defined contribution plans, with 401(k) plan assets reaching an estimated $2.1 trillion. The ICI survey gathered data from 14,992 mutual fund share classes representing approximately 84 percent of mutual fund industry assets. Assets were estimated for all non-reporting funds. The report also used data from the U.S. Department of Labor, Federal Reserve Board, and other trade associations, as well as ICI’s own mutual fund survey information. In addition, Internal Revenue Service Statistics of Income data were used to complete the picture of the total U.S. retirement market. For more information about ICI, go to www.ici.org.
Brand
Name Drug Prices Continue to Climb Dramatically, Exceeding Inflation
Through March 2005; Generic Drug Prices Rise Slightly The report presents two measures of price change. The first is the annual rate of change in manufacturer drug prices (i.e., changes from April 1, 2004 through March 31, 2005). The second measure is the three-month percentage change in prices (i.e., changes from December 31, 2004 through March 31, 2005). The report states that while the average annual rate of price increase (6.6 percent for the 12-month period ending on March 31, 2005) was lower than for the 12-month period ending on December 31, 2004 (7.1 percent), the increase far outpaced the rate of general inflation, that of 3.0 percent. More than one-half of the drugs in the sample, 110 of 195, had increases in manufacturer price during the period from December 31, 2004 through March 31, 2005. As a result of this and increases in recent years, a typical older American (who takes three prescription drugs) is likely to have experienced an increase, on average, in the cost of therapy from the year 2000 through March 31, 2005 of $866.16 if the drugs are brand name products used to treat chronic conditions and the full price increases were passed along to the consumer. A baseline study published in May 2004 by the AARP Public Policy Institute identified steady increases in the average annual manufacturer price of brand name prescription drugs from calendar year 2000 through calendar year 2003; a recent update reported a continuation of this trend through 2004. A second report, “Trends in Manufacturer List Prices of Generic Prescription Drugs Used By Older Americans – First Quarter 2005 Update,” states that manufacturer list prices for the sample of 75 generic drugs rose only by 0.7 percent in the 12 months ending on March 31, 2005. While this is a slight increase compared to the 12-month period ending on December 31, 2004, it represents a substantial slowing compared to the dramatic rates of increase for 2001 (7.8 percent), 2002 (15.8 percent), and 2003 (13.3 percent). Furthermore, the report states that in the first quarter of 2005, only three out of the 75 generic drugs in the sample had an increase in manufacturer list price. For more information about the studies, please visit AARP’s website at www.aarp.org. AARP is a nonprofit, nonpartisan membership organization that helps people ages 50 and older have independence, choice and control in ways that are beneficial and affordable to them and society as a whole. For more information about AARP, go to www.aarp.org.
Survey
Shows Employees Spend Nearly an Hour a Day on Personal Internet Use The national poll includes responses from 150 senior executives—including those from human resources, finance and marketing departments—with the nation’s 1,000 largest companies. It was conducted by an independent research firm and developed by Accountemps, the world’s first and largest specialized staffing service for temporary accounting, finance and bookkeeping professionals. Executives were asked, “On average, how many minutes each day do you think employees spend on non-work-related e-mail, instant messaging and Web surfing?” The mean response was 56 minutes. The same individuals also were asked, “How closely does your firm monitor employee Internet activity?” Twenty-three percent responded “very closely,” 41 percent said “somewhat closely,” 30 percent said “not very closely,” four percent said “not at all,” and two percent said they did not know. Accountemps has more than 330 offices throughout North America, Europe, Australia and New Zealand. For more information about Accountemps, go to www.accountemps.com.
Survey
Shows CFOs Rank Cell Phone Most Indispensable Portable Tool In a nationwide survey of chief financial officers (CFOs), cell phones topped the list as the most indispensable portable technology device, with 44 percent of the response. Laptop computers came in close second, cited by 39 percent of executives polled. Similar surveys in 2002 and 1999 also found the cell phone to be CFOs’ tool of choice, as 46 percent and 51 percent of respondents, respectively, said it was their favorite electronic communication device. Laptops ranked second, with 33 percent of the response in 2002 and 26 percent in 1999. The surveys were developed by Robert Half Management Resources, a provider of senior-level accounting and finance professionals on a project and interim basis. The survey was conducted by an independent research firm and includes responses from 1,400 CFOs from a stratified random sample of U.S. companies with more than 20 employees. CFOs were asked, “Which of the following portable technology devices do you consider most indispensable in your life?” After cell phones and laptop computers, eight percent said it was their wireless handheld device; four percent said it was their mini hard drive; two percent said their iPod, one percent said “other”; and two percent either did not know or did not give an answer. “Reflecting the needs of today’s busy professionals, the latest cell phone technology combines the best of both worlds, including e-mail and Internet access that allow for expanded capabilities in one tool,” said Paul McDonald, executive director of Robert Half Management Resources. “These multifunctional phones are fast becoming one device executives are expected to own and use.” McDonald cautions that while mobile devices increasingly have become a necessity in our lives, they can keep us connected to work around-the-clock. “Turning off a cell phone even for brief periods, particularly on nonworking weekends, allows executives to fully enjoy a break from business.” Robert Half Management Resources has more than 100 offices throughout North America, Europe and Australia. For more information, go to www.rhmr.com.
Labor
Department Says Background Investigators are Non-Exempt The letter responded to a request from a consulting firm whose business included conducting background investigations for the Defense Security Service (DSS), a federal agency. The investigators’ duties include providing information to DSS so that the agency can decide whether or not to hire a particular individual for a sensitive position. The investigators plan their own schedules, interview the subject of the investigation and witnesses and can decide whether or not to conduct additional interviews. The interviewer must use tact and discretion and according to the letter, must possess a high level of professional judgment. Despite the relative independence of the investigators, the Labor Department states that, “...[W]e do not believe that the duties and responsibilities of the Company’s Investigators meet the factors required for exemption indicated above. The revised FLSA relations under 29 C.F.R. Section 541.203(j) regard public sector inspectors, investigators and similar employees, as employees whose duties have been found not to meet the requirements for the administrative exemption ‘because their work typically does not involve work directly related to the management or general business operations of the employer....” The Department of Labor’s opinion letters are available on the Web at http://www.dol.gov/esa/whd/opinion/opinion.htm.
Employers
Struggling to Provide Benefits According to EPF Study While the number of benefits has increased over the past several decades, the report notes that the expense of providing these benefits has become so high that employers may be forced to stop providing them. The report covers health benefits, healthcare cost containment and retirement benefits. Highlights include: By 2020, health care expenditures could consume nearly one-third of our nation’s output—$6 trillion annually. The United States currently spends nearly twice as much, per capita, on healthcare per year as our major trading partners—$4,631 in the United States compared to $1,765 in the United Kingdom and $2,535 in Canada. To contain spiraling costs, employers have turned, in the short term, to increasing co-payments and deductibles incrementally. Long-term efforts to control costs include a focus on consumer driven health plans (CDHP) that correct market inefficiencies and disease management plans to better engage consumers in making health care decisions. Only 20 percent of workers are covered by a defined benefit pension plan, while more than 40 percent of workers are covered by defined contribution plans, which represents a reversal of the trend 20 years ago. Hybrid pension plans benefit a more mobile workforce. A worker who holds three or more jobs would receive a benefit 18 percent higher under a cash balance plan (one form of a hybrid plan) than if they had chosen to stay in a traditional defined benefit plan. Retiree health liabilities for Fortune 1000 companies amounted to more than $500 billion in 2003 or 11 percent of stockholder equity. The Employment Policy Foundation (EPF) is a nonprofit, nonpartisan public policy research and educational foundation based in Washington, D.C. that focuses on workplace trends and policies. For more information, go to www.epf.org.
Department
of Labor Announces New Rule Allowing Contracting Agencies to Obtain
Wage Determinations Online WDOL includes guidance for contracting agencies on how to select the appropriate wage determination for each contract action and provides access to the most current wage determinations and to databases that contain archived wage determinations under both the Service Contract Act (SCA) and the Davis Bacon Act (DBA). A feature on the site alerts users to future revisions to particular wage determinations. The WDOL does not affect how the Wage and Hour Division determines prevailing wages under either the SCA or the DBA. “WDOL reflects the technological advances since 1990 and the wide use of electronic communication and information sharing,” said Alfred B. Robinson Jr., deputy administrator of the Wage and Hour Division. “The Web site replaces the paper SF-98 with an electronic ‘e98’ and enables contracting agencies alternatively to use the WDOL website to obtain wage determinations.” Since 1965, the Service Contract Act implementing regulations have required a federal contracting agency to request SCA wage determinations for each contract. Form SF-98 was developed for this request and response process. Although there have not been any major changes to the SF-98 process since 1972, the labor department has worked with contracting agencies to develop better and more efficient mechanisms to obtain SCA wage determinations. With the advent and expansion of the Internet in the mid-1990s, several contracting agencies approached the Wage and Hour Division requesting the ability to access and download SCA wage determinations. In May, the WDOL e-government project was honored as a finalist for one of the 2005 Intergovernmental Solutions Awards presented by the American Council for Technology. The wage determinations online program can be found at www.wdol.gov. The full text of the Final Rule can be found at: http://a257.g.akamaitech.net/7/257/2422/01jan20051800/ edocket.access.gpo.gov/2005/05-16779.htm.
SITE OF INTEREST ON THE WEB Labor
Department Streamlines Process for National Guard & Reserve Service
Members to File Employment Rights Complaints “America's soldiers who sacrifice so much for all of us, deserve every consideration and legal protection in returning to civilian life and careers,” Chao said. “This new online form will make it easier for National Guard and Reserve service members to alert us to any job-related problems they may encounter because of their service to our country.” Developed by the Labor Department's Veterans' Employment and Training Service (VETS), the form is called the VETS Form 1010. It is easy to fill out and can be filed in seconds electronically. This is the latest in a series of compliance-assistance efforts undertaken by the Department of Labor to increase employee and employer awareness of USERRA. Others include:
USERRA protects the job rights of individuals who voluntarily or involuntarily leave employment positions to undertake military service. The law also prohibits employers from discriminating against past and present members of the uniformed services and applicants to the uniformed services. Employers can obtain detailed information about USERRA by calling 1-866-4-USA-DOL or by visiting http://www.dol.gov/vets/programs/userra/. Study of Los Angeles Living Wage Law http://www.losangeleslivingwagestudy.org/ FLSA2005-15 FLSA Opinon Letter on Joint Employment http://www.dol-union-reports.gov/esa/whd/opinion/FLSA/2005/2005_04_11_15_FLSA_jointempl.htm DiamondCluster, 2005 Global IT Outsourcing Study http://www.diamondcluster.com/Ideas/Viewpoint/PDF/DiamondCluster2005OutsourcingStudy.pdf Electronic Frontier Foundation, How to Blog Safely About Work or Anything Else (April 5, 2005). http://www.eff.org/Privacy/Anonymity/blog-anonymously.php American Management Association (AMA) and The ePolicy Institute, 2005 Electronic Monitoring & Surveillance Survey http://www.amanet.org/press/amanews/ems05.htm National Association of State Chief Information Officers (NASCIO) The Privacy Implications of Instant and Text Messaging Technologies in State Government (May 2005), which includes embedded links to the IM policies of several states, is available at http://www.nascio.org/nascioCommittees/privacy/instantMessagingBrief.pdf The Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission Staff Report Concerning Examinations of Select Pension Consultants (finding many pension consultants are not aware that they owe fiduciary obligations to the pension plans and their trustees to whom the consultants provide advice. (May 16, 2005) http://www.sec.gov/news/studies/pensionexamstudy.pdf Human Rights Campaign Foundation, The State of the Workplace The State of the Workplace is an annual report, published by the Human Rights Campaign Foundation's Workplace Project. This report is a national source of information on laws and policies surrounding sexual orientation and gender identity in the workplace. The HRC Workplace Project advises employees and employers on the value of workplace diversity. It collects, analyzes and disseminates information to assist employees and employers in implementing policies and procedures aimed at treating gay, lesbian, bisexual and transgender workers equally. http://www.hrc.org/Template.cfm?Section=Get_Informed2&Template=/ ContentManagement/ContentDisplay.cfm&ContentID=18879 Retirement Income Security: A Look at Social Security, Employment-Based Retirement Plans, and Health Savings Accounts A variety of factors, including rising health care costs, increasingly suggest that individuals who are trying to plan for a secure retirement face a gathering storm, speakers told about 100 participants at the Employee Benefit Research Institute’s spring policy forum. EBRI researchers and nearly a dozen other experts examined the different forces at work that threaten Americans’ economic security in retirement as they discussed three topics: Social Security overhaul, 401(k) enrollment and accumulations, and health savings accounts. http://www.ebri.org/pdf/PR_711_9Aug05.pdf Employment-Based Health Benefits: Trends in Access and Coverage This Issue Brief examines the state of employment-based health benefits among workers with respect to offer rates, coverage rates, and take-up rates. It also examines how the state of employment-based health benefits has changed since the mid-1990s, reasons why workers do not have employment-based health benefits from their own employer, and how these reasons have changed since the 1990s. http://www.ebri.org/pdf/briefspdf/EBRI_IB_08-20051.pdf
2006 SEGAL HEALTH PLAN COST TRENDS SURVEYNEW YORK, 8/5/05) - The Segal Company's ninth annual health plan cost trend survey forecasts continued declines in trends in 2006 as compared to 2005 for almost every coverage surveyed. The 2006 Segal Health Plan Cost Trend Survey produced these key findings:
http://www.segalco.com/publications/surveysandstudies/2006trendsurvey.pdf
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