Employee Benefits Squeezed; companies financially pinched Cu

Wednesday, Apr 08,2009, 10:22:01 AM Click:

April 7, 2009 Tuesday FIRST EDITION

SECTION: MONEY; Pg. 1B

LENGTH: 1172 words

HEADLINE: Employee benefits squeezed; Financially pinched companies cutting back

BYLINE: Laura Petrecca

Goodyear Tire & Rubber this year did something few companies have in this economy: It reinstated its suspended 401(k) match for employees.

Great news, right? Sure.

But the back story isn't very uplifting.

After the dot-com bubble burst and the subsequent recession of 2001, the tiremaker halted its 401(k) contributions in 2003 as part of a cost-savings program.

Six years and millions of dollars in lost matching money later, salaried employees now get a 50% company match for the first 4% of their pay. While Goodyear reinstated that benefit, it froze others -- such as its more traditional pension plan -- to save hundreds of millions of dollars.

As the tiremaker is among a few that have given something back, it is at the same time part of a growing and large movement of companies cutting or reducing benefits for employees.

Health care costs for employees have been rising for years, but perks and benefits such as cost-of-living increases, pension plans, bonuses, 401(k) contributions and tuition reimbursement are now being looked at as places to save millions of dollars. Given the massive savings for employers, many workers have doubts about when -- or if -- such items will ever fully or partially return.

On average, companies have sliced up to five employee-oriented spending areas, such as 401(k) matches and tuition reimbursement in the past year says Laura Sejen, global head of strategic rewards consulting at employment consultancy Watson Wyatt.

Job cuts and reduced raises have been commonplace for years, but the desperate economic times have chief executives cutting areas previously considered untouchable.

She and other experts say they cannot predict when -- or if -- such benefits will return: "Do you have a crystal ball?"

What it will take

Sejen does offer a laundry list of things that have to happen before workplace normalcy can return: The recession has to end, ailing companies have to see profitability for at least a few months, and company leaders have to feel confident that the rebound is sustainable.

Employers spent nearly $8 trillion on total worker compensation in 2007, which is the latest full-year data from the Employee Benefit Research Institute, a public policy and education firm. Benefits such as retirement funding and health insurance made up 18.6% of that outlay. Wages and salaries represented the rest.

Health plan coverage alone typically costs employers $5,000 to $15,000 per worker each year, according to Fidelity Investments' Consulting Services.

Funding retirement plans is also expensive. For every $1 million in total payroll expenses, a company could halt a match of 50% for every dollar up to 6% and save $30,000 a year if every employee were contributing the maximum.

Given the deep savings, slicing that retirement benefit and others can be hard to avoid for company leaders.

Margie Fox, co-founder of 23-person marketing firm Maloney & Fox, says the company suspended its 401(k) match and cut its employee health coverage contributions from 80% to 50% to save about $100,000 annually. The firm avoided layoffs because "we don't have a weak link" that it's willing to lose, she says.

If the economy continues to tank, she says the firm will implement more "creative solutions" before laying people off -- such as offering sabbaticals or letting employees take extra unpaid time off. She also says that Maloney & Fox will reinstate the benefits once the economy rebounds.

Optimism fades

Almost half of U.S. employees surveyed by Fidelity predict that benefits such as health insurance, retirement savings plans and pension plans won't be provided by their employer by 2019.

Most of that group say they'll be responsible for getting their own benefits. A smaller percentage -- 18% -- says the government will provide for them.

Watson Wyatt says that 62% of employers are very confident they'll offer health care benefits 10 years from now, down sharply from 73% last year. It's the first time in the study's 14-year history that employer confidence declined.

Health care costs are rising at about 6% to 7% a year, and "if you put that in the context of a difficult economy, most companies aren't prepared to shoulder all of that burden," says Tom Billet, a Watson Wyatt senior health benefits consultant.

He says that employees should get used to picking up more of the tab.

In general, the average 401(k) account shriveled 27% in 2008, falling to $50,200 from $69,200 in 2007, according to Fidelity. Without an employer match, workers feel extra savings pressure to shore up their sagging retirement accounts.

Dozens of companies have pulled back on retirement contributions, according to the Center for Retirement Research at Boston College. General Motors, Eastman Kodak and Sears Holdings are among them.

"Traditional pensions in the private sector are on their way out," says Alicia Munnell, director of the retirement research center.

Yet, she expects 401(k) matches to come back. Many companies that suspended or reduced their matches after the recession of 2001 reinstated their contributions after the economy rebounded, she says.

Less formal perks, such as flexible time off, have taken a hit, as well.

Robert Novak, owner of Advanced Deck Designs/ACB Construction in Alexandria, Minn., says he once was flexible with his 12-person staff. Now, he's laid off every worker.

"If and when I get started again, I will not be able to offer anything (in terms of work perks) for at least three years," he says.

More elaborate perks, such as all-expenses-paid vacations awarded to top sales people and the use of a company car, have also been affected.

Three-fourths of incentive providers, suppliers to the industry and corporate incentive travel buyers said the economy will have a "negative impact on their ability to plan and implement incentive travel programs," according to a survey taken late last year by the Incentive Research Foundation.

Even laid-off employees can't get a benefits break.

One in five companies plan to change their severance plans, according to a survey by the consulting firm Hewitt Associates. Of those, 43% plan to reduce cash payments, and 21% expect to slash other severance benefits.

Perks for retention

Bill Mullaney, president of MetLife's institutional business division, doesn't expect permanent "wholesale cutting," particularly because companies use perks to hold onto talented employees as well as to remain competitive in hiring.

"Benefits are very important from a loyalty perspective and attracting and retaining top talent," he says.

John Hollon, editor of Workforce Management magazine, thinks some benefits, such as 401(k) matches, will be restored.

"I think the match is going to come back. Will it come back at the same level? Maybe not," he says.

Even if some long-held benefits will be tough to get back, he thinks most will eventually return.

"At some level, it becomes a competition thing," he says. Companies use benefits to "attract and keep the best people. ... The benefits are used as a tool to (hire) people and retain them long term."

LOAD-DATE: April 7, 2009