Tuesday, December 25, 2007
Investors such as KJ Harrison & Partners have been urging Marsh & McLennan to spin off some of its consulting businesses, including its Mercer human resources consulting unit and Oliver Wyman management consulting unit, arguing that they do not fit well with insurance broking.
Source: The Australian
Saturday, December 01, 2007
The Enron case is at least second time in recent months Hewitt has been sued by a client. In August, Schering-Plough alleged Hewitt had not met its contractual obligations after the company replaced Hewitt as its health-plan administrator.
Monday, November 19, 2007
How on Earth is that a differentiator? Like nobody ever thought of risk and return as the two sides of one coin before?
Sunday, November 18, 2007
For the fiscal year 10/1/2006-9/30/2007, Hewitt posted its second consecutive yearly loss. This year's loss was $175 million, or $1.62 per share, compared with a loss of $116 million, or $1.08 per share last year. Full-year sales were $2.99 billion, versus $2.86 billion in the prior year.
Monday, November 05, 2007
Citigroup got the green light from the Federal Reserve for an unusual deal to take over the $400-million retirement plan of a British newspaper company. In exchange for getting its hands on all that cash, Citigroup will run the pension plan - investing the money, paying the benefits and taking on the liability previously borne by Thomson Regional Newspapers. And it's eyeing similar moves stateside. Other banking investment and financial companies, including JPMorgan Chase, also are exploring the idea of taking pension plans - and their billions of dollars of assets - off the hands of employers. At least three federal agencies are considering aspects of the idea, including its basic legality and safeguards for workers.
Advocates say such changes would be a win-win for retirees and employers, retaining all the protections of current law, while putting plans in the hands of sophisticated financial stewards. Plus, large banks are less likely to go out of business or face severe financial strains than smaller employers.
Yet other people worry that such setups could subject retirement benefits to new risks and jeopardize decades-old worker protections. They're concerned that the would-be pension managers are more interested in profit than in the security of retirees. Further, they fear that unwise investments could bring a crisis for which there is no simple solution.
And from the industry magazine Pensions & Investments...
Bradley Belt, the former PBGC chief, wants to take over your frozen pension plans — and he’s betting he can wring enough money out of the hundreds of millions of dollars now sitting in frozen plans in the US to pay off the existing liabilities and turn a tidy profit for his new company and other investors. “We’re very comfortable with our ability to manage the assets against the liabilities in a way that will allow us to earn a consistent return above the liabilities, but without taking inordinate risk in doing so,” said Mr. Belt, now chairman of Palisades Capital Advisors LLC, in an interview in the firm’s Washington office. There’s no precedent for pension plan liability buyouts in the US. So over the past several months, Mr. Belt has been meeting with federal regulators, pension plan sponsors and representatives of investment firms to encourage support for a concept that he argues could serve the best interests of plan sponsors, plan participants and the PBGC alike.
Of course, this isn't really news. The big banks have been making their plays in this space for years now, as seen in this story from January 2006 ...
Recruiters in New York and London say corporate pension deficits are driving demand for actuaries who can help match pension fund assets to ever mounting pension liabilities. As the problem becomes more acute, so demand is likely to rise. “Banks are keen to strengthen their offering in this space,” says Kim Yates, a director at London-based search firm Principal Search. She says, “There are several clear leaders, and others are seeking to challenge them.” The leaders are Goldman Sachs and Morgan Stanley, which formed so-called ‘pension advisory groups’ in the late 1990s and now have large teams devoted to the business. More recent entrants include ABN AMRO, which founded its pension advisory group in 2004.
Sunday, November 04, 2007
The dispute began several weeks ago when Mr. Deason and private equity firm Cerberus Capital Management withdrew their $6.2 billion bid to buy the company, saying that the board had dragged its feet on the offer while the credit market dried up. Mr. Deason then demanded the resignations of the five independent board members, accusing them of mismanagement. The departing members are Robert Holland III, J. Livingston Kosberg, Dennis McCuistion, Joseph O'Neill and Frank Rossi. In a separate action, board member John Rexford also has resigned from the board but will remain as executive vice president at the company. ACS also said Wednesday that the directors have agreed to withdraw their lawsuit against the company and Mr. Deason.
Thursday, November 01, 2007
Monday, October 22, 2007
Friday, October 05, 2007
Tuesday, July 24, 2007
So reality is finally setting in that the contributions put into the plan are insufficient to pay the promised benefits. But instead of sucking it up and making more contributions, they'd rather take a gamble on better returns. And if the bet goes bust, somebody else will be cleaning up the mess. Nice. And look who's among the funds taking this ridiculous risk - two of the funds that are already quite screwed up: NJ and San Diego.
Saturday, June 30, 2007
Seven percent of all the equity tranches sold in the U.S. in the past decade were purchased by pension funds. Public pension funds have bought more than $500 million in CDO equity tranches in the past five years, The California Public Employees' Retirement System, the nation's largest public pension fund, has invested $140 million in such unrated CDO portions. Citigroup sold the tranches to Calpers. The New Mexico State Investment Council, which funds education and government services for children, has $222.5 million invested in equity tranches. The council decided in April to buy an additional $300 million of them. The General Retirement System of Detroit holds three equity tranches it bought for $38.8 million. The Teachers Retirement System of Texas owns $62.8 million of them. The Missouri State Employees' Retirement System owns a $25 million equity tranche.
Tuesday, June 19, 2007
• Monica Burmeister to global chief of Consulting Operations
• Richele Soja to North American Consulting leader
• Andrew Bell to global leader of Hewitt’s Talent & Organization Consulting business
• Joanne Dahm to North American practice leader of TOC
Friday, June 15, 2007
A special ten-member panel appointed to examine pension-related bills, didn't review the 2002 bills. In fact, it never met. The bill passed in just 18 days. Legislators now admit they didn't really consider how to pay for the special benefits. It is now estimated, the feel-good 2002 program will cost the state $617 million, not the $278 million projected in 2002.
Wednesday, May 30, 2007
Pension Protection Act Part 1 – PPA Overview
Pension Protection Act Part 2 – Benefit Restrictions Under PPA
Pension Protection Act Part 3 – 10 Biggest Unresolved Issues with PPA
Thu May 31
Accounting Part 1 – What Hath FASB Wrought?
Financial Economics Part 1 – Learning the Ropes
Financial Economics Part 2 – Making It Real
Fri Jun 1
Future of Retirement Part 1 – Report from the Meeting – Headlines
Late Breaking Developments
Future of Retirement Part 3 – Stakeholder Tensions – What do you think?
Dialogue with Treasury and IRS
ACS founder and chairman Darwin Deason has been working to take his company private. Similarly in March, Kronos was acquired by private equity firm Hellman & Friedman Capital Partners for $1.8 billion.
"My immediate thought is, who is next?" says Neil McEwen, managing consultant at PA Consulting. "And my immediate answer would be Hewitt Associates." Rumors have been circulating for months that Hewitt, which has been struggling to revive its HR BPO business, might go private to get away from shareholder scrutiny. Jennifer Frighetto, a Hewitt spokeswoman, declined to comment.
Wednesday, May 09, 2007
But things are changing. The system cost too much and cannot be sustained. The government is cracking down. People are losing their benefits. People are being told to return to work, the gravy is over. For example, Lotta Landstrom has lost her sick benefits after two years. (Lotta is allergic to electricity, says her doctor.) Unfortunately, the government is having to provide training to people who need it because they have been out of the labor force for so long. [Ain't socialism grand, folks?]
[Wall Street Journal]
Thursday, April 26, 2007
Mercer HR Services announced that Mary Tinebra, who has played an integral role in the growth of the firm’s outsourcing business, has been appointed Global Leader of Sales and Alliances. Sean Andersen has joined Mercer HR Services as the Leader of Organizational Effectiveness Practices, and Joe Mehringer (formerly of Hewitt Associates) has joined as the Total Retirement Product Manager.
Jay Rising is the new president of HRO. He succeeds Julie Gordon, who has served as acting president. He most recently served as president of field operations at RightNow Technologies, a customer experience software company. Prior to that, he spent nearly ten years at ADP.
Julie Gordon was appointed to the new position of president of client & market leadership. In her new role, she will oversee Hewitt's overall client relationship strategy, with particular focus on its largest clients, most of which use both Hewitt's consulting and outsourcing services.
Steven Fein has been appointed to the newly created position of sales and product strategy leader ... Rohail Khan will continue as leader of operations.http://www.hewittassociates.com/Intl/NA/en-US/AboutHewitt/Newsroom/PressReleaseDetail.aspx?cid=3996
Not that you'd know this from Mr. Crist's approval ratings, which remain in the stratosphere thanks in part to his populist turn bashing insurance companies. The Republican campaigned last year on promises to do something about his state's property-insurance premiums, which have climbed in the wake of some recent nasty hurricanes. Economists know that these rising costs are necessary, and in time beneficial, because insurers must build reserves against the more frequent storms hitting ever-more-populated coastal areas.
But Mr. Crist is a man on a poll-driven mission and his line has been that greedy insurers are ripping off his constituents. In January he convinced the Republican legislature to pass a "reform" designed to lower the price of insurance by making the state a larger player in the market and undercutting private insurers. The new law allows state-run Citizen's Property Insurance -- intended to be an insurer of last resort -- to compete directly with private companies.
This exercise in Cuban economics is already gutting Florida's once-competitive insurance market. Private insurers know the law will artificially depress rates, forcing some to operate at a loss. Many have responded by cancelling policies, prompting Governor Crist to issue an "emergency" order freezing premiums and barring cancellations. Yet even this hasn't stopped the bleeding.
USAA last week became the latest to significantly restrict the number of new policies it issues in the state, and to drop 27,000 second-home policies. This follows pullbacks from AllState, State Farm, Nationwide and others. The storms and new regulation have also forced some insurers out of business, leaving thousands of policyholders with no coverage and fewer options for getting it.
Large numbers of homeowners are now turning to Citizen's, which itself is only able to offer lower premiums because of its implicit taxpayer guarantee, and because its actuarial assumptions reside in la-la land. Citizen's likes to say it will have $8 billion with which to pay claims, but it rarely notes that much of this is a line of credit. Between such credit and its bonding authority, what Citizen's really has is the potential to rack up huge liabilities that will have to be paid by someone when the next storm surge comes ashore.
Most likely, that someone will be all Florida homeowners, who, in the event of a Citizen's collapse, will be on the hook for large assessments. This tax is likely to be levied on every homeowner, including those who don't live in areas at high risk for storm damage. Another option would be for the state to provide a bailout, putting all taxpayers on the hook. The risk of a taxpayer bailout is also high for the state's hurricane fund: The new law doubled its risk-bearing capacity to $32 billion in business, thus allowing insurers to purchase reinsurance at cheaper rates than on the open market. However, the fund has only $1 billion in cash on hand, and thus no way to cover its new business if disaster strikes -- short of dunning taxpayers.
In sum, what Mr. Crist has done is concentrate the risk of future hurricane losses within his own state government, rather than spreading it around the world through the insurance industry. This is astonishing, given that the Sunshine State accounts for 27% of all hurricane-exposed property in the U.S., worth some $2 trillion. After Katrina, private insurers paid more than $40 billion to 1.7 million policyholders in Florida. But the state government and its taxpayers may end up paying for the next big one largely by themselves.
At least other states are learning from the Florida meltdown. Rather than create state competitors to the private market, Mississippi and South Carolina have taken steps to expand their markets of last resort. Louisiana's Governor and insurance regulator have talked openly of the need to rebuild the private insurance market, rather than transfer risk to taxpayers. Even the liberal Atlantic Coast states, usually the first to turn to new regulations, have largely rejected attempts to socialize their storm risk.
For now, many Floridians are thrilled that their rates are falling and so the Governor is popular. He recently asked for new legislation to give Citizen's even more power to compete with private underwriters. However, Mr. Crist and his fellow Republicans had better hope that predictions of more frequent hurricanes are wrong. Because when they hit, and taxpayers discover there's no such thing as free insurance, what could get blown away is their governing majority.
Tuesday, April 24, 2007
Thursday, April 12, 2007
Workers expressed a level of confidence in their retirement-readiness that didn't jibe with reality. For instance, 24% of workers who said they were "very confident" about their financial security in retirement are not currently saving for retirement, and 43% of "very confident" workers have less than $50,000 in savings.
Only 60% of workers are currently saving for retirement; and only 66% say either they or their spouse have saved for retirement, according to the study. Not surprisingly, younger workers were more likely than older workers to have a smaller retirement nest egg; 68% of workers younger than 35 had total savings and investments less than $25,000, compared to 31% of workers older than 55.
The hearing, by the Senate Budget and Appropriations Committee, was called in response to a report in The New York Times last week that described how New Jersey has diverted hundreds of millions of dollars that should have gone into its pension fund, using unorthodox steps authorized by governors from both parties over a number of years. In response to the article, Gov. Jon Corzine has said that the state will change certain accounting procedures. He has also asked the state attorney general to investigate, with outside actuarial help, whether tax requirements, securities laws or other rules have been violated. The attorney general, Stuart Rabner, will have to walk a careful line in such an inquiry, however. He is currently representing the State of New Jersey in lawsuits, filed by several employee groups, that accuse the state of failing to fund workers’ pensions lawfully. In those cases he is arguing that the state has acted legally.
The office of the attorney general has also said in audited financial statements that the state’s pension plans are “qualified” as tax-preferred plans. Normally, only the IRS can issue a ruling that a pension plan is qualified, after reviewing it to make sure it complies with the tax code. But New Jersey’s annual reports state that its pension plans are qualified “based on a 1986 declaration of the attorney general of the State of New Jersey.” The IRS said it had no record that New Jersey had ever requested to have its pension plans qualified. “Just because the attorney general says it’s qualified does not mean it meets the requirements of the Internal Revenue Code,” said Andy Zuckerman, director of employee plans, rulings and agreements at the IRS.
In the hearing, the state treasurer, Bradley Abelow, tried to calm the senators’ deepest concerns about potential legal and financial problems facing the pension fund. But at the same time, he argued that their complaints of being kept in the dark were unfounded. “The financial position of the system’s funds is transparent, and stated in various publications in accordance with the required accounting standards,” he said. He brought a list of places where information about the pension fund was available, including annual actuarial reports and monthly updates to each plan’s board of trustees.
But Sen. Barbara Buono (D - Middlesex County) said that was not enough. “There is not full disclosure to the Legislature,” she said, “perhaps not intentionally.” Sen. Buono also said she thought many of her fellow legislators had failed to live up to their responsibility to understand the implications of what they vote on.
Some senators wondered whether any of the outside professionals helping with the pension fund were at fault, expressing confusion about the roles played by actuaries, auditors, lawyers and others. “If you’re paying someone who is consistently giving us bad advice, why do we continue to pay them?” Sen. Turner asked. “Many times, you can find the financial people to give you the advice you want, so that you can do the things you want.” She said she wanted to know, for example, who had prepared bond offering statements that wrongly showed that the state had made hundreds of millions of dollars’ worth of pension contributions in years when it had really contributed nothing.
Frederick Beaver, director of the Division of Pensions and Benefits, defended the outside actuaries. He recalled that when he joined the division in 2003, people had been asking the actuarial consultants whether they could “push the envelope” and save more money by diverting pension contributions. The actuaries advised against it, he said.
Saturday, April 07, 2007
This is particularly interesting since Fidelity is one of the big players in the outsourcing market for companies that have traditional pension plans.
Friday, April 06, 2007
Thursday, March 22, 2007
Affiliated Computer Services Chairman Darwin Deason has joined with investment partner Cerberus Capital Management in a cash bid to take the troubled business process outsourcing company private. Cerberus has put an offer on the table to take ACS private in a US$5.9 billion buyout. That translates to $59.25 per share, a 15.5 percent premium over the ACS closing price on Monday of $51.29.
ACS has been a likely acquisition target for some time. It has been beleaguered by a backdated stock options investigation that cost the company millions of dollars and prompted the resignation of two top executives last year. Also, its image was tarnished after it languished on the market when it failed to be acquired by private equity investors at the end of 2005.
Little wonder then that the market loves the proposed deal. Shares of ACS were up 16.8% to $59.91 a share on Tuesday after Dow Jones reported that the private equity fund and ACS Founder Darwin Deason planned to buy the company. "The reaction in the market is interesting, because it has pushed the stock price above the takeover price. This is somewhat unusual. Normally, one might expect to see the stock move higher, but not quite to the takeover price -- since there is always a risk of a deal falling apart." In this case, it appears that investors are confident that ACS will fetch the full buyout price. The Dow Jones report indicates that Citigroup is funding the deal and has issued a letter stating that it is highly confident that it will obtain the necessary financing.
New questions have arisen about the stock option backdating practices at ACS. An internal probe blamed the backdating on two ousted former executives and another former CEO. No other company executives or directors were involved, according to the company. But a handwritten note by ACS Chairman and founder Darwin Deason discussing the practice of "always" picking the "lowest prices" in a quarter to award stock options puts those assertions in question. Attorneys for Mr. Deason say the note does not imply backdating, nor does the note imply Deason did anything illegal. News of the note comes at a sensitive time. Earlier this week, Deason joined with Cerberus Capital Management to make an offer to take ACS private. Some observers have questioned whether Deason is trying to scoop up the company at a bargain price while its stock is depressed. (The Wall Street Journal, 22-Mar-2007, Midwest ed., p. A4)
Friday, March 16, 2007
Wednesday, March 14, 2007
Monday, March 12, 2007
Friday, March 09, 2007
Florida is the country's first pin in hurricane alley. The major storms of the 2004 and 2005 seasons and their respective $20 billion and $10 billion payouts sent the insurance industry fleeing from the state. Those that stayed either stripped high-risk policyholders of coverage or jacked up premiums. So here's what the state government did: The state-run insurer of last resort, Citizens Property Insurance Corporation, which is also the state's largest property insurer, rolled back planned rate increases. It will try to spread the risk by offering other policies, such as fire and theft. And it will offer its subsidized rates to commercial property. We live in an era with the potential for destructive storms. Everyone - from politicians to the voters they aim to please - must understand that there is a cost to offering below-market insurance that fuels unrestrained building in high-risk areas.
Friday, February 16, 2007
This morning there was a story on CNN where some talkinghead was making a big stink about how this was unfair. I don't understand.
Here's how I see the matter. State Farm obviously is in the insurance business to make money; surely nobody expects them to write unprofitable business. Insurance in hurricane-prone areas is unprofitable, prompting State Farm to pull out. One's first thought might be that rather than pull out State Farm could instead try to make the business profitable by raising prices (although that might prompt the talkingheads to call *that* unfair).
So why doesn't State Farm raise prices? Because the market won't bear it. Essentially the economics of the matter are that homeowners in hurricane areas want the perks of living by the water, etc., without collectively assuming financial responsibility for the casualty losses that accompany this decision. Clearly homeowners in areas not subject to hurricanes are not going to accept higher premiums which would essentially subsidize those living in hurricane areas. Hence, the only economically viable decision is to pull out. Eventually, the supply of insurance dries up and prices will go up. Economics 101. Why are CNN and other news sources are acting like something horrible is going on here?
Wednesday, January 10, 2007
That will certainly add fuel to the fire of the rumors that Hewitt is planning to divest its HRO business.
Matt Levin's resume:
IHS Group - September 2004 to September 2006 - Senior Vice President of Corporate Development and Strategic Planning, in which role he was responsible for 10 (very small) acquisitions as well as the company's 2005 IPO
Hudson Highland Group - July 2003 to September 2004 - global operations officer for the human capital solutions business (quite a step up from his previous job at Sibson)
Management consultant (about 2 years) specializing in strategic planning and organizational effectiveness at Sibson & Company, which back then was a unit of Nextera Enterprises and is now a unit of Segal
Graduate of the First Scholar Program at First Chicago (now JPMorgan Chase), where he worked (about 2 years) in corporate finance covering the energy and media industries
MBA from the University of Chicago, BA from Northwestern University
Some additional background that may be of interest:
Steven Denning, Chairman of the investment firm General Atlantic LLC, sits on the boards of both Hewitt and IHS. General Atlantic is IHS's largest shareholder (14.3%) and Hewitt's second largest shareholder (13.3%).
Tuesday, January 09, 2007
[The whole story can be found in today's WSJ.]
Last year, Schwarzenegger vetoed a bill by California's Democrat-controlled legislature that was not much different from what he is now proposing himself.