Obamacare Strikes - Forever 21 Cuts Employees' Hours

The predictions and fears of the Affordable Care Act’s adversaries have begun to materialize, specifically fears that the law will encourage employers to demote their employees to part-time positions in order to evade federal health care requirements. Popular clothing company Forever 21 is the first of what might be many companies to limit its non-management workers’ hours to 29.5 a week, just below the 30-hour minimum that the ACA deems full-time work.

Explaining that the company “recently audited its staffing levels, staffing needs, and payroll in conjunction with reviewing its overall operating budget,” Associate Director of Human Resources Carla Macias informed employees that effective August 31, they will no longer be full-time employees of Forever 21.

It is a move that will likely harm the reputation of the company, will absolutely harm the economic circumstances of its employees, and will function as a tangible example of the Affordable Care Act’s consequences and shortcomings.

Although the ethical nature of Forever 21’s decision is debatable, it is both rational and understandable. A company that boasts regularly low prices and frequent, sensational sales, Forever 21's competitive success is largely dependent upon its ability to maintain low manufacturing and operational costs. The ACA is an undeniable burden on this principle, and Forever 21’s management has the prerogative to take any legal measures necessary to avoid raising the costs of its products. Read more >>

Pension Benefit Guaranty Corporation to seize pension plans covering 4,780 workers

David Shepardson
Detroit News
The government's pension insurer said Monday it will assume responsibility for the underfunded pension plan of a bankrupt Northville auto supplier -- at least the fifth supplier to abandon its pension obligations this year.

The Pension Benefit Guaranty Corporation said it will seize the pension plans covering 4,780 workers and retirees of Hayes Lemmerz International Inc., the Michigan-based wheel manufacturer -- a move that will add nearly $100 million to the PBGC's growing deficit.

PBGC said it is moving now because Hayes Lemmerz failed to meet the minimum funding requirements, and the company cannot afford to fund the pension plan and to successfully exit bankruptcy.

The Hayes Lemmerz International Retirement Income Plan is 54 percent funded, with assets of $110.4 million to cover benefit liabilities of $204.8 million, according to PBGC estimates. The agency expects to be responsible for $93.7 million of the $94.4 million shortfall. The plan was frozen on Dec. 31, 2004.

The Detroit News reported this summer that PBGC was in talks with Hayes to seize its pension plans.

On May 11, Hayes filed for Chapter 11 protection. The company has said it intends to reorganize and emerge from bankruptcy this year to preserve its market share.

On Nov. 4, Hayes won court approval for a reorganization plan that will allow it to shed $480 million of its $720 million in debt.

The PBGC, a government-owned company, insures the basic pension benefits of about 44 million American workers and retirees in more than 29,000 private-sector defined benefit pension plans.

Earlier this year, PBGC assumed responsibility for Troy-based Delphi Corp's pension plans -- a move that saddled PBGC with $6.7 billion in costs for plans covering more than 70,000 people.

PBGC also assumed pension plans at suppliers Metaldyne Corp; Proliance International Inc., an auto parts maker based in New Haven, Conn.; and Portage-based Contech US LLC.

PBGC said earlier this month that its deficit had soared to $21.1 billion this year -- up from $10.4 billion last year. But it improved over its mid-year estimate of $33.5 billion.

Half of U.S. workers who left their jobs last year cashed out 401(k)

Ben Rooney
Nearly half of U.S. workers who left their job last year cashed out their 401(k) accounts, according to a study released Wednesday, despite ongoing efforts to dissuade Americans from doing so.

Hewitt Associates, a global human resources consulting firm, said 46% of employees who left their job last year took a cash distribution from their 401(k) plan.

The "alarmingly high" number, which was based on a study of 170,000 401(k) participants, has remained virtually unchanged since 2005, the group said.

Pamela Hess, Hewitt's director of retirement research, said employers and policymakers need to work together to change employee behaviors and reduce 401(k) cash-out rates.

"Otherwise, millions of Americans who rely on defined contribution plans will find themselves unable to achieve a financially secure retirement," Hess said in a statement.

While cashing in a 401(k) can make sense for some workers, most financial advisers say breaking your nest egg before retirement is a bad idea because of the penalties involved and the loss of potential interest.

"Over the course of 20 or 30 years, modest amounts of savings can turn into surprisingly large sums of money," Hess said.

Among the workers who did not cash out their plans, 29% left their savings in their prior employer's 401(k) plan, while 25% rolled over their money into an IRA account or other retirement plan.

The study also showed that younger workers were more likely to take the money and run. Six out of ten workers in their 20s took a cash distribution from their 401(k) last year, compared with just one-third of employees in their 50s.

Hess said the high cash-out rate among young workers is troublesome because those employees are missing out on "decades-worth of tax-deferred growth on their investments."

Not surprisingly, the study found a correlation between 401(k) plan balances and cash-out rates.

Only 8% of workers with 401(k) balances of $100,000 or more cashed out their plans last year. That compares with 85% of workers with a balance of $1,000 or less who did take a cash distribution.