Today is Thursday, May 17, 2012

Employee Benefits

6 ways Tom Tancredo beats John Hickenlooper on the issues

Tom Tancredo is going to give Obama Democrat John Hickenlooper a strong run and may even beat the Denver mayor on the issues. In Friday’s debate on Channel 12, which can be viewed on Denver’s CBS4, Tancredo attacked Hickenlooper on education, taxes, spending, running a sanctuary city, bilingual ballots, and PERA. Hickenlooper did himself no favors with his endorsements of ObamaCare, printing ballots in Spanish as well as in English and in his denials that he runs a sanctuary city and would make Colorado a sanctuary state. And Hick’s double talk about why he won’t disclose his 20-year-record of giving to ACORN and other hard left groups just won’t wash with Republicans or independents. You can summarize the debate this way:

Colorado a leader in state employees’ pension reforms and PERA

In the last session of the Colorado General Assembly, a bi-partisan coalition passed cuts in state employees’ benefits annual cost of living increases so that PERA will be more likely to be able to pay pensions down the road. Ron Lieber calls the legislature’s action courageous. Pensioners are suing over breach of contract. And gubernatorial candidate, Tom Tancredo, says the legislature didn’t go far enough. He told a recent press conference that more needs to be done to protect taxpayers from having to bear the cost of making up for PERA’s under funded liabilities. PERA is the agency that administers pensions for employes of the state of Colorado and other governmental employers in the state. Your homework is here and here. 

More large employers stop offering health insurance to pre-65 and post-65 retirees

While large employers expect medical costs  for their workers to rise about 9% in 2011, they will cut their health care expenditures by dumping thousands of post-65 retirees on Medicare and forcing more pre-65 retirees to buy their own insurance. They’re also shifting more health care costs to their insured workers, according to a new report, Behind the Numbers, by PrcewaterhousCoopers LLP (PwC) Health Research Institute. In 2010, medical costs are expected to rise about 9.5%.

This means that 

Will Congress demand business plans from the United Auto Workers union? Questions for the UAW

Most people discussing the proposed bailouts of the United Auto Workers (UAW) Chrysler, Ford (F) and General Motors (GM) fail to ask the hard questions that should posed to Ron Gettelfinger, the president of the UAW in Thursday’s and Friday’s Congressional hearings.

After all, we’re talking about a bailout of the UAW’s leaders and its members, not just a bailout for the U.S. auto industry.

Questions for the UAW’s Gettelfinger:

1. Has the UAW prepared and submitted specific plans for how it would help each of the auto makers restructure and survive?
2. Did the president of the UAW and his staff fly by private jet to Washington for the hearings?
3. Will the president of the UAW and the presidents of the UAW’s GM, Ford and Chrysler local unions take $1-per-year salaries until the companies are profitable?
4. Since the CEOs of the Detroit-based companies have taken 100% pay cuts and many of their staffs are taking big pay cuts, will UAW members accept 50% cuts in their very inflated hourly compensatin of some $73 and hour, including benefits for themselves and retirees?
5. Will the UAW agree to drastic changes in work rules that are needed to help the auto makers be competitive with Toyota and Honda?
6. Will the UAW agree that it will not strike locally or nationally until all of the auto makers are profitable?
7. Will the UAW cut the number of union bosses working in auto companies’ still operating factories by 50%?
8. Will the UAW grant the concessions it gives the automakers to the auto industry suppliers where it has members and contracts?
9. Will the UAW members and retirees give up their gold plated, first dollar health insurance plans for cost-effective, high deductible health insurance plans?
10. Will the UAW cut its union dues to $1 per month until the auto companies become profitable, just to show it’s commitment to the auto industry?

My guess is that all 10 questions would draw 10 negative responses.

Sell GM, Ford and Chrysler assets to new company for pennies on the dollar

Detroit-based auto makers should be liquidated so that their assets can be sold to a new company for pennies on the dollar and so that thousands of jobs and careers can be saved.

Bailing out or reorganizing General Motors (GM), Ford (F) and Chrysler makes no sense because their corporate cultures need to be replaced by a new corporate culture that can thrive in the 21st Century global auto markets.

Thus, all three companies should be forced to declare Chapter 7 bankruptcy under new Federal legislation that would give a new American auto maker or auto makers the first rights to buy the assets it or they want from the three companies’ bankruptcy trustees. After the new company or companies bought the intellectual and hard assets they thought that they could use to build viable, competitive enterprises, the rest of the assets could be sold to other auto makers and bidders.

The new company would start with a clean slate and would become the Southwest Airines (LUV) of the auto industry. It would not assume any of the debt, retiree benefit obligations, union contracts, dealers or vendor contracts that today make it impossible for a Detroit-based auto maker to produce and sell vehicles in competition with foreign-owned American auto plants and their more than 114,000 workers. And the new company wouldn’t be encumbered by the dysfunctional corporate cultures and dead wood that are helping make GM, Ford and Chrysler so complex and unmanageable.

A new company could assume the name of GM, Ford or Chrysler, the discredited Ancient Three. Or they could or start fresh with a new one, say for now, NewCar, which gets 72.8 million hits on Google.

With government backing, which would take an act of Congress, NewCar would hire based on merit and potential, not based on seniority, sex, race, religion, ethniticity, age, disabilities or political convictions or affiliations. This means some smart, wise senior auto industry executives and managers would get jobs and some experienced, worn out, disabled factory workers wouldn’t. Life ain’t fair, but this is about the future. More about the losers below.

NewCar would cherry pick 1,000 to 2,000 of the best auto dealers out of the surplus of 7,000 now selling Detroit products without having to worry about breaking any state or federal laws or contracts with dealers.

Vendors would compete to supply NewCar. The best would thrive, the rest would not.

The buyer or buyers most likely would be a private equity investor or venture capitalists who knew how to raise $30 billion and take a new company public immediately or in a few years.

The political reality is that auto industry workers who weren’t hired by NewCar would have to be taken care of by the Feds and states. If the government bailed out the companies, they’d effectively bailout the United Auto Workers and its members in the process. It would be cheaper to just bail out the workers who didn’t get hired by the new auto maker than to bail out the Ancient Three and UAW. Undoubtedly, the politicians would come up with a generous safety net and retraining programs for unemployed auto workers and union leaders.

Since President-elect Obama is going to nationalize the health insurance markets anyway, auto industry workers who lost their jobs and weren’t hired by NewCar, its dealers or suppliers would have health insurance. And the government would pickup the cost of paying them their pension benefits. Workers who were hired by NewCar wouldn’t have their pensions picked up by the government.

Dealers who didn’t make the cut with NewCar could be at least partially bailed out by the Feds, but the government really shouldn’t have to bail out dealers any more than it bails out investors in failed restaurants, hotels, distributors, retailers, hospitals or airlines. There just are too many dealers, and thousands need to close.

Whether the UAW would have a role would be up to NewCar’s management and workers. Considering Obama’s obligations to the unions, the company probably would be unionized, but a new contract would be much more workable than any existing auto industry contracts.

Ultimately a new auto maker would operate much more efficiently and would be very price competitive selling two or three of the top brands now sold by GM, Ford and Chrysler through an appropriate number of dealers. It would be up to the company to decide which brands it would make and sell.

How would a transition from the failing auto makers and a new company work? Anyone smart enough to take advantage of the opportunity to start a new auto maker from scratch for 10 or 20 cents on the dollar should be savvy enough to figure that out. I haven’t even tried to think about that, but I’m sure the problem could be solved.

The questions then are: How could such a plan be sold to potential founders of NewCar and to the politicians who are deeply in debt to the UAW and other unions? Who would want to start an auto maker and would have the resources and expertise to do so? How long would it take to start a new company, and how could it be done without shutting Detroit down for more than a few weeks?

I’m still betting that power-hungry politicians and union leaders will find a way to use government money to extend the lives of the obsolete and uncompetitive Detroit auto makers, but shareholders will be wiped out.

Congress should hear not only from the Ancient Three but also from the potential founders of new companies that would buy their assets. NewCar’s founders probably won’t be heard for obvious political reasons. And it’s unlikely that anyone is seriously considering starting an auto company.

So this is just an interesting exercise for a new GM shareholder who’s taking a bath on his tiny speculative covered call trade in a failing company’s stock.

Links: GM’s putting together a restructuring plan. Bloomberg.

Bailout proposals will lead to trade agreement problems for U.S. Bloomberg.

Citigroup maintains sell rating on GM and Ford. Streetinsider.

Auto industry planning PR push. Detroit Free Press.

GM and Ford probably won’t be forced into bankruptcy. I’m less confident of this prediction this week. Businessword.com.

For educational purposes only. Investigate before you speculate. I am not recommending any trades and take no responsibility for how others trade stocks, ETFs, commodities or anything else.

 

Pension fund obligations will hurt earnings at hundreds of companies

Black October combined with the chances that there will be more losses before the end of the year could wind up costing the 350 companies whose stocks are in the S&P 500 more than $300 billion. If employers have to make up these losses by refunding their pension plans, as required under the Pension Protection Act of 2006.

Fifteen trade associations that represent employers that are caught in the pension squeeze have asked Congress “to help companies avoid having to freeze or end pension plans that may be inadequately funded because of the financial crisis,” Reuters reports.

Note the scare tactic being used by the employers that are seeking help from Congress. Help or pensions will be frozen or suspended. That would be a radical move, and General Motors, Ford and Chrysler might very well have to suspend or freeze their pensions due to the financial crisis regardless of whether Congress bails them out.

But most employers would suck up and refund their pension plans rather than get in trouble with their employees, retirees and unions.

For investors, it’s important to know which companies are most at risk. Here are names mentioned this week in the financial press that are varying degrees of risk:

• Lockheed Martin (LMT)
• General Motors (GM)
• Dow Chemical (DOW)
• Unisys (UIS)
• Qwest Communications (Q)
• AT&T (T)
• Consolidated Edison (ED)
• New York Times (NYT)
• Ryder Systems (R)
• Burlington Northern (BNI)

Daily charts for these stocks are here. Click on a chart to see more charts for a given stock.

I doubt that many analysts have factored the pension fund problem into their earnings forecasts for these companies, which makes their forward price earnings ratios and PEG ratios (PE/projected earnings) more suspect than usual.

A big rally before yearend would help reduce the severity of this problem.

I own GM and have covered calls on it.

For educational purposes only. Investigate before you speculate.

October’s bear market drains $200 billion from major pensions; employers want bailout

Major employers are asking the government to bail them out of their obligations to their pension funds, which have shrunk by some $200 billion in the last month as a result of the plunge in stock prices.

This is just another indication of how little institutional investors’ cash is on the sidelines, waiting to jump on a sustained rally. The market rallied 889 points, or about 10%, Tuesday, and fell in the last 12 minutes of trading Wednesday, putting the Dow Industrials down 74 points for the day.

The key lede graphs from Bloomberg:

Oct. 29 (Bloomberg)—A trade group whose members include Lockheed Martin Corp., Dow Chemical Co. and General Motors Corp. is pressing Congress to help close a record $200 billion deficit in U.S. pensions created by this month’s global stock-market collapse.

The Committee on Investment of Employee Benefit Assets is kicking off a lobbying effort today to delay provisions of the Pension Protection Act that it says will force companies to drain cash flow to comply with funding rules set to take effect next year.

Where were the portfolio managers who allowed their pension funds to lose all of that money? Why didn’t they sell stocks when they saw them begin to lose value? They’ll give a lot of reasonable sounding explanations, but they failed to preserve their pension funds’ capital.

Now the employers want a bail out? How will that go down in Congress? This will be another opportunity for Congress to nationalize corporate America.

 

Wal-Mart (WMT) warns managers Democrats will unionize stores, raise costs and prices

If Sen. Obama is elected with a Congress controlled by Democrats, unions will be given the power to unionize about every business in the country, and now The Wall Street Journal reports that Wal-Mart warning its managers that its stores will be vulnerable to unionization if Democrats win big. Story is here.

This is not only about Wal-Mart and its profits, more important. It’s about the cost of living and inflation in the U.S. When I shop at Wal-Mart, I save more than 30% on the stuff I buy compared with prices I find at other stores and super markets, especially those that are unionized. People who are concerned about political power pretend Wal-Mart is our enemy. People who worry about the cost of living for America’s poor, know Wal-Mart is one of the best things that ever happened to America.

Wal-Mart pays its workers well and has one of the smartest health benefits programs in American industry, but success breeds envy and makes you a target for competitors and political opportunists.

It’s good to see that Wal-Mart is fighting back, but I don’t know how its decision to take on the left and Obama will play out. Will it hellp McCain and the Republicans or the Democrats.

The answer is not clear. We’re in an entitlement era, and even those who pretend to worry about the poor have little economic literacy and a lot of wealth envy. Time will tell.

Watch the stock today. The market will give us an early reading on whether speculators think this is a smart move by Wal-Mart, or not.

I don’t own WMT.

 

WMT: Wal-Mart puts pressure on drug stores, PBMs with expanded $4 prescription drugs list

Wal-Mart (WMT) knows how to knock the stuffings out of its competitors’ stock prices and make its customers happier.

When it announced its $4 prescription drug program a couple of years ago, the stock prices for Walgreens (WAG), CVS Caremark (CVS) and other drug store chains and pharmacy benefit managers such as Medco (MHS) took a tumble. All of Wal-Mart’s pharmacy competitors met its $4 deal, and they won’t be able to avoid to continue meeting its prices on the expanded list of low priced generics drugs that Wal-Mart announced today.

Somehow almost all of the drug store chains and PBMS have managed to grow their profits despite the generics drugs price war. This price war also will continue to help the makers of generic drugs while putting new price pressures on the big pharma makers of patented prescription drugs.

Wal-Mart said it is expanding its $4 prescription drug program and is specifically targeting the mail order pharmacy benefit managers that health insurers use to reduce their drug costs. The new phase three of Wal-Mart’s program “. . .now covers a 90-day prescription for $10, additional women‚Äôs health medications and a new $4 over-the-counter (OTC) offer. The 90-day option gives more choices to customers and physicians who may have been limited to mail order prescriptions in the past.”

Of course, as it always is with Wal-Mart, the big winners are the consumers.

Some of WMT’s close drug store and PBM competitors include Wallgreens (WAG), CVS Caremark (CVS), Express Scripts (ESRX), Long Drugs (LDG), Medco (MHS), Drugstore.com (DSCM) and Rite Aid (RAD). Daily charts are here. Click on a chart to see weekly and point and figure (PnF) charts.

Full disclosure. I have no positions in WMT or the other stocks mentioned.

For educational purposes only. Investigate before you speculate.

HWAY: Gallup-Healthways Well-Being index: 49% ‘thriving,’ 47% ‘struggling,’ 4% ‘suffering’

Healthways Inc. (HWAY) appears to be getting a lot of brand building attention for its sponsorship of the new Gallup-Healthways Well Being Index following the announcment of initial results of the survey Tuesday. The survey results are getting a lot of press attention (search the web for Healthways, news), and they undoubtedly will help both Gallup and Healthways sell their services. Healthways provides disease management services to employers, health insurers and Medicare, and Gallup conducts health status and employment satisfaction studies for employers and other organizations. Time will tell how long it will take for Healthways to leverage its data into new business and its increased visibility into a higher stock price, but it’s clear the company has a wealth of new information that its sales people will be showing customers and prospects.

Down the road, insurers might use the survey data to assess the medical risks presented by large groups, or employers may use the data to win lower premiums from health and life insurers. The data also could be used by a contractor to prove to a customer or prospect that its workers are relatively happy and healthy. A hedge fund or other large institutional investor could commission studies of companies to identify those with the most productive work forces. Employers and insurers would have to be careful about how they used the data. They wouldn’t want to be accused of discriminating against older or unhealthy workers.
Some 49% of Americans say they are thriving, 47% say they are “struggling” and 4% say they are “suffering,” according to the initial Gallup-Healthways Well Being Index. I recently blogged about the index here and about HWAY here.

“It’s pretty clear from the data provided through

Dossia database created by Wal-Mart, Intel, Pitney Bowes; patients will own their records

Wal-Mart, Intel and several other large employers in 2007 will roll out the Dossia database of medical records for their some 2.5 million employees, an another corporate effort to reduce the rate of increase in health care costs.

While making the information more accessable and, hopefully, more accurate, should improve treatment outcomes, it’s not clear how Dossia will reduce the rate of increase in health care costs as long as employers select health plans for their workers and pay most of the premiums. The auto industry and other employer groups have failed to make much of an impact on health care cost increases, even in their local markets.

I’m skeptical about this effort. The news release is here.

90% of consumers confident or somewhat confident their health plans will serve them well

A Wall Street Journal/Harris online poll finds most workers are pretty satisfied with the health insurance plans offered by their employers. This is a free link.