NCTIA HR Committee Human Resources and Retirement Plan Update

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NCTIAHR CommitteeHuman ResourcesandRetirement
Plan Update

• March 3, 2006

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Table of Contents

• Section I Human Resources Update Hank
  Federal
• Section II Retirement Plans Current
  Trends and Strategies for
• Managing Plan Costs Eddie Vaughn,
  FSA

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Contact Information

• Hank Federal
• Findley Davies, Inc.
• 201 S. College Street
• Suite 1600
• Charlotte, NC 28244
• Phone [phone]
• E-mail hfederal_at_findleydavies.com

• Eddie Vaughn
• Findley Davies, Inc.
• 800 Green Valley Road
• Suite 102
• Greensboro, NC 27408
• Phone [phone]
• E-mail evaughn_at_findleydavies.com

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Human ResourcesUpdate

• Hank Federal
• March 3, 2006

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Human Resources Update

• New ideas . . . if any
• Human Resources management
• Retirement plan
• Open discussion and questions

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Total Rewards Strategy

• Connection and Alignment

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HR Hot Issues

• Talent Procurement
• Assessing talent
• Organization match
• 24 - 36 month turnover rates
• Diversity
• Social pressures
• Work/life balance

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HR Hot Issues

• Succession Management
• Training our own talent
• Lean organization
• Assessing internal talent
• Knowledge versus leadership

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HR Hot Issues

• HR Administration
• Compensation/Rewards
• Differentiating performers with little budget
• Disparity in pay (executives versus Joe
  Average)
• Benefits
• Healthcare costs
• Retirement plan costs
• Administrative Support
• Outsourcing paper processes and more

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Questions?
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Retirement Plans Current Trendsand
Strategiesfor Managing Plan Costs

• Eddie Vaughn, FSA
• March 3, 2006

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• My plan costs too much!
• Cost warning signals
• Specific cost control strategies
• Regional and national trends

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HIGH COST COULD MEAN

• Volatility or lack of predictability
• Cost actually are rising

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VOLATILITY OR HIGH COST?
Net Periodic Pension Cost Dollar Amount
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VOLATILITY OR HIGH COST?
Net Periodic Pension Cost Percent of Payroll
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HIGH COST PROBLEMS/INDICATORS

1. Additional liability in FAS 87
2. Additional funding charge in IRC 412
3. PBGC variable premiums
4. Quarterly contribution installments
5. Credit Balance Erosion/Full Funding exit

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FAS 87 ADDITIONAL LIABILITY

• Plan represents an asset or liability on the
  companys balance sheet
• Balance sheet amount is cumulative expense,
  offset by cumulative contribution
• Balance sheet entry may be no less than unfunded
  liability (potential problem)

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FAS 87 ADDITIONAL LIABILITY (Continued)
12/31/05 Prepaid Asset 10 million

2006 Expense 1 million
2006 Contribution 2 million

12/31/05 Prepaid Asset 11 million

12/31/06 Plan Assets 100 million
Accrued Liability 101 million
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FAS 87 ADDITIONAL LIABILITY (Continued)

• Plan would have to reverse an 11 million asset
  into a 1 million liability
• 12 million reduction in equity
• Cure is to contribute an extra 1 million
• Can often be prevented if known in advance

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HIGH COST COULD MEAN

1. High cost
2. Volatility
3. Lack of foresight or planning

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POSSIBLE NEXT STEPS- A MEASURED RESPONSE
Low
High
Measured
No Action
Terminate Plan
Keep Tweak
Close To New Hires
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CURRENT ISSUES AND TRENDS

• Historical Trends
• DB coverage has shifted over 30 years
• DB plans less prevalent today

US Workers Covered US Workers Covered US Workers Covered
DB DC
1975 40 16
Today 19 46
Source BLS Source BLS Source BLS
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CURRENT ISSUES AND TRENDS (Continued)

• Current Trends
• DB Plans continue to be prevalent in certain
  segments
• Some high visibility or financially stressed
  companies are freezing plans or terminating
• Surveys in CFO magazine and other sources
• Plan termination is not a common current practice
• Most employers will continue to maintain existing
  plans
• Some will adjust benefit levels/tiered
  plan/safety net plan
• A small percent (10 to 15) will close plans to
  new hires or freeze plan

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CURRENT ISSUES AND TRENDS (Continued)

• Local Experience in 2005
• Consistent with national trends
• Out of clients undertaking a review, about
• 50 leave plan as is (many decide to improve
  communications)
• 40 adjust plan features
• 10 close to new hires

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FACTORS TO CONSIDER

• How does plan fare
• With companys HR objectives and philosophies?
• With companys financial objectives and
  constraints?
• What is the plans funding health? Is cost
  stable? Are assets sufficient?
• Are benefits excessive? Poor? About right?

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FACTORS TO CONSIDER(Continued)

• What are competitors doing?
• How would current or replacement plan coordinate
  with the 401(k) plan?
• What legislative changes could better or worsen
  the current landscape?

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DEVELOPING A MEASURED RESPONSE

1. The true cost of the plan is the final dollars
   delivered for benefits and administration
2. Benefits are paid from either contributions or
   asset return
3. FAS Funding determinations attempt to recognize
   the cost in a rational and systematic manner

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DEVELOPING A MEASURED RESPONSE (Continued)

• Summary
• Identify the issue is it high cost or is it
  something else
• Assess your broader strategies
• Major overhaul
• Measured response
• Make adjustments
• Measurement tools
• Benefit commitment
• Asset strategy
• Improve Planning

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• QUESTIONS?