Monday, April 29, 2013

Interest In Adjustable Pension Plan As Alternative To 401(k)s Grows

There is a new retirement vehicle that limits employer liability while preserving guaranteed monthly pension benefits for employees. See the Adjustable Pension Plan article from Pensions & Investments magazine below.

Pensions and Investments Magazine logo

Richard Hudson of Cheiron
Richard Hudson of Cheiron designed the plan, and he believes both the IRS and Treasury Department eventually will approve it.

Adjustable pension plan design begins to gain converts Benefits can shrink or grow depending on performance

By Kevin Olsen | April 29, 2013
A new pension plan design that allows employers to drastically reduce their risk while still providing lifetime income to participants is gaining support as an alternative to moving employees into a defined contribution plans.
The adjustable pension plan was conceived by Richard Hudson, principal consulting actuary at Cheiron Inc., New York. Its key difference from a traditional DB plan is that the benefit received each year is adjusted from an original multiplier based on the previous year's investment performance.
The plan design shares the investment risk between employees and employers while providing more retirement income security than a typical defined contribution plan.

Earlier this month, Consumers Union, Yonkers, N.Y., reached a collective bargaining agreement with the Newspaper Guild of New York to create an adjustable pension plan that will replace the standard DB plan for Guild members.
The existing plan had about $42 million in assets as of Dec. 31, 2011, according to the company's most recent Form 5500 filing. That plan will be frozen on May 31, and contributions to the adjustable plan will start June 1.
Consumers Union, publisher of Consumer Reports, is the second single-employer plan to switch to the adjustable plan.
Last November, The New York Times became the first with its $280 million plan for employees who belong to the Newspaper Guild.
The very first adopter of the adjustable plan was the Greater Boston Hospitality Employers Local 26 Trust Funds.
The multiemployer plan adopted the new design on Jan. 1, 2012, moving from a 401(k) to a pension plan to provide more retirement security, according to a document on the union's website. Under its plan, participants will receive either a guaranteed floor benefit or the adjustable benefit tied to investment performance, whichever is greater. (The 401(k) plan, which had $35 million as of June 30 according to its latest 5500 filing, is still open, but there no longer is an employer contribution.)
6% contribution
Under the Consumers Union plan, the employer will contribute a fixed 6% of salaries plus $100,000 each year. The New York Times will contribute about $9.5 million to its plan this year and a similar amount after that based on a formula.
“It will vastly reduce risk and volatility for the company and still provide a lifetime payment and PBGC insurance,” said William O'Meara, president of The Newspaper Guild of New York. “We're hoping that this becomes a national model for others to adopt. There is some upside potential and very little downside for employees” compared with participant risks in a defined contribution plan.

However, both plans still need approval from the Internal Revenue Service - by July 31, 2014, for The New York Times and March 15, 2015, for Consumers Union. If the plans do not receive approval by those dates, the APP will revert to a new DC plan.

An official at the Pension Benefit Guaranty Corp., who declined to be named, said the new adjustable plan sounds like a “great idea.” But the plan won't be covered by the agency unless the IRS says it is a tax-qualified plan. If that designation is granted, it will be treated like any other DB plan, the official said.

An IRS spokesman did not respond to requests for interviews. However, Mr. Hudson said he has met with IRS and Treasury Department officials and did not think it would be a problem receiving approval.

Sources said the plan design makes sense for employers with union pension plans because they have collective bargaining rights, which can often prevent, or slow, a move to DC plans.
Interest from Maine
Still, the state of Maine is considering the APP for employees and teachers participating in the $11.5 billion Maine Public Employees' Retirement System, Augusta. Cheiron is Maine's actuary.
Maine employees are exempt from Social Security and the Legislature created a task force two years ago to design a supplemental plan for new employees who would also receive Social Security for the first time. The result was a hybrid within a hybrid — half adjustable pension plan and half DC plan.
“Maine would become the first state to enter Social Security from a non-Social Security position,” said Sandy Matheson, executive director of Maine PERS.
The task force has drafted legislation to create the new plan and is awaiting a bill sponsor. Ms. Matheson said it is unlikely the proposal will be picked up during the current legislative session.
“The Legislature had very specific criteria for us to work with,” specifically long-term cost exposure of 2% of salaries, and the task force “agreed on the principles we wanted to see in the plan,” Ms. Matheson said. One percent each would go to the DB and DC components, with a 6.2% contribution to Social Security, equaling a total 8.2% employer contribution.
The state contributes 3.67% of payroll to the state employees and teachers plan in addition to unfunded actuarially liability cost, which equals 11.59% and is expected to increase to 13.43% for the next two years.
The task force wanted to provide new hires with benefits as close as possible to the traditional pension plan, Ms. Matheson said.
Cheiron's Mr. Hudson said a plan needs to immunize retiree liabilities, instead of “letting it ride” on a 60% equity/40% fixed-income portfolio that does not take into account how much of a plan's liabilities are tied up with retirees. There should only be risk in the active group, he added.
Risk transfer
When moving to a DC plan from a DB plan, all the risk is transferred to the employee, Mr. Hudson said.
“Plans increase the risk first and then pass it on to employees. So we said we can do that without increasing the risk,” Mr. Hudson said. “If you can't handle the risk you have, how would (participants) be able to take on more risk on their own?”
Under the APP there is a cut in benefits, Mr. Hudson acknowledged, but much less than with a move to a DC plan — and there is guaranteed retirement income.
“It might be a lower benefit than the traditional defined benefit plan, but at least it's secure,” said the person from the PBGC. The official added that the adjustable plan is more cost controlled than a traditional DB plan and not as dependent on big contributions.
What differentiates the adjustable plan from a cash balance plan is that the cash balance plan benefit is determined by a benchmark such as 10-year Treasuries; the adjustable plan's benefit depends on actual investment performance of the plan.
Bruce Cadenhead, chief actuary for U.S. retirement at Mercer LLC in New York, said the adjustable pension plan is similar to the variably annuity plan design that has been around for decades but differs in that the employer still bears investment risk.
“I think it's something we're beginning to see more discussion about,” Mr. Cadenhead said. “I think (this type of plan) is promising because one of the biggest risks is more people becoming retirement ready that will outlive their money, and this design addresses all those concerns.”
The APP has an emphasis on low volatility and uses a lower discount rate. Mr. Hudson said the goal is get down to around a 6% return target with a standard deviation of about 5.5% to 6%.
'Essential principles'
The important part of the APP is that it includes all the “essential principles” for a new pension plan design such as employer contributions, pooled assets that are professionally invested and lifetime income, said Karen Ferguson, director of the Pension Rights Center, Washington. The PRC is in favor of any DB plan designs that address those principles, she added.
“It significantly reduces the risk to employers and employees,” Ms. Ferguson said. “If the plan doesn't do well, then (participants) won't get a better benefit.”
The adjustable plan idea probably is most appealing to unions because it helps to have bargaining power for better pension plans, Ms. Ferguson said. And unlike other alternative plan designs, the adjustable pension plan does not need legislative approval.
“It's so logical and makes so much sense,” Mr. Hudson said. “When people ask why isn't everyone doing this, I just say, "I don't know.'”
This article originally appeared in the April 29, 2013 print issue as, "Adjustable plan design begins to gain converts".
— Contact Kevin Olsen at | @Olsen_PI
Robert R. Daraio
Local Representative
The Newspaper Guild of New York
1501 Broadway, Suite 708,  NYC 10036
914-774-2646 Cell 212-575-1507 Office
212.730.1531 Fax 914-944-9626 Home

Thursday, April 18, 2013

The Newsonomics of Pulitzers, Paywalls, and Investing in the Newsroom


Could it be that investing in the newsroom isn’t just good for journalism — that it’s also good for the bottom line?

Noteworthy in the 2013 Pulitzer announcements are the multiple winners. 

The New York Times won four and the Star Tribune two. Having just wrapped up a session on pay walls at the NAA mediaXchange conference in Orlando, one that included discussion of both the Times and the Star Tribune, I wondered about a few connections.

Was it a coincidence that two of most successful all-access digital circulation strategies in the country belonged to the multiple winners? 

What could the relationship be? How could we think about those links between Pulitzers, pay walls, and investing in newsrooms?

The Star Tribune’s two Pulitzers were generated out of a newsroom of 260. That number has stayed fairly steady in the last three years, though it is down from an all-time high of about 400. 

Amid the kind of expense cutting that swept almost the entire industry, in both the recession years and the aftermath, the Star Tribune is one of a relative few that made a point of keeping its reporting staff as whole as possible. It disproportionately made its newsroom cuts in copy handling and middle management in order to do that.

Broadcast Union News added: Brad Schrade, Jeremy Olson and Glenn Howatt won the reporting honors for a series on a spike in infant deaths at poorly regulated day care homes. The stories led to legislative action to strengthen state rules, the Pulitzer committee said. Steve Sack won the prize for editorial cartooning. "We're just thrilled and humbled to win awards for two very different types of journalism," Star Tribune Editor Nancy Barnes said.

So while the cuts at the Star Tribune have been significant, its remaining core is stronger than that of many metro dailies. Its reporting capacity tracks very favorably, for instance, compared to the more than 50 percent cuts endured by some Tribune metros. (In fact, as the Tribune sale is set to proceed — as early as this week, according to sources — the task of re-inflating those torn-apart newsrooms will be an early, serious business challenge for buyers.)

“Newsroom costs as a percent of total for us have risen [since its 2010 bankruptcy],” says publisher Mike Klingensmith, a statement that becomes more intriguing as we look at the overall industry’s trends.

Daily circulation is now at 302,000 and Sunday at 510,000, both up three years in a row.

(With the Star Tribune prize wins, we must now cede the Twin Cities title of “Newspaper of the Twin Pulitzers” to the Star Tribune. The St. Paul Pioneer Press, of which I am an alum, proudly claimed that title after two wins, in 1986 and 1988. At that point, Knight Ridder owned the paper. Our newsroom staff total hit about 235 in the next decade. Today it is less than 120.)

Similarly, The New York Times — winners of that quartet of Pulitzers — has persevered through the toughest take-Carlos-Slim’s-money-and-hope-for-the-best times.

Today, it counts 1,150 newsroom employees. While it has regularly, and sometimes painfully, pruned through the last five years, it says the 1,150 number matches its total of 10 years ago. “There have been cuts, yes, but we have also added to our ranks, particularly in the areas of multimedia producers, videographers, graphics editors, etc.,” says Times spokesperson Eileen Murphy. “That hiring has kept the number relatively stable.”

Broadcast Union News added: David Barstow and Alejandra Xanic von Bertrab of The New York Times won for Investigative Reporting. The Times staff was recognized for Explanatory Reporting, David Barboza won for International Reporting, and John Branch won for Feature Writing.

Times spokeswoman Eileen Murphy said Executive Editor Jill Abramson announced the awards to the staff, saying she and Managing Editor Dean Baquet "view the wonderful bounty of prizes as a real tribute to the newsroom's excellence and dedication." Murphy added, "We are proud to have broken new ground in multimedia storytelling and global investigative journalism."

The Times won’t divulge the percentage of overall expense devoted to its newsroom, but you can figure it’s close to 20 percent. That percentage is closely guarded by many newspaper companies, though I’m not sure why. Maybe too many are embarrassed by how low it may seem to the public.

How many are in the closer-to-20-percent club? We don’t know, but we can surmise they’re a small number of America’s 1,380 daily newspapers, including some family-controlled papers like The Washington Post. I believe that the Star Tribune is also in that neighborhood.

While winning Pulitzers is great, those wins certainly won’t in and of themselves sustain these companies on the edge of profitability and revenue growth. One thing that is sustaining them for now is reader revenue

The Times now takes in more reader revenue than ad revenue. The Star Tribune sees 44 percent of its revenue coming from readers, as it plies all-access and digital circulation.

Let’s look then at the newsonomics of Pulitzers, pay-walls, and investing in newsrooms, and think about whether our intuition has any basis in provable fact.

If even 20 percent of expense devoted to newsroom seems like a low number, consider that the industry average is about 12.7 percent for the largest dailies. That’s the average newsroom expense, of total expenses, for papers above 100,000 circulation, according to Inland Press Association, the industry’s acknowledged leader in much benchmarking work.

Interestingly, those with smaller circulations spend a bit more, and we know their business results over the last 10 years — less decline in ad revenue and in circulation — have been better.

We can also see in the data that newspapers overall are spending a smaller percentage of their overall expenses on their newsrooms than they were 10 years ago. (The comparisons are 2011 to 2001; 2012 data will be out soon. The survey annually samples between a few hundred newspapers “across the circulation size spectrum.”) 

Newsroom expense as a percent of total newspaper expenses

Circulation Size 2001 2011
10,000 16.30% 15.54%
25,000 16.91% 14.53%
50,000 15.63% 13.94%
100,000 14.44% 12.70%
250,000 12.75% 12.70%

The downward turn, even as small as it is, is glaring. Given how much less all newspapers spend on printing and newsprint, given circulation declines, one might expect that newsroom expenditures’ share would have risen a bit, as they have in Minneapolis. Instead, they’ve declined.

Simply put, publishers — on average — have cut their newsrooms more deeply than other parts of their operations. They haven’t believed that smart readers will respond positively to better coverage or negatively to cutbacks. (Thirty-one percent of Americans have fled a news outlet that has under-served them, according to Pew.)

For their part, editors and reporters have always wanted to believe their work had value — but they were the last ones to impute financial value, especially since so many over time have flouted their innumeracy.

If the people who are supplying most of your revenue — not yet the case for most dailies, but it likely will be within three to five years — are happy with the product, they’ll keep paying. If they are delighted, they may pay for subscriptions and for new products to be created and sold. If they’re not satisfied, newspaper business fortunes will have squandered their greatest opportunity in a generation.
Beyond the Inland numbers, we have some data on the financial value of newsroom investment.
Since the 1990s, Esther Thorson has been studying the linkage between investment in newsrooms and advertising and circulation results. “Money in, money out,” she calls it, suggesting that considering the newsroom as a simple “cost center” is short-sighted.

With credentials in both psychology and mathematics, she’s now associate dean of graduate studies at the University of Missouri’s School of Journalism. Along with her colleague, marketing professor Murali Mantrala, she has long worked with the Inland data and with individual newspaper companies as well. 

Her conclusion: “Input into the newsroom in dollars had far and away the greatest impact on all sources of revenues — both advertising and circulation.” Citing a case history that Thorson says is more widely indicative: “For every dollar invested in the newsroom, you create 21 cents of direct impact on circulation revenues, plus 56 cents of indirect impact from print ad revenues, plus 32 cents of indirect effect online ad revenue.” Investments in ad sales and circulation sales directly yield less, she says.

Her econometric models may find new life in the all-access circulation age.

Press+ co-founder Steve Brill has made this plain-spoken point: “If you want to sell journalism, you have to do journalism.” It’s colorful — and his company is building data behind it. Press+ is beginning to track the correlation between content volume and sales.

A mid-2012 study, soon to be updated and broadened by Press+, shows a wide variation, depending on news volume: “One newspaper site with an average of 82 stories posted to the site each day had first month subscription sales of approximately $36,000, while a site with similar traffic but only an average of 21 stories had first month sales of less than $400. A third, similarly-trafficked site with an average of 50 stories had first month sales of approximately $3,000. A fourth site, with an average of 55 stories had sales of slightly more than $3,000.  

Over time, the site with 82 daily stories sold 10 times as many subscriptions per month as the site with 50 stories a day and sold 15 times as many subscriptions as the newspaper with 20 stories a day.

It must be noted that the initial survey only used four papers. But it’s another useful data-point and one to watch as it is expanded. Further, it gets to the major connection everyone in the news industry — whether in newspapers or sites like The Daily Beast, considering a pay-wall — should be talking about: How does content itself best maximize the revenue coming from readers in the pay-wall age?

Further, Brill tells me that the company is beginning to track the linkage between “engagement and actual content quality.”

Is 20 percent the magic number? No, but it sure is a great plateau.

If we look at the fledgling success of the dedicated enterprise/investigative online start-ups — California Watch, ProPublica, Texas Tribune, MinnPost, and The Lens, for instance — we find a different kind of arithmetic. Pro Publica’s Dick Tofel says 85 percent of the site’s cost go to “program,” essentially content creation. Evan Smith reports that 73 percent of his Texas Tribune expenditures go to content creation. For all of the new companies, it’s by far their largest expense.

The surprise national reporting Pulitzer winner, InsideClimate News, pays out 80 percent of its total expense, to its seven full-time staffers.

Of course, these digital-only start-ups have neither the legacy costs — printing, distribution, etc. — of newspapers, nor their billions of dollars in print ad revenue. Their model, though, is instructive.

These newbies paint a picture of the modern news company in 2023. All publishers, as they work toward their mainly digital businesses ten years in the future, will focus on two big expenses: content creation and commerce development, including but not restricted to advertising. 

Many of the other expenses that consume newspaper companies — Big Iron, trucks, massive office buildings — will be memories. (The Mercury News decision to sell its San Jose-iconic offices is indicative.) The big challenge for the legacy news companies, broadcasters included, is how much they can move to that kind of cost structure in the interim.

To be sure, there’s not a straight line between newsroom size and editorial quality; the role of active, challenging newsroom management is key in how to use resources, no matter how large or small.

But it certainly looks like one of the best predictors of it, and not just because of the numbers. It’s taken a real commitment, through the budget traumas of the past decade, to preserve as much newsroom capacity as possible. Those companies that have striven to do that tend to place more value on the editorial quality overall.

Further, newsroom size is a proxy to community commitment, thinks Orange County Register publisher Aaron Kushner. “When you cut newsrooms, when you cut days of the week, these are symptoms that you are not woven into the fabric of the community,” he told the NAA Orlando crowd this week. 

In his on-stage conversation with Ken Auletta and Terry Kroeger of Berkshire Hathaway’s media group, Kushner won a strong round of applause as a trailblazer in the industry.

For Kushner, you can’t create business success — getting readers to pay a dollar a day for all-access — if you’re not meaningfully part of the community.

For all news companies, it’s time to change the tired conversation of editors fighting for every last FTE against a tired-of-hearing-it business side. If we can start to understand how editorial quality and quantity play into the very revival of the newspaper business, we can break new ground.

Which brings us back to content — call it journalism if you like — as a business imperative.

We’ve got big experiments, such as the Orange County Register’s hiring of 108 new newsroom staffers since the new owners hit town last year. We have a number of smaller, less public, ones. 

Some newspapers have held on to more newsroom capacity than others — how will their fledgling pay-wall plans fare? 

What further correlations can we draw now that we increasingly have lots of numbers at our fingertips? 

How do the new ways to present news, like the Pulitzer-winning Times feature Snow Fall, spark or reinforce sales?

Whodathunkit? The age of Big Data may actually support old-fashioned (and newfangled) journalism excellence.

Thursday, April 11, 2013

Consumer Reports Newspaper Guild Members OK Contract With New Pension Plan

TNG-CWA 31006 Header
Guild and Mgmt after Ratification at CU

Guild officials notified Consumers Union management on April 5 that members had overwhelmingly ratified the contract. From left, Emilio Gonzalez and Dawn Yancy, both Guild bargaining committee members and unit treasurer assistant and treasurer, respectively; Tony Bilangino (rear) of CU human resources; Guild Representative Bob Daraio; CU Vice President, Human Resources Linda Tepedino; Guild President Bill O'Meara; Guild Unit Chair Anna Pierdiluca and Guild First Vice Chair Mike Dempsey.

Package totals 6% in raises, bonuses

Guild members at Consumer Reports magazine on Friday ratified a new three-year contract that preserves a defined benefit pension plan and gives them a wage-increase and bonus package totaling 6 percent. The vote was 203 to 31, with two abstentions.

The new contract, which expires on Dec. 31, 2014, restores severance pay, has no givebacks on job security, makes only minor changes to health care benefits and offers a new, less expensive medical insurance option for those who want lower premiums. 

The contract, which took about a year and a half to negotiate, is the Guild’s second agreement after last year’s deal with The New York Times to include a government-insured adjustable pension plan that guarantees each retired member a lifetime monthly check, but doesn’t expose the company to the risk of unfunded liabilities. 

Pay provisions in the new agreement with Consumers Union, the parent of Consumer Reports, include an immediate 1 percent raise retroactive to Jan. 1, a 2 percent raise on Jan. 1, 2014 and three 1 percent bonus payments, the final one of which is to be paid on Dec. 1, 2014.

Consumer Reports Accepts New York Guild's Innovative Pension Plan



NEW YORK, April 8 — Consumer Reports magazine has become America's second workplace to accept an innovative defined benefit pension plan that will guarantee its retirees lifetime incomes without exposing the company to unforeseen risk and volatility.

The "adjustable pension plan," or APP, is part of a new collective bargaining agreement between the magazine's parent, Consumers Union, and the Newspaper Guild of New York that Guild members at the Yonkers, NY-based non-profit company ratified on Friday, 203 to 31 with two abstentions. The new plan must be approved by the Internal Revenue Service before it can be implemented. 

Faced with a bargaining demand by Consumers Union to "freeze" its pension plan at current length-of-service levels and leave the more than 300 employees in it with a company-subsidized 401(k) plan as their sole retirement funding vehicle going forward, the Guild proposed the APP as an alternative, and management accepted it. 

"The Guild believes that the adjustable pension plan is a far better option for employees than a 401(k) alone because it provides government-insured income for life without the risk that comes with managing your own investments," said New York Guild President Bill O'Meara.

The APP made its debut for nearly 1100 employees at The New York Times in November 2012 when Guild-represented journalists, ad sales people and other professionals ratified it as part of a new contract. The Times plan is currently awaiting IRS approval, which could take several months. At The Times, as at Consumer Reports, the adjustable plan will replace a more traditional defined benefit pension plan. 

The APP, which combines already-approved pension elements into a new and unique structure, was developed by Guild actuaries at Cheiron at a time when employers are being pressured to freeze or terminate their traditional pension plans because of their unpredictable nature and the risk of incurring unfunded liabilities that could weigh on their balance sheets. 

The number of defined benefit pension plans in the United States has shrunk by two-thirds in the past 25 years to 38,000, leaving only about one in five private industry workers covered by them, according to government data. 

Many defined benefit plans have been replace by 401(k) plans, but nearly half of all workers are not confident about having enough money for a comfortable retirement and more than half of workers 55 or older have less than $50,000 in savings, according to the Employment Benefit Research Institute's 2013 Retirement Confidence Survey.

From an employer's standpoint, the APP is not much different than a 401(k) plan. Consumers Union, for example, will contribute 6 percent of employees' salaries (about $1.8 million this year) plus another $100,000, to the plan each year. It has no further financial obligation to the plan.

For employees, on the other hand, retiring with an APP will mean a monthly check for life that is guaranteed by the U.S. Pension Benefit Guaranty Corp. But employees do incur a limited amount of risk in the APP, which is why it is called "adjustable." If the plan performs worse than projected in a given year, the benefit accrued in the following year may be less. Conversely, a better-than expected return may yield a higher benefit accrual in the following year. Either way, each year's benefit accrual becomes locked in and guaranteed with the passage of time. 

At The Times, for example, employees this year will get a retirement benefit of 1.2 percent of their pay. A $100,000-a-year employee is therefore assured of receiving $1200 a year upon retirement for his or her 2013 earnings alone. If the plan's performance this year is below projections, the 2014 benefit accrual might be 1.1 percent or less. If it does better, it could be 1.3 percent or more. 

Another feature about APPs is that they are much more conservatively invested than most defined benefit plans and have lower and more realistic projected rates of return. 

The Guild, Local 31003 of the Communications Workers of America, represents nearly 3000 journalists, advertising, technical and financial professionals and other employees at 19 New York area news organizations, including Thomson Reuters, Time Inc., Standard & Poor's and other companies.

For more information contact:
Bill O'Meara, President