Worried that new pension funding requirements that take effect next year could cripple corporations, business and finance officials say they can’t wait for president-elect Barack Obama and the 111th Congress to be sworn in. So they are pressing lame duck legislators to convene this month and stall implementation of some Pension Protection Act (PPA) provisions until the markets stabilize and credit is more widely available.
The double-whammy of plunging pension assets and the credit crunch put plan sponsors “in an untenable position” when it comes to meeting full funding requirements, a number of business organizations said in a joint letter to congressional leaders. “At a time when companies need cash to keep their businesses afloat, they are also required to make unexpectedly large contributions to their plans in order to meet funding requirements,” states the letter signed by the Association for Financial Professionals (AFP) and Financial Executives International (FEI), among other organizations.
As a result, companies could be forced to freeze or terminate their plans or reduce retirement benefit accruals to survive. “We do not believe that in enacting the PPA, Congress intended companies to be forced to make this kind of decision,” write the signatories, including the Business Roundtable and the Chamber of Commerce.
What’s more, freezing pensions won’t eliminate the huge funding obligations triggered by the market meltdown, notes Judy Schub, managing director of AFP’s Committee on the Investment of Employee Benefit Assets . “The magnitude of some of these increases are two- to three-times than companies would otherwise be contributing to the plans,“ Schub explains. “Adding that kind of cash in an environment where there is no credit or where credit is expensive will put an enormous strain on companies and that’s likely to cost jobs.”
The letter to Rep. George Miller, chairman, and Howard McKeon, ranking member, of the House Committee on Education and Labor, asks the committee to permit smoothing of unexpected losses, remove restrictions on the extent of asset smoothing, allow sufficient transition to new funding rules and permit new funding election methods to keep plans viable.
While the recessionary business climate is expected to fuel long-term growth for outsourcing as companies initiate cost-saving organizational changes, the short-term prognosis for new deals is less optimistic, according to a survey of service providers by advisory firm EquaTerra Global Research.
About 23% expect their business process (BPO) and IT (ITO) outsourcing pipeline expansion to slow in the fourth-quarter, compared to an average of just 7% of service providers reporting declining expectations during the last four years. Those reporting bigger pipelines also dropped to 41%, well below the 55% average recorded since 2004, when the survey was initiated.
"While there is a lot of interest, it can be difficult to consummate new deals," says Stan Lepeak, EquaTerra managing director of global research. "Efforts have slowed or stopped as companies hold back on major strategy decisions. Planning is difficult when you don't know what your company will look like in a few years," Lepeak says.
For companies that forge ahead, conditions are changing. Pricing is more aggressive, according to half the respondents. Also, buyers are bundling and managing efforts by function; establishing multi-sourcing agreements at the corporate level and shifting from longer projects (averaging five years) designed to improve end-to-end business processes to shorter term contracts that bring immediate cost savings and reduce capital outlays. In the latter case, more organizations are building in checkpoints that let users evaluate results after, perhaps, a couple of years, with an option to renew, renegotiate or cancel the contract at that time.
Meanwhile, outsourcing demand was reported mixed across industries, regions and services. It was much stronger in Europe, for example, than in the U.S., with 64% citing increased demand in Europe, compared with 25% domestically. Demand was slightly stronger for BPO (58%) than ITO (39%). Deals for financial and accounting services were stronger than those for ITO and other BPO business, with expectations of increased business in modeling and analytics.
Michael W. Upchurch moves up to executive vice president and CFO at Kansas City Southern, the $1.7 billion transportation holding company based in Missouri.Upchurch, 47, replaces Patrick J. Ottensmeyer, 50, who was named executive vice president for sales and marketing. Upchurch joined the company in March as senior vice president for financial management and purchasing of its primary U.S. holding, The Kansas City Southern Railway Co. From December 2007 to February 2008 Upchurch was senior vice president of finance at Red Development, and from September 2006 to December 2007 he worked as an independent financial consultant. Previously, he spent 16 years at Sprint Nextel.
Kyle D. Lorentzen has added interim CFO to the title of COO at Noranda Aluminum Holding Corp., the $1.4 billion producer of value-added primary aluminum products based in Franklin, Tenn. Lorentzen, 42, succeeds Richard J. Anderson, 59, who retired on Oct. 31 after seven years as CFO of the company, which is owned by private equity firm Apollo Management LP. Lorentzen joined the company in May from Berry Plastics, another Apollo company, where he had been vice president of corporate development since April 2007. From February 2007 to April 2007 Lorentzen was vice president of strategic development at Covalence Specialty Materials until it merged with Berry Plastics.
Sheamus G. Toal moves up to executive vice president and CFO at New York & Co. Inc., the $1 billion specialty retailer based in New York. Toal, 39, replaces Ronald W. Ristau, 54, who resigned as president and CFO on Oct. 24 to pursue other opportunities. Toal was named executive vice president and chief accounting officer in April 2008 and had been senior vice president and chief accounting officer since 2007. He joined the company in 2004 as as vice president, controller and treasurer. Previously, he served as vice president and controller at specialty retailer Footstar.
Kenneth L. Young has added interim CFO to the title of treasurer at Huttig Building Products Inc., the $874.8 million distributor of building products based in St. Louis, Mo. Young, 57, takes over from David L. Fleisher, 46, who resigned on Oct. 17 as vice president, CFO and secretary to accept a position outside of the building products industry. Young joined Huttig as treasurer in July 2006. From August 2005 to December 2005 he served as finance director at Insituform Technologies, a provider of trenchless sewer rehabilitation, tunneling and industrial pipe linings.
Craig S. On moves up to executive vice president and CFO at UCBH Holdings Inc., the $751.9 million holding company of United Commercial Bank (UCB) based in San Francisco, Calif. On, 55, had been senior vice president and interim CFO since May 2008, when executive vice president and CFO Jonathan H. Downing, 58, died. A 21-year veteran of Deloitte & Touche LLP, On joined the company in June 2005 as senior vice president and controller and became senior vice president and deputy CFO in March 2008.
Kathy Redd moves up to vice president, controller and acting CFO at GenCorp Inc., the $745.4 million manufacturer of aerospace and defense products and systems based in Sacramento, Calif. Redd, 47, replaces Yasmin R. Seyal, 50, and R. Leon Blackburn, 62, who respectively resigned as senior vice president of finance and CFO and as vice president and controller to pursue other interests. Redd joined the company in 2002 as assistant controller and was promoted to vice president of finance in 2006.
Craig J. Laurie becomes the new CFO on Nov. 30 at Brookfield Homes Corp., the $583.3 million land developer and homebuilder based in Fairfax, Va. Laurie, 37, succeeds Paul G. Kerrigan, 40, who is retiring as executive vice president and CFO after 12 years with the company for personal reasons. Laurie joins the company from Crystal River Capital, a New York-based real estate investment trust (REIT), where he has been CFO and treasurer since April 2007. From June 2003 to March 2007 Laurie was CFO at Brookfield Properties, a Toronto, Canada-based commercial real estate company which spun off Brookfield Homes in January 2003.
Jack Pearlstein announced on Oct. 6 that he plans to retire as CFO, treasurer and assistant secretary at Solera Holdings Inc., the $539.8 million developer of software for the auto industry based in San Ramon, Calif. Pearlstein, 44, will stay to assist the company in its search for a successor, now underway. Pearlstein joined the company in April 2006. From September 2001 to November 2004 he served as CFO, treasurer and secretary at DigitalNet Holdings, Inc., a provider of network, security, information and application services to U.S. defense and intelligence agencies.
Martin A. Picciano is the new chief accounting officer at Syniverse Holdings Inc., the $377.5 million holding company of Syniverse Technologies, a provider of services and solutions for the telecommunications industry. Picciano, 42, replaces David W. Hitchcock, 47, who previously served as executive vice president, chief accounting officer and CFO and will continue as executive vice president and CFO. Picciano joined the company in August as senior vice president of finance from Global Payments, a payment processing and consumer money transfer company, where he was vice president and controller from February 2001 to May 2004.
Gysle R. Shellum becomes the new CFO on Nov. 11 at Petroleum Development Corp., the $305.2 million producer of natural gas based in Bridgeport, W.Va. Shellum, AGE, succeeds Richard W. McCullough, 57, who was promoted to president, CEO and vice chairman in March. Shellum joins the company from Dallas, Texas-based CrossTex Energy where he was vice president of finance and special products from September 2004 to September 2008. From March 2001 to September 2004, Shellum was a consultant to Value Capital, a Dallas-based private consulting firm.
Reval.com Inc. has upgraded its Web-based derivatives hedging and risk management application to include several structured interest rate products, such as dual currency bonds and CMS spread formula bonds.
Reval’s HedgeRx version 8.1 also provides clients with additional reporting tools to comply with increased scrutiny in these volatile markets. Global accounting standards—International Financial Reporting Standard (IFRS) 7 and Financial Accounting Standard (FAS) 161—now require more detailed reporting on financial instrument exposures and risk management.
The application can now run simultaneous stress and prospective effectiveness tests for hedges, both required under IFRS 7, says Justin Williams, head of Austock Corporate Finance, a Melbourne, Australia-based treasury consultancy that uses HedgeRX to help clients manage their hedging exposures. “This saves us time rather than running a separate scenario to see P&L/equity impacts, and the results are displayed in an easy-to-read report,” he says.
In addition, version 8.1 can include counterparty credit risk in calculating fair market values, also required under IFRS 7, which was “previously considered to be somewhat immaterial,” says Williams. However, “since the collapse of Lehman Brothers and the fundamental shift in the investment bank landscape, counterparty risk is very much in focus now,” he adds.
Upgrades to HedgeRx are delivered twice a year over the Internet using the software-as-a-service (SaaS) model.
Northern Trust has adopted a new online system from Clearwater Analytics, designed to assist corporate treasurers in monitoring their short-term cash portfolios for compliance with investment guidelines and regulatory requirements as well as performance.
The Clearwater system is accessed through Passport, Northern Trust’s secure Web portal for corporate and institutional clients, who can use it to identify which investments may not be weathering the economic storm, says David Adam, vice president and product manager at Northen Trust. Clients can determine exposure to a particular company and/or asset type across the portfolio with one keystroke, he says
The system provides accurate, timely accounting reports with flexible fiscal calendars. Companies can upload data from these reports onto their general ledgers, adds Adam, a “feature that can be customized for clients’ general ledger needs.” Clearwater also alerts companies immediately whenever their investment policies are violated, he adds.