Finance & Business World

Revamped pizza and a frank advertising campaign helped Domino’s Pizza Inc. more than double its fourth-quarter profit as curious customers tried out its new recipe, the chain said Tuesday.

Executives have said the chain decided to start overhauling its recipes more than 18 months ago after mounting criticism from focus groups and on social media sites.

And it boldly admitted in a series of documentary-style spots that under its old recipe, customers complained its crust tasted like cardboard and its sauce was reminiscent of ketchup.

The company began promoting its new pizza in December. That helped profit climb to $23.6 million, or 41 cents per share, compared with $11 million, or 19 cents, a year earlier.

Removing one-time items, the company’s profit was 30 cents per share — well ahead of forecasts.

Sales improved to $462.9 million from $428.2 million. Analysts expected a profit of 25 cents per share with sales of $437.5 million.

In the U.S., sales at stores open at least a year grew 1.4 percent, while overseas — which comprises nearly half of global retail sales — climbed 3.9 percent. This figure is a key measure of a retailer’s performance since it measures results at existing stores rather than newly opened ones free credit score online.

Meanwhile, Chairman and Chief Executive David Brandon said traffic increased all of last year and has continued to grow in 2010.

The question remains, though, whether Domino’s can keep the momentum going, or whether the novelty of the new recipe will wane.

"When a restaurant company radically changes their menu, usually there’s a curiosity bump involved in the results," said Morningstar analyst R.J. Hottovy.

"But it’s too early to tell if that’s going to be sustainable for a long time."

Full-year profit surged 48 percent to $79.7 million, or $1.38 per share, from $54 million, or 93 cents, a year ago. Adjusted earnings were 87 cents per share. Annual revenue fell 2 percent to $1.4 billion from $1.43 billion.

Domino’s does not give quarterly or full-year profit outlooks, but did provide some long-term same-store sales forecasts. The pizza chain predicts domestic sales at stores open at least a year will rise 1 percent to 3 percent, with international sales at stores open at least a year up 3 percent to 5 percent.

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A Greek government inquiry uncovered a series of swaps agreements with securities firms that may have allowed it to mask its growing debts.

Greece used the swaps to defer interest repayments by several years, according to a Feb. 1 report commissioned by the Finance Ministry in Athens. The document didn’t identify the securities firms Greece used. The government turned to Goldman Sachs Group Inc. in 2002 to obtain $1 billion through a swap agreement, Christoforos Sardelis, head of Greece’s Public Debt Management Agency between 1999 and 2004, said in an interview last week.

“While swaps should be strictly limited to those that lead to a permanent reduction in interest spending, some of these agreements have been made to move interest from the present year to the future, with long-term damage to the Greek state,” the Finance Ministry report said. The 106-page dossier is now being examined by lawmakers.

European Union leaders last week ordered Greece to get its deficit under control and vowed “determined” action to staunch the worst crisis in the euro’s 11-year history. Standard & Poor’s and Fitch Ratings are questioning Greece over its use of the swap agreements, said two people with direct knowledge of the situation, who declined to be identified because the talks are private.

“Greece used accounting tricks to hide its deficit and this is a huge problem,” Wolfgang Gerke, president of the Bavarian Center of Finance in Munich and Honorary Professor at the European Business School, said in an interview. “The rating agencies are doing the right thing, but it may be too little too late. The EU slept through this.”

Euro Criteria

Lucas van Praag, a spokesman for New York-based Goldman Sachs, the most profitable securities firm in Wall Street history, didn’t respond to e-mails seeking comment.

Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the Euro in 2001. Member nations had to reduce their budget deficit to less than 3 percent of gross domestic product and trim national debt to less than 60 percent of GDP.

Greek Prime Minister George Papandreou, who came to power in October after defeating two-term incumbent Kostas Karamanlis, more than tripled the 2009 deficit estimate to 12.7 percent. Greek officials last month pledged to provide more reliable statistics after the EU complained of “severe irregularities” in the nation’s economic figures free business cards.

‘Political Interference’

The Finance Ministry report blamed “political interference” for the collapse of credibility in Greece’s statistics. There were “serious weaknesses” in data collection, especially with spending figures, as information often came from second-hand sources, the report found.

The Goldman Sachs transaction consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, Sardelis said. That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion of funding for that year, he said. Eurostat, the EU’s Luxembourg-based statistics office, and the rating companies were both aware of the plan, he said.

Officials for Eurostat couldn’t be reached for comment. Officials for Fitch, Moody’s and Standard & Poor’s didn’t return calls seeking comment outside regular office hours yesterday.

‘Deal Restructured’

Sardelis said the agreement was restructured “a couple” of times while he was still in office. He left in 2004 and joined Banca IMI, the investment-banking unit of Italy’s Intesa Sanpaolo SpA’s. He said the fees, or the spread that Goldman Sachs was paid on the contract, were “reasonable.” The New York-based firm made about $300 million from the agreement, the New York Times reported Feb. 14.

Goldman Sachs bankers including President Gary Cohn traveled to Athens in November to pitch a deal that would push debt from the country’s health-care services into the future, the newspaper reported, citing two people briefed on the meeting. Greece rejected the offer, the New York Times said.

The government met with major international banks over the last month in order to explore options and discuss their involvement in financing Greek national debt, said an official at the Greek finance ministry who declined to be identified. Debt-financing operations are conducted transparently in order to be fully Eurostat-compliant, the official said.

Goldman Earnings

Goldman Sachs reported net income of $13.4 billion in 2009’s fiscal year, outpacing the $11.6 billion profit in 2007, its next-best year. The shares doubled last year to $168.84.

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Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall.

A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program. “It’s important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity.”

U.S. stocks on Feb. 5 finished a fourth consecutive weekly decline, the longest such stretch since July. The Dow Jones Industrial Average through Feb. 5 had fallen 4 percent in 2010.

Unemployment likely will stay around 9 or 10 percent for most of this year, Greenspan said. “It’s very difficult to make the case that unemployment is coming down any time soon,” the former Fed chief said.

The U.S. has lost 8.4 million jobs since the recession, the deepest since the Great Depression of the 1930s, began more than two years ago. Unemployment topped 10 percent in October — the first time that’s happened in a quarter century — before retreating to 9.7 percent in January, according to Labor Department statistics.

Greenspan, who served as Fed chairman from 1987 until 2006, said the most useful step Congress could take to create jobs at this point would be to enact tax cuts for small businesses.

“They are the big creator of jobs,” he said. “But they won’t hire anybody if they don’t have any business.”

Economic Growth

Greenspan said the fourth-quarter’s economic growth rate was helped by inventory rebuilding, suggesting the U.S. economy “shot our ammunition” at the end of 2009. That means economic growth now “doesn’t have the strong momentum I hoped it would have,” Greenspan said.

The economy grew at a 5.7 percent annual rate during the last three months of 2009, the fastest pace in six years, according to Commerce Department data. That was the second quarterly increase in gross domestic product following four consecutive declines, the longest stretch of losses since records began in 1947.

In the residential property market, Greenspan said home prices are “bottoming out.” The housing market was the epicenter of the recession, and foreclosures are projected to set a record this year, according to private forecasts.

Regarding the federal budget deficit, which the Obama administration projects at more than $1 trillion for the second consecutive year, Greenspan said a tax increase will be needed and that the budget shortfall threatens the country’s standing in financial markets.

Tax Increase

“I have no doubt that we have to raise taxes in order to close this huge deficit, but we cannot do it wholly on the tax side, because that would significantly erode the rate of growth in the economy and the tax base, and the revenues that would be achieved would be far less” than one would expect, Greenspan said.

On Feb. 4, Congress approved increasing the federal debt limit by $1.9 trillion, to $14.3 trillion, enough to prevent lawmakers from having to raise it again before November’s midterm elections. The increase was more than twice the size of any of the four previous debt increases approved in the past two years.

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Spanish Prime Minister Jose Luis Rodriguez Zapatero defended his country’s budget deficit and urged more U.S. investment in Spain during a meeting with U.S. business leaders, as investor concerns caused stocks to plummet in Spain.

Zapatero told a closed-door gathering at the U.S. Chamber of Commerce in Washington yesterday that Spain’s deficit was a consequence of stimulus spending that has peaked, and will be reduced through an aggressive austerity plan, according to an aide to the Spanish leader who briefed reporters and asked not to be identified.

Zapatero told the U.S. executives that his government will reduce spending by 50 billion euros ($68.7 billion) by 2013, the aide said. Spain, with a budget shortfall equivalent to 11.5 percent of gross domestic product, must bring its deficit down to 3 percent of GDP by 2013 to conform to European Union rules, the prime minister noted.

Spain’s benchmark IBEX 35 Index fell 5.9 percent yesterday day to 10,241.7, the steepest decline since Nov. 6, 2008. Stocks also fell in neighboring Portugal on concerns that the two nations will face difficulties like Greece has experienced in shrinking deficits.

Rating Agencies

Zapatero defended Spain’s debt as reasonable, according to the aide who attended the meeting. The prime minister said he was confident rating agencies would maintain a positive assessment of his economy.

Standard & Poor’s cut its rating on Spanish debt to AA+ from AAA in January 2009, and changed the nation’s outlook to “negative” from stable last December. S&P said Spain will experience a “more pronounced and persistent deterioration” in its budget and a “more prolonged period of economic weakness” than expected a year ago.

Speaking later yesterday to the Atlantic Council, a Washington-based public-policy group, Zapatero stressed that Spain’s debt-to-GDP ratio is 20 points lower than the average among EU countries.

Zapatero told U.S. executives in the private meeting that labor reforms would be announced today in Madrid that would reduce public spending, and said Spain is looking to the U.S., the biggest investor in Spain’s economy, to maintain confidence, his aide said.

Senior Executives

Zapatero was joined at the meeting by senior executives from Spanish bank BBVA SA, construction giants Acciona SA and Ferrovial SA, and Iberdrola SA, Spain’s biggest power company, according to the Spanish Embassy and Zapatero’s aides.

In his speech to the Atlantic Council, Zapatero said the Spanish financial system is “strong and solid,” and the country’s banks “have proven to be resilient.”

Spain has shown “its ability to grow and its ability to handle its public resources well,” the prime minister said.

“We know the reforms we need to make and I am certain Spanish society will be with us,” he added.

Zapatero recently announced tax increases and a rise in the retirement age as part of the package to cut Spain’s deficit.

Zapatero in his speech also underscored Spain’s commitment to the NATO-led security effort to stabilize Afghanistan, noting that his country had “heeded the call” of President Barack Obama and would be adding 500 new Spanish soldiers. Spain has lost 90 soldiers in Afghanistan, the fourth-largest number of casualties among the NATO nations.

“It’s a very difficult mission,” he said, adding, “we know what’s at stake in Afghanistan.”

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JEFFERSON CITY — Missouri officials say they can’t prevent a tax dodge used by some wealthy investors in the state-sponsored college savings plan.

So instead of trying to police it, officials want to legalize it.

At issue is how long money invested in the Missouri Saving for Tuition program — MOST for short — must stay in an account to earn a state tax deduction.

Missouri set up the program a decade ago to give working families a low-cost way to save for college. Accounts can be opened directly through the state for as little as $25.

Investors pay no federal or state taxes on profits when they withdraw money to pay for college. The program is known as a 529 plan, after the section of federal law that authorized such plans in 1996 and spurred their growth.

MOST has attracted 123,000 accounts holding $1.3 billion in investments.

Like most states, Missouri sweetened the deal by adding a state tax deduction. Families can shield up to $16,000 a year in contributions from Missouri income taxes.

That money is supposed to stay put at least 12 months to be eligible for the tax break. Sen. Delbert Scott, R-Lowry City, sponsored the restriction in 2006.

"I found out that there were people who would deposit the money the last day of December, use it to pay tuition the first day of January, and take the tax deduction," Scott said.

For example, a parent who routed $8,000 through a MOST account at year’s end could save about $480 by avoiding the state’s 6 percent income tax. A married couple taking the maximum deduction could save twice that, or $960.

Scott said that wasn’t the Legislature’s intent.

"This was set up to be a savings account rather than an automatic tax deduction for those who can pay cash as they go," he said.

But the restriction has never been enforced.

"Some people would view it as a loophole," said Joe Hurley, founder of savingforcollege.com, a respected website that rates all 529 plans. "But just about every state that has a deduction has no minimum holding period, so it’s a loophole in pretty much every state."

State Treasurer Clint Zweifel, whose office oversees the MOST program, said it would cost MOST $360,000 to set up a tracking system to make sure accounts didn’t violate the 12-month rule. That oversight could discourage investors, he said.

"It’s creating an administrative burden and red tape that puts government as some sort of Big Brother, telling people how to save for college," Zweifel said.

"Who are we to tell them, when they make a contribution, whether it has to sit for 10 months or 22 months?"

Zweifel said few people used the loophole anyway.

He estimates that about 65 people used it last year to shield $219,000 in contributions. That analysis is based on the number of Missourians who opened new accounts in December 2008 and made a withdrawal in January 2009.

MOST attracted $198 million in investments in 2008, so "we’re talking about a tenth of a percent of contributions," Zweifel said.

Even Scott agrees. He now sponsors the bill repealing the rule he authored in 2006. Scott said a 2008 change in the MOST program made it counterproductive to enforce the restriction.

Missouri extended its deduction to college savings plans sponsored by other states. Most states don’t require money to be held a certain length of time, so Missourians could invest their money elsewhere and claim Missouri’s deduction.

"I think the ultimate message is, we want people to save for their kids’ college," Scott said. "This is just one of the incentives that comes along, if you’ve got the money to do it. It’s kind of an unintended consequence."

If the restriction isn’t repealed, the Missouri Department of Revenue plans to finally try to enforce it next year.

The agency added a note to its 2010 tax form instructions, warning taxpayers not to take the deduction for contributions and earnings withdrawn after less than 12 months.

Scott’s bill is SB772.

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President Obama will propose a new tax on financial institutions Thursday to ensure that taxpayers who bailed out banks get paid back, according to a senior administration official.

The White House wants to raise as much as $120 billion through a new tax on banks to cover losses in the federal bailout program.

The law that created the $700 billion Troubled Asset Relief Program empowered the president to ask Congress to recoup money if bailouts were not paid back in full.

TARP dictates that the Office of Management and Budget consider such action five years after TARP went into effect in October 2008 to prevent the federal bailout from adding to the deficit.

When the TARP bill was hastily debated, the provision was key to winning enough support from wary lawmakers to push the bill through Congress.

This new proposal to tax banks has been under discussion since August, a senior administration official said Tuesday.

The federal bailout program has always been a controversial topic, but news of executive bonuses now being awarded for banks’ stellar performance in 2009 is throwing new fuel on populist anger.

Congress would still have to approve any proposed new tax.

Robert Gibbs, the White House press secretary, would not discuss on Monday how a possible bank fee would fit into Obama’s fiscal year 2011. But Gibbs said it is the president’s "goal" to ensure the "money that taxpayers put up will be paid back in full."

While most of the big banks have started paying back their TARP investments, the government still has a lot of money on the line and is likely to for years to come.

Last month, the Treasury estimated that the net cost of TARP to taxpayers would be $41.4 billion.

For example, Treasury Secretary Tim Geithner said last month that the bailouts of the automakers and insurer American International Group (AIG, Fortune 500) would not be paid back in full short term personal loans.

"There is a significant likelihood that we will not be repaid for the full value of our investments in AIG, GM and Chrysler," Geithner told an oversight panel.

Yet, the financial industry tax under discussion could impact the entire financial industry, a prospect the banking industry opposes.

Although few details are available about the proposed fee, the administration official suggested banks would be required to pay, even if the losses were incurred by GM and Chrysler.

"Imposing new taxes on top of the increased regulatory costs will weaken the industry, just when the industry is helping lead the economic recovery," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, a bank lobbying group.

And it’s still unclear what, if anything, can be done to prevent the fee from being passed to bank account holders.

U.S. Chamber of Commerce President Thomas Donohue said Tuesday he expected any new fee imposed would be passed on to consumers.

"If you don’t pass it on to the consumer, than you’re going to have smaller profits, and then if you have smaller profits, your stock goes down," Donohue said.

The total revenue collected from the tax would be no higher than $120 billion, since that is the highest conservative estimate of the cost of TARP, the senior administration official said. However, the Treasury Department expects the total loss number to shrink over the course of future years.

- CNN White House Correspondent Dan Lothian contributed to this report. 

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India’s industrial production grew at the fastest pace in 25 months in November, strengthening the case for the central bank to raise interest rates in the first half of this year.

Output at factories, utilities and mines rose 11.7 percent from a year earlier after gaining 10.3 percent in October, the statistics agency said in New Delhi today. The gain exceeded the median estimate of 10 percent in a Bloomberg News survey of 25 economists.

The acceleration of India’s economy, Asia’s third-largest, parallels a rebound in China that may also see policy makers there boost borrowing costs in the coming months. India’s biggest stock-market advance in 18 years, along with fiscal and monetary measures, have stoked demand for cars made by Maruti Suzuki India Ltd. and plasma screens from LG Electronics Inc.

“The pace of growth is much stronger than anticipated and clearly indicates that consumption is in a self-propelling mode,” said Shubhada M. Rao, chief economist at Yes Bank Ltd. in Mumbai. “And with inflation surging, the probability of an increase in the cash reserve ratio in the central bank’s Jan. 29 policy statement is now very high.”

India’s bonds fell after the report. The yield on the 6.35 percent note due in January 2020 climbed to the highest level in almost two months, rising by five basis points to 7.71 percent as of 1:05 p.m. The Bombay Stock Exchange’s Sensitive Index declined 0.51 percent at 2:11 p.m., after rising 0.4 percent earlier, on concern a faster recovery will prompt the central bank to raise rates.

Stimulus Measures

Economies are recovering across Asia after the region’s policy makers unveiled about $1 trillion in stimulus measures and cut rates to spur growth. China’s industrial production rose 19.2 percent in November and its exports climbed 17.7 percent in December.

Recent data show growth is gaining traction in India as well, with manufacturing rising at the fastest pace in seven months in December, according to the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics. Exports surged to a 15-month high in December after rising 18.2 percent in November, the first increase in 14 months.

RBI Governor Duvvuri Subbarao “should begin monetary action by shrinking the excess liquidity in the local money markets and then move to increasing policy rates around March and April,” said Rajeev Malik, an economist at Macquarie Group Ltd. in Singapore. The central bank “will be concerned about the excess liquidity and second-order inflationary effects of high food inflation.”

Food Prices

India’s benchmark wholesale-price inflation rate rose to 4.78 percent in November, more than three times October’s 1.34 percent. Wholesale food prices soared 18.22 percent in the week to Dec. 26 from a year earlier, near the most in 11 years. The government is next due to release food inflation data on Thursday.

“This release, together with the likelihood of a strong December inflation number on Thursday, seals India’s near-term interest rate fate,” said Robert Prior-Wandesforde, Singapore- based senior Asia economist at HSBC Holdings Plc. He expects the RBI to start increasing its key policy rates in April after raising lenders’ reserve requirements at this month’s meeting.

Subbarao slashed the cash reserve ratio by 400 basis points to 5 percent between October 2008 and January 2009 to shield the economy from the global recession. The central bank has left its reverse repurchase rate and repurchase rate unchanged since April, after respective cuts of 2.75 and 4.25 percentage points.

Fridges, TVs

By comparison, China’s one-year lending rate is at a five- year low of 5.31 percent and its one-year deposit rate is 2.25 percent.

Manufacturing output increased 12.7 percent in November from a year earlier, accelerating from an 11.1 percent gain in October, today’s report showed. Mining grew 10 percent, compared with 9 percent in the previous month and electricity rose 3.3 percent from 4.7 percent. Production of consumer durables such as refrigerators and televisions surged 37.3 percent in November, compared with a 20.2 percent gain.

Prime Minister Manmohan Singh last year cut taxes on consumer products, increased spending on roads and utilities, raised salaries for government workers and waived farm loans.

The central bank injected about $130 billion into India’s banking system by reducing interest rates and lowering lenders’ reserve requirements. That helped the $1.2 trillion economy to grow 7.9 percent in the three months ended Sept. 30, the most in 1 1/2 years.

Surpassing China

Faster growth has attracted overseas inflows into stocks, taking the Sensitive Index to the highest in 18 years in 2009. The rupee gained 4.8 percent.

India’s growth may quicken to 10 percent in a “couple of years,” exceeding that of China as early as 2014, Kaushik Basu, chief economic adviser to the South Asian nation’s finance ministry, said Jan. 4. The government has no plans to “suddenly” withdraw last year’s stimulus, he said.

The strength of the Indian economy is enticing foreign companies to expand and set up operations. Toyota Motor Corp., Volkswagen AG and other carmakers introduced 10 new models at the Delhi Auto show last week. Passenger car sales hit 1.43 million units in 2009, the most in three years, according to the Society of Indian Automobile Manufacturers on Jan. 8.

ArcelorMittal, the world’s biggest producer of steel, and Posco, the sixth-biggest maker of the alloy, plan to set up new steel mills in southern India. Posco will invest 323 billion rupees ($7 billion) on a mill in Karnataka state, the regional government said Jan. 7. ArcelorMittal plans to sign an accord in June for a 300 billion-rupee project in the same state.

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Liberty Bancorp Inc. announced the results of a tender offer for common stock held by investors with 99 or fewer shares, part of its effort to get below the 300 shareholder limit, which would enable it to go private.

The Liberty-based company (Nasdaq: LBCP), the holding company for BankLiberty, said in a Tuesday release that it had acquired 4,631 shares for $15 a share, for a total of $69,465. The company also offered a $50 bonus for all trades executed before the deadline, but it did not say how many shareholders were involved in the trades.

The company didn’t say whether it reached the goal of reducing the number of shareholders to fewer than 300.

Liberty Bancorp CEO Brent Giles couldn’t immediately be reached for comment Wednesday cash advance loans.

Giles had said in October that the bank’s board determined that Securities and Exchange Commission regulations and legislation, such as the Sarbanes-Oxley Act of 2002, which the bank will be subject to starting in 2010, were getting too burdensome on the company’s financial and personnel resources.

“We hope that by reducing the number of shareholders and, if eligible, deregistering with the SEC, the company will substantially reduce the costs associated with complying with these regulations and reporting requirements,” Giles said in an earlier release.

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California, Delaware, South Carolina and Florida registered record rates of unemployment in October as weakness in the labor market stretches from coast to coast and limits the economic recovery.

Joblessness rose in 29 U.S. states last month compared with 22 in September, the Labor Department said today in Washington. Michigan had the highest jobless rate at 15.1 percent, followed by Nevada at 13 percent and Rhode Island at 12.9 percent.

The national rate last month reached a 26-year high of 10.2 percent, weighing on consumer spending that accounts for about 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke said Nov. 17 that joblessness “likely will decline only slowly,” a reason policy makers will keep interest rates near zero to ensure growth is sustained.

“We’ve had a surprisingly sharp jump in the jobless rate,” said Richard DeKaser, president of Woodley Park Research in Washington. “Businesses have truly been doing an extraordinary job of wringing out productivity from the labor force.”

Stocks fell for a third day, with the Standard & Poor’s 500 Index declining 0.3 percent to 1,091.38 at 4:03 p.m. in New York. Dell Inc., the third-largest maker of personal computers, dropped 10 percent after reporting a 54 percent drop in profit.

Declines in 13 States

The unemployment rate fell in 13 states, including Massachusetts, where it declined to 8.9 percent from 9.3 percent; New Hampshire, with a drop to 6.8 percent from 7.2 percent; and West Virginia, which fell to 8.5 percent from 8.9 percent.

The number of states with at least 10 percent unemployment held at 14 last month, the Labor Department’s report showed. The states reporting a record jobless rate were California at 12.5 percent, South Carolina at 12.1 percent, Florida at 11.2 percent and Delaware at 8.7 percent. The District of Columbia also set a high with an 11.9 percent rate.

“Virtually every sector aside from the health-care sector is losing jobs,” said Sean Snaith, University of Central Florida economist in Orlando. “Housing has been central to Florida’s economic story throughout the entire cycle. Unfortunately, it has spread well beyond the sectors directly involved in the housing market.”

President Barack Obama on Nov. 6 signed into law a plan to extend jobless benefits, expand a tax credit for first-time homebuyers and provide tax refunds to money-losing companies. The measure gives jobless people as many as 20 additional weeks of unemployment assistance.

The president has also announced plans to convene a jobs summit at the White House next month.

State Payrolls

Payrolls declined last month in 21 states, today’s report showed. New York showed the biggest drop, with a loss of 15,300. Florida had 8,500 job losses, followed by Georgia with 7,500 and Virginia with 7,100.

“When you apply for a job, because there are so many other people looking for jobs, you have to be the absolute perfect candidate and lucky, or be someone’s brother-in-law, to get a job,” said Mary Kough of Tellico Plains, Tennessee. “In this economy there are very few jobs for which to even apply.”

Kough has been looking for work for four months, applying for as many as 25 positions. She’s been interviewed once. The 47-year-old said she has about 20 years of experience, including jobs as a customer service manager, supervisor and purchasing agent. Tennessee’s unemployment rate held at 10.5 percent in October, the Labor Department’s report showed.

Taking Comfort

“I try not to get discouraged,” Kough said. “I know that you will get a certain percentage of what you apply for, and since there are less jobs to apply for, I know it will just take a little longer. I take comfort in knowing that. I have faith.”

Applied Materials Inc. is among companies still planning to cut jobs. The world’s biggest maker of chip equipment, based in Santa Clara, California, said Nov. 11 it plans to eliminate as many as 1,500 positions within 18 months.

Over the last year, California showed the biggest loss of jobs, with payrolls falling by 687,700 workers, today’s report showed.

Nationally, payrolls fell by 190,000 in October, the Labor Department said Nov. 6. The U.S. has lost 7.3 million jobs since the start of the recession in December 2007, the most of any downturn since the Great Depression.

Other measures corroborate that while firms are firing fewer workers, it is harder for the unemployed to find work. The number of people getting extended payments jumped in the week ended Oct. 31 even as the number of Americans filing first-time claims for unemployment benefits held at a 10-month low last week, according to government data released yesterday.

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The health of most pension plans continues to improve as stock markets recover, but it will be a long time before plan members in private industry can rest easy.

The blow of last year’s investment losses is forcing more employers to question their ability to continue paying the same level or type of pension benefits in future.

Meanwhile, pensioners at companies other than Nortel Networks Corp., AbitibiBowater Inc. and others in bankruptcy protection could see their payouts reduced.

Canada’s main stock market has produced a promising investment return of about 30 per cent so far this year. But other major markets have not done nearly as well when translated into our dollars.

A return above 55 per cent on Canadian stocks would have been required to offset last year’s losses, combined with the effect of a half percentage point decline in the interest rates used to estimate the cost of purchasing life annuities when a pension plan is wound up.

"Obviously what is happening on the growth in pension assets side is good news," says Doug Chandler of Watson Wyatt Worldwide. "But the cost is going up to either pay a lump sum (to a departing employee) or buy annuities (if a plan is wound up)."

Even Ontario teachers, who have taxpayers to cover half the cost of their enviable pensions, have been warned not to count on returns to stabilize their plan.

Watson Wyatt estimates a typical mature pension plan could only have paid about 81 per cent of benefits earned to date if the plan had been shut down in October.

The potential 19 per cent shortfall was a big improvement from 40 per cent in February. But it was still far below the 5 per cent shortfall in late 2007.

Rowena McDougall, a spokesperson for the Financial Services Commission of Ontario, says 113 plans of 421 pension plans for non-executive staff sought extra time to bring their plans up to full funding, based on actuarial reports filed since Sept. 30 of last year. Other companies could come forward.

Most are only seeking to defer special payments for a year, or to consolidate new and old special payment schedules over the same five-year period, she said.

Only 16 are seeking the 10-year payment schedule that Ontario Finance Minister Dwight Duncan granted, on the condition the company get the consent of plan members and pensioners.

Jim Leech, president of the Ontario Teachers’ Pension Plan Board, predicts last year’s investment losses and the dim prospects for investment returns could result in changes to either teachers’ contributions or benefits.

Only those already retired or near retirement would be protected under pension law . Teachers and the province will have another two years to negotiate a solution to a funding shortfall. They have already agreed that, if necessary, half of inflation protection on benefits earned starting next year would be made contingent on future investment returns.

"The teachers’ plan still must absorb $19.5 billion in losses (a blend of gains and losses recorded over the five years ending in 2008)," notes the fall of 2009 Pensionwise report to teachers.

"Even if financial markets improved, investment returns aren’t expected to cover the annual cost of paying pensions as well as the 2008 investment losses that must be recognized in the future."

The Teacher’s plan takes in about $2 billion less per year than it pays to a growing, and increasingly long-lived group of pensioners. Other plans are also under stress.

Tom Levy, a veteran actuary and senior vice-president of The Segal Co., says pension plans that serve large groups of employees may have to cut future benefits, and even pensions of retirees.

"It is certainly being discussed," he says, even if Duncan and other provincial finance ministers agree to extend a three-year moratorium on requiring multi-employer plans to set aside enough money to pay pensions on the small chance that all or most employers contributing to a plan were to disappear.

Such multi-employer plans are common in the construction trades, many supermarkets, food factories and natural resource industries. Their retirees are not protected from benefit reductions under pension law.

"(Plan trustees) are looking at everything from lowering future accruals of benefits to taking away early retirement subsidies, to, in some cases, reducing accrued benefits and deducting from pensioners," he said. "Obviously that is not something you want to do, but it is not out of the question."

Wayne Hanley, president of the United Food and Commercial Workers, wrote to members recently to say employers have not responded favourably to a second request to make special extra payments to what is the largest but also one of the worst-funded multi-employer plans in the country.

"UFCW Canada is extremely disappointed that employers feel little or no obligation to ensure your pension is properly funded," he wrote Oct. 30.

jdaw@thestar.ca

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