Strong to cut some employee benefits
Decision not to contribute to retirement plans in 2004 a sign of scandal’s toll
By KATHLEEN GALLAGHER kgallagher@journalsentinel.com, Journal Sentinel
Thursday, January 1, 2004
Strong Financial Corp. informed employees this week it is cutting back certain retirement benefits and is considering other cost- cutting measures, another sign of the financial toll the mutual fund scandal is taking on the company.
The board is eliminating the 2004 pension plan contribution it would have paid in January 2005 and, as of Friday, is suspending its matching contribution to employees’ 401(k) retirement savings plans, according to a letter the board sent to Strong employees Tuesday.
The Menomonee Falls company will still make a 2003 pension contribution, to be paid at the end of January, the letter said.
“Our leading priority is to continue to deliver high quality service to our clients,” the directors said in the letter. “The current environment requires us to carefully, appropriately manage expenses in order to meet that objective.”
Strong views the move as a “responsible” way to continue committing resources to client issues, Strong spokeswoman Stephanie Truog said.
Fund shareholders will not be affected by the change because Strong Financial is a separate entity that fund directors contract with to manage the Strong funds.
Geoffrey H. Bobroff, a mutual fund industry consultant at Bobroff Consulting Inc. in East Greenwich, R.I., said he was puzzled by the move.
“If (Strong) is to be sold, why would you ruffle feathers and cause employees to think of other options?” Bobroff said.
Strong hired Goldman Sachs Group Inc. in early December to explore selling the company.
Following allegations by New York Attorney General Eliot Spitzer in September that Strong allowed a hedge fund to make improper trades in its funds, and that founder and then-chairman Richard S. Strong made improper trades in his company’s mutual funds, investors have pulled more than $3 billion in assets from Strong.
Spitzer has filed no civil or criminal charges against Richard Strong or the company, in which Strong owns a 90% stake. Strong has said his trading was not disruptive to the funds. But the repercussions from Spitzer’s allegations apparently pushed Strong into considering a sale of the company.
But the move by directors to cut benefits makes Bobroff question whether a sale is truly the next step.
“Something in 2004 doesn’t affect the current sale process, so it’s a puzzlement to me why they are taking away employee benefits at a time when they’re trying to keep the organization together — unless the opportunity for a sale is more removed than one might otherwise think,” Bobroff said.
Strong Financial’s directors are Frank J. Doyle, Richard T. Weiss and Kenneth J. Wessels.
Wessels took over as company chairman on Dec. 2, when Richard Strong stepped down. Weiss, who owns 5% of the firm, manages more equity assets than any portfolio manager at Strong. And Doyle is a former General Electric Co. executive who has acted as a consultant to the company in the past.
The directors suggest in their letter they are looking at other ways to cut costs.
“In addition to the change to our retirement benefits, we are going to closely evaluate other measures designed to ensure the continued health of our business and the services provided to clients,” the letter said.
Meanwhile, Paul Herbert, a mutual fund analyst at Morningstar Inc. in Chicago, says the message the benefits cut sends to employees is clear.
“It’s kind of a signal to dust off the resume,” Herbert said.
