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American ExpressTravis WilkinsEC 490 Dr. ClarkIntroductionThe American Express Company, also known as Amex, is a multinational financial services corporation headquartered in New York City, New York. Founded in 1850, American Express is now a key component of the American economy, accounting for 23% of the total dollar volume of credit card transactions in the U.S. as of 2013. American Express is also one of the 30 components of the Dow Jones Industrial Average and was ranked by BusinessWeek as the 24nd most valuable brand in the world, with an estimated worth close to 15 billion dollars. Most importantly, American Express was the first company in the United States to offer a defined benefits plan to its workers, back in the year 1875. Today, American Express is still at the forefront of employee benefits and offers generous 401(k) plans. However, competitors are too, and as the industry continues to become more competitive, prospective employees will begin to look much more closely at what exactly Amex has to offer. I will outlay that, and much more in the segments to follow. HistoryFirst, let us begin with the diverse history of American Express. The company was founded in 1850 in Buffalo, New York as an express delivery service (hence the name). The three main principal founders are Henry Wells, William G. Fargo, and John Butterfield. Mr. Wells and Mr. Fargo also started another company together, now known as Wells Fargo, to provide express services to the great state of California after Mr. Butterfield refused to expand. At the time, Mr. Fargo was also serving as the mayor of Buffalo, New York. Their main goal was to serve as a lifeline to the ever-expanding west, considering at the time, the U.S. Postal Service was not considered as reliable or as speedy as they are today. Express men on horseback would typically transport items like correspondence, parcels, freight, gold and currency, among other goods. After the civil war, the company was flourishing, with 900 offices in 10 states (Britannica). If fact, it was so successful at the time, that it attracted competition in the form of Merchants Union Express Company (Britannica). The two companies competed heavily over the next few years, almost to the point of financial exhaustion. In the end, the two companies decided to merge in 1868, to form the American Merchants Union Express Company, which was changed to American Express Company in 1873 (Britannica). Banks began to use American Express more and more for their transport of stock certificates, notes, currency and other financial instruments; transporting for these banks was much more profitable than transporting heavier loads of cargo. Over time, Amex began to scale down its express delivery business in favor of creating and selling its own financial products (Amex Co. 4). In 1882, American Express officially launched into the money order business, and found success. In 1891, Amex introduced the world’s first traveler’s “cheque” and within ten years, was selling more than $6 million in checks annually (Amex Co. 5). As Mr. Wells and Mr. Fargo began building the travelers check business, they began networking with European banks. In 1895, Amex established its first European office in Paris, France and in 1896, opened an office in London. By 1910, American Express had offices in the following cities in Europe: Southampton, Liverpool, Hamburg, Berlin, Bremen, Antwerp, Rotterdam, Copenhagen, Naples, and Genoa. This rapid growth was not isolated to just Europe. Amex continued to grow within the United States as well, and in 1905, American Express was awarded a key contract to provide official currency exchange services by the U.S. Immigration Department. Many immigrants arriving at Ellis Island in New York had their first financial exchange with Amex, considering they had an office on Ellis Island (Amex Co. 5). The War to end all Wars had a significant impact on the company and some ramifications are felt to this day. In the summer of 1914, over 100,000 U.S. tourists were trapped when the war engulfed Europe. Many of these tourists had no access to funds, as banks ceased to pay against foreign letters of credit or any other form of foreign paper (Amex Co. 6). American Express was still able to cash traveler’s cheques and money orders in full, allowing many tourists to return home (Amex Co. 6). During the war, Amex provided other services as well; the company was appointed by the British government to deliver relief parcels, letters and money to British prisoners of war in Germany. At one point, American Express was delivering 150 tons of packages a day to British prisoners in Bulgaria, Germany, Holland, Norway, Switzerland and Turkey (Amex. Co 6). This shift into international waters led to the company’s decision in 1915 to officially enter the travel business. Within the decade, American Express was undertaking tours to Europe, South American, the Far East, and the West Indies among other locations (Amex Co. 6). The company became synonymous with luxury travel after its successful charter in 1922 of the first “around-the-world cruise”. It was a four month, 30,000-mile journey Cunard line, named Laconia, with stops in Cuba, Panama, Honolulu, Japan, China, Java, Singapore, India, Cairo and in the Mediterranean (Amex Co. 6). During that time however, Amex lost its growing railway business. The U.S. federal government nationalized the express industry in 1918, which consolidated all domestic express operations in the American Railway Express Company (Britannica). Still, Amex was achieving financial success until the Great Depression hit; like many other businesses at the time, the Great Depression almost led to the complete demise of American Express. First, unbeknownst to Amex, Chase National Bank had slowly been accruing shares of the company for several years, up to the point to where they had 97% of total shares (Amex Co. 8). American Express was fortunate that the remaining 3% of shareholders would not give up their shares; most were either too loyal to the company or wanted a fortune from Chase. In addition, the U.S. Congress passed the Glass-Steagall Act, which among other things, prohibited banks from engaging in nonbanking businesses. This made Amex much less desirable, and eventually Chase gave up on its plans to absorb Amex. American Express still struggled throughout the 30’s thanks to the Great Depression. They continued to maintain cash reserves for those who wanted to cash their traveler’s cheque or money orders, but nothing beyond that (Amex Co. 8). Through World War II, American Express offices experienced some damage in both Rotterdam and Berlin, with the latter being destroyed. Amex survived WWI, and used their previous experiences to survive WWII; they planned and made sure that all their financial and real estate assets were safeguarded even before the war was officially declared (Amex Co. 8). After WWII, Amex dove into the charge card industry, issuing its first charge card back in 1958. Within five years, more than 1 million cards were in use at roughly 85,000 establishments within and outside the United States (Amex Co. 9). Amex eventually introduced local currency cards in markets outside the United States, adding programs that “made it possible for card members to extend payment on large travel expenditures” and launching additional products, such as the American Express Gold Card in 1966 (Amex Co. 9). Through the end of the 60’s and the beginning of the 70’s Amex continued to grow steady thanks to the continued success of the company’s traveler’s cheque business, in addition to its growing card business (Amex Co. 9). Like many other companies at the time, American Express wanted to continue to grow into a “global conglomerate” with diversified income streams so that should hard times arise again, they would be able to withstand it (Amex Co. 9). Throughout the 70’s and 80’s Amex acquired the following entities: Shearson Loeb Rhoades, First Data Resources, Trade Development Bank, Lehman Brothers Kuhn Loeb, and Investors Diversified Services (today, this is known as Ameriprise, Inc). By the year 1986, the company achieved for the first time over $1 billion in earnings (Amex Co. 9). But thanks to a significant stock market crisis in 1987, which saw the biggest market crash since the Great Depression, Shearson Love Rhoades began to wane considerably. By 1990, Amex made the decision to purchase all remaining public stock for Shearson, providing a “critically necessary capital infusion” (Amex Co. 12). Problems at Shearson masked more important problems within American Express’s card business. Amex’s stock did not recover from the 1987 stock crash, and merchants were upset over what they felt were unfairly high rates. In fact, they staged a revolt which later became known as the Boston Fee Party (Amex Co. 12). Shops resisted the fees they were forced to pay every time a shopper paid with an American Express card (). To make matters worse, card suppression, which is where merchants try to dissuade customers from using the American Express Card began rising (Amex Co. 12). Amex had to “reengineer” some of the new acquirements to stop the bleeding. One of the positives however, was acquiring Investors Diversified Services (Amex Co. 12). This helped to transfer American Express from just a card and travel company into a “true financial services power” (Amex Co. 12). The financial services division grew to be one of the strengths of American Express; while many of the subsidiaries previously acquired by Amex were being “reengineered” to cut costs, what is now known as Ameriprise showed incredible promise (Amex Co. 12). This became the cornerstone of the restructuring of American Express; the company cut $3 billion in total from its cost base, freeing up money to invest in a number of new products and services, including Ameriprise. Amex also needed to rebuild relationships with merchants, and make sure that American Express Cards were accepted across a wide range of industries and geographical locations (Amex Co. 12). This was achieved in part from strategic partnerships with selected airlines (like JetBlue and Emirates), banks, retailers and other key global businesses (Amex Co. 12). These partnerships helped to strengthen the brand again, and American Express was again growing and thriving heading into the 21st century before disaster struck. As we all know, the world changed on September 11th, 2001, and American Express was most certainly affected by the disaster. Not only was the main headquarters in New York damaged, but 11 employees lost their lives on that day (Amex Co. 13). Employees worked in interim offices for the next eight months while the main offices were rebuilt. But like most other challenges, American Express was able to push through. Not many companies have such a lengthy and rich history as American Express does. No doubt, leaders of American Express can look to challenges and solutions within the company’s past in order to answer some of the harder questions asked today.First Pension PlanAmerican Express was also a leader in employee benefits. In fact, many experts such as Dr. Patrick W. Seburn believe Amex was the first company in the United States to offer a retirement plan for its workers back in the year 1875 (Evolution 1). It was created “in an effort to create a stable, career oriented workforce”. However, it only applied to elderly disabled workers. A worker was eligible only upon completing 20 years of service and reaching the age of 60. For perspective, the average life expectancy of a U.S. worker in 1900 was 47 years old. Furthermore, the company’s general manager had to recommend retirement, subject to approval by the executive committee of the board of directors (Evolution 1). In short, it was very difficult to receive benefits. If you were “lucky” enough to receive some of the actual benefits, the annual benefit was 50 percent of the worker’s annual average pay during the 10 years preceding retirement, up to a maximum of $500 dollars annually. The company continued this plan all the way up to 1918, when it was officially terminated as Amex began shifting the company’s focus toward traveler’s cheques/travelling and European expansion (Evolution 1).Current StatusPer American Express’s main website, they focus on “innovative payment, travel and expense management solutions for individuals and businesses of all sizes”. Amex currently has 54,000 employees. Kenneth Chenault is currently the chairman and the CEO for American Express, and has been working at the company since 1981 after graduating from Bowdoin College and Harvard University Law School (Britannica). He made a name for himself in the Merchandise Services division by “replacing cheap goods with finer offerings such as durable luggage and personal accessories” (Britannica) and became the CEO of the company by 2001. This made him one of the first African-American CEOs for a Fortune 500 company. In the past, the company had been slow to adjust to market changes and relied too heavily on past successes. Overtime, Chenault was able to implement strategies that allowed Amex to evolve more into the multi-faceted company that it is today (Britannica). For example, after the tragedy of 9/11, the travel business significantly slowed. To make up for this loss, Chenault proposed that American Express offer more services for smaller businesses, such as financial consulting (Britannica). This was a significant change from the company’s past; usually American Express only worked with more established businesses or larger organizations (Britannica).Within recent history, American Express has grown to be a leader in financial advisement. In total, Ameriprise (Amex’s financial advising subsidiary) covers not only financial planning, but also investments, insurance and annuities, personal trust services, and credit cards/lending options. For financial planning, Ameriprise emphasizes retirement plans, as the aging “Baby Boomer” generation continues to approach retirement. This is labeled by the company as the “Confident Retirement” approach, based on a pyramid of four ideas: covering essentials, ensuring lifestyle, preparing for the unexpected, and leaving a legacy (Ameriprise). As the name indicates, the first building block is making sure clients have the absolute “must haves” such as a place to live, utilities, and transportation; this is achieved through finding stable income sources (Ameriprise). Then, clients can ensure the lifestyle that they worked so hard to achieve through sustainable investment plans. Finally, clients can save for unexpected issues during retirement, and leave resources for family and for the community to “solidify legacies” (Ameriprise). With regards to investing, Ameriprise offers several different selections for their clients depending on their needs. This ranges from Roth IRAs for those who are looking to retire, mutual funds for those who what to diversify their portfolios, and education savings accounts such as 529 plans to help parents save for their children. More sophisticated investment opportunities include real estate investment, bonds, managed accounts where the client can choose from several plans depending on how much they would like to be involved, structured products like CDs (certificates of deposit) and notes, Unit Investment Trusts (UITs) – pooled investment products with a fixed portfolio of securities to be held until the defined termination date, and syndicate offerings which delve into different security options such as preferred securities – debt securities issued by a corporation. Ameriprise also offers auto and home insurance, life and disability insurance, and annuity options for clients (Ameriprise). Furthermore, Ameriprise offers personal trust services, ranging from revocable and irrevocable trusts, testamentary trusts, and charitable and specialty trusts (Ameriprise). Lastly, Ameriprise also offers cash solutions such as Insured Money Market Accounts – FDIC-insured, interest bearing bank deposit arrangement that provides liquidity and cash clients can use for everyday transactions. In addition, any financial client with Ameriprise can sign up for an American Express Gold Card at a discount, which comes with bonus rewards points and perks not available to other clients (Ameriprise). Ameriprise is a large component of American Express, and a division that the company has invested a lot of time and energy in so that it can be a leader within the industry. Amex has continued to offer consulting in travelling expenses and travelling needs as well. American Express travel gives consumers the options to search for flights and hotels on their website based upon the date and time of their choosing, and provides sources for rental cars and cruise lines as well. Any American Express Card holder can get a discount for any hotel, airline, rental car service, or cruise-line that currently holds a partnership with American Express. Amex continues to strive to provide sources of information for their cardholders to connect with Amex’s partners around the world. Although American Express does not physically take customers travelling anymore, they act as a sales agent to help their consumers reach the travelling resources they seek. As mentioned in the introduction, Amex currently accounts for 22% of all credit card transactions, so they still have a sizeable market share in credit cards. As of right now, American Express has over 107 million card holders, charging almost $1 trillion last year alone (Investopedia). Interestingly, American Express also charges cardholders “just for the priviledge of possessing its cards. These fees range anywhere from $75 to $450 dollars for publicly available cards, and $2,500 dollars for its “invite-only” Centurion card. Most of Amex’s revenue comes from merchant’s fees. As discussed with the Boston Fee Party, American Express charges higher fees to merchants, 3%, than all other competitors, 2%. Most of Amex’s cardholders are typically more affluent, and will spend more, so American Express feels as though they can charge higher fees for their “exclusive” customers. Unlike other credit card companies, American Express does not charge interest on their cards. Cardholders must pay their bills in full every month; otherwise, Amex will close the cardholder’s account and send a collection agency to recover the balance (Investopedia). Currently, Amex breaks itself into four main segments – United States card revenue, International card revenue, global commerce, and global network and merchant. Recently growth has slowed in card segments; in the United States, income earned from cardholders rose from $2.6 to $3.2 billion dollars and internationally card revenue decreased from $634 million to $631 million (Investopedia). The loss internationally is mainly due to the high marketing cost and special offers to try and attract more customers; in essence, it is much more costly to attract international consumers than it is to attract domestic consumers. Currently, American Express has $4.2 billion dollars in traveler’s cheques (Investopedia). Current competition is also proving to be quite a challenge for American Express. Partnerships that once strengthened the brand are now going to other companies like MasterCard and Visa. To counteract this change, Amex has adjusted who they target as customers. In the past, American Express has been known to appeal more so to affluent individuals. Starting in 2012 however, they partnered with Walmart to provide Bluebird, a prepaid debit card that doesn’t require a checking account (Prepaid). This has allowed for Amex to reach a whole new customer base, who are looking to avoid all the fees charged by typical banks (Prepaid). However, some of their recent policies have brought into light challenges the company is facing. The main focus of the company has been to reduce costs; the CEO Kenneth Chenault has previously stated that the company would need to cut costs by $1.8 billion dollars by 2017. This is due to Amex’s decreased earnings internationally and slowed domestic growth over the past two years. As of right now, it is estimated that up to 4,000 people will be laid off; this is continuing recent trends, because in the year 2013, Amex employed over 62,000 people. For perspective, Amex currently employs 54,000 – this number not including the projected 4,000 worker layoff. In addition, American Express has been struggling as of late to increase acceptance in Europe, although “the list of places that are taking Amex appears to be growing, rather than slowing” (This is Money). This is mainly due to higher fees; some retailers, especially overseas, are not willing to pay the higher fees that American Express charges (This is money). For Amex, this is a reoccurring issue; in America, the Boston Fee Party was a result of the same issue. Small business owners believed American Express charged too much for transaction fees; Visa and MasterCard only charge 2%-3% for transaction fees while American Express charges 3.5% (Frankel). Although this amount may seem insignificant to some, many small businesses operate on low margin profits, meaning that each percentage of earnings is vital. As a reminder, Amex relies on fee income for more of its revenue than does its competitors, which is mainly why they charge more fees to merchants (Frankel). Amex argues that they can charge premium prices due to their large and affluent consumer base. Amex also argues that their customers spend more on average than other card holders; on average, people who use American Express as their primary card spend the most per month on average at $1,687 (BusinessInsider). Compared to the next closest consumer base, Visa at $843, Amex Card holders spend double and almost three times as much as MasterCard (BusinessInsider). As shown above, American Express card holders have consistently higher monthly spending totals, even dating back to the early 2000s; however, as evident from the graph, this gap has expanded tremendously. This is mainly due to the company’s increased marketing program throughout the early to mid-2000s to target “higher-income” consumers (BusinessInsider). Regardless of whether Amex has the right to charge more than competitors, they have planned to reduce their transaction fees, albeit slightly (from 3.5% to 3.3%), to make themselves more competitive in both foreign and domestic markets (BusinessInsider). BenefitsAmerican Express offers competitive benefits. They offer customizable health, dental, vision, life, disability, and accidental death insurance. The employee can decide out of the options above what he/she wants to be covered by. This is also included for spouses and dependents of employees. In addition, Amex also offers health savings accounts and flexible spending accounts, depending on which the employee chooses. Other fringe benefits include family paid leave, telecommuting – the ability to work from home for a few days out of the week, flexible hours – which allows workers to come in earlier in the day or later in the day so long as they work a certain time range (10:30-3:30), on-site gym and cage, public transportation reimbursement, and reimbursement of up to 90% of tuition costs. Furthermore, since the late 1990’s American Express has offered a Paid Sabbatical Program. This is where eligible employees can donate time and talent to not-for-profits while maintaining full pay and benefits. However, to receive this opportunity, an employee must have worked with the company for at least 10 years. Other benefits offered to employees currently working at the New York headquarters include: free beverages during the day, personal concierge service, massage therapy, fitness classes, convenience store, banking, subsidized lunch on a regular, daily basis, on-site package/mailing service, discount ticket sales, WeightWatchers meetings, dry cleaning, and personal travel service. A recent addition to the plethora of benefits that Amex provides is Project Resource Teams (Amex Benefits). These teams are made up of a pool of employees who work as internal consultants. This team offers flexibility for small groups of employees who need to step back from full-time work for a defined period of time, but do not want to leave the company (Amex Benefits). Examples include employees with young children who want to pick their kids up from school, or employees who may want to work three days a week can work two days at home. This program is only offered to the highest-performing employees (Amex Benefits). American Express is also working on spreading the growth of employee initiatives. Right now, Amex is working on a model that allows employees to define where, when and how they work; currently this “flexible work model” is only being implemented in a few locations, but it is increasing in popularity (Amex Benefits). Another recent program developed by American Express is the Global Rotation Program. Introduced in 2002, this program provides opportunities for employees within certain functional areas to work in a different part of the world for up to six months, “contributing to or even leading key strategic projects” (Amex Benefits). It is meant to serve as a challenging experience that allows employees to work on business initiatives while increasing their global mindset and foster networking and relationship-building (Amex Benefits). Since 2002, over 100 employees have rotated through assignments around the world (Amex Benefits). Retiree-Health InsuranceEmployer-provided group health insurance has been documented to create “job lock” (Retiree Health 99). This is especially true for older workers who have incentive to delay retirement until they are eligible for Medicare, which is at 65, so they can maintain group healthcare coverage (Retiree Health 99). Some employers extend group healthcare coverage to retirees in addition to current employees, thereby revoking the incentive (Retiree Health 99). Dr. John B. Shoven and Dr. Sita Nataraj Slavov conducted research studies to determine the effects of employee-sponsored coverages for retirees, and specifically the effect on employment patterns of older workers employed in the public-sector (Retiree Health 100). Roughly only 25% of private-sector companies offer retiree-health insurance, and American Express is not among them. In general, American Express has a younger work force; the average age of an Amex employee is 34 (Payscale). That is much younger than the average age of the overall U.S. labor force, which is currently 41.9 years old (Pop. Bulletin). Because of this, American Express doesn’t really have to worry about this issue, at least for main branches. Other subsidiaries such as Ameriprise are a different story. Recent research indicates that nearly one-third of financial advisors are in the age bracket of 55-64, and the median age of financial advisors is almost 51 years old (Financial Advisor). Applying this knowledge to Ameriprise, it would seem as though retiree health insurance might be more relevant. Workers between the ages of 55-59 who were offered retiree health coverage were 4.3 percentage points less likely to remain employed full time, and workers between the ages of 60-64 were 6.7 percentage points less likely to remain employed full time, according to Dr. Shoven and Dr. Slavov’s research. If American Express begins to notice “job lock” with Ameriprise financial advisors, they can most certainly implement retiree health insurance. However, considering that the goals of the CEO are to reduce costs by almost 1.8 billion dollars over the course of the next year, it seems unlikely that retiree health insurance will be implemented in the near future, considering that the central workforce is still relatively young. 401(k) PlanAmerican Express currently has a defined contribution plan that matches 100% of before-tax employee contributions up to 5%. This is different from a defined benefit plan because it relies on the employee to make contributions to the account; the employee does not pay the full benefit, but instead matches what the employee puts in. As far as competitors go, Amex’s 401(k) plan is pretty competitive. For Capital One, automatic enrollment is applied as well, but if you do not sign up yourself, the company will automatically set the contribution rate at 3% (Capital One). Capital One will also match 100% of the first 3% of pay that you contribute, plus 50% of the next 3% of pay that you contribute (CapitalOne). Visa doubles employee contribution up to 3% of base pay – for every $1 the employee contributes, Visa contributes $2 (Visa). However, unlike Capital One and Amex, Visa allows the employee to change the contribution rate at any time (Visa). In addition, Amex also provides a profit-sharing component, ranging from 0-5%. With profit sharing, company leadership designates a percentage of annual profits as a “pool of money” to share with employees (The Balance). The pool of money is subsequently divided across covered employees based upon performance measurements; if you perform better, you get more of the profit share (The Balance). This is available for workers who have at least 10 years of experience. In 2012, American Express also instituted an Employee Stock Ownership Program and as of right now, employees account for 2% of all ownership within the company as of 2015. The employee stock ownership program was instituted to make employees “feel more invested (literally) with the company” according to Chenault. Currently, Amex has $4.42 billion in net plan assets with 34,000 participants (BrightScope). That equates to an average account balance of $140,000 dollars (BrightScope). As of right now, American Express has 23 investment options available for employees to choose from. This is comparable to competitors such as Capital One and Visa; per BrightScope, Capital One has 29 options on their investment menu and Visa has 27. Back in 2009, Amex introduced index funds as additional options for employee’s 401(k) plans. The index fund core tier includes: diversified bond fund, U.S. small/mid-cap equity funds, U.S. large cap equity funds, and international equity fund (BrightScope). Index funds are known to be low-growth, low risk options; this was a response to the Great Recession of 2008, as employees looked for more safer options. According to BrightScope, a website used for comparing companies 401(k) plans, Amex’s plan has a rating of 83 on the scale from 0-100, with 100 being the best plan available (BrightScope). That puts American Express within the top 15% of all companies. Visa is currently rated slightly higher than Amex thanks to a larger average account balance ($170,000 compared to $140,000). However, American Express is rated much higher than Capital One (rated 74) in part because of a significantly higher average account balance, and a higher 401(k) participation rate (BrightScope). Compared to competitors within the same industry, Amex is denoted as having the lowest fees, having great generosity with regards to match rate, great salary deferrals, and a good amount of money within the account attributed for 401(k) plans. The only area where American Express did not get high remarks was in plan participation, and that is mainly due to Amex just recently instituting automatic-enrollment. Literature ReviewThere have been many studies conducted over the past few decades to discuss various retirement policies implemented within the workplace and their actual benefit to the employee. Before I discuss my recommendations, I would like to first discuss some of the previous research regarding workplace policies and their findings.Dr. Patrick Bayer, Dr. Douglas Bernheim, and Dr. John Karl Stolz conducted a research study between the years of 1993 and 1994 to determine how employees were most influenced with regards to retirement contributions. This information was gathered through survey data from KPMG Peat Marwick (now known as just KPMG). They selected over 1100 employers, with the condition that they employed at least 200 workers, in both the private and public sector. Employers were surveyed over the phone and asked whether or not they currently provided retirement plans; 596 out of the 1100 employers surveyed provided 401(k) plans to their employees (Effects Educ. 608). Three different variables were then used to further study the data in more detail; this included a general plan characteristic which described the extent to which the firm provided financial education to its employees through summary plan descriptions, newsletters and other publications, and investment seminars for various different groups such as employees above 50 and within a year or two of retirement (Effects Educ. 609). Researchers also depicted employees as being in one of three classes: all, Highly Compensated (HC – employees making $100,000 or more) or Non-Highly Compensated (NHC – employees making less than $100,000). Of employees who are considered NHC, 60% participated in 401(k) plans compared to 80% of HC employees (Effects Educ. 609). With regards to the different forms of education, 74% of pension plan sponsors provided summary plan descriptions, 65% distributed newsletters, and 44% offered retirement seminars to all employees (Effects Educ. 609). This ratio of information is relatively the same, regardless of the retirement plan provided by the employer, indicating that employers are only trying to address general concerns versus actually providing employees with information to guide them in making beneficial decisions regarding their specific plan (Effects Educ. 609). Since the 401(k) plan is popular with employers, employees need to be able to make informed decisions regarding their retirement, considering that 401(k) are based on the employee’s contribution. 92% of employees review documents such as newsletters, but only 33% make contributions based off the documents. The most influential tool found within the survey was frequent informational seminars; for NHC employees, frequent seminars are associated with participation rates that are 11.5 percentage points higher than plans with no seminars (Effects Educ. 614-615). In addition, 401(k) plans with employer matches have participation rates that are 14.6 – 16.9 percentage points higher than plans without matches (Effects Educ. 616). Most employees working for American Express would be considered as Non-Highly Compensated, meaning that seminars would be highly applicable to Amex. An additional point to make is the effect of 401(k)s in general. The new trend of company sponsored defined contributions can lead to more responsibility for the individual employee to control their 401(k), and there is concern that some employees are not fulfilling this responsibility, particularly if they need to opt in to their company’s pension plan, or if they are saving inadequately, spending their retirement savings too quickly, of if they are not diversifying their portfolio (Turning 469). Dr. Olivia S. Mitchell, Dr. Stephen P. Utkus, and Dr. Tongxuan Yang specifically researched how the different designs of 401(k) plans address these concerns and to see how these different designs influence employees’ contribution rates to pension plans.The sample for the research study was provided by Vanguard in 2001 and covered over 500 defined contribution plans and 74,000 employees (Turning 469). In particular, the study looked closely at the plan design, employer, and workforce characteristics (Turning 469). The research study investigated the design of matching as well as investment and liquidity features of each plan. Most private sector firms with a company based program offer a 401(k) plan that is principally funded by employee contributions from wages, otherwise known as “elective deferrals” (Turning 471). Employer contributions are usually in the form of matching contributions, and as shown from the previous research study, do increase 401(k) participation rate. However, for the employer to contribute, the employee must make a contribution to the pension plan first. Workers do receive significant tax incentives for 401(k) contributions up to a total of $10,500 (Turning 471). Furthermore, contributions made by the employer, such as when matching, are not taxed (Turning 471). Withdrawals are the only action that is taxed; this incentivizes workers not to remove any funds from their pension plan until later in life when tax rates may be lower (Turning 471). Elective deferrals are also subject to nondiscrimination testing rules; this requires employers to divide employees into two subsections: Highly-compensated and Non-highly compensated, with the classification being dependent on whether or not the employee makes more or less than $85,000 dollars. Less than $85,000 dollars indicates non-highly compensated, and more than $85,000 dollars indicates highly compensated (Turning 471). According to nondiscrimination testing rules, the actual deferral percentage of Highly-compensated employees cannot exceed Non-highly compensated employees by more than 2%; this makes employers encourage Non-highly compensated employees to save more (Turning 472).In the sample, 82% of firms offer a match for 401(k) contribution plans, and two percent offer a dollar-for-dollar matching rate on the first six percent of pay. The median match by firms is around 50 cents per dollar on the first six percent of employee contributions (Turning 476). Some firms use a non-linear matching rate; for example, 55 cents per dollar for the first three percent of salary contributed, 37 cents per dollar for the next three percent of pay, and 5 cents per dollar for the next two percent of pay (Turning 476). However, of the two types of matching, only eleven percent of firms within the sample had a nonlinear match rate (Turning 476). Moreover, out of all the plans in the survey, about one-third promise to contribute less than three percent, another one-third promise exactly three percent, and one-third promise to provide more than three percent of pay (Turning 477). For the average pension plan, there were 12.6 investment choices; two-thirds of the investment options were equity funds (Turning 478). Within the survey, the average participant in the plan is a 43-year-old male with 9 years of experience at the company and with average earnings of about $63,900 dollars; although American Express has a younger average worker, with less experience, the average employee does have a salary close to that found in the sample ($63,900 compared to $63,100). The average plan’s participation rate is 77% and the average 401(k) account balance is $54,400 (Turning 478). An important finding with the research study is that workers tend to forfeit much of the matching rate because they fail to participate in their 401(k) plans or because they fail to save at a rate needed to earn the full employer match. As a result, employers do not pay the full cost of the three percent matching rate (Turning 478). In addition, the average participant only uses 3.5 out of the possible 12.6 investment options available (Turning 478). A larger employer match on the first three percent of pay and a higher match threshold have a significantly positive impact on participation rates of lower-paid employees (Turning 480). However, among non-highly compensated employees, participation rates level off at increases between three and six percent and drop at above six percent of pay (Turning 480). Furthermore, offering more investment options encourages more non-highly compensated employees to participate, but at a declining rate (the optimal number of options was found to be 30). Also, an increase in the share of equity funds is associated with a lower participation rate (Turning 480). So what does this say? These findings seem to indicate a possible “overload” threshold, in which the rate of participation by employees will no longer be affected by additional investment options (Turning 480). Interestingly, sixty-five percent of non-highly compensated at a typical firm would join their 401(k) plan regardless of the presence of a match (Turning 482). Only ten percent of non-highly compensated employees are induced to save in the plan, and around twenty-five percent fail to join the plan at all (Turning 484). This indifference illustrates the limited effectiveness of using matching contributions to boost retirement savings. Therefore, policies other than match increases and liquefying 401(k) plans need to be implemented in order to significantly improve the contribution rates of 401(k) plans. Some possible alternative options include mandatory contributions, which create saving patterns independent of firm, employee, or plan-specific characteristics, and implementing automatic enrollment policies, in which the employee has to opt-out of the plan manually (Turning 486). This research conducted by Dr. Mitchell, Dr. Utkus, and Dr. Yang was a vital source of information, and allowed for more educated recommendations to be made. Recommendation American Express currently has one of the most generous plans within the industry. With the recent institution of automatic enrollment, participation within the 401(k) has increased tremendously, with participation rate up to 90%. With the additions of investment menu options and with the current fringe benefits available, Amex can consider themselves to be in the top of their class. However, as discussed in the Current Status section, American Express will undergo cutbacks over the next year in the form of layoffs; it is estimated that up to 4,000 employees will lose their jobs by this time next year. As I have previously mentioned, this is merely a continuation of a recent trend. This is mainly in part due to the low-growth that Amex has experienced over the past few years, and the simultaneous decrease in revenue. One of the many side-effects associated with lay-offs is lower participation rates with 401(k) plans. Employees are less likely to put their money into American Express’s 401(k) plan, or invest with the company’s employee stock ownership program, if they feel insecure about their job. American Express is looking for anyway to cut costs; I feel that fringe benefits should be the focus of these cuts, not lay-offs. Most of the fringe benefits are only available to workers at the New York office. This includes things like free beverages during the day, massage therapy, fitness classes, convenience store, onsite café and gym, and personal travel service. Furthermore, most of these benefits, along with health insurance, are available to part-time workers. To cut costs, and save an estimated 10 million dollars (Amex Cost), I believe that American Express should no longer offer some of their more luxurious fringe benefits. It is understandable to see this as a possible detriment to the competitiveness of Amex, and that it may take away from the attractiveness of working at American Express. I would argue, however, that it is also difficult to support all of these luxuries amenities and services when the company is laying off approximately six percent of its entire workforce. In particular, I would argue that public transport reimbursement is not really a necessity. I understand that transportation systems are very different in New York than in other cities, and most Amex employees would probably take a cab, subway, or a bus. However, American Express offers very competitive wages to their employees; completely reimbursing each worker for costs in transportation places a much larger burden on the company. Competitors such as Capital One and Visa do not offer this service; although this makes American Express stand out, it also means the company has to pay more (approximately $3 million dollars). Instead of covering every employee’s public transportation cost, I would argue just to provide this service to certain employees that do not surpass a threshold of income; although the average employee at American Express makes $63,100 dollars, there are younger workers who do make less. I would also argue that Amex could afford to reduce their maximum for tuition reimbursement. Companies such as Capital One do offer education assistance, but do not reimburse the employee up to 90% of their tuition cost. Again, this is very generous of American Express to offer reimbursement at such a high level, but it adds an estimated $2.5 million in annual costs. Between the years of 2014 and 2015, salaries and employee benefit spending increased by 92 million dollars; in total, Amex spent $4.2 billion dollars in salary and employee benefits in the United States alone, with an additional $2.1 billion dollars spent internationally (Amex Fin.) I would also say that American Express should offer informational seminars to its employees with regards to 401(k) plans and the various options and responsibilities that coincide 401(k) plans. With automatic enrollment being instituted in the year 2012, participation is already increased tremendously, up to 92% (Amex Fin.) Automatic enrollment means the employee must make a conscious effort to remove themselves from the program. Although the participation rate is high among eligible employees, it still could be improved. As a reminder, the most influential tool found within the survey conducted by Dr. Patrick Bayer, Dr. Douglas Bernheim, and Dr. John Karl Stolz was frequent informational seminars; for non-highly compensated employees, which accounts for over 55% of Amex’s workforce, frequent seminars are associated with participation rates that are 11.5 percentage points higher than plans with no seminars. Currently, American Express does not offer seminars for their employees; instead, they provide newsletters and written documents for their employees, which do not have a significant effect on participation or investment decisions. Most importantly, seminars would be a low-cost solution to increasing the contribution rate of employees. Considering that the average employee at American Express is approximately 34, most may not be inclined to save for their retirement. However, seminars could serve as both an educational tool and a reminder to employees that the earlier they save for retirement, the better.Candidly, there were not many faults present within Amex’s retirement plan structure. The company has recently instituted more options for employees to invest in, in the form of diverse equity funds, and has instituted automatic enrollment. Furthermore, American Express offers a very generous match rate of one-hundred percent for up to five percent of the employee’s salary contribution. I guess it’s only fitting that the first company to offer a pension plan in the United States now currently has one of better plans available. Obviously some of the suggestions that I have made will be considerably unpopular among employees, who will lose benefits that may make working at American Express much more enjoyable. But, as with any decision, there are costs and benefits. Through the suggestions that I have made, Amex should save approximately 20 million dollars (this total is also including cutting all luxurious amenities offered at the New York office). This is not a significant amount with regards to the $1.8 billion in cuts CEO Kenneth Chenault would like to make. However, with these cuts, roughly 300 more workers (assuming an average wage of $63,100) could keep their current jobs. I believe most employees would agree that having less benefits is superior to having no benefits at all.Over the past 166 years, American Express has found success in a variety of fields, ranging from cargo service back in the late 1800s to travel service through the early twentieth century, and more recently in the charge card industry. Like many companies, Amex has faced many challenges that have tested the company to its core, and will continue to face challenges in the near future that will no doubt determine the fate of the company. American Express has been a leader in retirement benefits for their employees since 1875, and continues to offer superior References43% Of Advisors Nearing Retirement. (2014, January 17). Retrieved November 20, 2016, from Denoted as AdvisorAmerican Express Company. (n.d.). Retrieved November 19, 2016, from Denoted as BrightScopeAmerican Express Company. (n.d.). Retrieved November 18, 2016, from Denoted as BritannicaAmerican Express: Our Story. (n.d.). Retrieved November 13, 2016, from Denoted as Amex Co.AmEx CEO Says Company Was 'Arrogant' In '80s and '90s? | . (2015, April 01). Retrieved November 29, 2016, from Denoted as PaymentsAnnual Reports - American Express Investor Relations. (n.d.). Retrieved November 13, 2016, from Denoted as Amex Fin.BAYER, P. J., BERNHEIM, B. D. and SCHOLZ, J. K. (2009), THE EFFECTS OF FINANCIAL EDUCATION IN THE WORKPLACE: EVIDENCE FROM A SURVEY OF EMPLOYERS. Economic Inquiry, 47: 605–624. doi:10.1111/j.1465-7295.2008.00156.x Denoted as Effects Educ. Frankel, M. (2014, June 16). Here's Why American Express Can Charge More Than Visa or MasterCard. Retrieved November 20, 2016, from Denoted As FrankelFull List of Employee Tenure at Fortune 500 Companies. (n.d.). Retrieved November 29, 2016, from Denoted as Empl. AgeHolodny, E. (2015, September 15). Here's how much the average Amex, Visa, MasterCard, and Discover owners spend per month. Retrieved November 29, 2016, from Denoted as BusinessInsiderH. (n.d.). Pros and Cons of Employee Profit Sharing. Retrieved November 12, 2016, from Denoted as BalanceLee, M. A., & Mather, M. (2008, June). U.S. Labor Force Trends. Retrieved November 14, 2016, from Denoted as Pop BulletinMitchell, O. S., Utkus, S. P., & Yang, T. (2007). Turning Workers into Savers? Incentives, Liquidity, and Choice in 401 (k) Plan Design. National Tax Journal NTJ, 60(3), 469-489. doi:10.17310/ntj.2007.3.08 Denoted as TurningRecognizing Responsibilities: To Our Employees. (n.d.). Retrieved November 15, 2016, from Denoted as Amex Empl. BeneSeburn, P. W., Dr. (n.d.). Evolution of Employer-provided Defined Benefit Pensions. Retrieved November 08, 2016, from Denoted as EvolutionShoven, J. B., Dr, & Slavov, S. N. (n.d.). The role of retiree health insurance in the early retirement of public sector employees ☆. Retrieved October, 2016, from Denoted as Retiree HealthWhat We Do. (n.d.). Retrieved November 14, 2016, from Denoted as AmeripriseYour 2015 Capital One Benefits Plan. 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