A step-by-step guide to helping your employees combat financial stress
Finances are often one of those lingering thoughts that can be detrimental to an employee's productivity, during these times of the coronavirus pandemic, those thoughts may not just be lingering anymore. Read this blog post to learn more.
With the virus dominating everyone’s thinking and many employers concentrating on keeping their businesses afloat, it may be hard to focus on your employees’ financial future. Even before COVID-19, employers saw the link between financial stress and decreased workforce productivity. With COVID-19 creating business pressures, it’s imperative that your workforce meet the needs of your customers, and they can’t do that effectively if they are worried about their own or their family’s finances.
Millions of Americans are struggling due to the economic backslide stemming from the pandemic. The first months of the COVID-19 pandemic largely wiped out three years of financial gains in the United States, with more than half of Americans reporting their financial health has been compromised, according to Prudential’s 2020 Financial Wellness Census. While some are focused on making it day-to-day, the economy has also shaken others who considered their finances stable for the future. Although your employees still have a job, you must not lose sight of the fact that their spouse or partner may have lost their job or been furloughed, reducing their incomes by half, which can set any family back.
No matter how bleak things may look right now, you can still help your employees plot a path back to being financially well. Here are four steps to help restore your employees’ financial confidence.
1. Help them build a strong foundation
Employees must take stock of the money that is still coming in and create a budget. Many employers offer budgeting tools as part of their financial wellness program, so consider ramping up your email communications to remind employees of these tools, which can help them categorize expenses as essential or discretionary. If you offer any form of debt management support you can remind them to take advantage of that too. You may also want to provide them with education on how to create a will, something many people overlook. Finally, encourage employees to designate beneficiaries on insurance and financial accounts.
2. Use open enrollment season to protect them against income and expense shocks
Open enrollment season, which is underway for many companies right now, is the perfect time to reinforce non-health workplace benefits, like life insurance, long-term disability insurance, hospital indemnity insurance, critical illness insurance and accident insurance. Emphasize your paid family leave policy too, if you have one. This is especially timely right now for workers who are without childcare options, but must return to the office after months of remote working.
3. Assist them in planning for their future and retirement
Some employers who have implemented financial wellness programs have partnered with providers to create financial wellness assessments so they can understand how their employees are faring. If you have this tool and notice that your employees have the basics down, they should be comfortable expanding their financial safety net. Consider encouraging them to increase their retirement contributions and use email campaigns to empower them to take advantage of the company match, if you offer one. If your employees have access to Health Savings Accounts, Flexible Spending accounts and Dependent Care Accounts to help manage healthcare and childcare expenses, be sure to emphasize their importance in your open enrollment email communication campaigns and virtual open enrollment education sessions.
4. Educate your employees on how to secure their financial future
Once employees have rebuilt their financial base, it’s time to help them strengthen the protections they’ve created. Consider hosting virtual webinars to educate them on how to protect themselves from market volatility by maximizing the options in their retirement savings plans. Common options include target date funds or other asset allocation tools as well as in-plan retirement income options and other retirement draw-down strategies. If your financial wellness program includes financial advising or counselling, encourage them to leverage an advisor or financial planner to minimize their non-mortgage debts and calibrate their life insurance coverage to create lifetime income for their surviving dependents.
SOURCE: Schmitt, S. (02 November 2020) " A step-by-step guide to helping your employees combat financial stress" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/list/a-step-by-step-guide-to-helping-your-employees-combat-financial-stress
Every dollar counts in today’s zero-interest-rate environment
It’s no secret that interest rates have been at historically low levels for quite some time, but the recent announcement by Federal Reserve Chairman Jerome Powell indicates that rates will stay near zero for the foreseeable future. Chairman Powell stated in his address last month that the Fed would tolerate above-2% inflation instead of attempting to preemptively control inflation by raising interest rates.
With rates likely to remain low, investors, and especially participants in sponsored 401(k) plans in the U.S. retirement system, need every dollar they can save to achieve their goals in retirement. This is particularly true this year, with the COVID-19 pandemic having inflicted significant disruption, uncertainty, and volatility on our nation’s workforce as well as the financial markets.
Even before the pandemic, low interest rates were already hitting Americans enjoying or nearing retirement very hard, because lower rates for annuities and money market accounts require people to save more when trying to convert savings into income. The indexing of Social Security benefits at lower rates also decreases income in retirement.
Stop automatically cashing out terminated participants’ small-account balances!
Since every dollar counts for plan participants in our pandemic-disrupted, zero-interest-rate environment, why are sponsors (who have a duty to adhere to the fiduciary standard) continuing to cash out small, stranded accounts with less than $1,000?
The Employee Benefit Research Institute (EBRI) estimates that a total of $92 billion in hard-earned savings leaks out of the U.S. retirement system every year because 401(k) plan participants prematurely cash out their accounts when they switch jobs. Conducting automatic cash-outs for terminated participants adds to the already sizable leakage of assets from our nation’s retirement system.
As we have noted in previous articles in this space, the primary driver of cash-out leakage is the lack of seamless plan-to-plan asset portability for participants at the point of job-change — and the resultant costly and time-consuming nature of DIY portability.
Boston College’s Center for Retirement Research has reported that, on average, premature cash-outs decrease participants’ total 401(k) assets for retirement by 25%. Cashing out 401(k) savings early is perhaps the worst blunder that a retirement-saver can make. But when sponsors automatically cash out small accounts, they potentially open themselves up to new fiduciary liability down the road.
After all, if a terminated participant has moved to a new house or apartment in the years since working for a former employer, and the new mailing address has not been updated in the files of the plan sponsor’s recordkeeper, then the check for the cashed-out small balance may not reach the accountholder. If that occurs, and the accountholder finds out the assets in their former-employer 401(k) account were lost, the employer could be sued, or the plan could be the focus of a regulatory inquiry.
Auto portability can eliminate the need for automatic cash-outs and rollovers
By adopting the technology solutions which enable auto portability, sponsors can potentially avoid having to conduct automatic cash-outs and automatic rollovers to keep their average account balances and related metrics at healthy levels.
Auto portability — the routine, standardized, and automated movement of a retirement plan participant’s 401(k) savings account from their former employer’s plan to an active account in their current employer’s plan — is powered by “locate” technology and a “match” algorithm. Together, these innovations locate lost and missing participants, and kick-off the process of moving their savings into 401(k) accounts in their current-employer plans.
Auto portability also has the power to make automatic rollovers of small accounts into safe-harbor IRAs a redundant practice. Placing terminated participants’ assets for retirement into safe-harbor IRAs in a low-interest-rate environment isn’t exactly benefiting them, since the only default investment options allowed in safe-harbor IRAs are principal-protected products. The combination of low yields and high fees in too many safe-harbor IRAs can deplete accountholders’ assets over the long term.
The capability to begin the movement and consolidation of 401(k) assets as participants change jobs, as well as reunite lost and missing participants with their 401(k) savings, can help decrease cash-out leakage — and savings depletion — at a time when every dollar in the U.S. retirement system counts more than ever.
EBRI estimates that the widespread adoption of auto portability by sponsors and recordkeepers would preserve up to $1.5 trillion (measured in today’s dollars) in our nation’s retirement system over the course of a 40-year period, primarily for the benefit of low-income workers. Based on EBRI data, Retirement Clearinghouse estimates that widespread adoption of auto portability would preserve $619 billion in savings for 67 million minority participants in the U.S. retirement system — including $191 billion for 21 million African-Americans.
Fortunately, auto portability has been live for more than three years, and it’s available to help sponsors make every dollar count for participants during these extraordinary times.
SOURCE: Williams, S. (07 October 2020) "Every dollar counts in today’s zero-interest-rate environment" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/every-dollar-counts-in-todays-zero-interest-rate-environment
Top 10 year-end tax planning tips
Another year is coming to a close, which only means a season of taxes is slowly approaching. Tax time can often be one of the most stressful times of the year for businesses, employees, and even clients, but that just means helping clients with a less stressful year-end planning session more crucial than ever. Read this blog post for helpful tips.
Between the upcoming presidential election and the COVID-19 pandemic and its attendant stimulus packages, this year has seen more than its share of uncertainty around tax — which makes helping clients with year-end planning all the more crucial.
“Year-end tax planning is more important than ever this year,” said Renato Zanichelli, national managing partner of tax services at Grant Thornton, in a statement. “Businesses both large and small have been dealt a tough hand. Having the right tax strategy will help businesses navigate this time of historic disruption and put them on the right track as a new year begins.”
“Lawmakers dedicated trillions of dollars to keep families and businesses afloat, but those provisions may also require quick action, in many cases by the end of this year,” added Dustin Stamper, managing director in the firm’s Washington National Tax Office. “The government wants to get money in the hands of those who need it, and many of the most generous provisions are tax changes that provide welcome liquidity for businesses and timely relief for individuals.”
With that in mind, the Top Eight Firm has put together a list of 10 key tax considerations for year-end planning for both individuals and businesses (below); for more see their year-end tax planning guides.
Accounting method changes are among the most powerful ways to accelerate deductions, but remember any non-automatic changes a company wants to make effective for the 2020 calendar year must be made by the end of the year. C corporations make NOL refund claims themselves, but passthrough businesses like partnerships and S corporations pass losses onto to owners, who will make claims.
The fastest way to obtain a refund is generally by filing a tentative refund claim, but these must be filed by Dec. 31, 2020, for the 2019 calendar year. If losses will be in 2020, the business should start preparing to file early, because they cannot claim an NOL carryback refund until they file their tax return for the year.
Tax rules allow businesses to claim certain losses attributable to a disaster on a prior-year tax return. This is meant to provide quicker refunds. President Donald Trump’s COVID-19 disaster declaration was unprecedented in scope, designating all 50 states, the District of Columbia and five territories as disaster areas. This means essentially every U.S. business is in the covered disaster area and may be eligible for refunds from certain types of losses. Under this provision, a business could claim a COVID-19 related disaster loss occurring in 2020 on a 2019 amended return for a quicker refund. The provision may potentially affect losses arising in a variety of circumstances, including the loss of inventory or supplies or the closure of offices, stores or plants. To qualify, the loss must actually be attributable to or caused by COVID-19 and satisfy several other requirements.
3 small business leaders on what it takes to survive the pandemic economy
Now more than ever, business leaders are having to take the roads less traveled when it comes to allowing their businesses to succeed. The pandemic economy has caused many to struggle, and many are stepping out to talk about what they've learned. Read this blog post to learn more.
Building a business is never easy, but 2020 has been a unique calamity. In the U.S., which has suffered more COVID-19 deaths than any other nation, the economy entered its worst downturn in generations. Although central bank stimulus and government programs such as the Paycheck Protection Program have helped cushion the blow, a return to growth will depend on the creativity and resilience of millions of entrepreneurs and business managers.
Lindsay Gibson, COO, TextNow
Over a decade, TextNow built its business, an app that allows users to send and receive calls and text messages for free, by hosting ads for hotels and airlines and the like. Within weeks of the COVID-19 pandemic hitting the U.S. and Canada, one-quarter of TextNow’s revenue disappeared. The company closed its Waterloo headquarters, as well as offices in Portland, Ore., and San Francisco. All employees started working from home.
Lindsay Gibson, the chief operating officer, stayed relatively calm. A 16-year career at cellphone maker BlackBerry taught her how to navigate an organization on “a downward slope,” as she puts it. At BlackBerry, she once had to cut 250 jobs on her first day in a new role. She remembers it as the beginning of five years of doing more with less.
Her strategy then, and now, was to make plans. Plan A at TextNow was to slash revenue targets and cut expenses. The company eliminated 19 jobs, froze hiring, and ended employee perks such as personal trainers and free lunches. Biweekly companywide Zoom meetings were instituted to keep staff up to date and fortify plunging morale. For three months the mood became “very conservative, very heads down, and very focused,” Gibson says.
The company quickly found opportunities for growth. With so many people unable to visit friends or relatives, TextNow started testing a video chat function. Amid the economic downturn, hundreds of thousands of people could no longer afford to pay their AT&T or Verizon bills, so TextNow’s appeal increased. As school moved online, teachers began using TextNow to communicate with parents and students.
By July, TextNow was growing again. It lifted the hiring freeze and recruited a chief growth officer to beef up marketing and help win customers. TextNow is on track to meet or exceed its new revenue targets, Gibson says.
Brian Butler, president and CEO, Vistra Communications
Brian Butler is used to dealing with disaster. The Gulf War veteran — who still suffers from injuries and hearing loss sustained during his Army service — oversaw a munitions plant in Virginia at the time of the Sept. 11 attacks, helped coordinate Hurricane Katrina relief from the Pentagon, and started his marketing and communications business just before the 2008 financial crisis.
So in January, when he first read about a virus sweeping China, he started to prepare. In February he ordered five laptops for a core group of employees and by March had purchased 35. When other companies found themselves struggling to find equipment, his staff was settled and working from home. “I was a planner in the military,” Butler says. “I heavily rely on my ability to think and plan before I do.”
Still, in just a few months, Vistra lost two clients and three major contracts, including a hospital, a large beverage company, and a tourism agency that canceled events, contracts, or big projects. The company responded with an online campaign it called “V Positive.”
“We put up positive messages on a weekly basis,” Butler says. “That generated more good leads for us, just by doing that. So while in some areas we lost a few customers, in some areas we gained a few.”
In late May, the video of George Floyd’s death led to worldwide protests against police killings of Black Americans. Butler is Black, and 48% of his employees are people of color. Vistra started a new business line that offers tailor-made diversity training to customers.
As the months of working from home passed, Butler says he focused more on his staff’s well-being. He gave each employee $150 to “buy something that will help them work better.” The company, which already holds weekly and monthly video calls for staff, started including more informal Thursday morning coffees and Friday afternoon sessions with his father, a chaplain. Butler says the idea stemmed from his experience in the Army, where every battalion has its own chaplain. “And I thought, Hmm, why does it have to be different in the workplace?”
By late August, most of the clients the company had lost in the early days of the pandemic were back on Vistra’s roster. Butler says he’s working from his home for the foreseeable future, just a few miles from the office — and a few feet from the bedroom where he founded his company 13 years ago.
Melissa Wirt, founder, Latched Mama
Melissa Wirt thought she knew about juggling responsibilities. She founded Latched Mama to provide affordable, functional clothing for nursing mothers six years ago, when she had just two children. Today she’s the mother of five.
Then in February, the coronavirus shut down the factories of some of Latched Mama’s suppliers in China. It took a few more weeks before it hit her team — most of them working mothers — in Virginia. “So many moms’ lives, within a 24-hour period, were turned upside down,” she recalls. “Kids stopped going to school on a Friday and didn’t go back on a Monday.”
Wirt’s mother came up from Florida to help take care of her kids. Another mom couldn’t come to the office anymore when school and day care closed. “So her husband is now coming into work” and is on Latched Mama’s payroll, Wirt says, and the woman is doing social media work for the company from home.
In other ways, the work-from-home lifestyle proved a boon to Latched Mama’s business. Women are treating themselves to more comfortable clothes, boosting sales from last year, Wirt says.
Her staff, many at home or working half-shifts, weren’t able to pack and ship fast enough to meet the elevated demand. One of her employees got COVID-19 during the summer, and fear of the virus remained high.
So Wirt recruited teenagers, including a 16-year-old neighbor, to work part time. She also hired two people to manage shipments and warehousing, scooping them up from a nearby distribution company that went bust during the pandemic. “In some ways it’s an amazing problem to have,” Wirt says. “But it’s also hard as a small business because you also have to keep your employees safe. It’s just a lot of balls in the air at the same time.”
Productivity has ticked down. But Wirt says she feels that’s a small sacrifice in an unprecedented year.
“If we need to cut some profit to be able to make sure that people can relax and take a deep breath and be there for their kids and get through this pandemic together, then that’s what we’re going to do.”
SOURCE: Dmitrieva, K.; Kazakina, K.; Greenfield, R. (07 October 2020) "3 small business leaders on what it takes to survive the pandemic economy" (Web Blog Post). Retrieved from https://www.benefitnews.com/articles/3-small-business-leaders-on-what-it-takes-to-survive-the-pandemic-economy
U.S. Adds 661,000 Jobs; Unemployment Rate Drops
According to recent studies, the job-loss numbers that businesses saw at the beginning of the coronavirus pandemic has begun to shrink. The unemployment rate fell from 8.4 percent to 7.9 percent in August. Read this blog post to learn more.
U.S. payrolls increased by 661,000 in September, according to the latest report from the Bureau of Labor Statistics (BLS)—falling below what economists expected. The report is more evidence that the pace of hiring has slowed, as more layoffs loom.
The unemployment rate fell to 7.9 percent from 8.4 percent in August. Economists had been expecting an employment gain of 800,000 and the unemployment rate to fall to 8.2 percent.
The economy has now recovered 11.4 million of the 22 million jobs lost in March in April at the beginning of the pandemic, but job growth is stalling—September was the first month since April that net hiring was below 1 million.
This slowdown is occurring as large corporate layoffs not reflected in the report are imminent: Walt Disney Co. announced 28,000 permanent layoffs and U.S. airlines are proceeding with tens of thousands of job cuts.
"The economy may have added jobs, but at a pace way too slow considering how many jobs were lost earlier this year," said Nick Bunker, an economist at the Indeed Hiring Lab. "The unemployment rate may have dropped, but the share of people with a job only moved up slightly. This report is an illusion of progress at a time when we needed accelerating gains in the labor market. We are not where we need to be, nor are we moving fast enough in the right direction as we head into fall."
The BLS report is the last one before the presidential election on Nov. 3.
"The report shows we are still clearly in the snap-back phase of the recovery, as jobs that were switched off because of COVID are blinking back online," said Andrew Challenger, senior vice president of global outplacement and executive coaching firm Challenger, Gray & Christmas, based in Chicago. "While we're seeing jobs come back, there is concurrent destruction occurring in the labor market as companies right-size their organizations to meet the decidedly lower demand they expect to face over the next two or three years," he said.
Employers continue to bring back workers—about half of the workers furloughed or laid off at the onset of the pandemic have now been rehired—but the pace of recovery is slowing while there is still a long way to go, said Julia Pollak, a labor economist at ZipRecruiter, an online employment marketplace in Santa Monica, Calif. "Even after the recent gains, we still have nearly 11 million fewer jobs than before the pandemic," she said. "By comparison, we lost 8.7 million jobs in the Great Recession."
Becky Frankiewicz, president of ManpowerGroup North America, said that the BLS report shows steady improvement, especially hiring in leisure and hospitality and operations and logistics.
Job gains were broad-based, with most sectors of the economy adding to payrolls in September, said Andrew Chamberlain, chief economist at Glassdoor.
Employment in leisure and hospitality increased by 318,000, with almost two-thirds of the gain occurring in restaurants and bars. Despite job growth totaling 3.8 million over the last five months, employment in this sector is still down by millions since the onset of the coronavirus.
Retailers added 142,000 jobs, with most of those coming in clothing stores.
"The recovery is primarily being driven by continued rehiring in the hardest-hit industries including leisure and hospitality, retail and health care," Chamberlain said.
"Many service-sector industries are continuing to recover briskly as many states and cities eased coronavirus restrictions and increased capacity limits on restaurants, gyms and stores," Pollak said. "As restrictions are lifted in the largest cities, we can expect to see a rapid bounce back."
She added that some industries haven't yet begun to recover. "The education sector is still shedding jobs, as are the performing arts and spectator sports, hospitals, coal mines, facilities support services and travel agencies."
Professional and business services contributed 89,000 jobs and the transportation and warehousing sector was up 74,000 jobs. Manufacturing grew by 66,000, financial activities added 37,000 and construction employment grew by 26,000 jobs last month, mostly in residential building. By comparison, nonresidential building gained 5,300 jobs and infrastructure work lost 3,400 positions.
Public-sector employment declined by 216,000 jobs in September, mainly due to state and local public schools failing to reopen due to the national health crisis. "Another deeply concerning thing is that we are down 1.2 million state and local government jobs over the last seven months, more than two-thirds of them in education," said Heidi Shierholz, senior economist at the Economic Policy Institute in Washington, D.C. This will only get worse without aid from Congress, she added.
A decrease of 34,000 jobs in the federal government was driven by a decline in the number of temporary Census 2020 workers. "Nearly a quarter of a million jobs are temporary jobs related to the decennial census that will disappear in the next few months," Shierholz said.
Unemployment Concerning
The official unemployment rate is now in line with previous recessions.
Chamberlain pointed out that the number of workers on temporary layoff declined sharply from 6.2 million in August to 4.6 million in September, "a reminder that the nation's impressive job growth in September is still largely driven by rehiring of furloughed workers as a patchwork of state and local government health restrictions are gradually lifted throughout the country."
But the number of workers whose layoffs became permanent rose in September, a sign that joblessness will become longer lasting. "There was a surge of 351,000 workers who have been permanently laid off," Shierholz said. "This does not bode well at all for the pace of the recovery."
Shierholz argued that the unemployment picture is much worse than the headline number of 12.6 million workers officially counted as unemployed. She said that there were an additional 800,000 workers temporarily unemployed but misclassified as employed and another 5 million workers out of work as a result of the virus but being counted as having dropped out of the labor force because they weren't actively seeking work.
"If all these workers were taken into account, the unemployment rate would have been 12.5 percent in September," she said. "There are also 9 million workers who are employed but have seen a drop in hours and pay as a result of the virus."
Another concern is that the decline in the unemployment rate came along with a 0.3 percentage point drop in the labor force participation rate to 61.4 percent. That's nearly 700,000 people.
"The decline in the unemployment rate in September was mostly for bad reasons—people dropping out of the labor force, not people getting jobs," Shierholz said.
The prime-age employment rate also decreased and long-term unemployment (unemployment lasting more than six months) increased by 781,000 to 2.4 million workers.
However, a measure that counts discouraged workers and those working part-time for economic reasons also declined, falling from 14.2 percent to 12.8 percent.
The unemployment rate fell for all demographic groups. The rate declined for Asian workers from 10.7 percent to 8.9 percent; for Black workers from 13 percent to 12.1; for Hispanic workers from 10.5 percent to 10.3 percent; and for white workers from 7.3 percent to 7.0 percent.
"One surprising thing about the job loss of March and April is that it was fairly racially equitable—the black and white unemployment rates both rose by about 11 percentage points," Shierholz said. "But the period since then has been a totally different story. Since the peak, the white unemployment rate has come down more than 50 percent faster than the Black unemployment rate."
Pollak said that women also continue to bear the brunt of the economic pain. "This is the first recession where the percentage decline in service-sector employment has exceeded that in the goods-producing sector," she said. "The industry distribution of job losses has been unfavorable to women, who are heavily concentrated in face-to-face services. School closures have also had a larger effect on female labor force participation. Since February, the labor force participation rate for men aged 25 to 54 has fallen by 1.6 percentage points, while that for women in the same age group has fallen by 2.8 percentage points.
The unemployment rate for men fell from 8.0 percent in August to 7.4 percent in September. The rate for women dropped from 8.4 percent to 7.7 percent during that time.
Declining female workforce participation is an area to watch and take action to address, Frankiewicz said. "We're advising clients to focus on offering flexible work options, autonomy for people to choose schedules that work best, and to think about the skills that are needed vs. desired for new roles."
SOURCE: Maurer, R. (02 October 2020) "U.S. Adds 661,000 Jobs; Unemployment Rate Drops" (Web Blog Post). Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/bls-hr-jobs-unemployment-october-2020-covid19-coronavirus.aspx
Employees putting billions more than usual in their 401(k)s
Interesting article from BenefitsPro about employee's increased input into their 401(k)s by Ben Steverman
(Bloomberg) -- Saving for retirement requires making sacrifices now so your future self can afford to stop working later. Someday. Maybe.
It’s not news that Americans aren’t saving enough. The typical baby boomer, whose generation is just starting to retire, has a median of $147,000 in all of his retirement accounts, according to the Transamerica Center for Retirement Studies.
And if you think that’s depressing, try this on: 1 in 3 private sector workers don’t even have a retirement plan through their job.
But the new year brings with it some good news: If people do have a 401(k) plan through their employer, there’s data showing them choosing to set aside more for their later years.
On average, workers in 2015 put 6.8 percent of their salaries into 401(k) and profit-sharing plans, according to a recent survey of more than 600 plans. That’s up from 6.2 percent in 2010, the Plan Sponsor Council of America found.
An increase in retirement savings of 0.6 percentage points might not sound like much, but it represents a 10 percent rise in the amount flowing into those plans over just five years, or billions of dollars. About $7 trillion is already invested in 401(k) and other defined contribution plans, according to the Investment Company Institute.
If Americans keep inching up their contribution rate, they could end up saving trillions of dollars more. Workers in these plans are even starting to meet the savings recommendations of retirement experts, who suggest setting aside 10 percent to 15 percent of your salary, including any employer contribution, over a career.
While workers are saving more, companies have held their financial contributions steady—at least over the past few years. Employers pitched in 4.7 percent of payroll in 2015, the same as in 2013 and 2014. Even so, it’s still more than a point above their contribution rates in the aftermath of the Great Recession.
One reason workers participating in these plans are probably saving more: They’re being signed up automatically—no extra paperwork required. Almost 58 percent of plans surveyed make their sign-up process automatic, requiring employees to take action only if they don’t want to save.
Automatic enrollment can make a big difference. In such plans, 89 percent of workers are making contributions, the survey finds, while 75 percent make 401(k) contributions under plans without auto-enrollment. Auto-enrolled employees save more, 7.2 percent of their salaries vs. 6.3 percent for those who weren’t auto-enrolled.
Companies are also automatically hiking worker contribution rates over time, a feature called “auto-escalation” that’s still far less common than auto-enrollment. Less than a quarter of plans auto-escalate all participants, while 16 percent boost contributions only for workers who are deemed to be not saving enough.
A key appeal of automatic 401(k) plans is that they don’t require participating workers to be investing experts. Unless employees choose otherwise, their money is automatically put in a recommended investment.
And, at more and more 401(k) and profit-sharing plans, this takes the form of a target-date fund, a diversified mix of investments chosen based on a participant’s age or years until retirement. Two-thirds of plans offer target-date funds, the survey found, double the number in 2006.
The share of workers’ assets in target-date funds is up fivefold as a result.
A final piece of good news for workers is that they’re keeping more of every dollar they earn in a 401(k) account. Fees on 401(k) plans are falling, according to a recent analysis released by BrightScope and the Investment Company Institute.
The total cost of running a 401(k) plan is down 17 percent since 2009, to 0.39 percent of plan assets in 2014. The cost of the mutual funds inside 401(k)s has dropped even faster, by 28 percent to an annual expense ratio of 0.53 percent in 2015.
See the original article Here.
Source:
Steverman B. (2017 January 5). Employees putting billions more than usual in their 401(k)s [Web blog post]. Retrieved from address https://www.benefitspro.com/2017/01/05/employees-putting-billions-more-than-usual-in-thei?ref=hp-news&page_all=1
The Retirement Readiness Challenge: Five Ways Employers Can Improve Their 401(k)s
Originally posted October 20, 2014 on www.ifebp.org.
Today, nonprofit Transamerica Center for Retirement Studies® ("TCRS") released anew study and infographic identifying five ways employers can improve their 401(k)s. As part of TCRS' 15th Annual Transamerica Retirement Survey, this study explores employers' views on the economy, their companies, and retirement benefits. It compares and contrasts employers' views with workers' perspectives.
"As the economy continues its prolonged recovery from the recession, our survey found upbeat news that many employers are hiring additional employees. Moreover, they recognize the value of offering retirement benefits," said Catherine Collinson, president of TCRS.
Seventy-two percent of employers have hired additional employees in the last 12 months (compared to only 16 percent that say they have implemented layoffs or downsizing). Among employers that offer a 401(k) or similar plan (e.g., SEP, SIMPLE), the vast majority (89 percent) believe their plans are important for their ability to attract and retain talent.
Retirement Benefits and Savings Are Increasing (Yet More Can Be Done)
Employers are increasingly offering 401(k) or similar plans to their employees. Between 2007 and 2014, the survey found that the percentage of employers offering a 401(k) or similar plan increased from 72 percent to 79 percent. The offering of a plan is highest among large companies of 500 or more employees (98 percent) and small non-micro companies of 100 to 499 employees (95 percent) and lowest among micro companies of 10 to 99 employees (73 percent).
During the recession and its aftereffects, many 401(k) plan sponsors suspended or eliminated their matching contributions. Plan sponsors that offer matching contributions dropped from 80 percent in 2007 to approximately 70 percent from 2009 to 2012. In 2014, the survey found that 77 percent of plan sponsors now offer a match, nearly rebounding to the 2007 level.
"Despite the tumultuous economy in recent years, 401(k) plan participants stayed on course with their savings," said Collinson. According to the worker survey, participation rates among workers who are offered a plan have increased from 77 percent in 2007 to 80 percent in 2014. Among plan participants, annual salary contribution rates have increased from seven percent (median) in 2007 to eight percent (median) in 2014, with a slight dip to six percent during the economic downturn.
Workers' total household retirement savings increased between 2007 and 2014. The 2014 estimated median household retirement savings is $63,000, a significant increase from 2007, when the estimated median was just $47,000. Notably, Baby Boomers have saved $127,000 (estimated median) in household retirement accounts compared to $75,000 in 2007. "For some workers, current levels of retirement savings may be adequate; for many others, they are not enough," said Collinson.
Five Ways Employers Can Improve Their 401(k)s
"401(k)s play a vital role in helping workers save and invest for retirement," said Collinson. "Until every American worker is on track to achieve a financially secure retirement, there will be opportunities for further innovation and refinements to our retirement system."
The survey identified five ways in which employers, with assistance from their retirement plan advisors and providers, can improve their 401(k)s. Plan sponsors are encouraged to consider these enhancements to their plans:
1. Adopt automatic plan features to increase savings rates
"Automatic enrollment is a feature that eliminates the decision-making and action steps normally required of employees to enroll and start contributing to a 401(k) or similar plan," said Collinson. "It simply automatically enrolls employees. They need only take action if they choose to opt out and not contribute to the plan."
The percentage of plan sponsors offering automatic enrollment increased from 23 percent in 2007 to 29 percent in 2014. Plan sponsors' adoption of automatic enrollment is most prevalent at large companies. Fifty-five percent of large companies offer automatic enrollment, compared to just 27 percent of small non-micro companies and 21 percent of micro companies.
Plan sponsors automatically enroll participants at a default contribution rate of just three percent (median) of an employee's annual pay. "Defaulting plan participants into a 401(k) plan at three percent of annual pay can be very misleading because it implies that it is adequate to fund an individual's or family's retirement when in most cases, it is not," said Collinson. "Plan sponsors should consider defaulting participants at a rate of six percent or more of an employee's annual pay."
"Automatic increases can help drive up savings rates: Seventy percent of workers who are offered a plan say they would be likely to take advantage of a feature that automatically increases their contributions by one percent of their salary either annually or when they receive a raise, until such a time when they choose to discontinue the increases," said Collinson.
2. Incorporate professionally managed services and asset allocation suites
Professionally managed services such as managed accounts, and asset allocation suites, including target date and target risk funds, have become staple investment options offered by plan sponsors to their employees. These options enable plan participants to invest in professionally managed services or funds that are essentially tailored to his/her goals, years to retirement, and/or risk tolerance profile.
Eighty-four percent of plan sponsors now offer some form of managed account service and/or asset allocation suite, including:
56 percent offer target date funds that are designed to change allocation percentages for participants as they approach their target retirement year; 54 percent offer target risk funds that are designed to address participants' specific risk tolerance profiles; and, 64 percent offer an account (or service) that is managed by a professional investment advisor who makes investment or allocation decisions on participants' behalf.
"For plan participants lacking the expertise to set their own 401(k) asset allocation among various funds, professionally managed accounts and asset allocation suites can be a convenient and effective solution. However, it is important to emphasize that plan sponsors' inclusion of these options, like other 401(k) investments, requires careful due diligence as well as disclosing methodologies, benchmarks, and fees to their plan participants," said Collinson.
3. Add the Roth 401(k) option to facilitate after-tax contributions
"Roth 401(k) can help plan participants diversify their risk involving the tax treatment of their accounts when they reach retirement age," said Collinson. The Roth option enables participants to contribute to their 401(k) or similar plan on an after-tax basis with tax-free withdrawals at retirement age. It complements the long-standing ability for participants to contribute to the plan on a tax-deferred basis. Plan sponsors' offering of the Roth 401(k) feature has increased from 19 percent in 2007 to 52 percent in 2014.
4. Extend eligibility to part-time workers to help expand retirement plan coverage
"Expanding coverage so that all workers have the opportunity to save for retirement in the workplace continues to be a topic of public policy dialogue. A tremendous opportunity for increasing coverage is part-time workers," said Collinson. Only 49 percent of 401(k) or similar plan sponsors say they extend eligibility to part-time workers to save in their plans.
"Employers should consider consulting with their retirement plan advisors and providers to discuss the feasibility of offering their part-time workers the opportunity to save for retirement," said Collinson.
5. Address any disconnects between employers and workers regarding benefits and preparations
The survey findings revealed some major disconnects between employers and workers regarding retirement benefits and preparations. For example: Ninety-five percent of employers that offer a 401(k) or similar plan agree that their employees are satisfied with the retirement plan that their company offers; yet, in stark contrast, only 80 percent of workers who are offered such a plan agree that they are satisfied with their employers' plans.
"Starting a dialogue between employers and their employees could help employers maximize the value of their benefits offering while also helping their employees achieve retirement readiness," said Collinson. Just 23 percent of employers have surveyed their employees on retirement benefits and even fewer workers (11 percent) have spoken with their supervisor or HR department on the topic in the past year.
Uptick in wage growth likely in 2014, Bloomberg index says
Originally posted December 18, 2013 by Dan Berman on https://www.benefitspro.com
Here’s a year-end forecast that might give private-sector workers reason to smile: Bloomberg BNA’s Wage Trend Indicator sees the pace of income growth accelerating in the second half of 2014.
After consecutive quarters of flat wages, the index rose to 98.78 in the fourth quarter from 98.70.
“We are beginning to see some improvements in the labor market, with the unemployment rate falling to 7 percent in November,” said economist Kathryn Kobe, a consultant who maintains and helped develop Bloomberg BNA’s WTI database.
In the coming months, Kobe said private-sector wage growth was expected to be 2 percent, slightly above the 1.8 percent year-over-year gain reported by the Labor Department in the third quarter.
The index measures seven components. Of those, three were positive in the fourth quarter, three were negative and one was neutral.
The three positive components were the unemployment rate; the average hourly earnings of production and non-supervisory workers, both from the Labor Department; and the share of employers reporting difficulty in filling professional and technical jobs, reported by a Bloomberg BNA survey.
Negative factors were job losers as a share of the labor force, from the Labor Department; the share of employers planning to hire production and service workers in the coming months, from Bloomberg BNA’s survey; and industrial production, as reported by the Federal Reserve Board.
The neutral component was forecasters’ expectations for the rate of inflation, compiled by the Federal Reserve Bank of Philadelphia.
The index is published monthly and Bloomberg BNA said it is designed to detect changes in wage growth before they become apparent in the BLS’ employment cost index.
Hotter Economy can Spark Retention Challenges
Although a recent report on U.S. job growth has left many observers disappointed, other economic signs are prompting employers to re-evaluate their benefits and retention strategies to avoid a potential talent exodus.
The Department of Labor reported that the nation added 120,000 jobs in March, down from the previous three months that saw 200,000 or more new jobs. Still, the stock market is up for the year, and U.S. employees appear to be more secure in their jobs. The Randstad employee confidence index -- which measures how confident workers feel about their job security and the economy -- rose in March to the highest level since October 2007, according to Workforce magazine.
An improving economy, however, has a dark side: Talented but unhappy employees will seek better opportunities elsewhere, experts say.
"There is a storm brewing," said Lynne Sarikas, executive director of the MBA Career Center at Northeastern University, in a recent Human Resource Executive online report. "Many people will be looking to make a change once they perceive improvement and stability in the job market. This will have a significant impact on their employers."
More movement in the job market can spur hotter competition among employers for good talent. In addition to competitive wages, robust employee benefits can help employers keep their best workers happy and productive -- and employers are taking notice. A recent study by MetLife found that 90 percent of companies say they don't plan to cut employee benefits in the near future, according to a report by CCH. A large majority (91 percent) of those polled expressed confidence that benefits work as retention tools.
While health, dental, vision and other stalwarts in the retention toolbox remain central to many companies' overall offerings, employers may want to consider additional choices to sweeten the benefits pot.
For instance, companies that want to pull in younger workers may want to investigate defined benefit (DB) retirement plans, according to new research. A recent study by Towers Watson, reported in PLANSPONSOR, noted that 63 percent of workers younger than 40 said in 2011 that they chose their current employer because it offered a DB plan, compared with only 28 percent in 2009.
Education benefits are paying off for some companies, as well. United Parcel Service is sponsoring a program that pays up to $3,000 per year in tuition reimbursement for part-time employees. Executives say the program has spawned talented leaders who have stuck with the company.
"Enhancing the skills and knowledge base for our employees is a fundamental element of our success, and correlates directly with our policy to promote from within," Susan Rosenberg, UPS public relations manager, told the Atlanta Journal-Constitution.
The Good News..and the Bad News
By Susan R. Meisinger
May 14, 2012
A combination of factors may lead to a resurgence of manufacturing in the United States. While that's certainly a positive development, the downside is that HR leaders will be challenged to find job candidates proficient in STEM skills.
Many years ago, my father vehemently opposed my decision to use my savings and buy a used 1970 Volkswagen Bug. It was my first car, and he argued I had no understanding of the true cost of owning a car -- the insurance, gas, maintenance, etc.
A few months later, OPEC imposed a fuel embargo on the United States in response to a U.S. decision to re-supply the Israeli military during the Yom Kippur War. Gas was rationed, and there were long lines at the pumps. I remember this particularly clearly, because that was when my father announced that "we" had made a smart decision to buy such a fuel-efficient car.
The embargo raised concerns -- and brought into sharp focus -- U.S. dependence on overseas oil for its energy needs; a concern that has continued for the past 40 years.
The good news is that some recent reports are suggesting that U.S. energy independence may finally be within reach. This security is because of a huge boom in oil and natural-gas production in the nation and an increased focus on fuel-efficient cars and renewable resources. Some believe this will lead to energy sufficiency for Americans within 20 years.
Why should U.S.-based HR executives care about energy sufficiency (beyond never having to worry about sitting in a gas line)? Because as the nation relies more on domestically produced natural gas, the economics of offshoring manufacturing changes.
The "perfect storm" of lower energy costs, greater employee productivity, rising wages in places such as China and India, and higher international shipping costs, may combine to make the nation much more attractive for manufacturing.
Research from the Boston Consulting Group and a poll from the Society for Human Resource Management suggest the tide is already beginning to change in this regard.
If energy independence and a rebounding manufacturing sector is good news, what's the bad news? After all, it means more job opportunities -- and that's the problem. They are jobs that require science, technology, engineering and math (STEM) skills.
This potential new demand will only exacerbate the existing challenge many HR executives in the manufacturing sector are already facing as they try to fill current positions.
And the statistics on the future availability of workers with, for example, math skills, are pretty grim. According to the Organization for Economic Co-operation and Development, the United States places 18th among its member countries in overall mathematical skills.
There have been many initiatives launched to grapple with the STEM shortage. Educational reforms have attempted to focus greater attention on math skills. Government studies have suggested that communities take up action to meet the challenge. Websites such as Stemconnector.org have been created to try to expedite dissemination of information on strategies that might prove useful.
And summits have been held or planned for concerned parties to discuss how best to meet the challenge. On June 24, in fact, SHRM and the U.S. Department of Labor will hold a summit on the shortage of skilled workers in manufacturing.
So what can just one already overworked HR executive really do?
Begin by resisting the temptation to be overwhelmed. Become fully versed in the scope of what this means for your business -- wherever it's located -- and make sure other executives appreciate the challenge.
Accept that educational efforts and achievements aren't uniform at all state and local levels, and begin to tackle the problem at a local level. Investigate how well the localities are preparing students for a career in manufacturing. Take steps to help educators understand the current -- and future -- needs of your business.
Of course, to do that, you need to know your business well enough to be able to educate the educators, or, to use a hockey analogy, help them skate to where the puck is going to be, not to where it is now.
In addition, learn about and take advantage of new technologies that are now available for workforce training. Training that may have seemed insurmountably expensive in the past becomes more affordable with technology -- especially as the need for skilled talent becomes more critical.
Finally, remember that the good news -- potential energy independence and the resulting rebound to manufacturing -- outweighs the bad news. After all, wouldn't you rather have the challenge of finding skilled workers instead of having to let them go?