New financial benefits give small business employees early wage access
Mandatory quarantines and business closures during the coronavirus pandemic have taken a particularly large financial toll on small businesses, forcing many employers to reduce wages and health coverage.
Sixty-five percent of small businesses said they were either extremely concerned or very concerned about how the coronavirus will affect their business, according to a survey by Freshbooks. In addition to financial pressure, small business employers are also tasked with providing benefits that will support struggling employees.
“COVID-19 just exacerbated what was going on in the market and put even more pressure on small companies and their employees,” says Emily Ritter, head of product marketing at Gusto, a payroll and employee benefits platform for small businesses. “Employees across America are living paycheck-to-paycheck and the stress of that can be expensive for households.”
Gusto has launched a new set of health and financial wellness benefits to provide employees with early access to earned wages, medical bill reimbursement and a savings account.
These financial tools are especially beneficial as healthcare costs drive many employees into debt, Ritter says. According to a Salary Finance survey, 32% of American workers have medical debt, and 28% of those who have an outstanding balance owe $10,000 or more on their bills.
“Financial health and health coverage is so inextricably linked, which has come into the limelight with COVID-19,” Ritter says. “We're seeing that small group health insurance is something that is really important, so if we can help small businesses help their employees with health bills, that's another component of financial health.”
Gusto’s new benefit offering allows employers to contribute to employees’ monthly health insurance costs. Contributions can vary from $100 to amounts that would cover an employee’s entire premium. The contributions are payroll-tax-free for the business and income-tax-free for employees, and employers also have the flexibility to adjust their contribution at any time.
“A large portion of American workers say that they wouldn't be able to handle the financial implications of a large injury or illness, and of course illness is top of mind in the midst of a global pandemic,” Ritter says. “So it was really important for us to show up with these solutions.”
Additionally, Gusto has launched Gusto Cashout, which gives workers early access to earned wages without any fees, helping them avoid having to turn to payday loans, overdraft fees or credit card debt between paychecks. With a new debit card function and cash accounts — which also provide interest — workers can put aside savings straight from their paychecks, helping them better navigate short-term emergencies and unexpected expenses.
Even before coronavirus, less than half of adults living in the U.S. had enough savings to pay for a $1,000 emergency expense, according to a Bankrate.com study, and 50% of employees said they live paycheck to paycheck, a CareerBuilder survey found.
“We're really trying to help people be prepared in those rainy day moments and avoid the debt cycle that happens,” Ritter says. “Because this product is free [for our clients’ employees] and the wages come out of their paycheck on payday, there is no continuous debt cycle that happens with a payday loan.”
Fifty-one percent of Americans feel at least somewhat anxious about their financial situation following the coronavirus outbreak, according to a recent survey from NextAdvisor, and nearly three in 10 Americans’ financial situation (29%) has been negatively impacted since the pandemic began.
Providing employees with financial wellness resources and other support can help small business owners build a more efficient and competitive business, despite the challenges faced during COVID, Ritter says.
“It's a win win for their employees and for their business,” Ritter says. “When employees are more financially stable, they're able to show up more effectively at work.”
SOURCE: Nedlund, E. (13 October 2020) "New financial benefits give small business employees early wage access"(Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/news/new-financial-benefits-give-small-business-employees-early-wage-access
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
4 key reasons employers must offer financial security benefits
During the continuous trials of the coronavirus pandemic, it's important for employers to contribute to their employee's financial wellness. Read this blog post to learn more.
A financial security benefit that helps employees pay for and manage their out of pocket healthcare expenses allows an employer to keep healthcare costs down, while providing a much-needed benefit to their employees, one that pays dividends for years to come.
With the uncertainty of the ongoing coronavirus pandemic, it is more vital than ever that employers contribute to employees’ overall financial wellness.
There are four key reasons why employers need to provide a financial security benefit to their employees.
First, restore the "benefit" in your health benefit offerings. The standard employer-sponsored health plan comes with nearly an $8,000 out-of-pocket expense.
Considering that the vast majority of Americans live paycheck-to-paycheck and 40% struggle to cover a $400 emergency expense, it’s no wonder why so many individuals consider themselves functionally uninsured despite being covered by an employer’s health plan. When an employer’s price tag to purchase that insurance for a family now exceeds $20,000 a year, it is painful for employers to witness their employee benefit suddenly become an employee liability.
Providing employees with guaranteed access to credit for medical expenses on consumer-friendly terms that they may not have access to on their own is of tremendous benefit. A benefit like this gives employees something their health plan alone can’t – financial security.
Second, remove the barriers to care. More than ever, employees with high deductible health plans are skipping care, which has costly consequences. Employees who skip care stay sick for a longer period of time and as a result, employers lose worker productivity. When outcomes erode and care is delayed, employers will see an increase in health plan expenses. By providing a financial security benefit from the start, employees can seek care with confidence, and prevent this unhealthy ripple effect from happening.
Third, increase participation in Health Savings Accounts. HSAs are great additions to an employer’s benefit line-up. In some cases, they are also the only plan design that an employer can afford to offer. Employees who are presented the choice of an HSA often bemoan that while the program should work well for them, and that the price-tag for the premium is right, the specter of a one-time deductible exposure makes them hesitant to enroll.
While lower premiums paired with some employer HSA contributions can often cover that exposure, employees worry about the timing of these expenses, particularly if they arrive early in the plan year. Providing an affordable way for employees to pay for their healthcare expenses whenever they are incurred, removes a major barrier to HSA plan election. Further, adding a financial security benefit is much more cost effective for the employer than front-loading the HSA with hard dollars at the beginning of the plan year.
Finally, they are great recruitment and retention tools. According to a recent Gallup poll, the availability and affordability of healthcare tops the list of concerns in America. As employers grapple with objectives, such as attracting, and retaining talent and balancing costs, a financial security benefit not only addresses a major employee concern, but also can help organizations differentiate themselves from their competitors.
With COVID-19 changing the landscape of healthcare and open enrollment around the corner, employers need to rethink their benefit strategy while keeping costs down. Attracting and retaining employees remains a high priority for employers and providing a financial security benefit will not only attract top talent but will also save on an employer’s overall bottom line.
SOURCE: Chambers, O'Meara A. (03 November 2020) "4 key reasons employers must offer financial security benefits" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/opinion/4-key-reasons-employers-must-offer-financial-security-benefits
How employers and the economy win with remote work
Employers have been highly affected by the situations that the coronavirus pandemic has brought upon them, but so has the economy. The coronavirus has seemed to bring in a dark cloud over most situations, but now it can be looked at as helping both employers and the economy with the remote working situations. Read this blog post to learn more.
As high profile employers such as Twitter and Slack announce that they will allow employees to work from home indefinitely, other organizations have also noticed the advantages of a remote work model.
Aside from increased productivity and improved mental health for employees, employers can save $11,000 per employee on office costs and even reduce their carbon emissions, says Moe Vela, chief transparency officer at TransparentBusiness, a company that provides a remote workforce management platform.
When it comes to remote work, ”everyone wins across the board,” he says. “Remote work should be viewed no differently than a healthcare insurance package, dental insurance, paid time off, sick leave, or family leave.”
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Vela shared his thoughts on why remote work is the new normal and how employers can use technology to ensure that the experience for their employees is seamless.
How does remote work benefit employers and employees?
Employers benefit tremendously. On average, an employer saves $11,000 per year per employee in a remote workforce model. They need less commercial office space, so their bottom line actually improves because they can cut down on their office expenses. If you have 500 people in an office setting, that's 500 people you need supplies, equipment and infrastructure for — those costs get dramatically reduced or go away completely.
The other benefit to the employer is that productivity goes up in a remote workforce model. There is less absenteeism, workers are happier and also healthier because you're not confined in an office space spreading germs.
Your work life balance is improved dramatically by a remote workforce model for employees. On average, an employee gets two to three hours of their day back into their life because they don't have to commute. That's two to three hours you can spend with your family, that you can engage in self care, that you can run your errands, whatever it is you choose to do.
What advantages does remote work have outside of work?
One beneficiary in a remote workforce model is the economy. When those employees get those two to three hours back, guess what they're doing: they're spending money that was not being put into the economy before.
Another beneficiary is the environment. During this pandemic, there are around 17% less carbon emissions being emitted into the atmosphere and the environment. Climate change is impacted and our environment is a winner in a remote workforce model.
How can employers ensure a seamless remote work experience?
There are three fundamental technologies on the marketplace that every employer should immediately start using. Number one, video conferencing. We're all using it, it works just fine, you’ve got a lot of options in the marketplace from Skype to Zoom, to Google. Number two, file sharing. You have all kinds of file sharing software and services out there in the marketplace. Number three, remote workforce management and coordination software. All you have to do is implement them, and the risk is mitigated almost to nothing.
How can an employee approach management about working from home permanently?
Don't be afraid to ask your employer. Communicate your request very succinctly and very clearly. Let your boss know that you've thought this through. Prove to them that you have the self-discipline, that you have the loyalty, that you're trustworthy, and that you have the environment at home to be effective at working remotely. Use the fact that you've already been doing it as an affirmation, to attest to the fact that it can be done seamlessly and productively.
How COVID-19 could be a financial wellness springboard
Although the coronavirus pandemic has brought many implications to watch during these times, health isn't the only thing. Many businesses could use COVID-19 as a way to monitor their financial wellness. Read this blog post to learn more.
Physical health isn’t the only thing to monitor during the COVID-19 pandemic, according to recent studies, which suggest the fate of businesses could depend on an ability to use financial wellness initiatives to restructure their financial and cultural mindset.
But what is financial wellness, and what can businesses do to cultivate it?
To enjoy financial wellness is to have control over daily and monthly finances, be able to meet financial goals, have enough rainy day money to survive an emergency and be able to splurge a little, according to the Consumer Financial Protection Bureau.
Of course, at this stage in the COVID-19 crisis, it’s all about step one — staying afloat day-to-day — according to Neil Lloyd, who heads Mercer’s US DC and financial wellness research.
But as the workforce gradually returns, there’ll be opportunities for major reinvention, the way Lloyd sees it.
“I think this is a time when you can look back at your benefits and say, ‘Well, given what we just learned, is there a better way to structure benefits that meet the needs of people?’ ” Lloyd said. “Because this is going to be in people’s minds. They’re not going to forget it in six months’ time.”
For some organizations, that might mean introducing an emergency savings account option to cover unexpected events, or providing tools that help staff understand and build their credit scores — widely expected to take a tumble in the coming months.
Why bother with financial wellness?
Even before COVID-19, 67% of employees reported feeling personally stressed, according to PwC’s 2019 employee financial wellness survey, which found 57% had less than $1,000 in emergency savings and 49% struggled to meet their financial obligations each month.
Those kinds of money worries are a bane for productivity, morale and turnover, according to the Retirement Advisor Council, which says the best way to reduce stress in the workforce is to tackle employee’s financial problems at their source.
Likewise, Mercer’s 2020 global talent trends survey of 7,300 senior business executives, HR leaders and employees across nine industries concluded that economics and empathy can and should coexist.
Though an organization’s ability to survive and expand depends on the talent and engagement of its workforce, Mercer found 63% feel at risk of burnout. And though 78% of employees said they want long-term financial planning, only 23% of companies said they provide it.
That means COVID-19 and its aftermath could present an opportunity for human resources departments to step up.
“Employers are also going to have a lot on their minds, so it’s going to be quite tough,” Lloyd said. “But ideally, try and see what you can learn from what we’ve just been through. What were all those stresses and strains that your people had? Maybe survey them and talk to them. Learn from this.”
Financial wellness initiatives only became popular about five years ago, according to Lloyd, who said Mercer’s latest survey suggests a change in the winds. While executives used to focus on the financial returns for each initiative, Lloyd says they’re developing a new understanding that, “If you look after your people well, they will ultimately look after you.”
“When we were talking to clients, what tended to happen quite quickly was, ‘Let me see the return on investment for financial wellness.’ I.e., ‘I put a dollar in here, what do I get back?’ Lloyd said. “People are beginning to not look at it like that.”
How to increase financial wellness
There’s plenty of room for financial wellness initiatives in 2020, according to Mercer, as its survey revealed only 29% of HR leaders have a health and wellbeing strategy in place, even though 61% of employees said they trusted their employer to look after their wellbeing and 48% of executives labeled it a top concern.
Offerings could range from group training sessions or one-on-one consultations to online resources or classes aimed at helping employees budget, save and manage debt, or even buy their first home. They might also help establish emergency funds, automatically enroll staff in retirement plans and open benefits up to all family members.
Mission: Money outlines six steps to establishing a financial wellness program — starting with deciphering the root causes of money woes. For some, it might be credit card or student loan debt, while for others it could be health care or retirement plan savings.
That information, coupled with an organization’s business objectives, is what employers should base their offerings on.
Above all, Lloyd says every initiative should build financial confidence, as opposed to unwittingly tearing it down. That means placing less emphasis on where an employee started and more on celebrating what they’ve achieved.
“It doesn’t help to say to somebody, ‘We did a financial literacy test and you scored 35%,’ when everybody knows 35% is bad. That can actually make somebody feel a lot worse about things,” Lloyd said. “Avoid getting into that situation where people think they’re a failure and want to avoid this topic. Rather, ensure that whatever we do in the financial wellness side is empowering and makes people more confident to keep on engaging with financial issues.”
Crucially, as employee needs, business objectives and markets change, so should financial wellness strategies. “Financial wellness is not something we’ve had 30, 40 years of success with, so you have to be prepared to try something new,” Lloyd said. “There’s a very good chance something’s not going to work, and you change it. That’s the process.”
SOURCE: Lean, R. (30 April 2020) "How COVID-19 could be a financial wellness springboard" (Web Blog Post). Retrieved from https://www.benefitspro.com/2020/04/30/how-covid-19-could-be-a-financial-wellness-springboard/
Traditional IRA, Roth IRA, 401(k), 403(b): What's the Difference?
The earlier you begin planning for retirement, the better off you will be. However, the problem is that most people don’t know how to get started or which plan is the best vehicle to get you there.
A good retirement plan usually involves more than one type of investment account for your retirement funds. This may include both an IRA and a 401(k), allowing you to maximize your planning efforts.
If you haven’t begun saving for retirement yet, don’t be discouraged. Whether you begin through an employer sponsored plan like a 401(k) or 403(b) or you begin a Traditional or Roth IRA that will allow you to grow earnings from investments through tax deferral, it is never too late or too early to begin planning.
This article discusses the four main retirement savings accounts, the differences between them and how Saxon can help you grow your nest egg.
“A major trend we see is that if people don’t have an advisor to meet with, they tend to invest too conservatively, because they are afraid of making a mistake,” said Kevin Hagerty, a Financial Advisor at Saxon Financial.
“Then the problem is they don’t revisit it, and if you’re not taking on enough risk you’re not giving yourself enough opportunity for growth. You run the risk that your nest egg might not grow to what it should be.”
“Saxon is here to help people make the best decision on how to invest based upon their risk tolerance. We have methods to determine an individual’s risk factors, whether it be conservative, moderate or aggressive, and we make sure to revisit these things on an ongoing basis.”
Traditional IRA vs. Roth IRA
Who offers the plans?
Both Traditional and Roth IRAs are offered through credit unions, banks, brokerage and mutual fund companies. These plans offer endless options to invest, including individual stock, mutual funds, etc.
Eligibility
Anyone with Earned, W-2 Income from an employer can contribute to Traditional or Roth IRAs, as long as you do not exceed the maximum contribution limits. However, only qualified distributions from a Roth IRA are tax-free.
In order to be able to contribute to a Roth IRA, you must have taxable income and your modified adjusted gross income is either:
- less than $194,000 if you are married filing jointly
- less than $122,000 if you are single or head of household
- less than $10,000 if you’re married filing separately and you lived with your spouse at any time during the previous year.
Tax Treatment
With a Traditional IRA, typically contributions are fully tax-deductible and grow tax deferred. So when you take the money out at retirement, it is taxable. With a Roth IRA, the contributions are not tax deductible but grow tax deferred. So when the money is taken out at retirement, it will be tax free.
“The trouble is nobody knows where tax brackets are going to be down the road in retirement. Nobody can predict with any kind of certainty because they change,” explained Kevin. “That’s why I’m a big fan of a Roth.”
A Roth IRA can be a win-win situation from a tax standpoint. Whether the tax brackets are high or low when you retire, it doesn’t matter. Your money will be tax free when you withdraw it. Another advantage is, at 70 ½, you are not required to start taking money out. “We’ve seen Roth IRAs used as an Estate planning tool, and they’ll be able to take that money out tax free. It’s an immense gift,” Kevin said.
Maximum Contribution Limits
Contribution limits between the Traditional and Roth IRAs are the same; the maximum contribution is $6,000, or $7,000 for participants 50 and older.However, if your earned income is less than $6,000 in a year, say $4,000, that is all you would be eligible to contribute.
“People always tell me, ‘Wow, $6,000, I wish I could do that. I can only do $2,000.’ Great, do $2,000,” said Kevin. “I always tell people to do what they can and then keep revisiting it and contributing more when you can. If you increase a little each year, you will be contributing $6,000 eventually and not even notice.”
Withdrawal Rules
With a Traditional IRA, withdrawals can begin at age 59 ½ without a 10% early withdrawal penalty but still with Federal and State taxes. The IRS will mandate that you begin withdrawing at age 70 ½.
Even though most withdrawals are scheduled for after the age of 59 ½, a Roth IRA has no required minimum distribution age and will allow you to withdraw contributions at any time. For example, if you have contributed $15,000 to a Roth IRA, but the actual value of it is $20,000 due to growth, then the contributed $15,000 could be withdrawn with no penalty, any time – even before age 59 ½.
Employer Related Plans – 401(k) & 403(b)
A 401(k) and a 403(b) are theoretically the same thing; they share a lot of similar characteristics with a Traditional IRA as well.
Typically, with these plans, employers match employee contributions, such as .50 on the dollar up to 6%. The key to this is to make sure you are contributing anything you can to receive a full employer match.
Who offers the plans?
One of the key differences with these two plans lies in whether the employer is a for-profit or non-profit entity.
These plans will have a number of options of where to invest, often a collection of investment options selected by the employer.
Eligibility
401(k)’s and 403(b)’s are open to all employees of the company for as long as they are employed there. If an employee leaves the company they are no longer eligible for these plans since 401(k) or 403(b) contributions can only be made through pay roll deductions. However, you can roll it over into an IRA and then continue to contribute on your own.
Only if you take possession of these funds would you pay taxes on them. If you have a check sent to you and deposit it into your checking account – you don’t want to do that.
Then they take out federal and state taxes and tack on a 10% early withdrawal penalty if you are not age 59 ½. It can be beneficial to roll a 401(k) or 403(b) left behind at a previous employer over to an IRA so it is in your control, and you have increased investment options.
Tax Treatment
Contributions are made into your account on a pretax basis through payroll deduction.
Maximum Contribution Limits
The maximum contribution is $19,500, or $26,000 for participants 50 and older.
Depending on the employer, some 401(k) and 403(b) plans provide loan privileges, providing the employee the ability to borrow money from the employer without being penalized.
Withdrawal Rules
In most instances, comparable to a Traditional IRA, withdrawals can begin at age 59 ½ without a 10% early withdrawal penalty. The IRS will mandate that you begin withdrawing at age 70 ½. Contributions and earnings from these accounts will be taxable as ordinary income. There are certain circumstances when one can have penalty free withdrawals at age 55, check with your financial or tax advisor.
In Conclusion…
“It is important to make sure you are contributing to any employer sponsored plan available to you, so you are receiving the full employer match. If you have extra money in your budget and are looking to save additional money towards retirement, that’s where I would look at beginning a Roth IRA. Then you can say you are deriving the benefits of both plans – contributing some money on a pretax basis, lowering federal and state taxes right now, getting the full employer contribution match and then saving some money additionally in a Roth that can provide tax free funds/distributions down the road,” finished Kevin.
To learn more, contact Kevin Hagerty today at (513) 333-3886 or via email at khagerty@gosaxon.com.
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IRA spousal contributions can mitigate the high cost of women’s work breaks in retirement plans
According to a November 2018 study, women who took a year off from work in a 15-year period had 39 percent lower average annual earnings than women who worked continuously through that time. Read this blog post for more on how spousal contributions can mitigate the high cost of work breaks in retirement plans.
Women employees face special retirement savings challenges compared with their male counterparts. On average, they earn less and log fewer years of earned income compared to men. That’s because, in part, because women take multiple breaks from work, turn down work or decline promotions because of family care obligations.
The cost of a career break can be high. A November 2018 study by the Washington-based Institute for Women’s Policy Research found that women who took just one year off from work in a 15-year period had 39% lower average annual earnings than women who worked continuously through that time. The study also showed that the number of women taking at least one year off of work during a 15-year period was nearly twice the rate of men — 43% of women compared to 23% of men.
As a result, women are less likely to set aside money in a savings arrangement or to contribute to an employer-sponsored retirement plan.
Spousal advantage
Married women (and men) who take work breaks may stay on track with their retirement savings goals by making IRA (traditional or Roth) contributions based on their working spouse’s income — if they meet these requirements.
- The couple must file a joint federal income tax return
- The working spouse must have enough earned income to make any IRA contributions on behalf of the nonworking spouse, or, if both spouses are contributing, enough income to support both spouses’ contributions
- Assuming enough earned income, each spouse can contribute up to $6,000 (plus $1,000 if turning age 50) for 2019. This limit applies to traditional and Roth IRA contributions combined
- The spouse receiving a traditional IRA contribution must be under age 70 ½ for the entire year
- To be eligible for Roth IRA contributions, the couple must also satisfy income requirements.
Roth IRA income restrictions
The amount that an individual is eligible to contribute to a Roth IRA depends on the amount of the couple’s modified adjusted gross income (MAGI). If the couple’s joint MAGI for a tax year is less than the IRS phase-out range, each spouse can make the maximum Roth IRA contribution allowed for that tax year (assuming enough MAGI to support both spouse’s contributions). If it’s above the phase-out range, neither spouse is eligible to contribute to a Roth IRA. Keep in mind that they could still contribute to a traditional IRA, if under age 70 ½. If the couple’s joint MAGI falls within the phase-out range, their maximum contribution amount is reduced. The MAGI phase-out range is subject to cost-of-living adjustments each year.
Traditional IRA income tax deductions
Note that separate MAGI phase-out ranges apply to traditional IRA contribution deductions — another way for non-working married individuals to potentially benefit when saving for retirement with an IRA. The ability to take a federal income tax deduction for a traditional IRA contribution — if eligible — appeals to many savers. But deduction eligibility depends on whether either spouse is an “active participant” in an employer-sponsored retirement plan. An active participant is generally making or receiving contributions to her retirement plan accounts for the applicable year. Because active participants have access to a workplace retirement plan, the IRS uses its MAGI to determine whether each spouse can take a full deduction, a partial deduction or no deduction at all.
No minimum required
Regardless of which IRA a couple chooses to, the main thing is to contribute — even if it’s a small amount. There is no minimum amount that must be contributed to either type of IRA. Couples can contribute whatever they’re comfortable with, up to the previously described limit. For those concerned about not having enough to set aside in an IRA during a career break, contributing even just $500 or $1,000 for the year will still make a difference.
It certainly beats not saving at all.
SOURCE: Van Zomeren, B. (9 December 2019) "IRA spousal contributions can mitigate the high cost of women’s work breaks in retirement plans" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/ira-spousal-contributions-can-mitigate-cost-of-womens-work-breaks-in-retirement
A benefits wishlist for millennial employees
Did you know: 63 percent of millennials would struggle to cover an unexpected expense of $500. With millennials becoming the new core of today's workforce, many employers are tailoring their job postings, descriptions and benefits to correspond with the millennial wish list. Read the following article to learn more.
Millennials are the new core workforce. Their concept of work is different than the standards set by previous generations. They bring bold, new approaches of what work should be, how and where it should be performed, and what the rewards for work should be.
While this has made some employers uncomfortable, millennials are not likely to change their ways. Employers must reassess their concepts to bring out the best of the unique millennial personality.
When I look at the U.S. workforce, I see a dramatic shift in the attitudes, personalities and attributes of millennials, which makes up the majority of the workforce. Millennials bring many positive attributes to the table, including a preference for flat management structures, multiple degrees, technological skills, energy and self-confidence. They also have high expectations for themselves, prefer to work in teams, are able to multitask and seek out challenges.
However, millennials have the highest levels of stress and depression of any generation. About 20% of millennial workers have suffered work-related depression. Millennials want their own living space, but they’re less likely to become homeowners because of student loan debt. Only 6% of millennials feel they're making enough to cover basic needs, according to an Economic Innovation Group national survey of millennials. As a result, 63% of millennials would struggle to cover an unexpected $500 expense. This generation wants to live within their means, but they’ve never been taught how — they need and want to be educated on how to achieve financial independence.
Think about your corporate strategy for attracting millennials. Here are just a few of the ways companies are tailoring their job postings, descriptions and benefits to correspond with the millennial wish list.
Working with meaning. Millennials want to have meaning in their work. Past generations may have worked simply because they needed to pay the bills. Millennials want to get paid too, but they also want to know that their employer is doing more than making and selling products or services. They aspire to social causes and want to know why the organization exists and how they can personally participate and contribute in that culture.
Continued personal growth and career advancement. Millennials want to be coached and have work-life balance. They want management feedback, even if it’s negative. Regular pay increases and promotions are important to them too. It shows that you’re invested in their career path and value their contributions.
Flexible hours and the ability to work remotely. They want flexible hours and the option to work from a location of their choice. This flexibility also contributes to their desire for no added workplace stress. Technology has made it possible to connect 24/7 from anywhere on any device. If you have yet to adapt your culture to accept this new norm, you’ll likely be missing out on this generation of candidates.
Technology. Millennials are smart-device people. Who better to move your organization forward than the individuals who grew up knowing how to download and use an app, or create a widget that solves a problem? They think technology-first and is required for any organization looking to remain competitive.
Financial wellness. A robust financial wellness program that includes self-directed education, competitions, games and rewards will pique millennial interest. Products and services like financial coaching, cashflow tracking, early wage access and credit resources that address their financial challenges will keep them engaged. Above all, a financial wellness program must be tailored to each individual employee to achieve maximum participation and behavioral change.
Employers must be vigilant in order to keep the best and brightest talent. They should also be proactive in managing their employees on a personal level, especially millennials. Otherwise, they are likely to be disengaged and move on — and that will cost money.
As managers and leaders of the organization, it is your responsibility to ensure that millennials understand their future in the company and to communicate that they don’t have to go somewhere else to advance. Employers and leaders have a responsibility to provide millennials with a desirable place to land, and a culture that encourages them to thrive. Don’t give millennials reasons to leave your organization. We need to support them, engage them, reward them and give them reasons to stay.
SOURCE: Kilby, D. (6 November 2019) "A benefits wishlist for millennial employees" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/what-employee-benefits-do-millennials-want
What would a workplace emergency-savings benefit look like?
Data from a recent survey indicates that a significant portion of American workers could face a financial emergency if they were hit with sudden bills, lost wages or other unforeseen expenses. Read this blog post to learn more about emergency-savings benefits.
An alarming number of workers don't have enough money saved away to carry them through even a short-lived financial emergency, and experts are urging employers to take steps to address that shortfall with changes to their benefits programs.
Survey data indicate that while savings rates vary based on a number of factors, substantial portions of American workers across income levels could face a financial emergency if they were hit with sudden medical bills, lost wages or other unforeseen expenses, such as a major home or car repair.
"Regardless of income we still see a significant percentage of people that do not have a rainy day fund that could cover three months of expenses," Craig Copeland, senior research associate at the Employee Benefit Research Institute, said on a recent online presentation the group hosted.
The AARP has been studying the issue, and recently reported that 53% of all American households have no emergency savings. Moreover, the retirement group reported a direct link between emergency funds and overall financial confidence. According to its recent report, Americans with rainy day funds are 2.5 times more likely to feel confident about their long-term financial prospects than those who do not.
"If people are living on such thin margins that an unexpected bill requires their complete attention and all existing resources to address it, it is extremely difficult to keep the longer-term in mind or to make progress toward longer-term goals," said Genevieve Melford, who helps lead a financial security program at the Aspen Institute.
As employers increasingly come to view emergency savings as a crucial element of their employees' financial well-being, more have been exploring a separate benefit to help encourage workers to put away money for some unforeseen contingency.
Catherine Harvey, senior policy advisor at the AARP's Public Policy Institute, has been taking a hard look at how workplace emergency savings benefits could be structured, what features would make them most attractive, and how, as a practical matter, employees could be moved to actually participate.
"There's a lot of evidence from behavioral science about what makes employer-based interventions effective, and not surprisingly one aspect of an effective program to maximize participation in an employee benefit is to make participation really easy," she said.
"That's true in 401(k)s, that's true in health programming, it's true in marketing -- any time that you get something in the mail or are automatically signed up for Spotify beyond your 50-day free trial you're subject to a default [that works] to make enrollment really easy," Harvey said.
Some employers have offered a feature that allows workers to split their paychecks through direct deposit into separate accounts, one being set aside for emergency savings. But the early analysis of those programs, which tend to rely on the employee proactively opting to set up and contribute to the emergency account via direct deposit -- rather than through auto-enrollment -- has found the results underwhelming.
"That's where we think automatic enrollment, that frictionless enrollment, really distinguishes this from everything else that's on the market right now," Harvey said.
"If split direct deposit were as powerful as it could be, more employers would be doing that and people would be saving for emergencies," she said. "We know that that's just not the case."
But emergency savings programs, executed properly, could become a key component of employers' expanding financial wellness benefits packages, a hot topic in the benefits world, but one where employers are still grappling with the best way to drive engagement.
"We know that information for employees on a website is not going to cut it," Harvey said. "Education alone just doesn't work, and so employers over the years have gotten really savvy and have taken up the behavioral finance tools and concepts to make participation the default."
The AARP also surveyed workers of a variety of income and age ranges about the types of features that would entice them to contribute to an emergency savings plan.
"Not surprisingly," Harvey said, survey respondents cited "the power of the employer match, which speaks to the incentive behind savings as being a very important feature -- one that basically blows all of the other features out of the water."
That held true across the board, as even workers who reported strong savings rates independent of an employer plan said they would welcome matching funds.
"If there's a match on the table, people don't want to leave dollars on the table," Harvey said.
In addition to a matching feature, workers AARP surveyed indicated strong preferences for programs that would protect their privacy, extend them complete control over access to their funds, and generally limit complicating red tape that would make the programs less functional.
"The idea here behind an employer-based emergency savings program is let the employee define the emergency," Harvey said. "Putting up rules and barriers, eligibility criteria, is just going to frustrate people and they won't use the money when it's needed at that moment."
SOURCE: Corbin, K. (11 October 2019) "What would a workplace emergency-savings benefit look like?" (Web Blog Post). Retrieved from https://www.benefitnews.com/news/what-would-a-workplace-emergency-savings-benefit-look-like
6 voluntary benefits your employees want
Multigenerational workforces are no longer finding the run-of-the-mill benefits plans adequate. This is making voluntary benefits more important than ever in this age of the multigenerational workforce and a tight labor market. Read this blog post from for six voluntary benefits employees want.
In this age of the multigenerational workforce and a tight labor market, a one-size-fits-all group benefits model with medical, prescription, dental, vision and a retirement plan just doesn’t cut it. A workforce with Baby Boomers, Gen X’ers, Millennials and Generation Z means that employees are going to find the run-of-the-mill benefits plan inadequate. Ditto for job seekers.
What follows is that voluntary benefits are more important than ever. Offering a range of voluntary benefits can help meet the needs of employees at all life stages.
Voluntary benefits add value to benefit plans and are typically easy to administer. They’re low-to-no-cost because employees pay for them, and maintenance is often handled through a payroll deduction. Many voluntary benefits also offer guaranteed acceptance at a lower rate than medical benefits, so even if a small group within your company chooses a particular benefit, they’ll be covered.
This landscape is changing quickly. Here are six trending voluntary benefits your employees want.
Student loan debt repayment assistance
Debt among college graduates has grown to nearly $1.6 trillion. It’s preventing the largest employee segment at most companies from buying houses or cars, saving for retirement, having kids and getting married. To help employees repay their student loan debt, some employers are helping employees pay down student loan debt through a direct payroll deduction.
Others are offering a new, IRS-allowable retirement plan match swap where an employer can opt to increase its defined contribution match, enabling employees to reduce their retirement match and contribute funds to repaying student loans instead.
Interest in this benefit continues to grow. Employers looking to offer student loan debt repayment should be aware that not all platforms are created equal. Look out for high per-employee, per-month fees.
Individual long-term care
A growing number of people are beginning to understand the value of long-term care insurance because they have taken care of or currently care for a friend or relative who needs round-the-clock care. Long-term care insurance covers home or institutional care if a person is no longer able to perform at least two activities of daily living--eating, bathing, dressing, moving from a bed to a chair or using a toilet.
Employees are interested in buying long-term care insurance through their employer because they can offer better rates for simplified issue plans. If you plan to offer long-term care as an employer-sponsored benefit, I recommended rolling it out with a strategic project plan and a benefit counselor or a technology platform capable of providing decision-making tools for a smooth application process.
Executive reimbursement plans
Employee retention — especially executive retention — is on the minds of many employers in the midst of this thriving economy. Filling gaps in medical and prescription coverage is one way to provide executive teams with premium benefits they may be looking for.
Executive reimbursement plans provide reimbursement for out-of-pocket expenses, access to facilities and level of service not normally covered under most group health plans. Rather than simply increasing compensation to help cover out-of-pocket expenses, premiums for these plans are tax-deductible for the employer, and benefits are non-taxable for employees.
Executive individual disability insurance
Traditional employer-sponsored long-term disability (LTD) is likely not enough coverage for highly-compensated employees or some sales staff who depends heavily on commission and bonuses. Normally, LTD pays employees 50-70% of their salary up to a certain amount.
Employers can carve out additional coverage for employees based on their management level, performance or tenure. Individual disability insurance plans can protect employees until they turn 65; they can also protect job titles or levels until employees are well enough to return to work. Executive individual disability insurance, like executive reimbursement, can be offered as a form of compensation, or a form of financial asset protection for higher incomes.
Telemedicine
The rise of consumer-driven health plans has led to the need for telemedicine. Telemedicine provides a way for employees to see a physician or provider by video and get a diagnosis and/or prescription quickly. The success of telemedicine is leading some carriers to integrate it within their plan. However, standalones still exist and can provide employees with an easy way to get care faster and cheaper than before.
Pet Insurance
Pet parents spend nearly $70 billion on veterinarian costs for their pets, but just 10% of dogs and 5% of cats are covered by medical insurance. As pets begin to play a larger role in our lives, more employers are offering pet insurance to their employees to help defray the cost of unexpected medical expenses.
There are a number of plan options, and setting up a plan for employees’ pets is simple. However, it’s vital that employers do their research to ensure the veterinarian network includes the best vets.
As part of a voluntary benefit offering, be sure to develop a rollout strategy and communications plan so employees are thoroughly educated and you meet group minimums.
SOURCE: Park, N. (25 September 2019) "6 voluntary benefits your employees want" (Web Blog Post). Retrieved from https://www.benefitnews.com/list/6-voluntary-benefits-your-employees-want