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Benefit Plan Trends- Volume 60, Issue 12

Lundstrom Insurance Agency, Inc.

2205 Point Blvd., Suite 200
Elgin, Illinois 60123
Phone: (847) 741-1000
Fax: 847-428-8857

This publication intends to provide accurate information pertaining to the subject matter covered, however, it should not be considered as legal or tax advice. It is published and distributed with the understanding that neither the publisher nor Lundstrom Insurance Agency is rendering legal or tax advice. Before taking any action, you should always obtain specific advice and assistance from a competent attorney or tax advisor.

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Job Candidates Avoid Negotiating Pay with Prospective Employers

A majority of workers report that they do not attempt to negotiate their compensation when applying for a job, even though more than half of employers claim they are expecting candidates to make a counteroffer, according to the results of two surveys recently conducted by the online recruiter CareerBuilder. 
The results of a survey of 2,257 hiring and human resource managers conducted August 16-September 15, 2017, and of a second survey of 2,369 full-time employers and 3,462 full-time U.S. workers conducted May 24-June 16, 2017, showed that 56% of workers report that they do not negotiate for better pay when they are offered a job. When the respondents who indicated they avoid negotiating were asked why, 51% said they do not feel comfortable asking for more money, 47% said they are afraid the employer will decide not to hire them, and 36% said they do not want to appear greedy.
By contrast, 53% of the employers surveyed indicated they are willing to negotiate compensation on an initial job offer for an entry-level worker; and 52% reported that when they first extend a job offer to an employee, they typically name a lower figure than they are willing to pay to leave room to negotiate. When asked to estimate how much lower their initial offer tends to be relative to the amount they are ultimately willing to offer, 26% of employers said their initial offer can be more than $5,000 less than their final offer.
The survey results also revealed some of the characteristics of the workers who are more or less likely to negotiate: workers aged 35 and older (45%) were slightly more likely than workers aged 18-34 (42%) to say they negotiate the first salary offer, and a higher share of men (47%) than of women (42%) reported that they negotiate pay when offered a job. Broken down by industry, the results showed that information technology workers (59%) were the most likely to say they negotiate salary, followed by workers in sales (55%), financial services (53%), and health care (48%).
When asked what motivates them to do their job, 71% of the workers surveyed said the ability to provide for themselves and their families, followed by money (63%), the ability to make a difference (38%), and the ability to create something meaningful or cool (21%).
The findings further showed that even though money is a top priority for workers, 79% of the workers surveyed said they do not earn their desired salary, with 36% reporting they do not earn anywhere near their desired level, and 58% saying they do not think they are better off financially than their parents. Moreover, while only 8% of respondents reported that they currently earn $100,000 or more, 21% said they feel they need to earn $100,000 or more in order to be successful.
Researchers also emphasized that workers who lack the courage to ask for a raise might be leaving money on the table. While 63% of the employers surveyed said they feel they have to pay workers more because the market is getting more competitive for talent, 51% of the workers polled admitted they have not asked for a raise. 

Health Benefit Costs Grew a Modest 2.6% In 2017

The annual cost increases for employer-sponsored health plans remained low in 2017, even without employers moving significant numbers of employees onto high-deductible plans, the results of an annual survey of employer-sponsored health plans conducted by human resources consultancy Mercer indicated.
The survey of a nationally representative sample of 2,481 employers was conducted during the summer of 2017. The results showed that the average total health benefit cost per employee rose 2.6% in 2017, up just slightly from an increase of 2.4% reported in 2016. Citing previous survey data, researchers observed that cost growth has averaged just 3.3% annually over the past five years, compared to 6.2% over the prior five-year period. 
But while acknowledging that these growth rates have been modest, researchers warned that health coverage continues to represent an enormous expense for both employers and employees. The survey results showed that for employers, the average total cost of health benefits amounted to $12,229 per employee, or 14% of total payroll, in 2017; and that even among smaller employers (those with 10-499 employees), which typically offer less generous benefits, the average total cost of health benefits came to $11,527 per employee in 2017. The findings further indicated that in 2017, employees were paying, on average, 24% of the total cost of coverage through paycheck deductions.
Researchers also observed that while employee contributions as a percent of premium have been stable for decades, over the past 10 years, employers have assigned employees more responsibility for cost at the point of service, both by increasing deductibles and by adding high-deductible consumer-directed health plans (CDHPs) with health savings accounts (HSAs). The survey found that in 2017, deductibles in traditional preferred provider organization (PPO) plans continued to increase, to nearly $1,000 on average for employers with 500 or more employees and nearly $2,000 for those with 10-499 employees. 
However, after years of steady growth, enrollment in CDHPs was found to have risen by only a single percentage point in 2017, from 29% to 30% of all covered employees. The survey indicated that in 2017, just 10% of employers with 500 or more employees offered a CDHP as the only plan at their largest worksite, and that most mid-sized and large employers offered a CDHP alongside higher-cost plans with more generous benefits.
The survey results also showed that employers are increasingly offering tools to help employees make more informed health care decisions: 82% of the employers surveyed with 500 or more employees said they provide a "transparency tool," or an online resource to help members compare the prices and the quality ratings of different health care providers.
In addition, the survey found that growing numbers of employers are helping plan participants defray the cost of care by promoting access to less expensive services, such as telemedicine. In 2017, 71% of the employers surveyed with 500 or more employees said they offered telemedicine services as a covered benefit, up sharply from 59% in 2016. While the survey showed that employers with telemedicine programs in use in 2016 reported an average utilization rate of 7%, researchers stressed that this rate is expected to rise as the programs become more established.
Looking at the role played by prescription drug costs in driving up overall health benefit costs, the survey found that drug benefit costs have been rising around 8% annually among employers with 500 or more employees, due in large part to an average 15% increase in spending on high-priced specialty drugs. The findings indicated that 53% of large employers are attempting to help keep these costs in check by steering employees to specialty pharmacies, which provide cost management strategies that can also prove less costly and more convenient for patients.

Raising Default Rates without Lowering Participation

Although many employers have increased the default contribution rates in their retirement plans with the aim of generating higher employee savings, plan sponsors may not realize that they could increase their suggested saving rate without causing significant numbers of employees to decline to participate in the plan, according to research recently published by Voya Behavioral Finance Institute for Innovation. 
The working paper, "How Do Consumers Respond When Default Options Push the Envelope?" was published on October 7, 2017, and was released in conjunction with the study's authors, who include behavioral scientists at UCLA, Harvard, and the University of Pennsylvania. The study looked at the effect on retirement plan enrollment and savings behavior when individuals were shown savings rates above traditionally displayed levels.
According to the study's authors, this question is especially relevant with the spread of automatic enrollment, which has been found to be an effective plan design tool for overcoming behavioral barriers to saving. Researchers noted that while many retirement plans now offer this feature, the default contribution rates are set relatively low, with most plans suggesting a 3% rate to their participants, and very few recommending a rate higher than 6%.
The subjects of the study were individuals who visited their employer's plan enrollment website between November 2016 and July 2017. As part of the enrollment process, the subjects were randomly assigned to see a suggested contribution rate ranging from 1% up to 11%, in 1% increments. The results of the analysis showed that being prompted to select a rate between 7% and 10% did not result in lower enrollment than a 6% control rate; and that the highest rate suggested, of 11%, resulted in only a slight decline in enrollment. The study also found that while the main boost in average saving levels occurred when the suggested rate was increased from 6% to 7%, all of the higher suggested rates produced better average saving levels than the 6% rate. 
In addition, the results indicated that suggesting higher rates is likely to lead to meaningful improvements in the financial security of plan participants: the authors calculated that for an employee with an annual salary of $70,000, the incremental benefits could produce additional retirement savings of $57,000 (assuming 40 years of saving with a 6% rate of return), or more than 8% of additional retirement savings over the employee's working career.
The authors noted that the suggested rate was presented in an opt-in environment, but added that while suggested rates in an opt-in environment are a "soft" default, it may be assumed that these results also apply to "harder" defaults in auto-enrollment plans, whereby participants are automatically assigned the default rate unless they actively opt out.

A Talent Retention Agreements Becoming More Effective

While financial retention agreements designed to ensure that acquired talent remains with the new company during a merger or acquisition appear to have become more effective in recent years, the acquiring companies are often unsuccessful in holding on to senior leaders after the initial retention period is over, according to the results of a global study on M&A retention conducted by human resources consultancy Willis Towers Watson. 
The study's findings are based on survey data collected between March and May 2017 from 244 respondents across 24 countries in Asia, the Americas, and Europe. Within the past two years, 91% of the respondents had acquired another organization, 10% had merged, and 6% had been acquired. 
The survey results showed that 79% of acquirers had been successful in retaining at least 80% of their employees with agreements through the end of the retention period, up from 68% of acquirers who participated in a similar survey on global M&A retention conducted in 2014. However, citing previous research, the study's authors observed that after the one-year period, only around one-half of the above mentioned companies retained at least 80% of employees who had signed agreements. 
In addition, the survey found that cash bonuses, most commonly expressed as a percentage of base salary, continue to be the primary financial award in retention agreements for senior leaders (77%) and other key employees (80%). 
The findings also suggested that there are compelling reasons why acquirers should begin the retention process early by focusing on senior leaders. For example, the survey showed that nearly one-quarter (24%) of acquirers asked the senior leaders at the target company to sign retention agreements before the initial merger agreement was signed; and that early communication with senior leaders is a clear differentiator between acquirers with high (28%) and low (11%) retention rates.
Moreover, the survey found that of the employees with retention agreements who left the company before the end of the retention period, 44% blamed the new or changing culture. Among the other reasons cited for leaving were being aggressively pursued by competitors (36%) and not liking their new role (25%). 
The results also showed that the size of the median retention budget has been declining: according to the survey, more than half of the acquirers (55%) polled in 2017 reported having a retention budget representing less than 1% of the total transaction cost—or nearly 50% less than 2014, when the median budget value was 1.9%. 

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2017 Liberty Publishing, Inc. All rights reserved.


2205 Point Blvd. Suite 200 | Elgin, IL 60123
p 847.741.1000 | f 847.428.8857