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Benefit Plan Trends - Volume 61, Issue 7

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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VOLUME 61, ISSUE 7
 

Divorce Can Have a Substantial Impact on Retirement Security


Getting divorced has large negative effects on the retirement readiness of American households, but divorced women are generally no worse off than single women who have never married, a study published by the Center for Retirement Research at Boston College concluded.
 
The research brief, "How Does Divorce Affect Retirement Security?" by Alicia Munnell, Wenliang Hou, and Geoffrey T. Sanzenbacher, was published in June 2018. The authors investigated how divorce impacts the National Retirement Risk Index (NRRI), which is calculated by comparing households' projected replacement rates—or retirement income as a percentage of pre-retirement income—with target replacement rates that would allow them to maintain their standard of living in retirement. These calculations are based on the Federal Reserve's triennial Survey of Consumer Finances (SCF), which uses a nationally representative sample of U.S. households. 
 
The authors observed that although the divorce rate is no longer rising, about 40% of marriages in the U.S. will end in divorce. The brief outlined the main types of financial setbacks couples typically experience when they divorce, including having to cover legal fees and other short-term expenses associated with the breakup; being forced to sell the family home, sometimes at a suboptimal time in the housing market; having to divide financial and retirement wealth between two new households, which may force the spouses to sell assets prematurely; and having to take on the cost of maintaining two households instead of one, which can increase living expenses and, in some cases, income taxes. The authors also noted that divorced women in particular may find it difficult to work and to save for retirement because they have child care responsibilities, while divorced men who are non-custodial parents may face problems saving because they have to cover child support and alimony payments. 
 
Based on the assumption that these financial losses almost certainly inhibit each spouse's ability to save for retirement, the study looked at the questions of how severely divorce affects retirement readiness, and how these effects vary by household type. Not surprisingly, the results showed that both wealth and earnings are lower for households with a previous divorce than for those with no history of divorce: the average net financial wealth of non-divorced households was found to be $132,000, or about 30% higher than the $101,000 held by divorced households. 
 
The findings also indicated that this less favorable economic profile carries over to the NRRI, as 53% of households who have gone through a divorce were found to be at risk in retirement, compared to 48% of households with no history of divorce. After controlling for other factors like income group and age, the analysis showed that the share at risk is 7.3 percentage points higher for the divorced households than for the households with no previous divorce. To put this figure into perspective, researchers pointed out that the Great Recession increased the NRRI by nine percentage points, which suggests that the impact of divorce is large. 
 
However, the analysis also found that not all household types are equally affected. The results revealed that compared to their non-divorced counterparts, married couples with a previously divorced spouse are 9.4% more likely to be at risk in retirement and divorced single men are 5.5% more likely to be at risk in retirement; but that divorced single women are not disadvantaged relative to non-divorced single women. To explain this lack of a difference in retirement readiness between divorced and single women, the authors observed that although divorced women are more likely than single women to have children, which can reduce their ability to save for retirement, they are also more likely to own a home. 
 
 

Employees Want Benefits With a Personal Touch


Regardless of whether they are younger or older, employees who feel personally supported by their employer's benefit package are significantly more likely to stay with the organization, the findings of a global study conducted by Thomsons Online Benefits indicate. 
 
Drawing on a survey of more than 2,200 employees of multinational companies, the "Global Employee Benefits Watch" study, released on May 22, reported that respondents who said they feel that their benefit scheme has a positive impact on their lives were more than 40% more likely to classify themselves as loyal towards their employer than those who did not. 
 
The findings indicated, however, that global employers are struggling to provide the range of benefit options needed to support today's diverse workforce. For example, the survey showed that almost 60% of employees want to improve their mental well-being and get fit and healthy, but only 23% of employees feel fully supported in such efforts by their employer. 
 
Researchers also observed that employees who currently have a vast array of choices in how they manage information in their personal lives now seek to have this level of choice replicated in their workplace. When respondents were asked which platforms they would like to use in managing their benefits, 45% cited their desktop and 35% said their mobile device, while 46% indicated they still want face-to-face communication. Noting that the desire to have a range of communication types was found across age groups, researchers advised employers looking to win the loyalty of their employees to focus on supporting their individual needs, and stop thinking in generational stereotypes.
 
In addition, the analysis shed light on regional discrepancies, with employees based in the Asia-Pacific countries (APAC) displaying higher expectations of employer support around life events than workers in other parts of the world. For example, the survey found that 42% of respondents in APAC countries, but just 19% of respondents in European, Middle Eastern, and African countries (EMEA) said they would appreciate support from their employer when starting a family. Similarly, 47% of APAC respondents, but only 19% of EMEA respondents, said they would like help from their employer when getting married. 
 
 

Adjusting Compensation to Address Fairness


In response to competitive pressures to improve their pay-for-performance programs and to ensure fair pay throughout the workplace, U.S. employers have been making adjustments to their employee compensation and performance management programs, according to the results of a survey by human resources consultancy Willis Towers Watson.
 
The survey, which was conducted in April 2018, asked 1,949 employers worldwide, including 374 U.S. employers, about their compensation practices. The results showed that several factors are prompting employers to make or consider making changes to their programs, including cost (71%), manager feedback (63%), the changing marketplace (61%), and feedback from employees (59%). 
 
The survey findings suggested that in particular, the changing nature of work and new skills requirements are spurring employers to reassess their compensation programs. When asked how they expect to manage their base pay and annual incentive plans in the coming year and over the next three years, 45% of respondents said they are planning to or are considering redesigning their annual incentive plans, and 37% indicated they are planning to or are considering changing the criteria for salary increases. Of the employers who reported no plans to redesign their programs, most said they are adjusting the importance of the factors used to set base pay increases.
 
The results further indicated that although the employers surveyed see achieving pay decision transparency as a challenging task given the increasing complexity surrounding pay decisions, more than half (53%) are planning to or are considering improving transparency around pay decisions.
 
In addition, the survey found that employers are recognizing the need for new technology to support pay decisions: while less than half of respondents (45%) indicated that they are using some form of software beyond spreadsheets to implement their pay programs, 52% said they are planning to or are considering introducing new technology.
 
When asked about their approaches to performance management, 40% of the employers polled said they are planning to or are considering changing the focus of their performance management strategy to include current and potential possession of the skills needed to drive the business in the future. By contrast, just 17% of respondents said they have eliminated performance ratings or plan to do so this year.
 
Moreover, the survey found that most of the U.S. employers surveyed report having formal processes in place to prevent bias or inconsistency in their hiring and pay decisions: nearly two-thirds of U.S. respondents indicated they have established formal processes across a range of areas, including annual incentives (64%), hiring decisions, (63%), starting salaries (62%) and base pay increases (62%).
 
Nonetheless, 60% of the U.S. respondents said they are planning to take some additional action this year to prevent bias in hiring and pay decisions. Of the U.S. employers surveyed, significant shares said they are planning to or are considering reevaluating their recruitment and promotion processes (44%), conducting a gender pay or pay equity diagnostic (42%), or increasing communication of policies and benefits that promote an inclusive culture (33%). The results also indicated that many U.S. employers are taking steps to support creating an inclusive and diverse workforce, with nearly half reporting that they have established or support internal networks (45%) or improved flexible work arrangements (44%).
 
 

Companies Should Seek To Leverage the Digital Workplace


Employees who work in digital workplaces tend to have relatively high levels of productivity and motivation, but organizations should be alert to security risks associated with these technologies, and to the emergence of a gap between employees who are and are not technologically adept, according to a global study conducted by Aruba, a Hewlett Packard Enterprise company.
 
The results of the study, "The Right Technologies Unlock the Potential of the Digital Workplace," were based on interviews conducted in April and May 2018 with 7,000 employees working at organizations based in 15 countries across the globe, including the U.S. The findings revealed that a more digitally-driven workplace has both business and human benefits, and that companies that are less technologically advanced are at risk of falling behind the competition and failing to attract top talent. The study also warned that a clear chasm in employee performance and sentiment is emerging between more advanced digital workplaces and those that use digital technology to a lesser extent, and that companies must be vigilant as more digital-savvy employees are taking greater risks with data and information security.
 
Specifically, the analysis showed that "Digital Revolutionaries," or employees identified as those who work in fully-enabled digital workplaces where new workplace technologies are in widespread use, were 51% more likely to report having strong job satisfaction and were 43% more likely to say they feel positive about their work-life balance than "Digital Laggards," or those who have less access to workplace technology. The findings also showed that Revolutionary employees were also 60% more likely to say they are motivated at work, and 91% more likely to praise their company's vision.
 
The study also found that rather than perceiving advancements in digital technology and automation as a threat to job security, most of the employees surveyed are enthusiastic about these technologies, with 71% saying they would welcome a fully automated workplace in the future that allows their employer to build a smarter, more effective working environment. The results further showed almost all of the respondents (93%) think their workplace would be improved through greater use of technology, and large shares are confident that digital technology will result in a more efficient (56%), more collaborative (52%), and more appealing (47%) work environment.
 
While confirming that the benefits of digital workplaces are wide-ranging, the study also cautioned that cybersecurity remains a challenge for employers. The study recommended that companies seek to adapt to leverage the benefits of new digital workplace technology while simultaneously minimizing security risks organizations by adopting a digital workplace strategy, building collaborative digital workspaces, and incorporating security into the workplace from the ground up.
 
 
 
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 © 2018 Liberty Publishing, Inc. All rights reserved.
 
 
 


 
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