Benefit Plan Trends - Volume 62 Issue 5

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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A report covering plan design and legislative changes


Slow Progress Is Being Made In Closing the Gender Pay Gap

While progress is slowly being made to close the gender pay gap, sustained action from businesses, governments, and individuals is needed to ensure that women's earnings catch up to men's, the findings of a study published on March 26 by employer review and recruitment website Glassdoor indicate.

The study, "Progress on the Gender Pay Gap: 2019," examined how the gender pay gap has changed in the U.S., the United Kingdom, France, Germany, and Australia since Glassdoor first investigated the issue in a 2016 study. The 2019 study also offers new gender pay gap data on Canada, the Netherlands, and Singapore. The findings are based on hundreds of thousands of salary reports, including worker and job information, shared voluntarily and anonymously by employees on Glassdoor.

Based on these data, the study projected how long it could take to achieve gender pay equality in these countries if all current factors remain unchanged. The findings showed that in all eight countries studied, men earn more than women on average, even after statistical controls for worker and job characteristics are applied to ensure an apples-to-apples comparison.

Yet the study's authors emphasized that although women do not yet receive equal pay for equal work, progress is slowly being made, as the pay gap has narrowed since 2016. They attributed this positive trajectory to a tighter labor market, higher labor force participation by women, and greater awareness of the gender pay gap. However, they cautioned, if current trends continue at the same pace, the adjusted gender pay gap may not fully close until 2070.

Based on more than 425,000 salaries shared by full-time U.S. employees, the analysis of the gender wage group among workers in the U.S. showed that, on average, men earn 21.4% higher base pay than women, i.e., that women earn 79 cents per dollar men earn. Researchers noted, however, that when U.S. workers of similar ages and with similar levels of education and experience were compared, the gap shrank to 19.1%; and that when U.S. workers with the same job title, employer, and location were compared, the gender pay gap declined to 4.9% in 2019, down from 5.3% in 2016.

Similar patterns were found in all eight countries studied. Germany was shown to have the largest unadjusted gap, with women earning about 78 cents per euro men earn; while France was found to have the smallest unadjusted gap, with women earning around 88 cents per euro men earn. The findings further indicated that Australia has the smallest adjusted gap, with women earning 97 cents per dollar men earn; while the Netherlands has the largest adjusted gap, with women earning 93 cents per euro men earn.

The study also attempted to identify the factors that drive the gender pay gap. The results of the analysis showed that in the U.S., occupational and industry sorting is by far the largest factor, accounting for 56.5% of the overall pay gap. In the U.S., the adjusted gender pay gap was found to be largest in the media, retail, and construction, repair, and maintenance industries; and smallest in the biotech and pharmaceuticals, education, and aerospace and defense sectors.

To investigate to what extent gender differences in salary expectations contribute to the gender pay gap, researchers looked at whether there is a salary confidence gap when applying for jobs; and, if so, whether it contributes to the gender pay gap in the U.S. The findings indicated that men apply to jobs with base salaries that are, on average, $13,635 higher than those of women, representing a gap of 18.3%. The study's authors attributed this gap primarily to the same occupational sorting differences that account for a large share of the overall gender pay gap. They added, however, that when job application data by similarly qualified men and women are compared, the adjusted salary confidence gap declines to less than 1% (0.7%), which suggests that a gap in the salary expectations of men and women does not explain the gender pay gap.

"Understanding key drivers of the pay gap is critical to identifying the best ways to fix it," the report concluded. "Research shows that salary transparency and better information sharing are powerful tools in helping to achieve equal pay in the workforce."


Health Care Affordability Varies Among Workers with Employer-Provided Plans

Among working families with employer-based coverage, lower-income families spend a greater share of their income on health care costs than those with higher incomes, and the poor health of family members is associated with higher out-of-pocket expenses, according to a brief published on April 14 by the Peterson-Kaiser Health Tracker.

The brief, "How affordability of health care varies by income among people with employer coverage," used information from the Annual Social and Economic Supplement (ASEC) to the Current Population Survey, collected from 2011 onward, to measure the average amounts and shares of family income people with employer-based coverage pay out-of-pocket toward their premiums and direct payments for health care. The analysis focused on non-elderly working families with employer-based coverage living with one or more family members who were full-time workers and had employer-based coverage.

The findings indicated that among people with employer-based coverage, the share of family income going to health insurance premium contributions and payments for medical care varies considerably by income: payments for health insurance premiums and medical care combined average about 14% of family income for those with a family income below twice the poverty level, compared to 8% for people in families with incomes between 200% and 400% of the poverty level, and 5% for people with incomes above 400% of the poverty level.

The results also showed that across all income categories, the combined premium contributions and out-of-pocket payments are higher, on average, for families dealing with sickness or disability: the share of family income going to premium contributions and medical expenses was found to be roughly 30% to 60% higher for families with one or more members in fair or poor health than for families whose members are in good health.

Researchers explained that under the Affordable Care Act (ACA), employers with more than 50 employees are required to offer full-time workers coverage that meets standards for affordability and comprehensiveness, or face a tax penalty. However, they pointed out, the affordability test for single-only coverage is applied even if the employee chooses family coverage with a contribution that represents a much higher share of income. Moreover, they noted, plans with significant deductibles and out-of-pocket limits are permitted under the ACA.

"While the ACA helped to improve health care affordability for many low-income people without access to employer coverage, it did little to provide relief to the much larger group of people offered health benefits at work," researchers concluded. "That may be part of what is fueling interest in proposals like Medicare-for-all and options for employers and/or workers to buy into Medicare."


A Comprehensive Reassessment of the U.S. Retirement System

To ensure that Americans have sufficient means to retire with dignity and security, Gene L. Dodaro, Comptroller General of the United States and head of the U.S. Government Accountability Office (GAO), called upon the Federal government to undertake a comprehensive re-evaluation of the challenges across all three pillars of the retirement system: employer-sponsored plans, Social Security, and savings

In testimony delivered before a February 6 hearing of the Senate's Special Committee on Aging on "Financial Security in Retirement: Innovations and Best Practices to Promote Savings," Dodaro observed that fundamental changes to the U.S. retirement system over the past four decades have created a number of risks and challenges for the three main pillars supporting that system. He cited current projections indicating that by 2034, the Old-Age and Survivors trust fund for Social Security's retirement program will only be sufficient to pay 77% of scheduled benefits. He attributed this shortfall in part to the aging of the U.S. population, noting that by 2060, people aged 65 and over are expected to account for about 23% of the population, up from 10% in 1970.

Other Federal government retirement-related programs face financial uncertainty as well, Dodaro warned. For example, he pointed out, the Pension Benefit Guaranty Corporation (PBGC), which insures the pension benefits of most private sector defined benefit plans, has estimated that there is a greater than 90% chance that the multiemployer program will be insolvent by 2025. In addition, he observed, as the number of older adults needing health care and disability assistance continues to grow, there will be mounting pressure to increase Federal funding for Medicare and Medicaid, as well as for home and community-based services for older adults.

Dodaro also noted that employer-sponsored plans have undergone significant changes, as traditional defined benefit plans have become less common, while the number of defined contribution (DC) account-based plans, like 401(k)s, has been increasing. Dodaro observed that while DC plans provide greater portability of savings, which can be well-suited to the needs of a more mobile workforce, they also require individuals to assume more responsibility for planning and managing their savings. To improve DC plan enrollment and contribution levels, he recommended that employers adopt auto-enrollment and auto-escalation features.

Furthermore, Dodaro argued, the savings rates of individuals have been trending downward, and appear to be constrained by economic trends such as low real wage growth and rising
out-of-pocket health care costs.

After observing that it has been nearly 40 years since a Federal commission has conducted a comprehensive evaluation of the nation's approach to financing retirement, Dodaro acknowledged that because there is no single agency that is responsible for overseeing the U.S. retirement system in its entirety, there is no obvious Federal agency to lead a comprehensive reform effort today. He therefore cited GAO recommendations "that Congress consider establishing an independent commission to comprehensively examine the U.S. retirement system and to make recommendations to clarify key policy goals for the system and improve the nation's approach to promoting more stable retirement security."


Companies Increasingly Reward CEOs with Long-Term Incentives

Even companies reporting strong financial results are helping their chief executive officers prepare for future economic volatility by increasing the percentage of CEO pay that is made up of time-vested longer-term incentives, according to an annual study on CEO compensation published by executive compensation consulting firm Korn Ferry.

The findings of the study are based on an analysis of CEO compensation disclosures from the first 50 companies to report out of the top 300 companies with revenues of at least $9 billion in fiscal year 2018. Released on March 28, the study found that the use of long-term incentives (LTIs) in these 50 companies is up 11.2% from the previous year, and that the mix of LTIs has shifted, with restricted stock accounting for 30% of the mix, up from 26.1% the previous year. The analysis also revealed that options make up 23.8% of the mix, down from 25.3% the previous year; performance equity accounts for 41.7% of the mix, down from 44.5%; and performance cash is holding steady at 4.5%.

Researchers observed that because of concerns about future volatility in the market, compensation committees appear to be seeking to insulate their CEOs from too much variability in year-over-year pay by increasing the percentage of time-based restricted stock and decreasing the percentage of performance-based equity.

The analysis also showed that the CEOs at the companies studied are receiving robust compensation increases, largely as a reward for their organization's strong financial performance. The results indicated that on average, the companies in the sample saw an 8.1% increase in revenue and a 23.2% increase in net income. According to the study, total direct compensation, or annual cash compensation plus the annualized value of LTIs, at the 50 companies is up 15.2% from the previous year. Researchers noted that the increase in last year's full sample was 8.7%.

The findings further indicated that CEO salary and short-term incentives (STIs) at the 50 companies are higher than in the previous year: salary is up 2.3%, STIs are up 8%, and salary plus STIs are up 6.9%.


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 © 2019 Liberty Publishing, Inc. All rights reserved.




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