Benefit Plan Trends - Volume 62, Issue 6

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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Recent College Graduates Are Increasingly Willing To Forego Pay for Personal Fulfillment

As the strong labor market gives job seekers the confidence to enter occupations that reflect their interests and values, recent college graduates are expressing more interest in jobs in the arts and social service sectors and less interest in business and finance than they did in the past, according to the results of an analysis of job seeker activity on recruitment website Indeed.

In an article published on April 11 on the Indeed Hiring Lab website, "Today's Recent College Grads Prioritize Passion Over Pay," economist Nick Bunker presented an analysis of data from 2018 and 2014 on job seeker interest in various occupations among recent college graduates; defined as workers with a college degree who were between the ages of 22 and 27. Job seeker interest was measured by clicks on postings on the website.

The analysis identified which jobs were getting more attention from recent college graduates by determining which occupations recent graduates were more likely to show an interest in than the average Indeed job seeker. The results showed that new graduates were far more inclined to click on jobs in the broad categories of arts, design, entertainment, sports, and media in 2018 than they were in 2014. Other occupational categories that attracted more interest among recent graduates over the period were community and social services, law, education, training and library, and health care support.

Bunker also noted that a more detailed comparison of job search activity among recent college graduates in 2014 and 2018 confirmed the shift toward arts and entertainment, as graphic designer, film and video editor, writer and author, and photographer were on the list of the top 10 occupations that drew increasing attention from new graduates.

By contrast, Bunker reported, interest among new graduates declined between 2014 and 2018 for occupations in the broad business and finance categories, as well for jobs in production; fishing, farming, and forestry; sales; construction; and extraction. He added, however, these jobs remained relatively popular in 2018, and recent graduates were still more likely than the average job seeker to click on jobs in all but one of the occupations on the list of 10 jobs for which interest declined the most.

"A tighter labor market is giving new job seekers the security to seek out occupations that might be a better fit for them personally," Bunker said. "This is great news for employers in the arts and social services, but employers hiring for business and financial roles might have to recruit more actively than they did a few years ago."


Monitoring Retirement Fund Menus Can Improve Performance

The monitoring of defined contribution (DC) retirement plan menus by plan sponsors in order to identify underperforming funds and replace them with more attractive funds can provide value to plan participants, according to new research published by Morningstar Investment Management.

In a white paper entitled "Change Is Good," released on April 15, researchers observed that when retirement plan sponsors evaluate the quality of mutual fund investments offered to plan participants, they may occasionally decide to replace one fund with another. The authors noted that previous studies of plan sponsor replacement decisions have suggested that the decision to replace funds is frequently motivated by historical performance data relative to a benchmark that does not predict future performance. They pointed out, however, that even though this monitoring activity is an important function of investment fiduciaries, little is currently known about whether adding and removing mutual funds from a plan menu is valuable for participants.

To investigate the monitoring value provided by plan sponsors, researchers analyzed a unique longitudinal dataset of plan menus from January 2010 to November 2018 that includes 3,478 fund replacements across 678 DC plans. For each plan, the analysis compared the menus for two different periods, employing a matching criterion to determine when a fund was replaced. A fund was deemed to have been replaced if it did not exist in the later menu, and a new fund was added in that later menu that was of the same investment style, such as bond or equity.

The results indicated that, on average, the replacement funds had better historical performance and lower expense ratios, as well as more favorable comprehensive metrics based on star and quantitative ratings, than the funds they replaced. The analysis also showed that the largest performance difference between the replacement and replaced funds was for the five-year historical returns. According to researchers, this finding suggests that the five-year historical reference period is the one that carries the most weight among plan sponsors.

In addition, the analysis revealed that the future performance of the replacement fund was better than the fund being replaced at both the future one-year and three-year time periods. The authors emphasized that this outperformance persisted even after controlling for expense ratios, momentum, style exposures, and other metrics commonly used by plan sponsors to evaluate funds, such as the star rating and the quantitative rating. "Our findings suggest that monitoring plan menus can have a positive impact on performance," the authors concluded.

Researchers cautioned, however, that while they were able to analyze certain factors related to the outperformance of replacement funds—such as the type of fund, lower expense ratios, higher recent historical performance, and various ratings—the primary drivers of the outperformance remain unclear, because the dataset provided no information about the decision-making process plan sponsors use to determine whether a fund should be replaced, or about other salient factors, like the relative importance of the fund being replaced or how long the fund has been in the plan. Thus, the study's authors added, although the analysis suggests that monitoring fund menus can improve performance, "more research on why this effect occurs is warranted."


U.S. Companies Prefer To Promote From Within

It is common for American companies to promote from within the organization, and women employees tend to be promoted to management positions earlier than their male counterparts—but face a glass ceiling at higher management levels—the results of a recently published study by ADP Research Institute indicated.

The "2019 State of the Workforce Report: Pay, Promotions and Retention," was released on April 16. The study provides organizational benchmarks derived from the aggregated actual HR and payroll data for January 2018 of more than 13 million U.S. workers employed by around 30,000 companies across eight industry sectors that have at least 50 employees. The aim of the report is to help employers gain a better understanding of the hierarchical structure of organizations, pay levels, employee retention, and the connection between pay and promotions.

The study found that, overall, employers promoted 8.9% of their employees annually, and those promoted employees received an average wage increase of 17.4%. More generally, the analysis showed that of the workers studied, 84% had non-supervisory roles, while 16% had management or professional roles; and that the average length of time an employee worked for an employer before receiving a first manager promotion was 6.9 years.

The research further indicated that companies were more likely to promote internal employees for management positions, and that the percentage of internal hires increased at higher levels in the organization: over a one-year period, 17.2% of managers were promoted, while 15.6% were new hires; and at the highest management level, 21.5% of managers were internally promoted, and only 12.5% were new hires.

In addition, the study found that women were promoted slightly earlier than men, they tended to hit a glass ceiling at the fourth level of management. The results showed that while the average number of years to first manager promotion was 6.6 years for women and 7.3 years for men, there was a steep decrease in the likelihood of being promoted for women at the third level of management, and this decline became more pronounced at each level of advancement, the overall promotion rate was found to be 8.4% among women, compared to 9.3% among men.

The analysis also showed that the average hourly wage across all workers was $29.03, with managers earning an average of $47, and non-managers earning an average of $25. The average hourly wage for women was found to be $25 and hour, or 79% of the $32 average hourly wage for men. Researchers observed that the ratio of women's to men's pay reached a high of 82% at the fourth level of management, but then declined to 77% at the top management levels.

Moreover, the study found that the total monthly turnover rate, defined as the percentage of employees who separate from their employer, was 3.2%, with 1.8% leaving for voluntary reasons and 1.4% leaving for involuntary reasons. The turnover rate was shown to be much higher among employees who had been with the company for less than four years (5.1%) than among employees who had a tenure of four to six years (1.5%). Not surprisingly, the turnover rate was found to be lowest among workers with a tenure of more than 12 years (0.8%).

Broken down by industry sector, the analysis showed that the monthly turnover rates were highest in the trade/ transportation/utilities sector, which includes retail (5%); followed by leisure & hospitality (4.4%). Much lower turnover rates were observed in manufacturing (2.1%), finance/insurance (2.2%), and education/health (2.4%).


Small Businesses Provide Employee Benefits to Recruit and Retain Talent

As their employee numbers grow, small businesses increasingly seek to offer a competitive compensation package that includes comprehensive benefits, including health benefits, retirement benefits, family leave, and paid time off, according to the findings of a recent survey of small business owners and managers conducted by business-to-business ratings and review firm Clutch.

The results of the survey of 529 owners and managers of small businesses in the U.S. (defined as having one to 500 employees) were released on April 18. Respondents were asked about their benefit plans for 2019.

The findings indicated that nearly half (47%) of the small businesses surveyed offer benefits, and that businesses are significantly more likely to offer benefits as they hire more employees. For example, while just 32% of businesses with 2-10 employees said they offer benefits, 68% of companies with 11-50 employees and 76% of firms with more than 50 employees said they provide benefits.

The results also showed that of the small businesses surveyed that offer benefits, 69% provide health benefits, 52% offer retirement benefits, 48% provide family leave, 45% offer paid time off (PTO), 33% provide in-office benefits, and 17% offer student loan repayment. Of the businesses that offer PTO, 28% reported providing 11 to 15 business days off.

When asked if they plan to expand their benefits offerings in 2019, 56% of the small businesses surveyed said they intend to do so: 19% plan to begin offering PTO, 15% expect to start offering health benefits, 14% plan to start providing in-office benefits, 11% expect to begin offering retirement benefits, 11% are considering offering family leave, and 8% plan to introduce student loan repayment. Moreover, when the small businesses that intend to offer new benefits in 2019 were asked about their reasons for doing so, 30% cited employee requests, 27% said they want to reduce employee turnover, 13% said they are doing so in response to legal requirements, and 9% indicated they are doing so as a result of union negotiations.

When asked about their strategies for gaining access to human resource services, 25% of the small businesses surveyed said they have full-time, in-house HR staff; 12% reported that they have part-time, in-house HR staff; 9% said they contract with an HR consultant, 8% said they work with a professional employer organization, and 6% indicated that they work with an outsourcing service. However, 30% of the respondents admitted that they do not invest in formal HR services.

The survey also found that there is a strong association between having access to formal HR services and offering benefits: whereas 64% of respondents that reported having some level of HR services offer benefits, just 10% of the small businesses surveyed that said they lack access to formal HR services provide benefits.


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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