Benefit Plan Trends - Volume 62, Issue 7

Lundstrom Insurance Agency, Inc.

2205 Point Blvd., Suite 200
Elgin, Illinois 60123
Phone: (847) 741-1000
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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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Employers Taking Action to Close Pay Equity Gaps

While U.S. companies are increasingly moving forward in addressing the issue of pay equity in the workplace based on factors like gender and ethnicity, more transparency about pay equity adjustments is needed, the results of a recent survey conducted by human resources consulting firms WorldatWork and Korn Ferry suggest.

The survey of 769 C-suite and HR leaders across a range of industries and company sizes was conducted in early 2019, and the findings were released on May 7. Of these executives, 60% said their organization is taking action on pay equity gaps, 33% said they are considering implementing pay equity management measures, and just 7% said the issue of pay equity is not currently on their organization's radar.

When the leaders surveyed who reported that their company is currently taking action on pay equity were asked about their areas of focus, 93% said they are engaged in pay equity analysis, 77% said they are taking steps to remediate or resolve causes of pay inequities through pay adjustments, and 72% indicated they are working to identify or resolve root causes of pay inequities. When asked to identify the demographic focus of their pay equity analyses, 46% of respondents said both gender and ethnicity are considered, 18% reported that only gender is considered, and 36% indicated that additional demographics like age are taken into account.

The survey found that most organizations that make pay equity adjustments treat between 1% to 5% of their employees, with an average pay equity increase of 5%. According to researchers, these figures imply that the total impact of these adjustments on payroll typically ranges between 0.1% to 0.3% of total base salaries.

When asked about the primary objectives of pay equity management, the leading response of the leaders currently implementing such measures was to build and maintain a culture of organizational trust (31%), followed by legal compliance given changing regulations (24%), and because it makes business sense to do so (16%).

Researchers observed, however, that many companies are missing the opportunity to build trust through transparency about their pay equity initiatives, pointing out that although large majorities of respondents at organizations engaged in pay equity management activities reported that they are sharing their intent and findings on pay equity with senior leaders (90%) and people managers (65%), just 27% said they are communicating the findings to all employees. Moreover, 64% of respondents reported that individual employees who receive an equity pay adjustment are not explicitly informed of the nature of the raise, but instead receive it bundled together with other pay increases related to factors like the market or performance.


Baby Boomers Are More Engaged In the Workplace Than Millennials

Compared to their younger colleagues, baby boomer employees exhibit higher levels of engagement, a stronger intent to stay with their employer, as well as greater satisfaction with their pay and the strategic direction of their company, according to a new study published by employee analytics platform Peakon.

The report, "Working Better Together: Understanding the experiences and needs of a multigenerational workforce," was released on June 5. Based on more than 33 million employee survey responses across 125 countries, the study examined the attitudes and experiences of five generations of employees. Starting with the assumption that engaged employees tend to be invested in their work and in their company, the analysis focused on levels of engagement among three generations in particular: the baby boomers (born 1946-1964), Generation X (born 1965-1980), and millennials (born 1981-1996).

The findings indicated that while employees of all generations are likely to be highly engaged in the early months of their tenure, the generational influence on employee engagement levels becomes clearer after this onboarding effect wears off, with baby boomers emerging as the most engaged demographic after three years of tenure, and millennials consistently exhibiting lower levels of engagement than both boomers and Generation X.

Researchers pointed out that this pattern is especially clear for the expected outcomes of employee engagement: loyalty and satisfaction. Compared to their younger colleagues, baby boomers scored 0.5 points higher (on a 0-10 scale) when asked about their intention to stay with their employer after three years on the job. Moreover, when asked about their job satisfaction, boomers reported far higher levels of satisfaction than their younger colleagues after two years, with the difference peaking at 0.7 points after five years.

The study also found that when questioned about the meaning they find in their work, millennials reported finding significantly less meaning than both baby boomers and Generation X. However, the results further indicated that when asked about the impact they feel they are able to make in their own team, the responses were similar across the generations. Researchers observed that this finding could imply that the lack of meaning for millennial employees is attributable less to the micro-level impact they are able to make within their organization, and more to their perceived inability to make macro-level contributions to their organization or society in line with their personal passions and skills.

Moreover, the findings suggested that compensation could be an important source of the gap in satisfaction levels, as the data clearly showed that millennials are less satisfied with their pay than their older colleagues, and the disparity between the generations was found to be greater for compensation than for any other workplace factor. Researchers linked this sense of dissatisfaction among younger workers to concerns about rising housing costs and the burden of student loans.


How Target Date Funds Influence Retirement Savings Allocations

Defined contribution retirement plan participants who join a plan with a target date default tend to have greater equity exposure than participants who join a plan with a money market default, and these allocation decisions can have substantial effects on the ultimate value of their retirement portfolios, according to an article published by the TIAA Institute in June 2019.

"The effect of default target date funds on retirement savings allocations," was written by Robert L. McDonald, a professor of finance at Northwestern University, and colleagues. Observing that defined contribution retirement plans are the primary retirement savings vehicle for most workers in the U.S., the authors pointed out that whereas previously the most common default investment in these plans was a money market fund, many of these plans now use as their default investment a target date fund, which they defined as an auto-diversified investment solution that allocates contributions across a predetermined mix of underlying mutual funds, with the allocation to equity funds declining as a participant grows older. The authors also noted that retirement plans now tend to offer multiple investment options across various asset classes.

To determine how investment defaults and the number of fund options affect participant investment behaviors, the researchers analyzed data from a 2012 cross-section of more than 600,000 TIAA participants working at 98 institutions who chose contribution allocations in one or more plans in which they participated. They then separated the participants into those who joined before and after target date funds became the default investments.

The findings indicated that participants who had joined plans with a money market default largely switched out of the default option. Specifically, the results showed that these participants had substantial variation in the equity exposure for their contributions, and, as of 2012, had median holdings of three funds, with 19% allocating to more than five funds. Meanwhile, of the participants who joined after all their plans had target date defaults, 68% invested in one fund, and only 10% invested in more than five funds.

The analysis also found that while those participants who had joined plans with a target date default held a median of one fund—generally the default option-they also had increased equity exposure relative to participants who joined plans with a money market default. The results showed that joining a plan with a target date default raised the amount participants contributed to equity by 13 percentage points on average, and reduced or eliminated most allocation differences attributable to demographic variables.

The study therefore found that participants who joined a plan with a target date default behaved differently than those who did not, with both men and women holding more in equity, women holding fewer funds and the same average equity as men, and the size effect of the investment menu becoming insignificant. The authors explained that because target date funds are made up of a number of underlying mutual funds, target date-only participants tend to hold substantially more types of mutual funds; and that given a typical target date glide path, these participants allocate significantly more to equity, and show less variability in their equity allocations.

McDonald and colleagues cautioned, however, that while they documented the impact of target date funds, the welfare effects of the use of such funds are unclear. "Target date funds offer a simple solution, but they typically only use a single factor, age, in setting the equity allocation," the authors observed. "They do not account for differences in income, wealth, risk aversion, and life expectancy. In particular, the higher equity exposure associated with target date fund defaults leads to higher expected returns, but also to greater portfolio volatility."


Employers Offering a Range of Educational Benefits to Workers

In response to record-high college costs and tight labor market conditions, employers are providing various forms of educational support to attract and retain workers, ranging from longstanding benefits like tuition reimbursement to emerging programs like student loan repayment, according to the findings of a survey on trends in educational benefits conducted by the International Foundation of Employee Benefit Plans.

The results of the survey of U.S. employers, released on June 18, indicated than 92% of companies offer some sort of educational benefit program. Of those offering benefits, the most common types of support include tuition assistance/reimbursement (63%), in-house training seminars (61%), attendance at educational conferences (51%), continuing education courses (50%), coverage for licensing courses and exams (44%), personal development courses (35%), and 529 college savings plans (10%).

More than half (57%) of the employers surveyed reported having had tuition reimbursement programs in place between six and 20 years, while another 27% said they have had programs in place for 21 years or more. The findings revealed that organizations use a variety of approaches to reimbursing student employees, with 87% of respondents indicating they reimburse employees after they complete their course of study and meet certain requirements. The most prevalent reimbursement amount to employees reported was $5,000-$5,999. The survey also found that more than half of organizations (57%) have a payback requirement; and that of those that do, 54% require one year of employment after the employee completes his or her education.

"Tuition reimbursement helps to attract and retain all employees—especially younger ones who appreciate the opportunity to grow in their careers," said Julie Stich, CEBS, vice president of content at the International Foundation.

Stich also pointed out that only 1% to 5% of employees take advantage of tuition reimbursement provided by their employer.

Meanwhile, the survey also found that just 4% of responding organizations offer some sort of student loan repayment assistance benefit, and only 2% are in the process of implementing a program.

When employers were asked about the barriers that prevent them from offering student loan repayment benefits, the top responses were high costs, uncertainty and complexity of implementation, resentment among employees who have already paid off their student loans, resentment among employees who have ineligible loan debt, and employee turnover after the requirements for repayment have been met.

However, when employers were questioned about the potential reasons for offering student loan repayment programs, the leading responses were to attract future talent, retain current employees and maintain or increase employee satisfaction and loyalty.


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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