Benefit Plan Trends - Volume 62 Issue 9

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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The Savings of Many Americans Are Not Improving With the Economy

While most Americans have seen their ability to cover monthly expenses and bills improve since the financial crisis, many are still struggling to make ends meet and are failing to save for retirement, as key indicators of financial capability are no longer improving in step with the economy, a study published on June 20 by the FINRA Investor Education Foundation warned.

The study, "The State of U.S. Financial Capability," is based on the results of a nationwide survey conducted every three years. The latest survey data, from 2018, include responses from more than 27,000 U.S. adults. Originally developed in 2009, the survey measures key indicators of financial capability and evaluates how these indicators vary depending on the respondents' underlying demographic, behavioral, attitudinal, and financial literacy characteristics.

According to researchers, the results of the past four waves of the survey show signs of widening or
ongoing gaps among certain groups on key measures of financial capability. The percentage of survey respondents who reported having no difficulty in covering monthly expenses and bills grew only slightly from 2015 (48%) to 2018 (50%), after increasing sharply between 2009 (36%) and 2015.

The findings further revealed that although Americans' ability to make ends meet improved between 2009 and 2018, there has not been a corresponding increase in the propensity to save. The 2018 results showed that 41% of respondents reported spending less than their income, 36% said they spend about equal to their income, and 19% said they spend more than their income. Researchers noted that these percentages have remained consistent across all four survey waves.

In addition, the 2018 results indicated that many Americans are stressed about money. More than half (53%) of respondents reported that thinking about their finances makes them anxious, and 44% of respondents said they find discussing their finances stressful. Across age groups, respondents aged 18-34 reported experiencing the highest levels of stress (63%) and anxiety (55%).

Moreover, the 2018 results suggested that Americans are still not saving adequately for retirement, with just 41% saying they have tried to determine what they need to save for retirement, and only 58% of reporting that they have an employer-based or individual retirement account. The 2018 data also point to an ongoing gender gap in retirement saving behavior, with 47% of male respondents, but just 35% of female respondents, indicating they have tried to determine what they need to save for retirement; and 62% of male respondents, compared to 55% of female respondents, saying they have a retirement account. Researchers noted that these gender gaps appear to have expanded slightly since 2009.

Yet the study's authors emphasized that these gender differences in preparing for retirement pale in comparison to differences by household income: in 2018, only 19% of respondents with an annual income under $25,000 said they have tried to plan for retirement, compared to 62% of respondents with an annual income of $75,000+. Meanwhile, the percentage of respondents who said they are worried about running out of money in retirement declined only slightly between 2015 and 2018, from 56% to 51%.

The 2018 survey also found that 34% of respondents could answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation, and risk; down from 42% in 2009. Researchers observed that this decline in financial literacy was most pronounced among younger respondents aged 18-34, who have had little exposure to high interest rates or inflation as adults.


Annual Wage Growth Continues To Accelerate In a Tight Job Market

In the second quarter of 2019, wages for U.S. workers were 4.0% higher than at the same point in 2018, with the average wage level increasing $1.09 over the year to reach $28.54 an hour, according to the findings of a quarterly analysis of workforce trends performed by the ADP Research Institute.

The results, released on July 24, indicated that this year-on-year wage growth as of June 2019 was driven by large wage gains for workers in the manufacturing (4.4% wage growth, $29.83 hourly wage) and construction (4.4% wage growth, $28.65 hourly wage) industries. The survey also revealed that the service sector industries that contributed most to annual wage growth were information (4.2% wage growth, $41.56 hourly wage), trade (4.3% wage growth, $25.27 hourly wage), professional and business services (4.1% wage growth, $36.45 hourly wage), and leisure and hospitality services (4.2% wage growth, $17.42 hourly wage).

In addition, the analysis looked at the wage gains of job switchers as of June 2019. The findings indicated that job switchers in the information industry made the largest gains (9.7% wage growth, $41.08 hourly wage), and that job switchers in professional and business services and construction also experienced strong wage growth of 8.3% and 8.7%, respectively. However, the results showed that job holders in trade, the largest sector, saw more wage growth than workers who switched into the sector (5.2% versus 3.8%), but lagged in terms of annual employment growth (0.6%).

Broken down by region, the analysis found that the region with the highest average hourly wage rate as of June 2019 was the Northeast ($31.99), followed by the West ($30.69). Yet the findings also indicated that the highest level of annual wage growth was in the Midwest (4.5%), even though this region had the lowest hourly wage rate ($26.57) and the lowest employment growth rate (1.0%). The results further showed that job switchers in the West had the strongest average wage growth (7.3%), while workers in the South and the Northeast had the lowest wage growth (3.6%). Broken down by firm size, the analysis revealed that workers at large firms had the highest wage growth (5.1%) and employment growth (3.1%) rates.

Researchers observed that the tight labor market is leading companies to increase compensation, with businesses in most sectors having to raise their wages to retain their skilled workers. They also noted that female job holders have been experiencing larger wage gains than their male counterparts: since January 2019, female job holders registered average wage gains of 5%, while male job holders had average wage gains of 4.6%.


Employee Benefit Packages Show Signs Of Stability Despite Cost Pressures

U.S. employers have largely maintained the status quo in terms of their benefit offerings in 2019, but they are also looking for opportunities to make changes to their benefit programs that lower costs while still enabling them to attract and retain talent in a competitive labor market, according to the findings of a survey published by professional services provider PwC in June 2019.

The "Health and Well-being Touchstone Survey," which was completed in spring 2019, asked U.S. employers and employees for their views on the current and projected status of their rewards programs. The results indicated that employers expect medical costs to increase 6.5%, or 4.2% after plan changes, from 2018 to 2019. According to researchers, this trend is consistent with the actual increase of 6.2% from 2017 to 2018.

The survey also showed that employers are still seeking to reduce their long-term retirement benefit liabilities, with the shift away from defined benefit plans and toward defined contribution plans continuing. Specifically, the survey found that just 20% of employers offer a defined benefit plan; and that of those, 37% have frozen entry to these plans for new participants, up from 29% in 2018.

While 82% of the employers surveyed said they believe their current plans and practices provide the framework necessary for retirement readiness, less than half indicated that they think that their employees will be ready to retire when they want to. The findings also revealed that the prevalence of retiree medical benefits is continuing to decline, with less than one-third of employers reporting that they provide any kind of stipend, subsidy, or coverage for retiree health costs.

The survey results further suggested that employers are increasingly recognizing the importance of managing employee stress, burnout, and other mental health issues, with the share of employers saying they offer stress management programs rising sharply from 40% in 2018 to 61% in 2019. Researchers pointed out, however, that many of these employers are not incorporating their stress management programs into their overall wellness and well-being programs.

Moreover, the survey asked both employers and employees what they consider to be the most important benefit offerings or employer attributes that would attract and retain employees. A comparison of the responses showed that there is a disconnect between the views of employers and employees. For example, 86% of employees, but just 49% of employers, said they think flexibility and work/life balance options are likely to attract talent; while 74% of employees, but only 18% of employers, said they believe inclusion and diversity are important.

The survey also examined the flexibility, time off, and work/life balance benefits offered by employers. The surveyed employers reported offering full-time employees an average of 10.8 annual holidays, 9.1 paid sick leave days, and 12 paid vacation days. Around 60% of employers said they provide parental leave, with maternity leave being slightly more common than paternity leave. The work/life benefits offered most frequently by employers were found to include mothers' rooms (89%), walking or stand-up desks (80%), free parking (78%), and on-site gym and/or fitness classes (59%).


Big Data Analysis Is Helping Companies Make Better Decisions

Although companies now have access to increasing amounts of "big data" that could help them improve the speed and quality of their decision-making processes, culture is preventing many companies from optimizing opportunities to derive insights from these data, the results of a survey released on July 25 by professional services firm Deloitte suggest.

The survey, conducted in April 2019, included 1,048 executives at U.S.-based companies who interact with, create, or use analytics as part of their job. The aim of the research was to get a cross-industry perspective on how companies approach business analytics and artificial intelligence, and where these organizations fall along an analytics maturity continuum.

The results indicated that most executives do not believe their companies are insight-driven, with just 37% placing their company in the top categories of the analytics continuum. The remaining 63% of respondents said they are aware of analytics but lack infrastructure, are still working in silos, or are expanding their ad hoc analytics capabilities beyond silos. However, three-quarters of the executives surveyed reported that their organization's analytical maturity has improved over the past year, and 70% said they expect business analytics to play a bigger role in the next three years than it does currently.

The survey also found that among the 37% of companies in the survey with the strongest analytics cultures, 48% had significantly exceeded their business goals in the past 12 months, making them twice as likely to have done so than the 63% of companies with less robust analytics cultures.

The findings further revealed that executive sponsorship is essential to this level of organizational change, and that the best potential champion is the chief executive officer. The results indicated that the CEO was the lead champion of analytics in 29% of the companies surveyed, and that these companies were 77% more likely to have significantly exceeded their business goals and were 59% more likely to have derived actionable insights from the analytics they are tracking.

However, the survey also showed that most executives are not yet fluent in interacting with data, as 67% of respondents admitted that they are not comfortable accessing or using data from their tools and resources. Researchers pointed out that the proportion of respondents who expressed discomfort with using data was significant (37%) even at companies with a strong data-driven culture.

In addition, the survey showed that while 64% of the executives reported that their organization relies on structured data from internal systems or resources, just 18% said that they have taken advantage of unstructured data, such as product images or customer audio files, or comments from social media. However, the survey also found that the companies indicating that unstructured data are among their most valuable sources of insights were 24% more likely to have exceeded their business goals.



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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