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Benefits Plan Trends- Volume 61, Volume 10

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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Workers Express Concerns About Compensation and Workload

In the decade since the onset of the financial crisis of 2008, employees have become more confident and secure in the belief that their employer cares about them, but have become less satisfied with their workload, career progression, and pay and benefits, according to the findings of a report published on September 11 by organizational consulting firm Korn Ferry.

The report's findings are based on an analysis of engagement data for more than one million U.S. employees at around 180 companies for the 2008-2018 period. The study found that there have been distinct shifts in employee attitudes toward their workplaces in the 10 years since the start of the Great Recession.

The analysis found that employees are 28% more likely in 2018 than in 2008 to say they believe that their immediate managers support their development, and are 15% more likely to report that their organization demonstrates care and concern for employees. The results also suggest that employees are feeling more confident in the future, as they are 17% more likely in 2018 than in 2008 to say they believe their companies will be successful over the next 2-3 years.

The findings indicated, however, that employees have more negative opinions today than they did a decade ago about several issues, including pay and benefits, workload, career paths, and training and performance management. The study found that compared to 10 years previously, workers in 2018 are 15% less likely to agree that the benefits their companies offer them are competitive, and they are 4% less likely to say they believe their pay is fair considering the compensation of people doing similar jobs in other companies. Moreover, compared to 10 years ago, employees in 2018 are 10% less likely to indicate that they experience strong cross-team support within the company, and are 11% less likely to say they believe that decisions are made at the lowest appropriate level.

In addition, the results suggested that today's employees are increasingly worried about their workload, and lack certainty about their career progression. The analysis showed that compared to their counterparts in 2008, workers in 2018 are 10% less likely to say they have a good idea of the possible career paths available to them, and they are 6% less likely to agree there are enough people to do the work in their work group.

"Today's organizations run much leaner and unfortunately, managers are sometimes too strapped with their own workloads to address the needs of their employees," said Korn Ferry senior principal Mark Royal. "Over the past 10 years, there has also been a shift from hierarchal management to flatter, more interdependent working environments. It's important that organizations understand the implications this has on managing employees."


Working-Age Americans Fall Short of Retirement Savings Targets

The retirement savings of working-age Americans are far below the levels needed for a secure retirement, despite the recent economic recovery, according to the findings of a study published on September 17 by the National Institute on Retirement Security (NIRS).

Based on an analysis of U.S. Census Bureau data, the research report "Retirement in America: Out of Reach for Most Americans?" found that the median retirement account balance among all working individuals is $0; and that 59.3% of the working-age population (ages 21-64) in the U.S., or more than 100 million individuals, do not own any retirement account assets in an employer-sponsored defined contribution (DC) plan or individual retirement account (IRA), and are not covered by a defined benefit (DB) pension.

The analysis indicated that even after counting an individual's entire net worth—a relatively generous measure of retirement savings—76.7% of working Americans fall short of conservative retirement savings targets for their age and income, based on working until age 67. The results further showed that among workers who have accumulated savings in retirement accounts, the typical worker has a modest account balance of $40,000. Researchers noted that 68.3% of individuals ages 55 to 64 have retirement savings equal to less than one times their annual income, or far below the level they will need to maintain their standard of living over their expected years in retirement.

Moreover, the analysis revealed that growing income inequality contributes to the gap in retirement account ownership. The report found that workers in the top income quartile are five times more likely to have retirement accounts than workers in the lowest income quartile, and that individuals with retirement accounts have, on average, more than three times the annual income of individuals who do not own retirement accounts.

Researchers attributed this retirement savings shortfall to a multitude of factors, such as the increase in the Social Security retirement age, and to a more general breakdown of the nation's retirement infrastructure. They noted that there is a huge retirement plan coverage gap among American workers, with the share of workers who have DB pensions declining as employers replace these plans with 401(k) and other DC plans in which the risks and much of the funding burden fall on individual employees.

The report's authors also emphasized that the financial crisis of 2008 exposed the vulnerability of the DC-centered retirement system, as the asset values in Americans' retirement accounts fell from $9.3 trillion at the end of 2007 to $7.2 trillion at the end of 2008. Researchers noted that the economic downturn also triggered a decline in total contributions to DC retirement accounts as many employers stopped matching employee contributions. While observing that the combined value of 401(k)-type accounts and IRAs had risen to $16.9 trillion by the end of 2017, researchers pointed out that this increase in total retirement account assets has not translated into improved retirement security for the majority of American workers and their families who have no retirement savings.

The report's authors recommended that policymakers and employers take steps to address these challenges. In addition to calling for the strengthening of Social Security, they suggested expanding access to low-cost, high-quality retirement plans, including DC savings plans, DB pensions, and hybrid or combination DC/DB plans. They also recommended helping low-income workers and families save with improved tax credits. In particular, they observed, expanding the Saver's Credit and making it refundable could help boost the retirement savings of lower-income families. They also noted that a number of states are taking action to expand access to workplace retirement savings, with enrollment in state-based programs starting this year in Oregon, Washington, and Illinois.


Rising Health Care Costs Contribute To Wage Stagnation

Rapidly rising health care costs have been eating into the take-home pay of U.S. workers, contributing to the concentration of income among the wealthiest Americans, and making it more difficult for lower-income workers to achieve the American Dream, an analysis published on September 4 by the Council for Affordable Health Coverage and Willis Towers Watson warned.

The report, "Health Care USA: A Cancer on the American Dream," was written by health care consultant Sylvester Schieber and Steven A. Nyce of Willis Towers Watson's Research and Innovation Center. The estimates presented in the study are based on an analytical framework developed by the authors using data from the U.S. Census Bureau from 1980 through 2015.

The study highlighted the significant and increasing role rising health premiums have played in skewing net earnings toward higher earners. The analysis showed, for example, that over the 1999-2015 study period, workers in the 90th to 99th percentile of earnings had average pre-health premium compensation increases 7.6 times those of workers in the 40th to 49th percentile; and that after deducting employer and employee premiums for single coverage, individuals in the higher earnings group had, on average, remaining disposable wage increases 26.2 times those of workers in the lower earnings group. Meanwhile, the analysis showed that average workers in the bottom 40 percentiles of the earnings distribution saw their disposable earnings decrease over the 1999-2015 period.

The report also indicated that the average U.S. health expenditures rose to $10,348 per person in 2016; and that in constant dollars, annual employee premiums for full-time, full-year workers rose from $415 in 1999 to $1,068 in 2015 for individuals, and from $2,127 to $4,956 for families. The authors pointed out that while the Affordable Care Act promised to moderate health cost inflation, average premiums for coverage under an employer plan increased 18.25% for individuals and 21.6% for families in constant dollars between 2010 and 2017—a period when compensation and wage growth was flat or negative for a large share of the workforce.

Moreover, the analysis showed that health care costs are reducing the share of employer-provided benefits devoted to retirement: whereas in 2001 employer allocations to health and retirement bene-fits were 41.9% and 58.1%, respectively; by 2015, the allocation was in the other direction, at 63.5% for health benefits and 36.5% for retirement benefits.

The report also mentioned specific ways the organization and delivery of health services in the U.S. sustain abnormally high health costs. Among the examples the authors cited are the questionable development of clinical guidance for coronary artery bypass grafting surgery, and the inertia a hospital leader in value-based care had to overcome to reduce reliance on C-sections.

Finally, Schieber and Nyce offered several practical solutions for lowering costs and encouraging evidence-based best practices. Among the developments, trends, and practices the authors said call for a "new public health response" from policymakers, care providers, and employers are the market concentration of hospitals and other health care providers, as well as the uneven and often irrational pricing of medical goods and services, including drugs. They also pointed to the need to reform the inadequate medical management of treatments, which can lead to inefficiencies and waste; the insufficient testing of the efficacy of medical procedures and drugs, followed by the failure to curtail those found to be ineffective; and the failure to incorporate study results and best practices into physicians' treatment patterns.


Employers Face Challenges in Communicating Compensation Issues

While employers are increasingly fielding questions from their employees about pay equity, many companies are still struggling to develop an effective approach to compensation communication, the findings of a survey conducted by executive compensation consultancy Pearl Meyer indicate.

The survey of 244 directors and senior executives at U.S. companies was carried out in June 2018. The results showed that 62% of respondents currently are or expect to be fielding questions from their employees on gender pay equity. Of these respondents, a majority indicated that they have clear and detailed information ready to share (30%) or are currently drafting their responses (48%). By contrast, 91% of the executives surveyed reported that they are not getting questions from their employees about the highly publicized CEO Pay Ratio disclosure.

The survey also found that most of the respondents think the quality of their organization's compensation communication is mediocre, with just 8% of respondents saying they believe the quality is excellent. Although almost half of the executives surveyed (48%) reported that their organization has increased compensation communication in the last two years, slightly more than half (52%) said they are not sharing information about base salary ranges with all employees.

The findings further revealed that while about two-thirds of managers are trained to have formal compensation conversations with their direct reports, the majority (70%) of the executives surveyed believe those conversations are not effective. The survey also showed that less than one-quarter of respondents think employees can appropriately compare their compensation to that of colleagues (21%) or of workers in similar positions in other organizations (22%).

When asked to rate their employees' understanding of the company's compensation philosophy, just 8% of respondents said it is very good, while 43% said it is generally okay, and 41% acknowledged it is not good. However, most of the executives surveyed said they believe their employees' understanding of how their own pay is calculated is either fair (47%) or good (41%). Moreover, when asked how they think their employees would rate the overall value of their organization's compensation package, only 16% said they believe the rating would be high, while 70% said they think it would be medium.

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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