1st Quarter 2016
Traditional benefit packages once typically included defined benefit (DB) pension plans and focused on identifying the key financial risks facing employees, deciding which were more serious and developing strategies to protect employees from those risks. Today, defined contribution (DC) plans often are the primary retirement security vehicle, and much of the risk protection has been taken out of the benefits package. This article focuses on some of the risks facing employees, identifies which are covered by the typical 401(k) plan and which are not and provides ideas for managing risks not covered directly by the typical plan. There is substantial focus on long-term disability and longevity. The discussion spans savings and payout periods and suggests some ideas for the future, including greater integration of 401(k) plans with risk protection approaches. The article does not focus on investment risk and options.
Much of the discussion on the decumulation phase of retirement savings has focused on the lack of any lifetime annuities. But there are a whole range of options sponsors can employ to facilitate the generation of retirement income and bolster financial wellness. As U.S. employers show no sign of substantially increasing spending on compensation or benefits, it is imperative that human resources professionals help employees—particularly the retiring baby boomers—to maximize what they have saved. This article presents five first-step ideas toward achieving that goal.
Most employers understand the frustration of seeing their employees pass up retirement savings opportunities. This article reviews the problem of insufficient retirement savings and describes simple plan design features that can make it easier for employees to do what’s best for their financial futures. The author provides a case example showing what impact such changes can have on participation, deferral rates and account balances.
For many employees, Roth 401(k) contributions are a smart move toward strengthening retirement readiness, yet they remain markedly underused. Employers should consider providing the option, educating employees on its value and providing a good modeling tool to help plan participants make the Roth decision. Doing so could both increase overall 401(k) participation and lead employees to save more for retirement—which would help the enterprise meet organizational goals by maintaining high employee engagement and productivity levels and reducing talent-related risk.
Myths persist about retirement income solutions in defined contribution (DC) plans. The authors put six common myths to the test: (1) that few plans offer a retirement income option, (2) that retirement is solely a product decision, (3) that retirement income options lack fiduciary clarity, (4) that it’s difficult to implement a retirement income option, (5) that retirement income options can be viewed similarly to an asset class and (6) that retirement solutions are too difficult to communicate to participants. They explain why some chatter on the topic of retirement income solutions in DC plans is unfounded.
To help retirees turn savings into a steady, permanent income stream they won’t outlive, the U.S. Treasury Department has made it easier for defined contribution plans to offer qualifying longevity annuity contracts (QLACs). This article explains the features of QLACs and why both employees and employers are finding this type of insurance an attractive option, as it protects people against their greatest risk in retirement—longevity. The author provides five steps a plan sponsor needs to take to add a QLAC.
2nd Quarter 2016
This article describes how incorporating integrated disability management can address business challenges. It includes case studies featuring organizations that used a “whole-person approach” to result in (1) greater and more effective communication and reporting, (2) more satisfied and productive employees and (3) cost savings through quicker return to work when legally and medically appropriate, all in alignment with the particular needs of a given firm. One size most definitely does not fit all.
From an employee benefits perspective, generational differences undoubtedly play a big role in not only how to communicate with employees about their benefits but what benefits to offer. Yet while there’s been a lot of talk about how to reach other generations, information about connecting with Generation X is harder to come by. This article discusses the state of Generation X’s unique income protection and financial concerns. The author shows how offering income protection to Generation Xers not only helps them deal with today’s expenses and prepare for the future but can also help employers meet business objectives such as attracting and retaining top talent.
Long-term disability (LTD) protection, such as a defined contribution (DC) disability supplement, is critical for good longterm security in a DC environment. For those with a strong LTD program already in place, this challenge can be addressed by providing a DC disability benefit that replaces DC contributions during periods of LTD. If there is no LTD program, that is needed first. Appropriate disability coverage is vital if the DC system truly is to deliver long-term retirement security. This article discusses issues in achieving such coverage and provides ideas to help in developing programs. Few such programs exist today, but it is hoped that this article will encourage more employers to adopt such programs.
Self-service tools represent the next frontier for leave and disability. This article discusses several critical components of a successful leave and disability self-service tool. If given the proper investment and thoughtfully designed, self-service tools have the potential to augment an organization’s existing interaction channels, improving the employee experience while delivering efficiencies for an administrative model. In an operating environment in which cost savings sometimes are at the expense of employee experience, such a win-win solution should not be taken lightly and, more importantly, should not be missed.
Allen T. Steinberg
, Law Offices of Allen T. Steinberg
Practices in the Employee Retirement Income Security Act (ERISA) world constantly are evolving to reflect economic realities and market opportunities. This evolution can occur beneath the surface—until emerging as a seemingly “new” development. The late Yogi Berra noted, “You can observe a lot just by watching.” This article will discuss two emerging trends—the growth of voluntary benefits and the increased use of system-generated generic summary plan descriptions (SPDs)—that raise questions about existing policies and practices. With these trends, some more watching is merited.
Tax-exempt organizations can have either a 403(b) or 401(k) plan, or both, which leads some to consider whether they should have one over the other. Key differences between 403(b) and 401(k) plans are summarized in a convenient table of contrasts. Enough differences remain between 403(b) and 401(k) plans that a Code Section 501(c)(3) tax-exempt organization considering one or the other, or both, should review the differences with its plan advisors and consider how the differences may affect the organization and its retirement arrangements. This also is true for such organizations that may include for-profit entities in their controlled groups, particularly with respect to coverage and nondiscrimination testing. Most tax-exempt employers are likely to find a 403(b) plan preferable, but some may prefer the more widely understood rules of a 401(k) plan.
Longevity insurance provides benefits when people at advanced ages, such as 82, risk having run out of other sources of income. Originally, because of lower life expectancy, Social Security was structured as a longevity insurance benefit program. However, as life expectancy has improved, Social Security benefits have slowly transformed into benefits that most people entering the workforce ultimately receive. While adding longevity insurance as a benefit when Social Security is already facing a financing deficit would be problematic, reintroduction of a longevity insurance benefit as part of a Social Security reform package that involved benefit cuts could be an important policy innovation. This benefit generally is not provided by the private sector. Ireland, China and Germany have longevity insurance benefits as part of their retirement benefits system, providing examples of how such a benefit could be structured.
3rd Quarter 2016
As much as we may dislike the mandates, rules and obligations Congress imposes on employers and their advisors, members of the benefits community often look to Congress to “fix” things— such as addressing gaps faced by employees and challenges faced by employers. This article argues for realistic expectations of the role of benefits legislation versus employer action in shaping the future. The author reviews past legislation that has facilitated employer provision of employee benefits and where legislation has fallen short of expectations. He urges a balanced perspective on the role of legislation and of the benefits community in addressing current and future challenges.
The future of employer-sponsored health and retirement plans may be at risk. For years, employers have struggled to maintain and pay for these plans despite the increasing compliance and financial burdens imposed by legislative and regulatory action. Now, as Congress begins to lay the foundation for comprehensive tax reform, the need to raise federal revenue may trump the continuation of the tax preference for employer-provided health and retirement benefits. Recent actions illustrate that the drive for federal revenue may not be sufficiently tempered by the potential negative impact on employers and employees who must bear the brunt of these revenue-induced changes. This article considers the erosion of protections offered by the Employee Retirement Income Security Act (ERISA) and the importance of maintaining the tax treatment of employer-provided benefits.
Despite its complexities, the health savings account (HSA) is a powerful and growing element of the U.S. financial landscape. In the future, employers will likely be expected to provide tax-advantaged savings programs for employees’ current and future medical expenses. This article discusses investment lineup issues that must be addressed in order to optimize HSAs to help participants achieve successful outcomes. Plan sponsors at the forefront of addressing these issues (and perhaps others) will be in a better position to help their employees maximize both the health and wealth benefits provided for a secure retirement.
Even though U.S. tax policy has attempted to prevent this outcome through contribution limits, some wealthy Americans have received huge tax subsidies on their individual account pensions. A recent study documents the existence of very large individual account pensions in the United States, with some exceeding $50 million and the very largest having more than $250 million per participant. These large account balances imply rates of return of 20-30% or higher over a number of years, compared with long-run rates of return of 7-8% in the stock market. This article investigates the amount of tax subsidy received by the participants with the largest account balances and finds that holders of the very largest individual accounts have received tax subsidies of considerably more than $100 million. The authors argue that tax policy has played a role in the very large pension wealth holdings at the high end of the wealth distribution.
It appears a talent war is here to stay among employers in Asia. Employers that stay ahead of the trends and make best use of new insights will be better equipped to attract talent, increase loyalty and boost productivity. MetLife research shows that in China and India, there is a huge opportunity for employers that adopt practices such as offering total rewards packages that include a well- rounded employment deal that factors in flexible working conditions, wellness and career advancement opportunities. This article reviews these research findings and argues that taking the right steps to innovate on employee benefit programs will not only help companies stand apart from the competition but also help foster an engaged and committed workforce.
While the United States continues to be the only developed nation without mandated paid maternity leave, U.S. employers are blazing their own trail for new parents. This article defines parental leave, explains what’s driving the increased interest in paid parental leave among employers offering it and discusses how paid parental leave can benefit employers and employees alike. Finally, the author discusses why not all employers are offering these benefits as well as considerations for employers contemplating whether paid parental leave is right for them.
Innovative approaches to managing an employee population with a high prevalence of type 2 diabetes mellitus can mitigate costs for employers by improving employees’ health. This article describes such an approach at McCormick & Company, Inc., where participants had statistically significant improvements in weight, average plasma glucose concentration (also called
glycated hemoglobin or
A1c), and cholesterol. A simulation analysis applying the findings of the study population to Maryland employees with a baseline A1c of greater than 6.0% showed that participation in the program could improve glycemic control in these patients, reducing the A1c by 0.24% on average, and associated cost savings for the employer.
4th Quarter 2016
Employers can and should take steps to support retirement and financial
wellness. This article provides a framework for retirement
wellness informed by research conducted or supported by the Society
of Actuaries. Research insights about Americans’ finances,
planning, decisions, money management, debt, retiree income
shocks and other areas point to ways employers can provide retirement
wellness support as a vital part of an overall
benefit program. The author suggests several key considerations
employers should pay attention to in order
to improve retirement wellness.
Employers and employees are navigating major changes in health
insurance benefits, including the move to high-deductible health
plans in conjunction with health savings accounts (HSAs). The HSA
offers unique benefits that could prove instrumental in helping
workers both navigate current health care expenses and build a
nest egg for much larger health care costs in retirement. Yet employees
often don’t understand the HSA and how to best
use it. How can employers help employees make wise
benefits choices that work for their personal financial
Several trends may help make health savings accounts (HSAs) a
ubiquitous part of Americans’ financial planning. When one looks
at the totality of factors, it is easy to see how HSAs can become a
vital connection between active and retiree health care needs and
between retirement income and retiree medical needs.
However, it is also easy to see the clouds over the horizon
that could stall HSA growth in coming years. This
article discusses both.
In 2004, when evaluating health savings account (HSA) business
opportunities, I predicted: “Twenty-five years ago, no one had ever
heard of 401(k); 25 years from now, everyone will have an HSA.”
Twelve years later, growth in HSA eligibility, participation, contributions
and asset accumulations suggests we just might achieve that
prediction. This article shares one plan sponsor’s journey to help
employees accumulate assets to fund medical costs—while employed
and after retirement. It documents a 30-plus-year retiree
health insurance transition from a defined benefit to a defined dollar
and then to a defined contribution structure. The defined
contribution structure culminated in full replacement
using HSA-qualifying high-deductible health
plans (HDHPs) and then redeploying/repurposing the
HSA to incorporate a savings incentive for retiree medical
The trend among U.S. employers is to move toward an integrated
health and benefits offering that combines financial wellness with
physical wellness. The benefits of integration include efficiency of
effort, clarity for employees and helping employees understand the
correlation between financial and physical wellness and how to
effectively manage both. This article discusses important considerations
for successfully creating and managing a plan. There are a
number of steps employers can take to ensure they
more accurately assess employee needs and gain a
clear sense of the factors contributing to return on investment
The need for long-term care (LTC) is on the rise as the Baby
Boomer generation ages. This article will focus on the projected
future drivers and costs for LTC, why the private LTC approach
has not worked to date and alternate approaches
in the market that appear to help address
some of the current needs.
Early August 2016 saw a number of lawsuits filed against major colleges
and universities. At least 12 suits allege that retirement plans
violated the Employee Retirement Income Security Act’s fiduciary
duties by, among other claims, paying excessive fees and failing to
monitor and remove poorly performing investments. The discussion
set out in this article does not make any assumptions or
reach any conclusions about the outcome of each of
these suits. Instead, the author takes a high-level look at
the insights that can be gleaned from these complaints.