More 401(k) Bashing, and a Fix

I posted here earlier this month about a provocative Wall Street Journal piece in which the creators and early adopters of the 401(k) retirement-savings vehicle lament the revolution they started.

Their point: They had no intention of watching the concept turn into the sole — and highly inadequate — savings receptacle for employees.

Now, on the heels of that, comes this piece on the October Three site by benefits expert Larry Sher taking that discussion even further, to a whole lot more wrong with the defined-contribution approach and the people who support it — i.e., the people with skin in its game. As Sher writes:

“For instance, the government tried, unsuccessfully so far, to nudge DC plan sponsors to give participants some sense of how much life annuity their account balances might be able to provide. The push-back was immediate and severe from stakeholders in the DC system.

“Some objected on technical grounds —  the annuity estimate could vary widely depending on a number of assumptions including life expectancies, market interest rates and inflation. Others viewed this initiative cynically, believing that it was just a first step toward mandating annuity availability in DC plans, thus leading to the prospect of huge sums of assets shifting from mutual funds and other asset managers to insurers.”

The chief concern of policymakers, employees and even some of the employers that have embraced the 401(k) concept, Sher says, “can be summed up as the total shifting of risks to employees — the risks that they won’t save enough, the risk that they will use the savings for non-retirement purposes, the risk of unfavorable investment results — culminating in inadequate retirement savings and the prospect of outliving such savings.”

To mitigate the problem of employees dipping into their funds for non-retirement purposes, he suggests employers impose greater restrictions on such withdrawals. Of course, he also writes,

“The best way to close this loop would be to provide a core company contribution for everyone — not just for those who are willing or able to save.”

Here’s one of my favorites of Sher’s points:

“And perhaps one of the most disturbing aspects of a DC-only retirement system is the fruitless attempt to make employees into competent investors. Even if investment education works to an extent, the idea of employees spending time, probably mostly work time, to figure out how to best navigate the investment markets is an exercise in futility.

“When someone is sick they go to a doctor, not to medical school. Investment professionals have gone to investment school — a crash course in investments does little, or no more, than give employees a false sense that they know what they are doing. It’s like self-diagnosing a medical issue based on information on WebMD.

“The response from the DC world is default investments, such as target date funds. That helps but it still leaves employees vulnerable to temptations to time the market and apply their [inadequate]knowledge to making investment choices. Inevitably, the result is wide disparity in outcomes among plan participants — those with better outcomes being the better, or more likely luckier, investors.”

Sher’s solution to this DC mess is to establish a combination of a type of cash balance plan with a “market-return,”  so interest is credited based on real-market investment returns rather than high-quality bond yields. He calls this the MRCB. Here’s how it would work, according to him:

“The MRCB will provide much better cost control than a typical CB design — because account balances will tend to move in tandem with the plan’s assets, and regardless of changes in market interest rates. The employer can tune the degree of investment risk it is willing to share with employees by providing more downside protections, possibly in exchange for retaining a portion of the upside investment returns.

“By providing some of the employer benefits through an MRCB, the employer is accomplishing all of the goals that the government and some employers are trying to achieve by changing DC plans to be something they are not meant to be. Employer pay credits would automatically be provided to all participants — no dependency on employee contributions. There would be no diversion of the benefits during employment — no loans or withdrawals. Annuities would be provided directly by the plan — thus avoiding the extra cost of retail-insured annuities.

“Yes, that means the employer retaining some long-term longevity risk — but even that is controllable by how the factors are set and managed over time to convert accounts to annuities. The MRCB typically would allow employees to elect lump-sum distributions upon termination or retirement [equal to account balances, with spousal consent], although the ability to elect lump sums can be restricted by plan design to the extent the employer considers that to be desirable.”

And where would such an approach leave the 401(k)-DC plan? In Sher’s words:

“Just where it should be –as a short-term and supplemental long-term savings vehicle … “

not the only show in town.

Millennials Earn Less Than Boomers

As if young workers weren’t already  feeling  cursed on this Friday the 13th, here is more fodder for the Millennial Misery file (via the Associated Press and USA Today):

With a median household income of $40,581, millennials earn 20 percent less than boomers did at the same stage of life, despite being better educated, according to a new analysis of Federal Reserve data by the advocacy group Young Invincibles.

According to USA Today’s piece, the analysis of the Fed data shows the extent of the decline in outlook for millennials. It compared 25 to 34 year-olds in 2013, the most recent year available, to the same age group in 1989 after adjusting for inflation.

While education does help boost incomes, the median college-educated millennial with student debt is only earning slightly more than a baby boomer without a degree did in 1989.

The home ownership rate for this age group dipped to 43 percent from 46 percent in 1989, although the rate has improved for millennials with a college degree relative to boomers.

The median net worth of millennials is $10,090, 56 percent less than it was for boomers.

The analysis, the story notes, fits into a broader pattern of diminished opportunity.

Research last year by economists led by Stanford University’s Raj Chetty found that people born in 1950 had a 79 percent chance of making more money than their parents. That figure steadily slipped over the past several decades, such that those born in 1980 had just a 50 percent chance of out-earning their parents.

What’s even more troubling, though, is that the millennial malaise could be a portent of more economic worries:

The declining fortunes of millennials could impact boomers who are retired or on the cusp of retirement. Payroll taxes from millennials helps to finance the Social Security and Medicare benefits that many boomers receive — programs that Trump has said won’t be subject to spending cuts. And those same boomers will need younger generations to buy their homes and invest in the financial markets to protect their own savings.

“The challenges that young adults face today could forecast the challenges that we see down the road,” said Tom Allison, deputy policy and research director at Young Invincibles.

Job Candidates’ Strange Behavior

One job candidate told her interviewer that if he wanted to get to heaven, he’d hire her. Another asked where the nearest bar was located. Then there’s the candidate who  bragged about being in the local newspaper for allegedly stealing a treadmill from someone’s house. It’s that time of year again: CareerBuilder has released its annual list of the strangest interview mistakes hiring managers say they’ve witnessed while assessing job candidates, based on a survey conducted on its behalf late last year by Harris Poll among approximately 2,600 HR and hiring managers.

Some other examples of strange interview mistakes:

  • Candidate ate a pizza he brought with him (and didn’t offer to share).
  • The candidate asked to step away to call his wife to ask her if the starting salary was enough before he agreed to continue with the interview.
  • Candidate invited interviewer to dinner afterwards.
  • Candidate said her hair was perfect when asked why she should become part of the team.
  • Candidate ate crumbs off the table.
  • Candidate asked the interviewer why her “aura” didn’t like the candidate.

This year’s survey finds that half (51 percent) of employers say they know within the first five minutes of an interview whether a candidate is a good fit for an open position, virtually identical to the findings from last year’s survey (50 percent).

Of course, candidates are also scrutinizing their potential employers during the interview process, and some don’t like what they see. The Execu|Search Group’s 2017 Hiring Outlook, for example, finds that 34 percent of working professionals say their job interviewer could not convey the overall impact their role has on the company’s goals, and that 45 percent did not feel their interviewer made an effort to introduce them to the company culture.

And when it comes to strange experiences, think of the poor candidates who find themselves struggling to answer the bizarre “brainteaser” questions asked by some companies during job interviews, which was the subject of a  Glassdoor report last year. Among the more notable questions:

  • What would you do if you found a penguin in the freezer? (Trader Joes, position unspecified)
  • How would you sell hot cocoa in Florida? (J.W. Business Acquisitions, for a human resources recruiter position)
  • How many basketballs would fit in this room? (Delta Air Lines, for a revenue management co-op position), and:
  • Would you rather fight one horse-sized duck, or 100 duck-sized horses? (Whole Foods Market, for a meat cutter position)

 

An Extreme Twist on Team-Building

Tired of the same old activities designed to create a spirit of trust and teamwork among your employees? Survival Systems USA has an extreme experience to offer that could literally teach your workers how to sink or swim together.

The Groton, Conn.-based safety and survival education provider has taught underwater egress training and water survival techniques since 1999, delivering instruction to, among others, employees of the Sikorsky Aircraft Corp., the New York Police Department and the National Guard, as the New York Times recently reported.

In imparting survival skills to those who might have to use them on the job, “we’ve seen residual effects along the way: improved morale, self-esteem, capabilities people didn’t know they had,” Survival Systems USA President Maria C. Hanna told the Times. Until recently, she said, “we’ve never stopped long enough to say, ‘You know, this is something that can appeal to a market in a different way, using the tools from aviation to help people develop themselves.’ ”

The company has begun putting those tools to work in hopes of attracting corporate customers searching for drastically different team- and morale-building exercises.

In November, for example, Survival Systems conducted a one-day aquatic survival training program for a group of three university students, four personal trainers and the owner of a paving company, according to the Times.

These individuals—who ostensibly had no work-related reasons to undergo such training—spent the first part of the six-hour program jumping from a 14-foot platform into an indoor pool. With life vests inflated, they were then given a matter of minutes to find a way to stay warm while floating. Another task required those taking part to work together to board an inflated life raft under the direction of one member of the group.

Program participants spent the next part of their Saturday strapped into Survival Systems’ Modular Egress Training Simulator, which the Times describes as “a plastic and metal craft that can be arranged to resemble the cockpit of almost any helicopter or small plane on the market.” Meanwhile, other pieces of equipment duplicated the downwash from rescue helicopters and generated rain, darkness, smoke, fire and winds of up to 120 miles-per-hour.

Once inside the simulator, these brave souls were submerged and flipped into a pool as part of an exercise that includes three rounds. First, participants must reach for the simulator’s window frame, unfasten their seatbelts, pull themselves out and swim to the surface. The second round adds a degree of difficulty to the task, by closing the aforementioned window. In the third scenario, individuals must pretend their window is stuck and escape by holding onto the simulator’s seats and making their way to an adjacent, open window.

An instructor remains nearby at all times, “ready to whisk [participants] to the surface if anything goes wrong,” the Times points out, adding that “though no one has drowned during the training, the primordial fear remains.”

The same article notes that the curriculum for this program is still being fine-tuned, and this particular group was offered the training for free, in exchange for their feedback. The experience, however, will soon retail at roughly $950 per person; a price that Survival Systems says is in line with that of its other one-day programs.

Greg Drab, owner of Advantage Personal Training, has sent multiple employees—including the four trainers taking part in the November session—through the program at no cost, but sees the $950 as a bargain.

“You get to see how people handle stressful situations,” Drab told the Times. “This unifies the team.”

Death to the HR Business Partner?

Someone recently shared this post on LinkedIn by Tom Rommens, who describes himself as “Passionate about HR.” I guess passion, then, would explain his headline: Would Somebody Please Kill the HR Business Partner?

His point, which I thought interesting enough to share, is that calling the HR leader of an organization a “business partner” doesn’t support the notion that “HR has become or will have to become part of the business itself. So,” he writes,

“we will have to kill the HR business partner … as a concept; please don’t hurt the actual people.”

Rommens mentions Dave Ulrich, Rensis Likert Professor of Business at the University of Michigan and a partner at The RBL Group in Provo, Utah, a good bit, primarily because he coined the term HR Business Partner in his long-running argument that HR professionals enable the business strategy through human resources. As Rommens puts it,

“I know it’s all semantics, but words do have their influence. I think it’s not accurate to call them partners. A partner is somebody who has a — positive, even interwoven — relationship with someone else but stands next to that other. Nobody calls the CEO a business partner; we don’t even consider the top IT guy to be one. [So why HR?]”

I reached out to Susan R. Meisinger, former president and CEO of the Society for Human Resource Management, HR speaker and consultant, and HRE‘s HR Leadership columnist, for her take on this. Semantics, she says, is precisely what’s at issue. “Ah, another debate about semantics and HR,” she told me. She went on:

“It reminds me of the almost theological debate on whether the profession was ‘personnel’ or ‘human resources,’ followed by ‘people and/or ‘human capital.’ While I know that words can matter, I think sometimes there’s too much debate and focus on the words, rather than the concepts and information the words are trying to convey.

“In short, I don’t feel strongly about the debate — I do agree that the focus should be on HR’s role as an integral part of the business, without worrying about the label of ‘business partner.’ While [Ulrich] uses the term, he does it while describing a role that’s an integral part of the business. That’s where I’d rather see the focus.”

How strongly does Meisinger feel about the overuse of semantics arguments and buzz phrases in the HR profession? You be the judge. In her words:

“To the extent that it gives some HR professionals a greater sense of status — ‘I’m a partner in this endeavor, and my input/contribution is just as important’ — it might be helpful.

“But please, if they tell me they have to be a full ‘business partner’ to be sure they get ‘a seat at the table,’ I’ll go running and screaming into the night!”

The Tall Costs of Short Workdays

Fans of shorter workdays may not like the recent news out of Sweden regarding the country’s attempt to scale back the length of the workday there.

A two-year experiment cutting working hours while maintaining pay levels for nurses at an old-age home in the Swedish city of Gothenburg is now nearing the end, according to a recent Bloomberg report.

While the take away was largely positive, with nurses at the home feeling healthier, which reduced sick-leave, and patient care improving, Bloomberg reports the city “has no plans in making the measure permanent or broadening it to other facilities.”

To do that, Bloomberg reports, it would need much more money and even help from the national government. To cover the reduced hours for the 68 nurses at the home it had to hire 17 extra staff at a cost of about 12 million kronor ($1.3 million).

“It’s associated with higher costs, absolutely,” said Daniel Bernmar, a local left-wing politician responsible for running the municipality’s elderly care. “It’s far too expensive to carry out a general shortening of working hours within a reasonable time frame.”

The Gothenburg experiment has been closely watched globally, with labor activists touting progressive Sweden as a role model in shortening working hours.

For those of you wondering if such an innovative idea could take hold here in America, Bloomberg’s got your answer here.

Gartner to Acquire Major HR Firm

Stamford, Conn.-based IT consulting firm Gartner will acquire CEB, the research and advisory firm that has a large HR consulting practice, for approximately $2.6 billion in cash and stock along with assumption of $700 million in CEB net debt. The transaction was unanimously approved by both companies’ boards of directors.

The combined organization will employ more than 13,000 employees serving clients in more than 100 countries; Gartner and CEB had pro forma revenues of $3.3 billion over the last 12 months ending Sept. 30, the companies said. Gartner plans to expand CEB’s services into the mid-market segment and develop a suite of new syndicated research and advisory products based on CEB’s expertise in HR, along with sales, finance and legal. CEB — previously known as the Corporate Executive Board — has traditionally focused on serving large companies.

CEB’s research and experts have frequently been cited in HRE stories, including today’s news story by Carol Patton on using technology to improve performance-management reviews. It presented a general session on using big data to find talent at last year’s inaugural Talent Acquisition Technology Conference.

“We are excited about joining forces with CEB, a world-class company we have long admired,” said Gartner CEO Gene Hall in a statement.

Under the terms of the agreement, CEB shareholders will receive a combination of cash and Gartner stock for a total value of $77.25 per share, a premium of 25 percent compared to CEB’s closing stock price on Jan. 4, the last day prior to the announcement.

401(k) Creators Lament Creation

A most interesting regret highlighted in the Wall Street Journal on Monday! (Subscription required.) Seems the handful of champions of the 401(k) retirement-savings vehicle now see the errors of their ways. Or the vehicle’s ways, anyway.

None of those mentioned and quoted in the compelling piece foresaw that the 401(k) would essentially replace pensions. And they see this as quintessential to the demise of the overall retirement picture in this country, and employees’ inabilities to save what they need.

We’ve certainly written our fair share of stories raising major red flags about the state of retirement and workers’ diminishing abilities to retire at all — both here on this HRE Daily site and in our magazine and on its website, HREOnline.com. But this is the first time any of us have heard from the horses’ mouths — the authors and early promoters of the savings vehicle — that they had no intention to launch and herald it as the nation’s sole retirement receptacle, if you will.

Ted Benna, a benefits consultant with the Johnson Cos. and one of the first to propose the vehicle back in 1980 — ergo his nickname, the father of the 401(k) — puts it this way in the piece:

“I helped open the door for Wall Street to make even more money than they were already making. That is one thing I do regret.”

Herbert Whitehouse, a former human resource executive for Johnson & Johnson and one of the earliest proponents of the 401(k) for employees, tells the WSJ that he and others were hoping and assuming back in 1981 that the savings approach would be a kind of supplement to company pensions.

What he and his co-horts didn’t imagine, he says, is that the idea would actually replace pensions as employers looked to cut costs and survive during subsequent downturns. As he puts it in the story:

“We weren’t social visionaries.”

The story is also rife with recommendations from today’s experts on how best to fix the problem and help employees save for retirement according to what they will actually need.

But as Benna tells WSJ,  he doubts “any system currently in existence” will be effectual for the majority of Americans.

A sad treatise, and no sadder than for those millions of Americans still in the workforce who can’t retire.

NY Removes Barrier to Hiring Ex-Cons

Insurance companies in New York State will soon be barred from denying full coverage for crime-related losses to companies that hire ex-convicts — even if the crimes in question were committed by employees with criminal histories — thanks to a new rule signed by Gov. Mario Cuomo during the last week of December.

The new regulation — the first of its kind in the nation, reports Reuters — is designed to make it easier for companies to hire ex-convicts. Approximately 2.3 million New Yorkers have criminal records, according to the state.

Many insurance companies regard ex-cons as high risk and will deny or limit coverage to companies for sustained losses related to loss or theft committed by an employee with a criminal record, under the assumption that the employer should have known it was taking a risk by hiring the person. This discourages companies from hiring ex-cons, the governor said.

“This first-in-the-nation action will further break down artificial barriers that prevent previously incarcerated New Yorkers from obtaining work and turning their lives around,” Cuomo said in a statement.

The new regulation, which takes effect on July 1 2017, lets businesses obtain the coverage so long as they adhere to a state law that applies to hiring people who have criminal convictions — including considering whether a prior criminal offense is related to the duties an employee will perform, reports Reuters.

“So long as every business owner follows the letter of the law, we should encourage more companies to hire prospective employees rather than punish someone for a mistake in the past,” said Maria Vullo, superintendent of the state’s Dept. of Financial Services, in a statement.

 

On Social Media and Return to Work

Employers are understandably worried when workers use third-party social media sites such as Facebook to communicate with each other about work matters.

A recent personal experience has given me a different perspective. In some cases, I believe, these social platforms can provide benefits for both employers and workers.

I was diagnosed with a brain tumor late in November and had surgery on Dec. 2, followed by intensive physical rehabilitation to restore nerve-muscle connections on my left side.

I immediately used Facebook and LinkedIn to update my professional contacts. And I have reaped big benefits from support offered by colleagues at HRE and from former co-workers at other publications around the nation.

That support helps me tap into the power of my network for encouragement and will speed my return to productivity. That suggests to me that these social-media tools may have real value to employers who want to support sick and injured workers and help them quickly get back in the saddle.