Category Archives: benefits

So How Are the Financial Experts Doing?

When it comes to 401(k) performance, you’d think employees might do better with the help of the so-called experts, right? Well, maybe not.

Here’s a disturbing study I ran across today coming from researchers at Michigan State University and the University of Notre Dame: Financial experts do not make higher returns on their own investments than untrained investors.

153430966There’ve been more than a few surveys in recent years that suggest employees would like more help in managing their 401(k)s and preparing for retirement. So you’d think putting their nest eggs in the hands of “the experts”—or at least people they think are more expert than themselves—would give them some level of comfort.  But if there’s any truth to the new study mentioned above, which looks at the private portfolios of mutual-fund managers, they’d be mistaken. Among other things, the study—titled “Do Financial Experts Make Better Financial Decisions”—found the experts were “surprisingly unsuccessful” at outperforming nonprofessional investors. (The study is slated to be published in an upcoming edition of the Journal of Financial Intermediation.)

To reach their conclusion, the researchers—Andrei Simonov, associate professor of finance at Michigan State University, and Andriy Bodnaruk, assistant professor of finance at the University of Notre Dame—compared the portfolios of 84 mutual-fund managers in Sweden against the portfolios of untrained investors and found “no evidence that financial experts make better investment decisions than peers.”

Simonov says he’s not denying there aren’t talented fund managers out there, but does suggest that there are “very, very few of these superstars, and the average investor probably can’t afford to invest with them anyway.”

(Though the study took place in Sweden, Simonov and Bodnaruk believe the findings are just as applicable to the United States and other countries.)

Whether you’re an investor or a fiduciary, the notion that these experts aren’t performing any better than the average nonprofessional investor probably isn’t going to help you sleep any better at night. Most of us would like to think the opposite was the case, especially in an environment in which employees seem to be more stressed than ever about their financial well-being.

Employees certainly don’t need yet another thing to be frightened by. Oh BTW, Happy Halloween!

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EEOC’s Honeywell Suit Draws Protest

124666886 -- wellness biometricsThe National Business Group on Health says the Equal Employment Opportunity Commission’s recent lawsuit against Honeywell International over that company’s use of biometric screening in its wellness program “will have profound implications for any employer that offers employees wellness programs with incentives for biometric screenings.”

Employees at Honeywell could face as much $4,000 in lost incentives and surcharges in 2015 should they decline to participate in voluntary screenings of their cholesterol levels, body mass index and other measures, the Wall Street Journal reports. Other companies have similar programs in place; at Honeywell, it’s the potential size of the penalties that caught the EEOC’s attention, says the WSJ.

However, the EEOC is at least partly to blame for failing to provide the business community with clear guidelines regarding how to ensure their wellness programs comply with laws such as the Genetic Information Nondiscrimination Act and the Americans with Disabilities Act, said NBGH President Brian Marcotte.

In a statement, Marcotte said employers have been “seeking guidance from the EEOC for years” regarding this issue, yet the EEOC has failed to provide it. “Their lack of clear guidance, plus the recent legal action, conflicts with the message of HIPAA and the Affordable Care Act, which encourages the adoption and expansion of programs that benefit the health of employees and their families,” he said.

Honeywell’s troubles are just the latest example in what appears to be an ongoing battle between employers and the EEOC over what companies can and can’t do with regard to wellness programs. Last month we reported on the agency’s lawsuit against Orion Energy Systems — the EEOC contends the company’s policy of requiring medical exams and screenings violates the ADA.

What should HR leaders do? Well, in addition to working closely with legal counsel when designing and implementing wellness programs, they need to ensure they’re being applied uniformly, regardless of age, race or disability, attorney Anna Maria Tejada of Kaufman Dolowich & Voluck told reporter Kecia Bal.

“You can’t just say everyone can do it and then require a health screening or blood test. Then you exclude certain people. You can’t, in my view, make the wellness program a requirement that will affect the terms and conditions of a person’s employment. And, if someone refuses to do it, you can’t fire them.”

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Egg Freezing: Unique Benefit or Bad Idea?

pregnant womanThe Apples and Facebooks of the world are known for their original and generous employee perks and benefits. But these companies find themselves in the news this week for offering a new benefit that goes well beyond the usual on-site dry cleaning services and free haircuts.

Earlier this year, Facebook began covering up to $20,000 for female employees to freeze and store their reproductive eggs, so they can put off pregnancy as they establish themselves during their prime career-building years. Apple has announced it will start doing the same in January 2015.

Cryopreservation and egg storage could be seen as the latest advance from the tech firms that continue to blaze the trail for employee benefits that help attract and retain the best and brightest.

“Egg freezing is one in a long line of innovative HR practices intended to be attractive to educated people with many employment options, seeking a focus on flexibility in the difficult balance between work and life,” according to James Hayton, professor of human resource management at the Warwick Business School in Coventry, England.

“The cost appears to be moderate, although not trivial, at about 20 percent of average salary at these firms,” says Hayton. “The benefits, in terms of attracting and retaining employees, can be expected to significantly outweigh the costs. The positive PR will pay for itself by signaling these employers’ values with respect to women’s control over this important life choice to prospective female employees.”

All that said, the practice isn’t without its detractors.

Healthcare law and bioethics expert Seema Mohapatra, for example, wrote in August that egg freezing “seems to put a Band-Aid on the problem of how difficult it is for women to have a career and raise a family concurrently.”

This week, one woman, speaking on the condition of anonymity, told the New York Times that delaying fertility for female employees is “certainly in the employer’s interest … from a business perspective. But in my experience, it’s more personal: Are you married or not married, and if you’re not and you’re over 35, it’s a health thing.”

In the same Times article, Mohapatra expressed concern that women who “do not fit that profile” could feel pressure to use the benefit.

“What I worry about is it’s not going to be just used by that population, but [it’s] going to be used by the population in their 20s and early 30s saying, ‘If I want to be seen as a serious employee and make it to vice president, I can’t take maternity leave,’” said Mohapatra, a law professor at the Barry University School of Law in Orlando, Fla.

Critics may also note that, “while perks such as these are very impressive and innovative, broader pay equity might be an even stronger signal of the importance of women in the workplace,” says Hayton.

Additionally, companies offering this benefit could draw the ire of religious groups with serious reservations over “the tricky domain of bioethics and reproductive choices,” he continues, adding that other observers may be “squeamish about the degree of paternalism when employers show concern for their employees’ reproductive choices.”

While we’re certain to see these and other strong reactions in the days to come, Hayton, for one, is confident that employers providing egg freezing options for female employees will prove to be a good thing.

“Ultimately … these policies are innovative and forward-thinking, and likely to benefit the employers [that are] creative enough, and bold enough, to offer them.”

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Adapting to the Affordable Care Act

ACAHow are we going to respond to the Affordable Care Act?

That’s the question CHROs have been asking themselves since President Obama signed the ACA into law in March 2010.

The University of South Carolina Darla Moore School of Business recently asked that question of CHROs, in its annual HR@Moore Survey of Chief HR Officers.

Distributed to more than 560 chief HR officers at Fortune 500 firms as well as members of the HR Policy Association, this year’s poll asked these HR leaders to specify the actions they’ve already taken, or plan to take over the next 12 months, as a direct response to the Affordable Care Act.

The answers of the 200-plus respondents indicate that most companies are responding by pushing costs and responsibility on to employees. For example:

  • 73 percent of respondents said they have moved or will move employees to consumer-directed health plans.
  • 71 percent said they have raised or will raise employee contributions toward health insurance.
  • 30 percent of organizations have moved or will move their pre-65 retirees to ACA exchanges.
  • 27 percent have either cut back the coverage eligibility of employees’ spouses and dependents or plan to do so.
  • 23 percent have or will more rigorously ensure that part-time employees work fewer than 30 hours per week.

The study, which the University described as a “definitive look at how medium- and large-sized firms have been affected by the changes to the health insurance and healthcare system,” could serve as a “valuable benchmarking tool” for CHROs weighing their organizations’ options in terms of mitigating ACA-related costs, says Patrick Wright, a professor of strategic human resource management at the Darla Moore School of Business, and director of the school’s annual CHRO survey.

“Up to now there has been only speculation as to [the Affordable Care Act’s] impact on business and workers,” says Wright, in a statement. “This survey provides the facts about that impact and specifics on changes to employment practices as a result.”

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Survey Finds Skepticism on Private Exchanges

skepticsimThe National Business Group on Health’s latest health-benefits survey finds that large employers anticipate holding their healthcare benefit costs to about 5 percent next year, in part by continuing to shift more of the cost burden to employees, broadening their use of wellness programs and making high-deductible consumer-directed health plans their only benefit option (the number of employers that plan to do this for next year jumped by 50 percent).

Another option that’s attracting interest from large employers is private exchanges. Just 3 percent of large employers will offer their active employees health coverage through a private exchange next year, the survey finds; however, 35 percent said they’re considering doing so for 2016 or beyond. But employers are skeptical about the ability of these exchanges in two key areas: Only 17 percent said they’re confident that exchanges will do a better job of engaging employees to make better healthcare decisions and just 10 percent believe they’ll control costs better than their own plans.

Another report, this one from Accenture, finds that private exchanges are experiencing “hyper-growth” and that enrollment could exceed that of the public health exchanges (which have enrolled about 8 million Americans so far) by 2017. Approximately 3 million individuals could enroll in health plans via private exchanges this year alone, according to Accenture.

Whether or not these exchanges will be successful in engaging employees and lowering or stabilizing healthcare costs may depend on the features they offer: According to an Accenture survey of 2,000 U.S. consumers, 87 percent identified “tools to help project my expenses and select coverage levels” as an important feature, and 58 percent identified this as a “very important” or “critical” feature.

For readers wanting a bit more information on private exchanges, check out this comprehensive checklist by HREOnline’s benefits columnist, Carol Harnett.

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Adding to ACA Uncertainty

ACAA pair of appeals court rulings made just hours apart yesterday seem to have compounded employers’ confusion surrounding the Affordable Care Act.

First, the 4th Circuit U.S. Court of Appeals in Washington ruled in the case of Halbig v. Burwell that the ACA does not permit the Internal Revenue Service to distribute premium subsidies in the 36 states where exchanges are run by the federal government.

Later in the day, a federal appeals court panel 100 or so miles down the road in Richmond, Va., took the opposite view, determining the ACA’s “ambiguity” affords the IRS the authority to issue the subsidies.

Reaction to the contradictory rulings—which seem to pave the way for a likely Supreme Court case—was swift, strong and, politically speaking, true to party lines.

Noting his dissent in the later ruling, D.C. Circuit Judge Harry T. Edwards described the decision as a “not-so-veiled attempt to gut the Patient Protection and Affordable Care Act.”

Meanwhile, the conservative side of the aisle commended the Richmond panel’s decision.

Speaker John Boehner, for example, described the ruling as “further proof that President Obama’s healthcare law is completely unworkable,” saying in a statement that the Affordable Care Act “cannot be fixed.”

For employers in the majority of the U.S., what happened yesterday just seems to further cloud an already uncertain future with regard to the ACA.

“The D.C. Circuit’s decision is significant in that it calls into question whether employers [in the affected states] could be subject to a penalty under the ACA’s ‘pay or play’ penalty scheme,” according to Peter Marathas, a Boston-based partner in Proskauer’s employee benefits, executive compensation and ERISA litigation practice center.

Yesterday’s decisions are “not the final say on this issue,” he says, “but [they] certainly underscore the thin thread much of the employer penalty hangs on, particularly if other courts agree with this decision.”

The matter “seems destined for the U.S. Supreme Court,” said American Benefits Council President James A. Klein, in a statement.

Klein also offered his take on how things may ultimately shake out.

“Since the employer mandate penalty is triggered when employees receive a subsidy, some employers may be relieved of penalties, or may have different levels of penalties, depending on which states their workers reside.”

In addition, some companies have weighed whether employees may be better served through steady coverage in exchanges, especially those who frequently change jobs, said Klein.

“The lack of subsidies for workers in some states certainly would change the dynamics in that decision making,” he noted, adding that further uncertainty over the implementation of the healthcare law “chills” the decision-making process for employers.

“The courts need to quickly resolve this critical issue,” he said, “one way or the other.”

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Promising News for Gen Yers

Millennials are apparently in a lot better shape when it comes to tucking money away for retirement than many of us might have thought. In fact, if we’re to believe the latest data from the Transamerica Center for Retirement Studies, a strong case could be made that this workforce demographic definitely has its act together.

475319371(1)According to TCRS’ 15th Annual Transamerica Retirement Survey, 70 percent of millennials are already saving for retirement either through employer-sponsored plans, such as 401(k)s, or through plans outside the workplace. What’s more, the median age at which these workers begin to save for retirement is 22. Pretty impressive, no?

The study also revealed that millennials who are participating in employer-sponsored 401(k)s and the like are contributing a median of 8 percent of their annual salary into those plans. (At companies offering a match, the salary deferral rate hits 10 percent!)

In actual dollars, the annual retirement savings for millennial households jumped from $9,000 in 2007 to $32,000 in 2014, an increase that obviously is connected to the timing of their entry into the workforce (many on the heels of the Great Recession).

Others have studied this issue before, but I don’t recall seeing anything nearly as upbeat as these TCRS figures. In June, Wells Fargo released the results of its 2014 Wells Fargo Millennials Study. That survey found 55 percent of millennials reporting they were saving for retirement, compared to 45 percent who were not. (Unlike the TCRS study, that study included those currently not in the workforce, perhaps explaining the discrepancy.)

No doubt, more than a few factors are behind TCRS’ extremely encouraging numbers, including the fact that many millennials are fully aware Social Security won’t be there for them (at least in a meaningful way) when they retire. (Indeed, more than eight in 10 respondents said they believe that will be the case). But I have to imagine at the top of the list of the various drivers here is the widespread adoption of automatic enrollment, a relatively newer development.

I spoke to TCRS President Catherine Collinson the other day to get her take on the findings. As you might imagine, she said she was “enormously pleased” with the high savings rate among millennials. “It’s encouraging to see they’re getting such a head start, compared to older generations,” she pointed out.

Looking at the results, Collinson said, there’s little question millennials take retirement benefits very seriously and consider these offerings much more than just a nice-to-have. Indeed, one statistic in TCRS’ study found that three out of four millennials said they consider it a major reason for accepting a job offer. So if employers don’t have competitive offerings today, they would be well served to close that gap soon.

The other thing in the report worth noting is the importance these workers place on information and advice, an area that continues to be something of a weak spot for many organizations. Nearly three-quarters (73 percent) of the respondents in the TCRS study said they would like to receive more education and advice on how to achieve their retirement goals, compared to 65 percent for Gen X workers and 57 percent for baby boomers.

On this front, Collinson pointed out, employers need to take greater advantage of the innovations that are out there in the provider community. “Providers are always innovating,” she said, “but there appears to be a disconnect between those innovations and what plan sponsors are actually doing.”

Certainly, that’s a point plan sponsors might want to consider as they formulate their strategies for 2015.

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A Few Surprises in Study on Hourly Workers

490136049 -- gavel and clockI met with some folks from St. Louis-based Equifax Workforce Solutions during the Society for Human Resource Management’s conference in Orlando (June 22 through 25) and they shared with me some stats they compiled recently reflecting the potential impact of the Affordable Care Act that even they admitted had some surprises in them.

Working toward Jan. 1, 2015, when the majority of the ACA’s employer mandate takes effect, the company had just released its Equifax Workforce Solutions June 2014 report, highlighting “key indicators of how the ACA will affect business[es] and what they can do to ensure compliance [thereby avoiding penalties] as the regulations continue to go into effect,” as Mike Psenka, senior vice president of Workforce Analytics for Equifax Workforce Solutions (formerly TALX), put it.

For the record, and some important reading, here is the press release and here is the infographic, based on Equifax data culled from 500 million consumers and 81 million businesses worldwide.

Surprisingly — and in keeping with employers making employee-schedule-and-status adjustments to prepare for the ACA’s mandate that all employees working an average of 30 hours or more per week be offered healthcare coverage — 66 percent of the current U.S. workforce is now hourly, accounting for more than 73.6 million active employees, and 59 percent of them are working more than 30 hours per week, according to the study. (Those numbers were higher than anticipated, the folks from Equifax told me.)

Remember, for these workers, employers must track hours for each employee over a 3-to-12-month measurement period to determine healthcare-coverage eligibility. The study found average workloads vary greatly by industry and can be a key indicator of workforce eligibility. “For example,” the report states, “hourly employees in the finance industry work an average of 37 hours per week while those in the restaurant industry work an average of 23 hours per week.”

Also somewhat surprising — to me as well — was the fact that 71 percent of hourly employees have been at their jobs longer than 12 months, which represents “a significant number of workers who may become eligible for coverage after their employer’s first measurement period,” the report says.

And don’t forget employers must also offer affordable coverage to all eligible employees, meaning the monthly premium cannot exceed 9.5 percent of the employee’s income. Based on the average hourly pay rate by industry, as computed by Equifax, estimated maximum premiums can range from $108.80 per month (in the restaurant industry) to $251.20 per month (in the healthcare industry).

The goal here in releasing these stats, Psenka said, is not only to offer employers a few more tools for protection from potential penalties, “but also [to] ensure their valued employees receive appropriate — and affordable — coverage.”

Just bear in mind, as was underscored in an otherwise enjoyable, stress-free SHRM meeting, the clock is ticking and time to get this whole hourly, ACA-eligibility thing right is running out.

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Preventing 401(k) “Leakage”

leakWhen employees change jobs, their retirement funds tend to spring a leak. New analysis from the Employee Benefit Research Institute reveals that of the three primary types of “leakages” that occur with 401(k) accumulations among workers age 65 and younger (loans, hardship withdrawals and cash-outs when changing jobs), cash-outs when changing jobs represents two-thirds of this leakage.

EBRI found (using its proprietary Retirement Income Projection Security Model) that the combined impact of these three types of leakages on 401(k) accumulations at age 65 of younger workers with at least 30 years of 401(k) eligibility reduced the likelihood that these workers would be able to achieve an 80-percent income replacement rate at retirement by 8.8 percentage points for those in the lowest-income quartile and by 7 percentage points for those in the highest-income quartile.

Leakage has been a real problem among 401(k) participants: A study released last year by online financial firm HelloWallet found that penalized 401(k) withdrawals increased from $36 billion in 2004 to almost $60 billion in 2010, and that one in four Americans planned to tap their retirement accounts to meet current expenses. We’ve written about the potential risks of hardship withdrawals from 401(k) accounts and what some companies are doing to try and discourage employees from doing this.

Is restricting or eliminating the ability of employees to withdraw money from their retirement accounts the answer? Jack VanDerhei, EBRI’s research director, says doing this could have consequences that end up doing more harm than good. Here’s what he had to say during recent testimony before the ERISA Advisory Council:

This analysis needs to be accompanied by a very strong caveat that there are clear data gaps that will need to be filled,” said EBRI Research Director Jack VanDerhei. “For example, we have found in previous research that participants in plans with a loan option have higher contribution rates than those without such access, and a similar relationship may exist with respect to the availability of hardship withdrawals. Removing or restricting these plan options would likely reduce levels of 401(k) participation or access, and that could result in a significant drop in retirement savings for some employees eligible for participation in a 401(k) plan.”

 

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Now Serving: Free College Degrees

150px-Starbucks_Corporation_Logo_2011_svgIf you happen to notice your local Starbucks barista acting even more upbeat and happy than normal, it may not caffeine-related.

Starbucks employees nationwide will be eligible for a free college education through Arizona State University’s online program beginning this fall, according to AZCentral.com:

The new initiative, touted as the first of its kind, will allow many of Starbucks’ 135,000 workers to graduate debt free from ASU with no requirement to repay or stay on with the company. The funding will come from a partnership between ASU and Starbucks.

ASU President Michael Crow is scheduled to appear in New York on Monday with Starbucks CEO Howard Schultz and U.S. Secretary of Education Arne Duncan to launch the Starbucks College Achievement Plan, as it is called.

“Starbucks decided human capital is one of the most important things they can invest in,” Crow said. “Everybody is concerned about what are the ways to get through college.”

In a news release, Schultz talked about “the fracturing of the American Dream.” He said: “There’s no doubt, the inequality within the country has created a situation where many Americans are being left behind. The question for all of us is, should we accept that, or should we try and do something about it.”

Kudos to Starbucks for this initiative, and here’s hoping many other organizations follow suit in an effort to increase the country’s knowledge base.

h/t to USA Today

 

 

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