A lot of people are betting on a future without employer-sponsored health insurance. Entrepreneurs are creating businesses based on this model. Health insurance brokers are courting individuals and enjoying record-breaking business growth. And politicians from all parties are proposing limits to the favorable tax treatment of workplace health insurance. Meanwhile, employers are acting like business as usual in administering their health insurance plans.
They continue to rely on lame tactics like wellness programs and private exchanges to control health insurance costs. When just a few years ago employers were mocking the return on investment (ROI) claims of workplace wellness programs. Today they vainly commit to these programs despite all the evidence their initial skepticism was right. They embrace the private exchanges created by big insurers and big consulting firms. The same groups they’ve been partnering with for decades and whose only talent is to create more ways to shift costs to employees. So in a sense it really is business as usual for employment based health insurance. Without optimism or enthusiasm employers continue to employ the same follow-the-leader strategies they’ve been using since, well, forever.
Regulation and Revolution Continue Reading...
There are many things that distinguish a defined benefit pension plan from a defined contribution savings plan. The differences were there from the start. Basically, defined benefit pension plans were designed to provide regular cash payments at retirement. Defined contribution plans are investment-based savings plan with no guarantee of lifetime income or any income at all. But despite the very different original intentions of these plans (retirement income versus investment savings), today they largely serve the same purpose. They are the two most commonly provided workplace retirement plans.
Total assets in defined contribution savings plans like the 401(k) plan haven’t yet overtaken those in defined benefit plans. However, defined contribution plans are the most prevalent workplace retirement plan in the private sector. And as the popularity of the 401(k) plan increases, so does its basic structure. For several years now these plans have adopted some of the same mechanisms as defined benefit pension plan. These mechanisms include automatically enrolling participants in the plan and choosing their investment funds. A quick look at today’s large company 401(k) plans (companies most likely to offer them), and automatic features abound. The average large employer 401(k) plan today has automatic enrollment, automatic escalation, and target date funds.
These automated features allow employers to choose when an employee enrolls and the amount of money he or she puts in the plan (automatic enrollment), as well as the fund(s) in which to place their money (default investment, increasingly a target date fund). It also allows the employer to increase the amount of money the employee puts in over time (automatic escalation).
What’s Up With That?
Could it be that employers and their hired retirement plan administrators are conceding that 401(k) plans are too complicated for workers to manage on their own? Continue Reading...
It is difficult to know how American business owners really feel about the Affordable Care Act (aka Obamacare). It’s difficult because most of what you hear on the issue comes from politicians, public policy researchers, academics and professional associations. They all have opinions and predictions about what Obamacare means for businesses.
For some, Obamacare is viewed favorably because it gives businesses health insurance options that never existed before. Small businesses especially know how complicated and expensive individual and group health insurance was to obtain pre-Obamacare. But for others, Obamacare is viewed as a huge regulatory burden. Somehow worse than the before model… Meanwhile nearly all of these proponents and opponents neglect to discuss probably the biggest challenge businesses face because of Obamacare. That challenge is how to maintain traditional compensation structures that favor businesses.
Employee Benefits As A Form Of Compensation
For more than half a century employers were able to include “benefits” as a form of compensation they provided to workers. And as employer-provided health insurance became increasingly expensive, employers started to share just how much they were paying for these benefits with workers. They wanted to make sure that workers understood that compensation didn’t just come in the form of a paycheck. So, large employers in particular started distributing annual total compensation statements.
These total compensation statements include pie charts dividing up all of the compensation employees receive. And while cash compensation remains the biggest chunk of the compensation pie, the health insurance, and to a lesser extent, retirement plan funding slices are significant. But Obamacare has the potential to change how employees view their total compensation and how they want to carve it up. Continue Reading...
Almost all the articles lamenting the sad state of retirement savings in America focus on the averages. The average annual income of savers… The average retirement account balance… The average retirement account balance by gender, age, income level... Not surprisingly, the solutions they propose to solve the “retirement savings crisis” are for the average person.
The advice typically goes something like this:
- Create a budget or savings plan
- Save more, spend less
- Participate in your workplace retirement plan
- Contribute enough to get the full employer match
- Increase your savings overtime
- Saving all or part of their tax refund or annual bonus
- Claim tax breaks when they do save for retirement (e.g., SAVER’s tax credit)
- Delay retirement
- Delay claiming Social Security benefits
- Pay attention to plan fees
More Money And A Better Retirement Plan Continue Reading...