Tag Archives: 401k

Benefits That Employees Value More than Pay Increases

31 Thursday Dec 2015

Posted by in Benefits, Compensation, HR Strategy

≈ 3 Comments

Tags

, ,

Employee benefits definition highlighted in green

Thanks to HLBR for sharing this Glassdoor survey highlighting the perks that employees most value. The benefits valued more than pay raises, in order are:

•Healthcare insurance (e.g., medical, dental): 40%
•Vacation/Paid time off: 37%
•Performance bonus: 35%
•Paid sick days: 32%
•401(k) plan, retirement plan and/or pension: 31%
•Flexible schedule (e.g., work from home): 30%
•Office perks (e.g., free lunch, casual dress): 19%
•Employee development programs (e.g., on-the-job training, professional development): 19%
•Tuition reimbursement: 18%
•Employee discounts: 17%
•Gym membership or wellness programs: 16%
•Stock, stock options and/or equity: 16%
•Paid parental leave (e.g., maternity leave, adoption assistance): 13%
•Childcare assistance (e.g., on-site childcare, financial assistance): 13%
•Commuter assistance (e.g., company shuttle, commuter checks): 9%
•Diversity program: 3%

^Of note 401K/Pension is 5th on the list at 31%, meaning that just under a third of employees value retirement benefits from employers more than increased salary. That isn’t 50%, but it shows that this is an issue that is top of mine for a lot of employees. Also ranking highly are PTO and sick leave, which are fast becoming government requirements and may become less of a potential differentiator for employers over time. Health insurance and performance bonuses also top the list, the latter of which employers may want to consider as performance bonuses are only prevalent in most industries at the management ranks.

…Just some interesting data I wanted to share.

Happy New Year HR Pros.

Best,

Rory

A Few Thoughts on Nonqualified Deferred Compensation Plans

01 Tuesday Sep 2015

Posted by in Benefits

≈ 1 Comment

Tags

, , , ,

<www.financialsamurai.com

<www.financialsamurai.com>

…So in my (seemingly never-ending) quest to learn everything I can about employer sponsored non-annuity based savings vehicles, I have spent a lot of time reading about nonqualified deferred compensation plans.

To be sure, there are a ton of great articles out there that do a much better job of explaining the concept than I could in this space (you can start here, here, here, and here), but in short:

  1. Nonqualified Deferred Compensation Plans (NQDCPs) are offered by many employers to help highly compensated/executive employees save earnings for retirement over and beyond what is allowed through qualified plans (such as 401ks). This is important because qualified plans don’t allow high earners to put away a large enough percentage of their income to prepare for retirement.
  2. Because NQDCPs haven’t passed the tests required by the internal revenue code (e.g. non-discrimination testing), employers sponsoring such plans are subject to taxation even though they incur expenses to administer them.
  3. NQDCPs are generally risky for employees partaking in them – essentially taking the form of IOUs from the employer to the employee. As such, in most cases if the employer sponsoring the DCP becomes insolvent, those with money in the plan must stand in line like any other creditor to re-coup investments in it.
  4. The plans are generally restricted to a small number of employees (exceptionally high earners).
  5. You can’t take out loans on NQDCPs, and you can’t roll them over into IRAs when they are dispersed.

^That said, all things considered NQDCPs are a pretty sweet perk for the employees with access to them – particularly if the investment options are robust and said employees work for a financially secure, well established employer where the possibility of losing one’s savings in the event of the firm’s bankruptcy is low. This is because tax deferring a large percentage of one’s earnings and allowing them to compound over time generally yields returns that far outstrip what a return would be if those earnings were instead put after tax earnings in a conventional brokerage account, with only possibly IRAs (contribution limit of $5.5k with a phase out above $116k) representing better returns over time.

Unfortunately, the tax treatment of the plans makes opening them up to the widest possible subset of a workforce that could make use of them (after maxing 401k and Roth elections) non-viable for most large employers. Ergo, for most employees (that don’t have access to an employer sponsored NQDCP), employee 401(k) elections + non-annuity based pension plans + IRA + social security earnings + personal savings is still unlikely to create a big enough nest egg for retirement… or at least not the retired at 62-65 with replacement income that previous generations vested in annuity pension plans enjoyed.

…I still think that bigger employer matches + training employees on financial literacy is the answer to helping workforces of the future retire with dignity… but maybe I’m wrong?

If you’re in HR or consulting, what are you seeing in the market? Is there a trend amongst employers towards larger matches on employee elective contributions? Are greater investments being made in educating employees on what they need to put away?

As always, please share your thoughts in the comments section below.

Best,

Rory

A Few Thoughts on 401(k) Employer Matches

24 Monday Aug 2015

Posted by in Benefits, HR Strategy

≈ 1 Comment

Tags

, , , , ,

<http://lifehacker.com

<lifehacker.com>

…Okay, so you may recall that last week I wrote a post about how employers could give employees a huge leg up on retirement savings by tweaking their plan rules to allow them to put after-tax monies into their 401(k). The utility of making this plan change would be that said employees could then (either at retirement, discharge, or via in-service distributions if allowed) roll these funds into a Roth-IRA and protect a huge chunk of their earnings from taxation at retirement. That said, the problem with leveraging this strategy is two-fold:

  1. Only HCEs are generally going to be able to take advantage of this
  2. The number of companies that can even leverage this option is low, because even employers with safe-harbor 401(k) plans are subject to ACP discrimination testing under 1.401(m)-3(j)(6) on after-tax contributions. So adding an after-tax option and passing the ACP testing is just not going to be possible for many (most?) employers

^In summary, the after-tax 401(k) isn’t really a viable tool for most companies to help their employees get more money into their 401(k). Because while 401(k) savings continue to climb, most employees aren’t currently even maxing their individual contributions.

…And yet with annuity-based pension plans going the way of the dinosaur, the 401(k) needs to take up a much larger portion of the retirement pie for workers in the U.S. than it currently does. This is because personal savings rates beyond 401(k) are very low for most U.S. workers, and social security is only funded through 2034  – with most Gen-Xers and Millennials expecting to never see any of the benefit at all.

^To be sure, despite perceptions to the contrary social security is likely to remain a bedrock of employee’s retirement income well beyond 2034, and growing life expectancies also make working into one’s late 60s and even 70s a viable way to put more money away for retirement. But following the 4% rule, the 12% of income that savers are on average socking away will be nowhere near enough to sustain them in retirement when coupled with social security benefits and (on average) relatively paltry personal savings.

…All of this points to a reality that (I think) employers are going to need to start becoming more aggressive with the matches they provide to employees. Currently the average is around 3% match, and even the top 15% of plans are only offering 6% or so. I think a more aggressive 401(k) match is probably needed here to position workers for a retirement as comfortable of that of their parents, yes? People just aren’t putting away enough money today…

That said, what 401(k) strategies are you seeing out internally or out in the broader marketplace? Obviously on the employee side automatic enrollment is a great way to get employees to sock more away (and at this point I think table-stakes if you really want to encourage employees to take advantage of the employer match), but on the employer side I am sure there must also be some companies doing innovative things to get more money into the pot at a cost they can live with. If you’re seeing or doing something special here, I’d love to hear from you in the comments section below!

Best,

Rory

The After-Tax 401(k) – A Super Saver’s Dream?

18 Tuesday Aug 2015

Posted by in Benefits

≈ 1 Comment

Tags

, , , ,

<http://www.moneycrashers.com

<www.moneycrashers.com>

…So a few days ago I came across a Forbes article detailing a fascinating new after-tax 401(k) rollover rule. You can read the Forbes article (by Ashlea Ebeling) here, and also IRS guidance on the new rule here… but in summary the new rule allows high-earning super savers to potentially contribute up to $53,000 per year in earnings to a Roth-IRA account by taking advantage of employer 401(k) plans that allow for employee after-tax 401(k) contributions (beyond the $18,000 pre-tax 401/roth 401k limit) and allow in-service distributions.

^The overwhelming majority of employer plans do not allow after-tax 401(k) contributions – as far as I can tell this is because allowing such contributions would make it harder for an employer to pass its non-discrimination test, which states that the average contributions of highly compensated employees – defined as those earning more than $120k in 2015 – cannot exceed the average contributions of employees making less than this amount by greater than 2%. Some employers have workforce demographics that make this less of a potential issue than others, however (such as those made up of only HCEs or that have safe harbor plans), making such a plan option viable.

…Ultimately, even a high earner that had access to such a plan option would be well served to max out their $18,000 pre-tax 401/Roth(k) contributions and $5,500 traditional/Roth IRA contributions before taking advantage of the new IRS rule; this is because the former options all enjoy intrinsic tax relief, while after-tax 401(k) contributions need to be rolled over into an IRA via an in-service distribution (or at retirement) before a contributor can enjoy the same benefits. With that said, I think this is a really cool perk that a Company with the right workforce makeup could make available to attract top talent since it protects earnings from the capital gains taxes they would be subject to if invested in a non-IRA account.

Thoughts? As always, please share in the comments section below.

Best,

Rory

P.S. Someone just told me that this is also known as a Mega Backdoor Roth IRA, and another great blog post on it can be found here.

Sunday Reading: Why We Work, Retention, and Defining the Value of HR

08 Sunday Sep 2013

Posted by in Compensation, General HR, Sunday Reading, Talent Management

≈ Leave a comment

Tags

, , , , , , , ,

Newspaper Stack HR

How time flies! It’s Sunday again already. Here are 4 rock solid articles / posts for your reading pleasure:

1. This Harvard Business Review article on managing millionaires is over a decade old, but I had to share it. In particular, I love the lesson at the 1. Courtesy of ADM’s own Mike D’Ambrose.end 1 on how once money is off the table the only way to retain top talent is by engaging with them on an individual level and showing that you care about them as people. When money doesn’t matter anymore, much of work becomes about intrinsic reward. 

2. Liz Olson writes a great article on the value of choosing to stay with one employer. Professionally it is often very easy to see the grass as greener somewhere else – particularly on bad days. Sometimes the grass really is greener elsewhere, and when this is the case one should find the courage to move on to richer pastures. With that said, eventually we all find a role that makes us feel whole. In these instances the most pro-active thing we can do is to stay put. …Liz puts this all much more eloquently than I ever could. Read what she has to say here.

3. Chuck Csizmar outlines how to address an off-cycle employee raise request. This is a good one to read for anyone managing direct reports. If you flub this, you may soon be facing a retention issue when the employee submits his/her resignation to render services elsewhere.

4. Carol Anderson makes some great suggestions around how HR can more clearly define its value to business leaders. Too often the function is viewed as straight overhead (as opposed to a value added department). Much of this perception is driven by the inability of HR in many organizations to quantify what it adds (and to manage expectations). This is a really good read. Check it out here.

As always, please share your thoughts in the comments below.

Best,

Rory

If you have questions about something you’ve read here (or simply want to connect) you can reach me at any of the following addresses: 

SomethingDifferentHR@gmail.com OR rorytrotter86@gmail.com

@RoryCTrotterJr

http://www.linkedin.com/in/roryctrotterjr

Google+

Trends in 401(k) and Retirement Plans

24 Wednesday Apr 2013

Posted by in Benefits

≈ Leave a comment

Tags

, , , , , ,

Image Credit: <www.gobankingrates.com

Image Credit: <www.gobankingrates.com>

This evening I stumbled upon a great video on WorldatWorkTV around trends in 401k retirement plans. I want to share with you today.

1. Most of my career has been focused on various aspects of compensation, talent management/acquisition and labor relations.The benefits arena is actually a pretty new space for me 1, and I’m looking forward to beginning to explore it in greater depth over the next several months.

As always, please share your thoughts below.

Best,

Rory

If you have questions about something you’ve read here (or simply want to connect) you can reach me at any of the following addresses: 

SomethingDifferentHR@gmail.com OR rorytrotter86@gmail.com

@RoryCTrotterJr

http://www.linkedin.com/in/roryctrotterjr

Google+