It’s Benefit Season – What Are You Doing for Your Newer Workforce?
October 30, 2020
With benefit season upon us, many organizations still cling to the one size fits all baby boomer type benefits. But the question is why? For older workers, retirement is on the near horizon and their focus is on financial planning and healthcare for retirement. The next generation, their focus is on education and savings for retirement. 529 plans are good, but 401(K)s and HSAs are highly valuable. And what are employers doing for the younger generation, who holds the most education and credit card debt and are likely working lower paying jobs?
A recent EBRI survey found that nearly half of employees are concerned with their household’s financial wellbeing, citing saving for retirement and having savings in case of an emergency as top sources of financial stress.
The younger workforce especially needs help, and those employers who can provides benefits that allow for the greatest cash flow are the winners in this recruitment war. Millennials are asking “how are you helping my balance sheet?” to employers. Unfortunately, given the economy, which is no fault of their own, and the debt they’ve accumulated, Millennials are putting off buying a home, medical procedures, and riskier career moves. And with COVID-19 workplace, there is greater stress, which generally leads to illness, poor motivation, and lower productivity.
Over the next few years, employers need to start revamping benefits to meet the needs of the new workforce. First, the opportunity to use the 401(K) for paying down loans is a must for any organization. In 2018, the IRS issued Private Letter Ruling (PLR) 201833012, which responds to an unnamed employer that proposed amending its 401(k) plan to offer a student-loan benefit program under which it would make special 401(k) contributions into the accounts of employees who are making student loan repayments. Unlike student loan repayment (SLR) dollars given directly to employees, which are treated as taxable income, employer 401(k) contributions are not taxable.
The approach can be understood in how Abbott Laboratories designed their plan. In Abbott’s Freedom 2 Save program, it contributes 5% of employees’ gross salaries to its 401(k) plan if they use 2% of their income to pay down student loans through a payroll deduction. As a result, this approach achieves tax advantages like those associated with traditional tuition-reimbursement benefits but generally denied to student loan repayment benefits. Further, it allows for retirement savings when their needs would require their free cash to be spent for debt repayment.
529 plans are another way to assist in paying off student loans. For parents with 529 plans, the Setting Every Community Up for Retirement Enhancement Act of 2019, or the SECURE Act, went into effect January 1, 2020. It allows for up to $10,000 in withdrawals to help pay down student loans.
Given the financial concerns of many, financial training from debt management to investment to retirement planning will be an important benefit for employees. The costs for these trainings should be de minimis as many of the 401(K) providers will lead these trainings as a benefit for their clients or for an additional fee depending on the nature of the training cycle.
Although health insurance in the COVID-19 environment is probably the most important benefit for all employees, employers also need to reconsider the one size fits all health benefit package and offer a variety of plans to employees. For example, younger employees may not want to pay for or need overly rich health plans. HSAs will allow these employees to possibly have more cash in their pockets. Having a choice of plans allows employees to budget their own dollars. The key is employee education and messaging. A recent WorldatWork survey confirmed that health insurance outranked lifestyle perks such as paid time off, flexible work schedules, and the ability to work remotely. 401(K) offerings came in second in the survey.
Therefore, HR needs to identify those areas of opportunities in the benefit arena that will help new workers and plan a benefit lifecycle for their needs. Employees appreciate that employers are focusing on long-term needs; therefore, recruitment and retention will be aided.