Last year brought several changes that had a direct impact on the employee benefits world, including wide-ranging tax reform, new European protections on electronic data, and a host of ERISA-specific regulatory changes.
In addition to these developments, a tightening labor market and the continued growth of the “gig” economy caused many companies to rethink their approaches to using their benefits programs as a tool for attracting and retaining top talent. As part of these efforts, many companies have increased their efforts to help employees save for retirement and live healthier lives.
As plan sponsors outline their strategies for 2019, we have identified several trends that are shaping the employee benefits landscape and creating opportunities for employers to implement best practices to meet the needs of their workforces.
Increasing focus on employee well-being: Over the past several years, terms like “well-being” and “wellness” have become increasingly common in discussions about employee benefits. Today, many employers are working harder to offer effective programming that goes beyond traditional benefits offerings to focus on employees’ comprehensive financial, physical, social and emotional health.
About half of employers today offer financial well-being tools, and we expect the growth of these offerings to continue in 2019. As benefits providers continue to roll out new technology, and as methods and strategies to help make financial well-being become a more effective offering for employees, plan sponsors should keep a close eye on opportunities to enhance employee engagement through these offerings.
Expanding auto-enrollment: Auto-features for defined contribution plans continue to gain popularity, with more than half of employers automatically enrolling new employees into the company 401(k), according to the Plan Sponsor Council of America’s (PSCA) 61st Annual Survey. Recently, the auto feature trend has moved into new areas. In November 2018, the Department of Labor (DOL) proposed a rule that would automatically transfer participant retirement balances left behind at an old job to their new employers’ 401(k) plan. The DOL is continuing to define the final rule.
Offering new financial benefits to enhance employee retention: Retaining employees is a major challenge for employers as the unemployment rate remains near historic lows. As a result, companies are looking for additional financial benefits they can provide to enhance retention, such as student loan repayment and enhanced retirement options.
Plan sponsors may be more receptive to helping employees pay off student debt thanks to an Internal Revenue Service (IRS) private letter ruling that permitted a company to contribute to an employee’s 401(k) account when the employee used at least 2 percent of pay to pay down student debt. In addition, employers are recognizing employees’ desire to diversify tax exposure, and nearly two-thirds of companies are offering Roth 401(k) options to workforces, according to the PSCA survey. Expect to see this, as well as low-fee options like target-date funds, continue to expand in 2019.
Using cash balance and ESOPs as an exit strategy: With nearly 10,000 baby boomers retiring every day, many business owners in this generation are reviving defined benefit cash balance plans as well as employee stock ownership plans (ESOPs). Both strategies work well when owners are looking to generate liquidity from their equity. Owners can increase cash balance plan contributions as they age, and ESOPs help transfer ownership of the company to employees as an addition to his or her retirement account.
Assessing legislative priorities: In 2018, Congress and the Trump Administration inched forward on strategies to expand 401(k) coverage in the workplace. In August 2018, President Trump issued an executive order directing the DOL to look at ways to expand multiple employer plans (MEPs) for small businesses. Meanwhile, a similar initiative showed up in the Retirement Enhancement and Savings Act (RESA), which also included other provisions that would help plan sponsors include lifetime income options within 401(k) plans.
Monitoring regulatory progress: The IRS and DOL are making progress in implementing changes to retirement plan policies. The IRS proposed amendments for new hardship distribution rules, reflecting the changes passed in the Bipartisan Budget Act of 2018. With the comment period over the agency is expected to finalize the rule soon.
Protecting employees’ online data: The European Union moved ahead with its General Data Protection Regulation (GDPR) in 2018, heightening the importance of safeguarding online information. More than two years ago, the DOL’s Advisory Council on Employee Welfare and Pension Plans released Cybersecurity Considerations for Benefit Plans, suggesting plan sponsors create cyber fraud policies. Today, many plan sponsors continue the process of assessing their risk exposure and creating plans to respond to the increasing threat of cyberattacks on 401(k) plans.
Capitalize on Opportunities to Strengthen Your Benefits
In 2019, plan sponsors have tremendous opportunities to implement programs to reduce employee financial stress, increase coverage and offer more benefits that are tailored to the needs of their employees. But understanding how these broader trends can be applied to your workforce requires carefully considering all of the new options and regulations.
To learn more about how Crosslin can help prioritize your company’s benefits needs in 2019, contact us at (615) 320-5500. As always, we appreciate your business.