Employees Pay More for Benefits

Most employees are paying for a portion of their medical benefits. As of 2006, 75 percent of employees contributed toward their group medical premiums, according to the U.S. Bureau of Labor Statistics. That percentage is constantly growing. Between 1999 and 2006, the percentage of employees who contributed toward their group medical premiums increased from 67 to 75 percent.

As of 2004, employees paid a national average of 23.6 percent of their single-only healthcare costs. But the employee-paid percentage varied greatly by state. According to the Agency for Healthcare Research and Quality, employees in Georgia paid the highest percentage of premiums among employees in the ten largest states, forking over 21.5 percent of premiums for single-only healthcare. Employees in Michigan paid the lowest percentage, with an average contribution of 14.2 percent of premiums.

Much of the difference could stem from the types of employees: a large percentage of workers in Michigan are unionized with negotiated benefits, while Georgia is one of the least unionized states.

Automatic 401(k) Enrollment on the Rise

Employers can use automatic 401(k) enrollment and escalation programs to help employees save for their retirement.

As American retirement planning continues to swing away from traditional pension plans toward the 401(k). It becomes increasingly important that employees actually contribute to their retirement savings.

One way you can encourage that participation and help your employees prepare for retirement is to institute a system of automatic payroll deductions.

The Pension Protection Act of 2006 expressly allows automatic deductions for retirement savings plans and overrides any conflicting state law. Some state payroll laws that disallow paycheck withholdings made without the express consent of the employee had discouraged employers from instituting automatic deductions.

Some employers are also experimenting with automatic deductions for the catch-up provision for older workers, according to Workforce Management magazine. Fidelity Investments is conducting a pilot study with 25 employers and has reported positive feedback.

Employers will want to be cautious when they consider automatic catch-up deductions. Fidelity told the publication, employers may want to check with their consultants or in-house counsel to make sure safe harbor provisions are met.

Although employers have to give employees an opportunity to opt out of the automatic deduction system within 90 days, it is generally expected that such plans will increase both participation and the amount of money participants are saving.

Hewitt Associates, an Illinois-based firm that provides human resources outsourcing and consulting services, recently conducted a survey of 146 large U.S. companies and reported that 58 percent of them will automatically enroll employees into 401(k) plans by the end of the year.

In addition, Hewitt reports that 34 percent of the companies couple, or plan to couple, automatic enrollment with contribution escalation features.

“Companies remain skeptical of employees’ ability to be accountable for their own retirement funding”, said Pamela Hess, Hewitt’s director of retirement research. As a result, she said, “they intend to become more aggressive about equipping workers with tools that help improve their savings and investing habits.”

At the same time, 78 percent of the companies told Hewitt they had no plans to change the amount of their company match.

Catch-up contributions: According to the IRS, a plan can permit participants who are age 50 or over at the end of the calendar year to make additional catch-up contributions to their 401(k). For 2007, the maximum catch-up contribution remains at $5,000, the 2006 level.

Safe harbor provisions: The Pension Protection Act of 2006's safe harbor provisions require:

• that default employee contributions equal at least three percent of pay in the first year of participation and that they increase annually to at least six percent in the fourth year of participation (with a maximum contribution of 10 percent of pay);
• the employer either matches contributions for all eligible non-highly compensated employees at 100 percent of the first one percent of pay contributed plus 50 percent of the next five percent of pay contributed or makes a non-elective contribution equal to three percent of pay to all eligible employees;
• that matching contributions or non-elective contributions vest after two years of service.

Show Them the Money

The Society for Human Resource Management’s (SHRM) 2007 Job Satisfaction Survey Report, released in late June, found a disconnect between what human resource professionals thought was important to employee job satisfaction and the factors that employees themselves rated as important to job satisfaction.

The human resource professionals surveyed rated the top five factors as: 1) relationship with immediate supervisor; 2) compensation/pay; 3) management recognition of employee job performance; 4) benefits; and 5) communication between employees and senior management.

However, employees themselves ranked compensation and benefits as the two most important factors influencing whether they like their job. They rated the following five factors as “very important” to their job satisfaction: compensation/pay, benefits, job security, flexibility to balance work/life issues and communication between employees and senior management.

Susan R. Meisinger, president and CEO of SHRM, said “It should come as no surprise that employees remain concerned about their compensation. With the rising costs of health care premiums and prescription drugs, employees know they need to put more of their money toward covering health care and retirement.”