They're back! Employee benefits slo-o-o-o-wly returning as economy rebounds

Like a slumbering bear awakening from his long winter’s hibernation, the economy is showing signs of life again. It’s still a little sluggish, but it’s stirring and has stepped into the light of day.

That’s good news, as is the fact that more employers are bringing back the benefits they were forced to freeze during the worst of the recession. During tough times, many companies slashed 401(k) matches, merit-based raises and bonuses, and other employee perks to help cut costs. A recent USA today article, however, shares some encouraging results from a report from human resources consultancy Towers Perrin:

=> Nearly two-thirds of firms that locked in salaries last year will start offering raises again in 2010

=> Approximately one-third of firms that dropped 401(k) matches will increase or restart those company contributions next year

And many of these companies are reinstating these benefits for the best of reasons: To motivate and retain their most valuable employees, so they don’t walk out the door as the economy (and job market) strengthens.

"When you start coming out of a recession, people remember how they were
treated," says Fred Crandall, a Watson Wyatt senior human resource consultant. "Some people who feel like they've been given a raw deal will jump ship." USA Today

Yet many of these benefits won’t be as robust as they once were. Gone are the days of the usual 401(k) match of 50 cents on the dollar, up to 6% of pay. Many companies, like FedEx, will offer smaller matches. Other companies will look at certain factors when adjusting benefits, such as tying 401(k) matches to quarterly or annual financial performance.

And what about raises? They may return in 2010, but not in an across-the-board, one-size-fits-all fashion. Four in 10 employers in the Towers Perrin report stated that they will differentiate among employees when considering salary increases, doling out the highest raises to only the highest achievers. A weak employee may see no raise at all.

While these re-emerging benefits will be a welcome change to employees in the new year, employees shouldn’t assume it’s business as usual in 2010. Most employers will be extremely cautious when reinstating benefits, keeping a close eye on the economy’s recovery.

“More organizations are being much more clear that benefits such as 401(k) matches are discretionary,” says Brad Kimler, executive vice president of Fidelity’s Consulting Services business.

What about your company? Are you in a position to start bringing back some of the benefits you placed on the back burner in 2009? Do you see the economy - and your business - rebounding enough in 2010 to reinstate 401(k) matches, raises and other benefits? We'd love to hear what's happening in your corner of the world!

They're back! Employee benefits slo-o-o-o-wly returning as economy rebounds

Hiring, salary freezes to melt within the next year

A majority of U.S. employers plan to reverse some of the changes they’ve made to pay benefits and other HR programs, according to the latest survey results from Watson Wyatt.

The survey discovered that 62% of companies that made hiring freezes and 69% of companies that froze salaries plan to eliminate them within the next 12 months. Almost half (48%) of companies that reduced their employer 401(k)/403(b) matches also plan on reversing their decision within the next year.

Unfortunately, not all of the affected employer benefits will experience the same changes. One in five employers plan to keep salary reductions in place and 46% of employers do not plan on reversing the increases in the percentage that employees now pay for health care premiums.

"While more employers now feel the worst of the current downturn may be behind them, most are not expecting to go back to 'business as usual'," said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. "The challenge for companies will be to determine which cost-cutting changes can be reversed and which will become ingrained into the permanent business environment." (Yahoo! News)

In the next three to five years, companies expect staffing issues including difficulties in attracting and retaining skilled employees to extend long-term. They also expect staff sizes to be significantly smaller than pre-economic levels.

Compared with pre-economic crisis levels, the companies surveyed expect the following changes within the next three to five years:

• 45% foresee difficulty retaining critical-skill employees
• 41% expect increased difficulty attracting critical-skill employees
• 50% expect no increase to current salary levels
• 52% expect to see a decrease in staff sixes
• 76% expect no change in employer contributions to defined contribution plans (e.g., 401(k))

The survey also found that nearly one quarter (24%) of the companies surveyed believed their results have “bottomed out,” double the number of survey participants that said the same in April.

"Laying off workers and cutting back on pay and benefits are never easy decisions to make. Now, companies are now looking to the new economic landscape that lies ahead," said Laurie Bienstock, U.S. strategic rewards leader at Watson Wyatt. "The challenge for employers is to reassess short-term cost cuts and ensure they have the right workforce and resources in place to meet the organization's long-term financial goals." (Yahoo! News)

Hiring, salary freezes to melt within the next year

Employers plan to cut more retirement perks amid recession

The number of employers offering, and planning to offer, retirement perks to new employees has fell in response to the recession, according to a recent survey by Hewitt Associates.

Instead of offering premium retirement features, including automatic enrollment and company matches, the survey found that employers are more focused on offering lower-cost strategies, such as automatic rebalancing and target-date funds.

Hewitt’s annual survey of about 150 mid- to large-sized employers revealed that half (51%) currently offer automatic enrollment, up from 44% in 2008.

Among the companies that don’t currently offer automatic enrollment, just 25% are likely to add it for new hires, down from 57% in 2008.

The top reason for not offering automatic enrollment is because of the high cost of the employer match. According to the survey, only 2% of employers have cut or temporarily suspended 401(k) company matches since the recession began, about 5% plan to do the same this year.

Depending on where our economy stands in the next 12 to 18 months, Hewitt predicts that about 10% of companies will also cut or suspend 401(k) matches.

Has the economy forced your business to cut back on employee retirement perks? What lower-cost strategies are you using instead?

Employers plan to cut more retirement perks amid recession

Military tax benefits bill signed into law

Military reservists are now able to cash out health care flexible spending accounts and may withdraw funds from 401(k) or other contribution plans without penalty.

On June 17, 2008, President Bush signed the Heroes Earnings Assistance and Relief Tax Act of 2008 (H.R. 6081), permitting active duty reservists to make penalty-free withdrawals from retirement plans, when called to serve at least six months. It also allows any differential military pay to be included in the calculation of wages for retirement plan purposes and allows employers to report the differential military pay on the W-2.

The law also modifies the Uniformed Services Employment and Reemployment Rights Act (USERRA) for the purposes of triggering the payment of qualified plan benefits, and allows recipients of military death benefit gratuities to roll over the amounts received, tax-free, to a Roth IRA or a Coverdell education savings account.

The modifications also allow reservists called to active duty for at least 180 days to withdraw any remaining balances in their health care flexible spending accounts. Before this law, most employees called to duty would forfeit any remaining money in their health care accounts.

Military tax benefits bill signed into law

401(k) Education: Taking plays from the NFL

Three weeks after joining the NFL, young recruits are sent for training off the football field and in the classroom. Each year, over 100 NFL players participate in college-level programs on various business topics. The programs are designed to teach players how to manage their money so they can still live comfortably once their football career is over.

“It's a way for the league to help ensure financial stability for these players beyond their primes,” according to a recent Forbes article.

While employees at corporations across the US generally make a small fraction of the money a NFL player would, it’s just as important they know what to do with their money. Automatic enrollment in the company’s 401(k) plan isn’t enough anymore.

In 2007, 34 percent of large employers offered automatic 401(k) enrollment. The average employee contributed 4.5 percent of their salary to a plan, which may not be enough for a comfortable retirement.

Some of your employees may need a little extra coaching when it comes to a retirement plan. Strongly encourage your employees to contact the financial organization that handles your plan for advice. If you’re up to the challenge, hold your own workshops during to educate employees on the best way to manage their money.

Don’t just assume your employees know exactly what to do with their 401(k). Many employees would be surprised to know how much more they would retire with if they contributed a slightly higher salary percentage than leaving it at the automatic level. You signed them up for the program, now show them how to use it.

Take a lesson from the NFL playbook and educate your employees on how successfully managing their 401(k) will score a touchdown when their prime is over.

401(k) Education: Taking plays from the NFL