Three Areas of Benefits Uncertainty in 2018
January 28, 2018
How Tax Reform, Wages, and Benefits Costs May Affect Employer-Employee Relationships
Most companies would agree that the global economy improved in 2017, yet many employees still struggle financially—and have been since the financial meltdown of 2009. As we move into 2018, employers need to look at the areas of compensation and benefits that have the greatest value and impact for their employees. There are several areas of uncertainty for benefits managers, especially in the U.S. where healthcare, retirement plans and wages may require special attention this year.
Healthcare: Employer Mandate and Cadillac Tax Still Intact for Affordable Care Act (ACA)
Signed into law on December 22, 2017, the U.S. Tax Cuts and Jobs Act eliminates the individual mandate—but not until 2019. While the act zeros out penalties for individuals, it is important to note that the employer mandate remains in place. Businesses should expect the IRS to enforce compliance. The Cadillac tax, a 40% excise tax on high-cost plans, is also still set to take effect in 2020. Analysts believe that the cost of the Cadillac tax will be absorbed by workers and that many employers will shift to lower-cost plans.
U.S. Employees Feel Squeezed by Healthcare Costs
The elimination of the individual mandate does not impact the estimated 150 million Americans with employer-sponsored coverage; nevertheless, their costs are expected to rise in 2018. According to Willis Towers Watson, employers anticipate 2018 health care costs will increase by 5.5% over 2017 costs, on average.
Healthcare costs have outpaced wage increases for many years, squeezing employee pocketbooks. A recent survey by Securian Financial Group of Millennial employees on an employer-sponsored health plan found that 52% of Millennials are personally struggling or know someone who is struggling to pay medical bills.
Some employers are looking for ways to protect employees from downside financial risk associated with healthcare. For example companies may help fund more of their employees’ deductibles or offer voluntary supplemental insurance plans that help employees avoid catastrophic medical costs such as hospitalizations or cancer treatment.
Retirement: How much is enough?
The current tax law leaves the 401k intact and raises the annual contribution cap to $20,000 a year, but many wonder for how long. A recent Forbes article explains that the government loses trillions of dollars in potential revenue from 401k taxes, making retirement plans an attractive target for changing tax laws if the government needs more revenue in the future. What would this mean for retirement savings?
According to a survey by BlackRock, 47% of employees surveyed agreed that they do not know how much money they need to save in order to fund the retirement they want. Many workers know they should strive to save 15% of their salary in a 401k yet fall short of that goal.
Employers are seeking new benefit strategies to help employees better fund their future retirements. Benefits managers should analyse potential programmes to help employees gain a firmer financial footing, including: Increasing the employer match for 401(k) plans, providing financial planning and budgeting services, and helping younger workers repay student loans.
Compensation: Effects of global economic growth and U.S. tax cuts
Because the U.S. corporate tax rate will drop from 35% to 21% and the global economy posted its best performance since 2007, many businesses expect to increase their profits in 2018. What will that mean for wage inflation?
After the U.S. Tax Cuts bill passed, some large corporations—including Walmart, Apple, Bank of America, and AT&T—announced they would pay out employee bonuses and/or raise minimum wages. It’s too early to tell if this trend will accelerate or not. Compensation managers should keep an eye on wage trends in their own industries and adjust if necessary to remain competitive. Overall, SHRM forecasts that U.S. workers should only expect an average 3% increase in pay this year, roughly in queue with wage increases over the last several years.
Keeping employees happy in uncertain times
Wage increases that are outpaced by rising healthcare costs, and uncertain retirement savings are creating financial doubt and fear for employees. According to SHRM, the resulting squeeze on employee paychecks is causing some complacency among the workforce. Businesses may need to rethink their value propositions in order to retain top talent. Asure Software’s Human Resource Management solutions provide benefits management and actionable analytics that can help you ensure your compensation and benefits strategy remains competitive.