December 2, 2009
By Sarah H. Lamar, published on December 2, 2009, in Savannah Business Journal.
The current economic climate has largely halted the luxury of shopping around for a job. In fact, during the recession, most employees are ranking their monetary needs according to basic necessities, including the value of a good benefits package. While compensation is of obvious importance, benefits are increasingly becoming an extra consideration in the pursuit of financial viability.
“The trend has shifted the responsibility of planning, preparing, and funding a typical employer defined benefits type plan to 401(k) type plans, or contribution plans,” said Jim LaHaise, executive vice president and chief banking officer at The Coastal Bank. “A change in the business model and the transition to today’s highly portable employee has contributed to this current trend in 401(k), IRA’s, and rollover plans.”
While the contents of a benefits package is not necessarily the number one determining factor when considering a potential job, it can be a significant enhancer and increasingly adds to long term employee retention for the employer.
“Most new employees do not typically negotiate the contents of a benefits package offered by the employer when accepting a job,” said Sarah Lamar, a partner at HunterMaclean who practices employment law. “However, it is a good idea to ask your employer what the standard benefits package includes, if there are any additional benefits offered, and clarify the exact responsibilities and monetary contributions of the individual employee.” Of course, the specific benefits offered can be altered as the economic climate – and the employer’s ability to absorb the cost of such benefits – fluctuates.
Currently there are several benefits offered to employees (and others) that are mandated by law including COBRA, family and medical leave, social security disability insurance, unemployment, and workers compensation benefits. “In spite of the fact that our economy and health benefits are uncertain at the moment,” said Lamar, “the new legislation reducing the employee’s cost of COBRA group health insurance premiums after termination is an added benefit to employees in this current economic climate.”
According to the U.S. Bureau of Labor Statistics in October 2009, the unemployment rate rose from 9.8 percent to 10.2 percent, with the largest job losses over the month in construction, manufacturing, and retail trade. With the job market in flux, the importance of retirement plans, benefits, and savings should be carefully considered.
“Retirement plans are extremely important when planning for long term financial security,” said LaHaise. “There is an enormous supply of providers today, creating ease of access to anyone interested to choose from. They each have a very common structure, which helps to eliminate the guesswork when choosing.”
A retirement plan or pension plan is typically established or maintained by the employer or by an employee organization, such as a union, or both. These plans are constructed to provide retirement income for the employee or defer income until termination of covered employment or beyond. A number of retirement plans exist today, including the defined benefit plan and defined contribution plan.
A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as one hundred dollars per month at retirement, or it may calculate a benefit through a plan formula that considers such factors as salary and service.
A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the employee, the employer, or both, contribute to the employee’s individual account under the plan, sometimes at a set rate, such as five percent of earnings annually.
These contributions are generally invested on the employee’s behalf. The employee will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. “As in most cases, the value of personal assets, including retirement accounts, will fluctuate due to the changes in the value of the investments,” said LaHaise. “They are dependent on the economy and its current condition. Regardless, setting up a reserve fund is better than having no plan at all.”
Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans. “The great part about participating in a 401(k)-type plan,” said LaHaise, “is that individuals can assume personal responsibility and plan for their retirement income and future by directing their own investments and contributing a part of their own salary.”
However, small business owners may have some reservations when considering the benefits package they offer. “Balancing a great benefits package with adequate compensation can be a tricky dance,” said Lamar. “When it’s a question of divvying up the pie, there is only so much money to go around. If employers are mandated to offer additional health or sick leave benefits or pay more compensation, they may offer less in other benefits, such as vacation or 401(k) contributions.”
