Data and Research February 29, 2024

Employers Struggle to Meet Employee Demand for Higher Pay, Better Benefits

New research reveals employers are often out of touch with the needs of their employees, who seek higher compensation, better work-life balance and quality benefits.

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With increased turnover rates in 2023 and rising demands from employees for higher pay and better benefits, employers continue to face challenges in retaining and recruiting top talent, according to new research conducted by Franklin Templeton Investments. 

According to the firm’s “The Voice of the American Employer Survey,” which included responses from 1,000 U.S. employers, all with more than 100 employees, 62% said they conducted layoffs in the 10 months prior to the survey, and 91% of employers said they experienced at least a 10% increase in staff turnover. 

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Around half of turnover was attributed to voluntary terminations, such as employees quitting, and the other half was due to involuntary terminations, such as company layoffs. 

Additionally, 79% of employers recognized that their employees’ expectations for compensation growth have increased in recent years, and 76% said employees increasingly value work-life balance, as well as career advancement. In particular, Franklin Templeton found that the rising tide of promotion requests are often fueled by younger workers, as 86% of employers reported that their younger employees have been more vocal about their desire for raises and/or promotions. 

Around 82% of employers also agreed with the statement that “The workplaces of today face insatiable employees that continue to ask for more,” with 80% of employers struggling to meet employees’ requests for increased compensation.  

While a majority of employers said they recently increased the number of benefits they offer or have increased the quality of their benefits, 80% said they are struggling with managing the increasing cost of providing benefits, and 68% said health insurance premiums for employees increased in the last 12 months. 

Employee Concerns 

Employers are trying to offer the right benefits to retain and attract talented workers, and those workers are, of course, most concerned with their own finances.  

According to Franklin Templeton’s “The Voice of the American Worker Survey,” which included responses from 2,001 U.S. adults, the majority of workers reported being concerned about their income and maintaining a standard of living, with other concerns including retirement savings and health care costs.  

For the first time in Franklin Templeton’s surveys, financial health ranked higher in importance than mental and physical health, experiencing a 15% growth from 2023 to 2024. Many workers said they are concerned about running out of money in retirement, and 55% said they plan on continuing to work during retirement. 

The National Institute on Retirement Security also found in its new survey on retirement insecurity that 79% of Americans agreed, in 2023, that there is a retirement crisis, up from 67% in 2020. In addition, 73% of respondents said recent inflation has made them more concerned about retirement.  

Franklin Templeton found that the most common factors workers cited as preventing them from retiring when they wanted to were rising health care costs, global economy uncertainty, rising housing costs and their debt burden.   

Employers Are ‘Out of Sync’ 

In general, employers are making strides toward addressing employee needs by bolstering benefits packages and offering financial wellness benefits, but they are often out of sync with employees’ needs.  

For example, if given the option for an enhanced benefit, employees expressed a clear preference for increased pay and increased 401(k) match, while employers assume employees would prefer improved health and dental insurance, health savings accounts and charitable contributions. 

Seven in 10 workers also reported experiencing challenges when it comes to understanding benefits offered by their employer. Specifically, 33% of workers said they experience confusion when changing benefits and plans, and 29% said they struggle to understand the “true monetary value” they would receive from certain benefits. 

As a result, Franklin Templeton recognized that employers need to work to effectively communicate the resources they make available and focus more on articulating the holistic value of total compensation and benefits packages. 

Both surveys conducted by Franklin Templeton were fielded in November 2023. 

Compliance February 29, 2024

Central States Pension Received $127M from PBGC for Dead Participants

According to the fund, an error occurred due to its lack of access to more comprehensive data on deaths.

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The Central States, Southeast & Southwest Areas Pension Plan received $35.8 billion in special financial assistance in December 2022. However, according to a report from the Pension Benefit Guaranty Corporation’s inspector general, $127 million was an overpayment made due to 3,479 deceased participants being counted in the payment calculation.

The special financial assistance provision of the American Rescue Plan Act provides PBGC funding for severely underfunded multiemployer pension plans.

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Senator Bill Cassidy, R-Louisiana and the ranking member of the Senate Committee on Health, Education, Labor and Pensions, commented on the overpayment at a hearing Tuesday. He said Central States “included thousands of deceased participants in their bailout application.”

Cassidy added that “The Central States Pension Fund now tells the committee it would be impossible for them to repay the money that they were improperly paid. Workers covered by the Central States should be alarmed about the financial state of their retirement plan if returning money they weren’t supposed to receive would destabilize the fund. Frankly, it is infuriating to hear that a union’s pension plan could be on the verge of collapse only a few years after they received tens of billions of dollars from taxpayers to bail them out.”

Thomas Nyhan, the executive director of Central States, responded to Cassidy’s comments about the union fund’s stability, saying, “In fact, nothing could be further from the truth. An independent actuary has asserted that the funding ratio of the fund, inclusive of SFA, is a very healthy 98.5%. Further, the fund’s assets are invested very conservatively.”

A spokesperson for Cassidy clarified that “Cassidy said ‘if’ and ‘could be’ to point out the absurdity of Central States using insinuations of financial insolvency as an excuse for not wanting to return the taxpayer dollars they improperly received by including dead people on their bailout application. If returning these funds would not impact their ability to meet their long-term solvency goals, then there is no excuse for them to not do so.”

Background

According to the PBGC report, the PBGC in June 2023 contacted Central States about the possibility that deceased participants had been included in the special financial assistance calculation. Central States replied in July, saying, “we have reviewed the participant listing, and we have no reason to believe that these individuals are not deceased.” They added that no payments had been made to those individuals.

Central States noted that the pension fund does not have access to the Social Security Administration Full Death Master File and recommended that the PBGC use the DMF in the future when assisting plans. The inspector general made the same recommendation to the PBGC in November 2023. All applications received since November 1 by PBGC use the DMF before being approved.

The Central States fund maintained that the error was an oversight and that the overpayment related to the inclusion of deceased people amounted to about 0.35% of the assistance provided to the pension fund.

The Health of Central States

Cassidy wrote two letters in February on this issue, one addressed to Karen Morris, the general counsel at the PBGC, and the other to Nyhan. Both letters stated Cassidy’s understanding that the Central States fund will not repay the money because it cannot afford to do.

Addressing Morris, Cassidy wrote, “Central States also implied to PBGC, and further alluded to [the Senate Committee on Health, Education, Labor and Pensions] minority staff, that if it has to give back this windfall payout—which constitutes roughly one-third of one percent of its total bailout—it will lack sufficient funds to cover all of its liabilities, notwithstanding the exorbitant amount of bailout funding it received.”

When writing to Nyhan, Cassidy changed the wording of his letter from “alluded” to “outright stated.” He wrote, “In fact, Central States’ implied to PBGC and outright stated to HELP minority staff that if it has to give back this windfall payout—which constitutes roughly one-third of one percent of its total bailout—it will lack sufficient funds to cover all of its liabilities, notwithstanding the exorbitant amount of bailout funding it received.”

Both letters are dated February 25, 2024.

In both cases, Cassidy cites page 23 of the inspector general’s report in support of his claim in a footnote. Nowhere on that page does Central States suggest that $127 million is necessary for the plan to remain solvent.

Instead, page 23 contains a discussion of how a contributing employer, trucking company Yellow, went bankrupt in August 2023 without paying its withdrawal liability to the pension fund. The PBGC had only given this eventuality a 12% chance of happening in 2023, when it calculated the SFA payout to Central States in 2022. If the PBGC had assumed a 100% chance of the Yellow bankruptcy, Central States would have been entitled to $432 million more SFA assistance, according to the PBGC inspector general’s report. Had that payment been included in Central States’ SFA payment, it would have offset the $127 million and provided Central States with an additional $305 million.

A spokesperson for Cassidy clarified that the implication that Central States needs the $127 million to remain solvent is found on page 18 of the report. After discussing the bankruptcy of Yellow and the reduced contributions being made to the fund as a result, Nyhan wrote, “the additional SFA amount is a fund asset that will be used to increase the likelihood that the fund will achieve its statutory objective of remaining solvent through 2051.”

Likelihood of Repayment

Cassidy said, in his statement at the hearing, that International Brotherhood of Teamsters President Sean O’Brien has acknowledged that Central States should repay any money to which the union pension fund was not entitled. According to Cassidy, the PBGC claims it lacks the authority to compel a repayment. Cassidy has requested that Nyhan and Central States respond to his inquiries about repayment by March 11.

The PBGC released a statement on Monday in support of “repayment of any material SFA amount that was paid based on inaccurate census data and continues to explore any potential mechanism for recovery with executive branch partners, including the Civil Division of the U.S. Department of Justice. PBGC would also support legislation to enhance its recovery authorities for the SFA program.”

Cassidy’s office requested, in a statement on the same day, that the “PBGC use its authority under regulations enacted pursuant to section 4262 of the Employee Retirement Income Security Act to claw back the overpaid funds from the Central States. However, PBGC has refused to do so.”

On Monday, Central States sent a letter to Julie Su, acting Secretary of Labor. The letter acknowledged payment error but asked for legal guidance on two issues. First, Central States asked if returning the money to the PBGC would violate the Employee Retirement Income Security Act’s “exclusive benefit rule.”

Second, it asked if returning the funds would violate the fiduciary duties of prudence and loyalty under ERISA. Since the overpayment is now a plan asset, the letter expressed concern that repaying the overpayment out of plan assets may violate the union’s fiduciary duties.

The letter did not reject the possibility of repaying the amount. It noted that ERISA permits plans to repay overpayments made by employers within six months, but this exemption would not apply to an overpayment made by the PBGC in 2022.

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