Benefits September 19, 2006

Effective Relo Programs Possible with Tight Job Market, Soft Real Estate Sales

September 19, 2006 (PLANSPONSOR.com) - The labor market for skilled employees may be tightening as real estate in most areas of the US continue softening, but that does not mean employers have to give up hope about having an effective and cost-efficient relocation program.
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A provider of corporate relo services, Prudential Relocation, said a relocation program that effectively helps attract skilled talent without suffering runaway costs is obtainable – if HR managers stay on top of the details to get the newest ideas available.

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“Organizations can have it all and achieve their recruiting, relocation and retention objectives; however, standing still is not an option,” Prudential wrote in a report about its latest relocation survey. “The data in this survey indicates some organizations may be looking in the rearview mirror regarding the urgency of changing labor markets, real estate prices and recruiting strategies. Best practice organizations are implementing new and improved Programs…”

The optimism is well founded, Prudential said, despite the increasing difficulties around the country moving real estate, including many areas where housing inventory has skyrocketed. “Unlike past markets, employees today will likely experience a more difficult time selling their homes due to the higher number of competitive listings,” the company said.

“Recruiting and retaining top employees, some employees’ reluctance to move and companies’ financial constraints with relocation incentives all will be potential challenges with broad impacts on the economy and relocation,” Margery Marshall, Prudential Relocation president, said in a news release.

Building an effective relo program may be as hard as ever, but few companies appear to be fleeing from the whole idea. The majority of respondents (90%) reported that future relocation volume will stay the same or increase. Respondents had high goals: 77% of organizations strive to find an effective balance between premium customer service and cost containment, with neither taking priority.

“The question becomes how do you get it all for the employee, while protecting the organization and its investment,” Marshall said in the release. “Organizations must strike an effective balance between policy provisions that attract and retain the most sought after employees and cost containment procedures that keep budgets in check.”

Prudential said that best relo practices continue to involve offering perks that mirror those made available to current employees at a similar level. The most common exceptions: cost of living allowances (COLA) and Loss on Sale provisions.

The top shelf programs also build in enough flexibility so that the company can be consistent but still be able to react to the demands of individual job candidates.

“It may also be necessary to empower recruiters with the flexibility to apply “off-the-shelf” enhanced benefits to meet needs at an individual level, ” Prudential wrote. “Flexibility is the order of the day. The leading-edge relocation programs offer flexibility and choice and contain costs.”

One example, according to Prudential: offering a candidate a fixed lump sum rather than directly reimbursing certain expenses to the candidate can better direct how the money is used and the hiring employer can help hold down costs.

Prudential polled 150 corporate officials for the survey, which focused on four areas including: recruiting, retention and reluctance to relocate; policy and program parameters; outsourcing, program and supply chain management; and cross-border relocations.

The survey report is here .

Benefits September 18, 2006

EBRI: Retirement Replacement Depends on Three Factors

September 14, 2006 (PLANSPONSOR.com) - Americans who want to have the best chance of building a big enough retirement nest egg need to factor in investment and longevity risk, as well as catastrophic health care costs, according to a new study.
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In a new analysis of the best way to determine an individual’s retirement replacement rate, Jack VanDerhei of Temple University asserted in a research paper published by the Employee Benefit Research Institute (EBRI) that the three-pronged calculation should render the most realistic result. The report also supports workers buying an annuity, which VanDerhei said could help make a nest egg last longer.

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To help workers make the best calculation, VanDerhei also announced the planned 2007 unveiling by EBRI of its Ballpark Estimate Monte Carlo Web site with new calculators.

“The results of this model reveal, in many cases, the sobering (if not staggering) amounts of money needed to provide a reasonable high chance of being able to afford retirement,” VanDerhei wrote. “However, they also show the positive results that can be obtained by annuitizing assets in retirement to protect against the risk of longevity. In this regard, the model points not only to a more realistic size of the retirement income problem but also ways that individuals can begin to deal with it.”

However, VanDerhei admitted that, even with EBRI’s new system, there are few definite aspects of the replacement rate process.

No Correct Rate

“In reality, there is no “correct” single replacement rate,” he wrote. “Even at a specified probability of success, an “adequate” replacement rate depends dramatically on the level of retirement expenditures, retirement age, gender, asset allocation, percentage of annuitization, and other variables detailed in this Issue Brief.”

Different people with different life circumstances and retirement preferences are going to have markedly different savings targets.

“Moreover, the huge variation in the range of replacement rate targets – depending on the individual’s income, degree of annuitization for initial retirement wealth, and the asset allocation of the post-retirement investments – call into question whether the use of a single rule-of-thumb measure is realistic to use in the retirement planning process,” VanDerhei wrote. “Given the huge variation of individual circumstances (such as age, health, and income) and the complexity of retirement risks that need to be dealt with – such as longevity (addressed through annuitization of assets), old-age infirmity (addressed through long-term care insurance), and asset preservation (addressed through investment allocation) – a simple one-size-fits-all replacement rate will not work for most Americans.”

One of several scenarios treated in the research paper concerned a low-income male retiring at age 65 with no equity investments who wants a 90% chance of having enough to live on in retirement. The necessary replacement rate for this worker without an annuity would be approximately 241%. If 25% of the initial retirement wealth were annuitized immediately, the replacement rate could be reduced to approximately 213%, according to the research.

VanDerhei said that the new EBRI Web site, www.choosetosave.org , includes all three of the factors EBRI believes need to be included in the retirement replacement calculation – investment risk, longevity risk, and risk of potentially catastrophic health care costs.

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