Data and Research May 25, 2021

Preparing for the Multigenerational Workforce

As younger workers start their careers, employers may need to reorganize benefits to appeal to a wider net of employees.  

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As graduating students enter the workforce, more are expressing an interest in health care careers.

New data from Edweek, a news organization that covers K-12 education, found that 55% of teachers say they have seen more students express an interest in health care careers since the beginning of the coronavirus pandemic. For health care employers, this creates a new challenge of younger workers entering the workforce, which means plan sponsors need to address each generation’s separate financial considerations and provide benefits that best suit their needs, says Colin Pierce, managing director and head of health care practice at TIAA.

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A TIAA study found that, in any field, a multidimensional workforce comes with vastly different engagement levels, savings goals and investment styles.

“Taking a one-size-fits-all approach to engaging that workforce is not going to work in a lot of cases,” Pierce says. “If you’re communicating the same way to someone who lacks in financial literacy and someone who is much more in tune with his finances, you’re going to lose someone in the middle.”

Even for younger clients who understand the intricacies of employer matches, vesting schedules, open enrollment and student loan debt repayment options, members of this generation require different benefits than their Generation X and Baby Boomer colleagues. A Pew Research Center survey conducted last April noted that the generations have all processed the pandemic differently and, as a result, request different benefits. For example, in the survey, Millennials said they would like to create a budget to help them pay down student loan debt while saving for retirement, while Gen Xers asked for help in balancing retirement savings, child care, elder care and more. Baby Boomers were more likely to ask for financial advisers who can help assess appropriate retirement dates and employer-sponsored features to use through retirement.

Coming out of the pandemic, workers in all fields who are entering their careers for the first time are focused on reducing debt and building savings, with some aiming to allocate money for retirement. A study by AIG Retirement Services and Everfi found that out of 20,000 college students entering the workforce, 43% plan to start saving for retirement within the next year, and 44% also plan to build an emergency fund of three to six months of living expenses.

Providing benefits such as student loan assistance, flex time, telecommuting and employee assistance programs helps employees across generations, TIAA says. Offering access to personalized advice can also drive financial wellness. According to the TIAA study, 73% of Millennials, 69% of Gen Xers and 47% of Baby Boomers say they would feel more confident if they had advice through their retirement plan.

“That advice is going to tell them exactly where to invest, how much to save and when they can retire,” Pierce says.

Rob Scheinerman, chief executive officer of AIG Retirement Services, emphasizes that education and financial counsel can be critical to employee preparation and success.

“Providing access to education and financial planning, budgeting, etc. is beneficial even for people who are just starting out and before they have any real savings,” he says. “It’s a good habit to understand the benefits of a good financial plan over decades.”

Outside of advice, the TIAA study recommends offering multigenerational cross-mentoring programs, so employees of different ages can learn from one another, and providing phased retirement or consultant-style relationships to help employees transition to retirement. The study also suggests optimizing matching contributions at 50% of compensation up to 12% of an employee’s salary, instead of 100% of compensation up to 6%. Doing so will maintain the matching contribution budget but can incentivize employees to save more to receive their full match, the study says.

Ask the Experts May 25, 2021

Crediting Past Service From an Unrelated Employer for Eligibility Purposes

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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“I work at a health care facility that sponsors an ERISA 403(b) plan. We are attempting to recruit some physicians from a hospital in the area who want to join our retirement plan for employer contribution purposes immediately, but our plan has a one-year wait for employer contributions. Is it possible that we could amend our retirement plan to credit services from the physicians’ prior employer when they come work for us, so that they have don’t have to wait a year to receive employer contributions? The physicians’ current employer is unrelated to us.” 

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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It is possible, but as a practical matter, it may be not be feasible to administer. First of all, let’s take a look at the regulation that covers service for unrelated employers (IRS Treas. Reg. Section 1.401(a)(4)-11(d)(3)(iii)(B)(1) and (2), which applies by reason of Code section 403(b)(12)(A)):

(B) Legitimate business reason –

(1) General rule. There must be a legitimate business reason, based on all of the relevant facts and circumstances, for a plan to credit imputed service or for a plan to credit pre-participation service for a period of service with another employer.

(2) Relevant facts and circumstances when crediting service with another employer. The following are examples of relevant facts and circumstances for determining whether a legitimate business reason exists for a plan to credit pre-participation or imputed service for a period of service with another employer as service with the employer: whether one employer has a significant ownership, control, or similar interest in, or relationship with, the other employer (though not enough to cause the two employers to be treated as a single employer under section 414); whether the two employers share interrelated business operations; whether the employers maintain the same multiple-employer plan; whether the employers share similar attributes, such as operation in the same industry or the same geographic area; and whether the employees are an acquired group of employees or the employees became employed by the other employer in a transaction between the two employers that was a stock or asset acquisition, merger, or other similar transaction involving a change in the employer of the employees of a trade or business. Other factors may also be relevant for this purpose, such as the plan’s treatment of service with other employers with which the employer has a similar relationship and the type of service being credited (e.g., vesting service as compared to benefit service or accrual service). A legitimate business reason is deemed to exist for a plan to credit military service as service with the employer.

 

So the regulations, on their face, do not appear to present too many barriers to your situation; as long as there is a legitimate business reason to credit the service, and the employer operates in the same industry or geographic area, it would appear that service could be credited, though, as the IRS states, this is a facts and circumstances determination (as opposed to say, a safe harbor, where following the safe harbor language would be deemed to be in compliance by the IRS).

However, if you credit service for the physicians in question, you will have to credit service for all other employees with past service from that employer as well, not just the service of the physicians you are recruiting. As the regulations state, other factors may also be relevant for purposes of determining whether such service should be credited, such as the plan’s treatment of service with other employers with which the employer has a similar relationship. Thus, in order to credit service for just the physicians in question, you might need to include service from other similarly situated employers as well. As a result, you may be faced with the issue of tracking and crediting service from a number of employers just because you wished to credit service to a small group of physicians, meaning it may no longer make sense to credit such service, both from an administrative and cost perspective.

Thus, as with all potential plan amendments, you will want to seek the advice of retirement plan counsel well versed in this area before proceeding.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. 

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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