Benefits January 31, 2024

Though Paid Leave Benefits Are Common, Industry Groups Seek Nationwide Standard

While the majority of employers offer some sort of paid leave, some employees are not taking full advantage of the benefit due to heavy workload and staffing issues.

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Paid leave benefits provide an opportunity for employers to set themselves apart, as flexible, paid time off can attract talent, prevent employees from experiencing burnout and retain workers by allowing them to have a healthy work-life balance.

The International Foundation of Employee Benefit Plans’ recent survey on paid leave trends in the U.S. provided a glimpse into what organizations are currently offering for vacation, sick leave, parental leave and bereavement leave. The IFEBP conducted its survey in October 2023, surveying more than 300 U.S. corporations and public employers/governmental entities on policies for both full- and part-time employees.

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Although federal law does not require employers to offer paid vacation time to their workers, nearly all (99%) companies surveyed reported offering this benefit, and for most organizations, the number of available paid vacation days increases with the length of service. The majority of employers also said they allow for some unused PTO days to be carried over to the next year.

When asked about the use of PTO, 42.7% of respondents said most of their company’s employees use their PTO, but heavy workload was the most common reason cited for workers not using PTO, followed by a lack of adequate staffing and needing to coordinate time off with other staff members.

Most employers said they encourage their salaried and hourly employees to take PTO but do not require a minimum level of usage. Only 9% of employers reported offering unlimited PTO or unlimited vacation. The IFEBP found that most organizations with unlimited PTO began offering it within the last four years.

The majority of employers (71.8%) said the reason they offer a PTO plan is because it offers employees flexibility, and 49.1% said it empowers employees.

Almost all employers also reported offering paid sick leave, including 11% mandated by state or local laws. Unlike PTO or vacation, most organizations provide a flat number of sick days, regardless of length of service, for salaried and hourly workers. The number of sick days offered is very similar for salaried and hourly employees, as the majority of organizations offer between six and 10 days.

Paid parental leave is slightly less common, but still offered by a majority, as 62% reported offering this benefit. Among those offering paid parental leave, different types reported include PTO for:

  • Adoption (76%)
  • Bonding (68%)
  • Maternity (67%)
  • Paternity (66%)
  • Parental/family leave (64%)
  • Foster care (50%)
  • Surrogate leave (for intended parents, not the surrogate) (32%)
  • Leave related to miscarriage (29%)
  • Fertility treatment (8%)

Bereavement leave is the most offered leave besides vacation, as 90% of organizations offer this benefit. Most organizations that offer bereavement leave do so in a separate plan, and the average number of days off provided varies by the relationship of the deceased to the employee. For example, leave for the death of a close friend or chosen family member is typically one day, whereas immediate family is typically five days.

The report explained that bereavement leave policies were originally enacted to give employees time to handle the logistics of funeral arrangements, which is why most employers still offer a relatively small number of days. However, employers are increasingly realizing that employees need more time to grieve, and many are expanding this benefit.

In related news, the American Benefits Council sent a letter to Congress on Tuesday, urging lawmakers to expand access to paid leave for all Americans. The letter was a response to a request for information issued by a bipartisan working group on paid leave in late 2023, seeking “suggestions for expanding access to paid parental, caregiving and personal medical leave in a bipartisan and fiscally responsible way.”

The American Benefits Council proposed a voluntary federal private employer plan option for paid family and medical leave benefits, under which employers who provide a minimum standard of paid family and medical leave benefits would be deemed in compliance with any state requirements. The council argued that using this approach, state paid family and medical leave programs would continue to operate and play a “core role” in delivering paid leave benefits to employees not covered by an employer-provided plan that satisfies such standards.

The ERISA Industry Committee submitted comments on paid leave on Wednesday, arguing that the array of state efforts expanding access to paid family and medical leave benefits has created a complex and “incompatible” system of state laws that have raised compliance costs and administrative complexity. ERIC emphasized the need for the working group to explore proposals that “harmonize paid leave standards” so that employers and workers can benefit from an improved system that promotes “efficiency and uniformity.”

Compliance January 31, 2024

Whatever Happened to CITs in 403(b)s?

It’s still a work in progress, as a legislative proposal makes its way through Congress.

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403(b) plans still may not use collective investment trusts, an investment similar to a mutual fund that is subject to fewer regulations and requirements and often carries lower fees for defined contribution retirement plans. This is despite other defined contribution plans, such as 401(k)s and 457s, being able to use CITs and, according to recent data, doing so in greater volume every year.

At the moment, the best chance in the near-term for 403(b)s to access CITs is a bill in the U.S. House of Representatives that could come up for vote in early March. The outcome will be closely watched by many retirement plan advisers and sponsors, some of whom pointed to the lack of access as a major miss in the passage of the SECURE 2.0 Act of 2022.

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One of the original three bills that later became SECURE 2.0 actually permitted 403(b)s to use CITs by amending the necessary tax and securities laws. This bill was known as the Securing a Strong Retirement Act and emerged from the House Committee on Ways and Means.

Ways and Means only had jurisdiction over the tax provisions, however, and when the House Committee on Financial Services, then controlled by Democrats, asserted jurisdiction over the securities provisions, the relevant amendments did not move forward. This resulted in a SECURE 2.0 that updated the required tax law to permit CITs in 403(b) plans, but not securities law.

A source knowledgeable of those negotiations, who declined to be named, noted that this was not an issue among Democrats on Ways and Means or in the Senate.

Since omitting the changes that would allow for 403(b) use of CITs is not considered a technical error, it cannot be fixed through a technical corrections bill, only through new legislation.

One such pending bill that would make the change is the Retirement Fairness for Charities and Educational Institutions Act, introduced by Representative Frank Lucas, R-Oklahoma. The bill was proposed in May 2023 and was voted through the House Financial Services Committee in December 2023. The bill would update the required securities laws to permit both CITs and insurance separate accounts in 403(b)s.

Representative Sylvia Garcia, D-California, offered one amendment to the bill at a mark-up hearing in May which highlighted the core objection to including CITs in 403(b) plans. Her amendment would have limited the use of CITs to 403(b)s that are subject to the Employee Retirement Income Security Act.

403(b) plans sponsored by a private entity, such as a charity, are typically subject to ERISA, but those that are sponsored by state or local governments or by churches are not required to follow ERISA, though they may opt into it.

Garcia argued that only ERISA-governed 403(b)s “have enough federal safeguards in place to keep their money safe,” noting that CITs lack the same “SEC investor protection framework” as traditional mutual funds, and this could leave non-ERISA 403(b) plans vulnerable, since they would lack SEC and ERISA oversight.

Though this amendment was defeated, the case had some currency among other Democrats on the committee, as it was defeated by a party-line vote of 26 to 21.

Lucas noted in defense of his bill that other non-ERISA plans, such as 457s, are permitted to use CITs, and non-ERISA 403(b) plans are still required, usually by state law, to screen investments.

The next opportunity to pass the Retirement Fairness for Charities and Educational Institutions Act is expected to be in early March, when the two continuing resolutions currently funding the government expire. No companion bill has yet been taken up by the Senate.

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