Benefits April 10, 2018

Voluntary Benefits Increasingly Offered to Help Employees With Financial Issues

Education benefits that address rising student loan debts and parents saving for children’s future college cost are financial well-being benefits that are gaining traction.

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A growing number of U.S. employers now consider voluntary benefits an integral component of their core employee benefit strategy, according to the 2018 Emerging Trends: Voluntary Benefits and Services Survey by Willis Towers Watson.

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The survey found employers are expanding their menu of voluntary benefits and services to help workers address their overall financial well-being and security. “Voluntary benefits are evolving as they become a more important differentiator for organizations,” says Mary Tavarozzi, managing director, Health and Benefits, Willis Towers Watson. “While employers continue to embrace traditional voluntary benefits, such as life and disability coverage, they are offering benefits more often to help employees and their families with their financial issues.”

Education benefits that address rising student loan debts and parents saving for children’s future college cost are financial well-being benefits that are gaining traction. According to the survey, 8% of employers currently offer student loan consolidation programs, which could increase to 34% by 2021. Similarly, 10% of employers offer student loan refinancing arrangements, which could increase to 35% by 2021.

In addition, on average, more than half of all respondents offer some form of financial planning and counseling service, which could increase another 10% by 2021.

Other voluntary benefits expected to attract more employer attention over the next few years include:

  • Identify theft protection: 36% of employers currently offer — could increase to 63% by 2021;
  • Pet insurance: 34% of employers currently offer — could increase to 57% by 2021;
  • Long-term care insurance: 16% of employers currently offer — could double to 33% by 2021;
  • Critical-illness insurance: 43% of employers currently offer — could increase to 71% by 2021; and
  • Hospital indemnity: 24% of employers currently offer — could more than double to 50% by 2021.
“With an increasingly diverse workforce, employers no longer consider voluntary benefits as simply add-ons, but rather as a way to address a host of employee needs, offer choice and allow employees to personalize their rewards,” says Lydia Jilek, director, Voluntary Benefits, Willis Towers Watson.
Ask the Experts April 10, 2018

(b)lines Ask the Experts – In-Service Distributions for Participants in Phased Retirement Program

“Our university recently instituted a ‘phased retirement’ program for faculty where they can gradually transition into retirement by working a reduced schedule while still retaining university benefits. After two years, the faculty member then formally retires from the university. Such employees remain eligible for retirement plan benefits until they actually retire, but my question relates to in-service distributions.
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“Our 403(b) plan currently permits in-service distributions of employer and employee contributions at age 59 ½, and indeed most individuals in the phased retirement program, are older than 59 ½ and thus can take distributions from the retirement plan while still working. In addition, since such individuals are older than age 59 1/2, the distributions are not subject to the 10% premature distribution penalty. However, we have a handful of individuals in the program who have not yet attained age 59 ½ and are in-service, albeit with a reduced work schedule. With the approval of counsel, our plan was amended so that phased retirement is an event upon which they can receive a distribution of employer contributions from the 403(b) plan (I realize that they cannot receive a distribution of elective deferrals while in-service). Are such distributions subject to the 10% penalty tax on early distributions?”

 

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Stacey Bradford, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

 

Excellent question, and one that frequently comes up given the rise in popularity in such phased retirement programs. Unfortunately, of the many exceptions to the 10% penalty tax on early distributions, distributions for individuals who are part of a phased retirement or similar program that assists with transition into retirement is NOT such an exception, and such individuals would be subject to the 10% premature distribution penalty for as long as they remain employed by the university, unless a different exception to the penalty applies. This penalty applies regardless of the number of hours worked by the employee.

 

It is important  to understand, however, that once the employee formally retires or otherwise terminates employment, he/she does not need to be 59 ½ in order to obtain a penalty-free distribution, presuming your plan permits distributions upon termination of employment at any age as most plans do. As pointed out in our Ask the Experts column on the subject, an employee can terminate employment as young as age 54 and be eligible for a distribution that would not be subject to the 10% penalty.

 

 

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@strategic-i.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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