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Treasury Secretary Janey Yellen said earlier this month that US borrowing might exceed the current debt limit as soon as June 1st, which has far-reaching implications throughout the US and around the world, including direct and indirect impacts to the employee benefits space.
Probably the first and most important thing to note is that while we’ve inched fairly close to the brink on a few occasions in the past, ultimately, Congress has never failed to increase the debt limit before it has been breached. In fact, the debt ceiling has been successfully raised more than 100 times since the legislation that created it was enacted in 1917 and more than 14 times just since 2001.
It’s also important to note that financial markets are currently reacting for the most part as though they expect the impasse to be resolved prior to default, just as it has in the past, though more than a few business leaders and economists are increasingly sounding the alarms, including JPMorgan Chase CEO Jamie Dimon who called default ‘catastrophic’ and has now assembled a ‘war room’ to prepare for the possibility.
To that end, how might a similar war room look if it were staffed by human resources professionals and focused on the employee benefits and workforce management implications of this kind of black swan event?
The main topic of concern on the list would likely involve retirement issues. In the event that the US treasury runs out of money and is statutorily prohibited from borrowing more, barring some kind of interim patchwork solution, social security checks could no longer be paid out, for one.
This scenario should not be mistaken for a government shutdown, which has happened several times in the past and during which social security checks may be delayed and/or lost as a result of administrators and postal workers/operations not being funded, but national default would be a whole different animal where social security payments cease simply because the money to cover them isn’t available.
Further, while other financial and retirement benefits won’t be as directly affected, per se, they will nonetheless be significantly impacted as a result of the default, which would send shockwaves throughout markets pretty much across the globe, with 401ks and defined benefit plans that are more closely linked to stock market performance likely getting hit especially hard.
Beyond the lost value of the nest eggs that social security, pensions, and retirement plans encapsulate, there are also practical impacts to consider in terms of how that value reduction will impact employees’ intended retirement timelines, which in turn will affect both the workforce and employers, up and down the ladder.
While it may seem intuitive that an economic downturn and a steep drop in stock prices could make would-be retirees more inclined to stay on the job longer than previously intended, research during and after the financial crisis of 2008 seems to indicate that impending retirements were only delayed by a month and a half on average. In fact, at least one study has shown that there may be a negative correlation between stock market performance and retirement, with economic downturn catalyzing some retirees to abandon ship earlier than they otherwise would have, though other tangential decision-making factors may have been more influential in the retirees’ equations than market performance.
In an effort to avoid missing the forest for the trees, this may be a good point at which to reiterate that this kind of national default has never occurred in the history of our country, and there is good reason to believe (or at least hope) that we will once again find a way to avoid the major consequences that would surely accompany this sort of self-inflicted wound.
Toward that end, it’s also worth noting that even in the event that congressional leaders do not successfully raise the debt ceiling prior to the exhaustion of our US treasury reserves and borrowing capacity, there are potential yet untested avenues that President Biden can explore unilaterally to continue paying the nation’s debts as they accrue - even in the absence of a congressionally-sanctioned debt ceiling increase - including minting a trillion dollar coin and/or directly challenging the constitutionality of the debt ceiling itself.
Whatever the ultimate means to finding a resolution to the current debt limit stand-off may be, however, those means are almost certainly going to be substantially less damaging than the alternative plunge off the fiscal cliff would be. Retirement accounts and employee benefits certainly hang in the balance. Of course, so do markets generally, US international stature, the preeminence/value of the dollar, and more, and as of this writing, we may only have a couple of weeks before we find out the hard way what happens when the full faith and credit of the US is no longer a given.
The unemployment rate dropped another tenth of a point to 3.4% in April, which matches January’s rate as the lowest rate on record since the 1960s.
US payrolls added a little more than a quarter million new jobs added last month, which was essentially on par with the month prior and stopped - or at least paused - the downward trend in new job additions that have followed in the wake of January’s unseasonably strong performance.
The number of job openings decreased again last month, though the pace of loss slowed, with only 384 thousand fewer jobs as of March (the most recent data available) relative to the 630 thousand reduction recorded in February.
The hiring rate held steady at 4%, though the total number of hires fell from 6.2 million to 6.1 million, month to month.
The hiring slow-down was more pronounced in the Midwest and West regions, which both saw a minus 0.4% reduction in hiring over the month, whereas the South and the Northeast each only registered a minus 0.1% drop in their respective regional hiring rates. Despite these reductions, the South still maintains the largest hiring rate at 6.6%, followed by the Northeast and Midwest at 5.4% each, with the West trailing behind at 5.2%.
The separation rate held steady at 3.8%, though the total number of separations inched back up from 5.8 million to 5.9 million, matching January’s figures.
The quit rate in March similarly lined up with the numbers reported in January, with raw jobs numbers falling about 100k to return to 3.9 million from 4 million, while the quit rate returned to 2.5%, down a tenth of a point from February.
And lastly, reversing course from the month before, the number of layoffs and discharges actually increased by nearly a quarter million to reach 1.8 million, with the associated rate climbing from 1% to 1.2%.
Inflation rose by 0.4% seasonally adjusted in April. Over the past 12 months, CPI is up 4.9% as of the latest survey, down 0.1% from the 5% trailing 12-month CPI average reported last month.
Further, a recently released consumer sentiment survey from the University of Michigan indicates that while the one-year inflation forecasts are falling (down 0.1% over the month from 4.6% to 4.5%), their five-year inflation forecast saw a 0.3% month-to-month increase from 2.9% to 3.2%, indicating growing pessimism with regard to inflation on the longer-term timeline.
Health insurance premiums increased by 3.4% across the US in 2022, according to a recent report, which was a change in direction from the small decreases in premium prices that had been registered over the last few years.
Small businesses have been hit particularly hard of late, with premiums having risen by 18% since 2018.
According to this report on wellness, more than 4 out of 5 employees across the globe place their own well-being on equal stature with their salary. In fact, more than 3 out of 4 respondents claimed they would leave any job that no longer prioritized their well-being.
In another survey, 85% of responding employees claimed they would take into account the kinds of mental-wellness-related employee benefits, perks, and services that are offered when they’re making decisions about potential new job opportunities.
Further, businesses that undertake these kinds of efforts tend to gain improved reputations via this show of care for their workers, which in turn helps with both recruiting new talent and employee retention.
Corporate wellness apps, for example, have been growing in popularity as a means of promoting wellness culture in the workplace. Some particularly effective aspects and uses of these applications include:
A recent survey indicates the value employees are placing on fertility benefits is on the rise, with just under one-third of respondents (31%) reporting feeling financially secure enough to pursue fertility treatments if necessary, which correlates rather cleanly to the nearly two-thirds (65%) of respondents who said they would switch jobs in order to obtain fertility benefits.
Some employee benefits and perks that are currently increasing in popularity include schedule flexibility, additional parental leave and paid time off, wellness benefits with both health and financial focuses, professional development, up-to-date technology and equipment, and a company mission that embodies values that they share.
While about 1 in 4 US employees will experience disability prior to their intended retirement, only about 42% of employers even offer short-term disability insurance, and that number shrinks to 34% for long-term disability plans.
With Millennials now making up the largest generational proportion of the workforce while also tending to the needs of both aging Boomer parents and raising a large portion of Gen Z and Gen Alpha, caregiving benefits are on the rise, with nearly half of all employers in the US (46%) prioritizing childcare benefits among their employee benefits offerings, while only slightly fewer (43%) have added senior care benefits, as well.
Some of the top strategies for rewarding loyalty and conveying the company’s appreciation to loyal workers include:
The SECURE Act went into effect in the closing days of 2022 and can reduce tax expenses for small businesses that have at least one employee (not including the owner of the business) who makes less than $135,000 a year. The size of the tax credit will be calculated based on the total number of employees whose wages fall below that threshold, with an annual cap of $5,000.
With regard to an employer's ability to discipline employees for abusive speech and/or behavior, a recent ruling from the National Labor Relations Board reinstates the setting specific test which looks at these disputes on a case-by-case basis and takes into account the context and protected nature of employees right to advocate for improved working conditions when evaluating the appropriateness of arguably profane behavior or speech.
The Telehealth Expansion Act is a bipartisan bill in the US Senate with the potential to ensure that employees with health savings accounts and high deductible plans are still able to access affordable telehealth services without first having to have met their deductible now that the public health emergency has formally concluded.
This recent article contends that there’s no problem with looking at job applicants’ social media so long as employers don’t use any information obtained to discriminate against the applicant, especially as it pertains to any membership the applicant may claim among legally protected groups defined by religion, race, or gender, for example. But the authors recommend against monitoring the social media of current employees unrelated to work as it tends to be unproductive.
There are a number of different types of pre-tax deductions that can be arranged to mutually benefit both employers and employees. Some examples include contributions toward health plans, insurance coverage, dependent care, and transportation benefits, all of which can be taken from an employee’s gross income prior to calculating any taxes.
However, there are several relevant compliance issues that must be taken into consideration, given that many types of pre-tax deductions are capped, including some retirement accounts, FSAs, and HSAs. Also, there are eligibility requirements, specific rules for specific plans, and limitations that apply exclusively to highly-compensated employees that must all be adhered to when administering these types of programs, as well.
Bringing health care to your employees where they’re already collected can potentially reduce expenses, and there are a variety of different set-ups from which to choose - ranging from episodic visits for special purposes (e.g., vaccinations, annual checkups, screenings, etc.) to recurring visits from physical therapists and/or registered nurses and/or physicians depending on the breadth of services desired.
Beyond convenience and reduced expenses, onsite wellness services can lead to a number of other benefits for employers and employees alike, including fewer employee absences, a greater sense of job satisfaction, a higher retention rate, increased work output, tailored programs, and healthier work culture.
Some of the top ways that AI is currently shaping the insurance industry include:
While AI is solving many existing problems, however, it is also creating some novel ones, including ethical concerns about AI being trained on bad data and inadvertently perpetuating bias and/or mistakes, data security and privacy vulnerabilities, and the difficulty in managing a customer base, some of whom are reluctant to adapt to new technological interfaces.
Of course, AI is likely to cause quite a bit of disruption in the workforce, with machine intelligence set to replace about 8 thousand (30%) of IBM’s ‘back office’ employees in the next few years, as one example.
Passwords are the first line of cybersecurity defense from small businesses to international mega-corporations, but research on the ten most commonly used passwords at the world’s largest 500 companies across 20 industries indicates that this is a major area of vulnerability, with some of the most common passwords including “password” and “123456”.
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