Slow Decision-Making Can Lead To Recruitment Challenges

Slow Decision-Making Can Lead To Recruitment Challenges

To recruit and hire employees in the current digital era and hypercompetitive labor market, companies have to redefine the role of the hiring manager to ensure that they are acting decisively and quickly, as a lag in decision-making can cause organizations to lose out on the best candidates, according to a study recently released by technology consultancy Gartner, Inc.

In a report released on June 26, researchers cited an analysis showing that more than three-quarters of hiring managers do not act decisively. According to the study, the characteristics of decisive hiring managers include focusing on prioritizing future talent needs, broadening the candidate funnel, and sharing hiring decisions with experts across the organization.

The research indicated that decisive hiring managers can be highly effective, finding that such managers hire 10% more high-quality candidates and 11% fewer low-quality candidates than typical hiring managers. The study also found that organizations that reward decisive hiring manager behaviors report a 17% reduction in time-to-fill.

The results of the analysis further revealed that the amount of time it takes a hiring manager to make an offer after interviewing is currently 33 days, up 84% from 2010 to 2018. According to researchers, this longer decision-making stage results in a 16% reduction in the acceptance of offers by candidates. The findings also showed that only 31% of hiring managers understand the vision their business leader has for their team.

Researchers recommended that recruiting executives and their teams change how they partner with hiring managers. Specifically, they advised organizations to avoid relying on the hiring manager alone to determine and articulate future talent needs, and to instead encourage recruiting leaders tap into sources beyond the hiring manager to define hiring needs based on the future talent strategy of the organization, and not simply on the manager’s short-term needs.

Citing evidence that candidates trust a hiring manager nearly four times as much as they trust a recruiter to provide the information they need to make a decision, researchers further recommended that hiring managers spend more of their time engaging with candidates. They also suggested that the recruiting function encourage hiring managers to prioritize candidate engagement, motivate leaders by linking hiring to their leadership role, and make it easier for hiring managers to go beyond their existing networks in sourcing talent.

The report pointed out that additional sources of information on future talent needs include business leaders, the workforce planning team, and the analytics team, who can provide insight into critical questions regarding the skills the business needs to grow, the skills and roles their competitors are hiring for, and the future development of the local labor market.

U.S. Households Burdened By Debt Find It Hard To Save

U.S. Households Burdened By Debt Find It Hard To Save

As saving for retirement can be challenging, especially while on a tight budget, a study published in July 2019 by the Center for Retirement Research at Boston College (CRR), attempted to answer the question of why so many U.S. workers report that they have little money set aside to absorb financial shocks.

The issue brief, “Why Are So Many Households Unable to Cover a $400 Unexpected Expense?” was written by Anqi Chen, assistant director of savings research at the CRR. Citing data from two recent Federal Reserve surveys, Chen observed that despite the strength of the economic recovery in recent years, 41% of households surveyed in 2017 said they would find it difficult to cover an unexpected expense of just $400. In her study, Chen used these data to analyze the question of why so many households say they are unable to manage a relatively small unexpected expense.

The study cited survey results showing that, as expected, lower-income households were most likely to say they would be unable to pay for an emergency expense of $400, with 72% of respondents earning less than $25,000 a year reporting that they would have trouble covering such an expense. However, the findings also indicated that 34% of households with annual earnings of between $75,000 and $99,999 and 17% of households with annual earnings of $100,000 or more admitted that they would find it hard to pay for a $400 unexpected expense.

Chen pointed out that other survey data show that just 21% of households reported having less than $400 in their checking or savings accounts. She added, however, that another 17% of the households included in this survey said they would have trouble paying for an unexpected $400 expense once they paid their outstanding credit card debt, despite having at least $400 in their bank accounts.

The study looked at several possible explanations for why so many households—and especially middle- and high-income households—appear to be unable to cover a relatively small unexpected expense, including financial literacy, education, and other socioeconomic characteristics. Based on an analysis that included measures for both financial literacy and educational attainment, Chen found that financial literacy scores had little ability to predict whether a household would have trouble covering a $400 unexpected expense, while educational attainment had strong predictive power.

Moreover, the results of a latent class analysis that examined the characteristics of these vulnerable households showed that a subgroup were less advantaged; i.e., they either recently lost their job, had a low income, or had a high school degree or less. However, a second subgroup of households were identified who had relatively high incomes, net worth, and rates of participation in retirement plans, but who also had relatively high mortgage payments, credit card debt, or other loan payments.

“Many of these households may have enough liquid assets to cover a modest emergency expense but they also have mortgages, student loans, and/or other installment loans,” Chen observed. “These loan payments, which constrain their household budgets, could explain why so many middle- and higher-income households do not have precautionary savings.”

Financial Fragility of Retirees May Be Increasing

Financial Fragility of Retirees May Be Increasing

Observing that retired people have long been seen as financially fragile because they have little ability to increase their income, a study recently published by the Center for Retirement Research at Boston College found that most current retirees appear able to absorb a financial shock without a substantial reduction in their standard of living, but that future retirees might turn out to be more financially fragile as they derive less of their income from Social Security and traditional pensions and more from financial savings in 401(k)s.

Published in February 2018, the brief, “Will the Financial Fragility of Retirees Increase?” was written by research fellow Steven A. Sass. The analysis was based on reviews of studies by the Social Security Administration’s Retirement Research Consortium and others that examine how the growing dependence on household savings affects the financial fragility of the elderly.

The shocks most likely to hit the elderly were identified in the study as a spike in medical expenses and losing a spouse. The brief cited research showing that in 2013-2015, more than 20% of families aged 65 or older had to make a medical payment of at least $400, more than 1% of their annual income, and more than two standard deviations above the family’s normal monthly mean expense on health care. In addition, the brief reported the results of a study showing that women widowed between 2002 and 2004 typically got 62% of the couple’s Social Security benefit and only half the couple’s employer pension benefit.

However, the analysis found that despite being exposed to such shocks, most retirees appear to be absorbing them without incurring much hardship. For example, the brief noted, a recent study found that only 10% of households aged 65 or older reported cutting back on needed food or medication over the previous two years. “Public and private health insurance, family contributions, and the savings of the elderly seem sufficient to allow most to avoid a significant reduction in living standards,” Sass said.

At the same time, Sass acknowledged that future retirees may be less able to absorb such shocks because of their high degree of reliance on savings from 401(k) and similar defined contribution plans. For future retirees, he observed, retirement income replacement rates are projected to decline due to inadequate savings and the limited income that safe withdrawal rates provide, thereby reducing the cushion between their incomes and fixed expenses.

Overall, he concluded, the increased dependence on financial assets is likely to increase the fragility of the nation’s retirement income system given inadequate retirement savings, the limited income households are likely to get from their savings, and their greater exposure to market downturns if they hold a significant portion of their savings in equities. Among the strategies households approaching retirement can use to increase their retirement income and reduce their fixed expenses, Sass observed, are to work longer, annuitize wealth, take out a reverse mortgage, and downsize. “Whether the prospect of increased financial fragility leads them to change their behavior remains to be seen,” he said.

From Benefit Trends Newsletter, Volume 61, Issue 5

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2018 Liberty Publishing, Inc. All rights reserved.

Americans Continue To Show Inadequate Levels of Financial Literacy

Americans Continue To Show Inadequate Levels of Financial Literacy

A large share of Americans lack the knowledge associated with making sound financial decisions, and financial literacy levels are especially low in the area of comprehending risk, according to the findings of an annual survey conducted by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business.

This second wave of the “P-Fin Index” survey was conducted online in January 2018 with a nationally representative sample of 1,012 U.S. adults aged 18 or older. The results of the survey were presented in a report released on April 4. To compile the index, the researchers asked respondents 28 core questions, with three or four questions devoted to each of the eight areas of functional financial knowledge covered in the survey: earning, consuming, saving, investing, borrowing/managing debt, insuring, comprehending risk, and go-to information sources.

On average, the respondents answered only 50% of the 28 survey questions correctly. While 16% of the respondents demonstrated a relatively high level of personal finance knowledge and understanding by answering more than 75% of the index questions correctly, 21% showed a relatively low level of knowledge by answering 25% or fewer of the questions correctly.

The results further showed that financial literacy is the lowest in the area of comprehending risk, as, on average, just 35% of the questions on risk were answered correctly. According to the report’s authors, this finding is in line with other research identifying risk-related concepts as the most difficult for individuals to grasp, and is consistent with the findings from the 2017 P-Fin Index.

However, the survey also revealed that personal finance knowledge levels were relatively high on the topics of borrowing and debt management: on average, 60% of the questions on those subjects were answered correctly. Researchers speculated that for many individuals, knowledge and understanding of debt-related topics may emerge from confronting accumulated debt across the life cycle, often starting with student loans.

Moreover, the survey showed that financial literacy levels varied across demographic groups. Financial literacy was found to be significantly higher among men than women, as 21% of the male respondents, but just 12% of the female respondents, answered 75% of the survey questions correctly. Older respondents were also shown to have more financial knowledge than younger respondents: 7% of the respondents aged 18-28, but 22% of the respondents aged 60+, answered 75% of the survey questions correctly. Financial knowledge was also found to increase with income, as 30% of the respondents with an annual income of $100,000+, compared with 15% of respondents with an annual income of $50,000-$99,999, answered 75% of the survey questions correctly.

Not surprisingly, financial knowledge was shown to increase with education, with 33% of respondents with a college degree answering 75% of the survey questions correctly, compared to 6% with a high school degree only. However, the results indicated that respondents who reported that they have participated in a financial education class or program answered more of the questions correctly on average than those who had not: 24% of those who had received financial education answered 75% of the survey questions correctly, versus 13% of those who had not.

The survey also looked at how the financial knowledge levels of the respondents correlated with their financial outcomes. The findings indicated that of those respondents who said they certainly or probably could not come up with $2,000 if an unexpected need arose within the next month, 49% answered less than 26% of the survey questions correctly, while just 8% answered 75% of the survey questions correctly. Moreover, of the non-retirees who reported that they have tried to figure out how much they need to save for retirement, only 22% answered less than 26% of the survey questions correctly, while 65% answered 75% of the survey questions correctly.

From Benefit Trends Newsletter, Volume 61, Issue 6

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2018 Liberty Publishing, Inc. All rights reserved.

Monitoring Retirement Fund Menus Can Improve Performance

Monitoring Retirement Fund Menus Can Improve Performance

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The monitoring of defined contribution (DC) retirement plan menus by plan sponsors in order to identify underperforming funds and replace them with more attractive funds can provide value to plan participants, according to new research published by Morningstar Investment Management.

In a white paper entitled “Change Is Good,” released on April 15, researchers observed that when retirement plan sponsors evaluate the quality of mutual fund investments offered to plan participants, they may occasionally decide to replace one fund with another. The authors noted that previous studies of plan sponsor replacement decisions have suggested that the decision to replace funds is frequently motivated by historical performance data relative to a benchmark that does not predict future performance. They pointed out, however, that even though this monitoring activity is an important function of investment fiduciaries, little is currently known about whether adding and removing mutual funds from a plan menu is valuable for participants.

To investigate the monitoring value provided by plan sponsors, researchers analyzed a unique longitudinal dataset of plan menus from January 2010 to November 2018 that includes 3,478 fund replacements across 678 DC plans. For each plan, the analysis compared the menus for two different periods, employing a matching criterion to determine when a fund was replaced. A fund was deemed to have been replaced if it did not exist in the later menu, and a new fund was added in that later menu that was of the same investment style, such as bond or equity.

The results indicated that, on average, the replacement funds had better historical performance and lower expense ratios, as well as more favorable comprehensive metrics based on star and quantitative ratings, than the funds they replaced. The analysis also showed that the largest performance difference between the replacement and replaced funds was for the five-year historical returns. According to researchers, this finding suggests that the five-year historical reference period is the one that carries the most weight among plan sponsors.

In addition, the analysis revealed that the future performance of the replacement fund was better than the fund being replaced at both the future one-year and three-year time periods. The authors emphasized that this outperformance persisted even after controlling for expense ratios, momentum, style exposures, and other metrics commonly used by plan sponsors to evaluate funds, such as the star rating and the quantitative rating. “Our findings suggest that monitoring plan menus can have a positive impact on performance,” the authors concluded.

Researchers cautioned, however, that while they were able to analyze certain factors related to the outperformance of replacement funds—such as the type of fund, lower expense ratios, higher recent historical performance, and various ratings—the primary drivers of the outperformance remain unclear, because the dataset provided no information about the decision-making process plan sponsors use to determine whether a fund should be replaced, or about other salient factors, like the relative importance of the fund being replaced or how long the fund has been in the plan. Thus, the study’s authors added, although the analysis suggests that monitoring fund menus can improve performance, “more research on why this effect occurs is warranted.”

From Benefit Trends Newsletter, Volume 62, Issue 6

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2019 Liberty Publishing, Inc. All rights reserved.

New Retirement Savings Plans Are Needed To Ensure Financial Security

New Retirement Savings Plans Are Needed To Ensure Financial Security

While the vast majority of Americans who save for retirement do so through a 401(k) or similar plan provided by their employer, additional types of saving plans may be needed to help the millions of workers who are not adequately saving in workplace plans build a financially secure retirement, according to an article published on March 14 by The Pew Charitable Trusts.

The article, “3 Ways People May Save for Retirement in the Future,” was written by John Scott, director of Pew’s retirement savings project. Scott observed that “we may have reached the limit of what our employer-sponsored system can do to support a secure retirement,” as currently only about half of private sector businesses offer retirement benefits, and even though around 140 million people participate in retirement plans, the proportion of the employed workforce covered by these plans has never exceeded 70%.

Scott argued that while Congress could increase incentives to encourage more employers to sponsor plans, he noted that previous research has shown that small employers are often reluctant to offer retirement benefits because of the plan startup costs and administrative burdens, and that it is not clear that offering them a new tax break would overcome these concerns.

Given that is unlikely that many more employers will start voluntarily offering retirement benefits or that many more employees will start saving on their own, Scott said, new approaches that build on the elements that are known to work in the current system should be considered. Specifically, he recommended the development of a low-cost, portable, individual-based system, managed by a third party, that allows workers to automatically contribute to their own retirement account with each paycheck, and that gives employers the option to add to those accounts through a matching contribution.

While acknowledging that no current initiative fully captures these ideas, Scott noted that recent actions at the state and Federal levels point to the outlines of a system that could cover more workers, without relying solely on individual employers to sponsor their own retirement plan.

Among these initiatives, Scott said, are state-level retirement savings programs for employees without a workplace plan. He reported that California, Connecticut, Illinois, Maryland, and Oregon are implementing programs in which workers are automatically enrolled at a default rate of contribution, typically around 5% of pay, and with the ability to opt out at any time. In these programs, employers facilitate worker contributions through their payroll systems, but otherwise are not involved.

Scott also mentioned that a new approach may come from Congress, as the Retirement Security Act, which would allow any group of employers to share plan costs in group plans known as multiple employer plans, or MEPs, was recently introduced in the Senate. He observed that these plans could be especially helpful to smaller employers wary of the administrative costs of offering a stand-alone plan.

Finally, Scott pointed out that there are more than 10 million independent or contingent workers in the U.S. who have very low rates of retirement benefit coverage. To help these workers save in a changing economy, he recommended the development of retirement savings models that expand coverage options, possibly using new entities affiliated with associations, unions, or industry sectors

From Benefit Trends Newsletter, Volume 62, Issue 4

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2019 Liberty Publishing, Inc. All rights reserved.