David Klimaszewski, a partner in Culhane Meadows’ Dallas office, was recently interviewed for an article by PLANSPONSOR which discusses how retirement plan design changes can help close some equity gaps.
Here are some excerpts from the article:
THE SHARE OF HISPANIC FAMILIES with savings in retirement accounts declined in the wake of the Great Recession, from 38% in 2007 to 35% in 2016, while the share of Black families with retirement savings declined from 47% to 41%, according to an Economic Policy Institute (EPI) analysis of 2016 Consumer Finance data. In contrast, two-thirds (68%) of white non-Hispanic families had retirement savings in 2016, a share that was not much affected by the Great Recession (it was 67% in 2007).
Employers will need to be careful not to step into a discrimination problem when trying to make benefits more equitable, warns David Klimaszewski, a partner at Culhane Meadows PLLC in Dallas. For example, giving women a larger retirement contribution after seeing data that women are less prepared for retirement than men can create a gender discrimination problem. “That type of knee-jerk response doesn’t work well,” he says.
Trying to single out a particular class of employees, such as secretaries in a law firm, might or might not be a problem, but, generally, discrimination is something employers need to take into consideration, Klimaszewski adds.
All benefits have some sort of discrimination rule—mostly so higher-paid employees don’t get a disproportionately large share of benefits, Klimaszewski notes. However, giving lower-paid employees a better benefit is generally not a violation of those rules, and he says he has seen some employers do that.
In some cases, lower-paid employees would prefer to get a bigger paycheck than a bigger benefit. PLANSPONSOR’s 2021 Participant Survey found 52% of respondents would rather receive a $5,000 bonus than a $5,000 contribution to their DC retirement plan account.
However, sometimes increasing pay will result in a bigger benefit, Klimaszewski notes. For example, if employees are contributing a percentage of pay to their retirement plans, increasing their pay will increase the amount that goes into the plans.
Klimaszewski says it is generally OK to move the value of one benefit to another—e.g., allowing employees to use the value of unused paid time off (PTO) for student loan repayments. However, in such cases, it might become a taxable benefit, he notes.
“Employers must investigate the differences in tax rules,” Klimaszewski says. “A benefit might become taxable if an employee receives money, and it depends on how the money is paid. For example, medical coverage provided by an employer is generally tax-free, but if the employer paid cash to the employee, and the employee bought her own medical insurance, that insurance is generally not tax-free.”
Klimaszewski suggests employers should understand the discrimination rules for each benefit before structuring the design to give better benefits to certain groups of employees.
The complete article can be found here.
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