New Realities or Temporary Shifts?

Difficult times call for new catch phrases to convey altered circumstances. In the employment arena, these include "hiring chill" and "pay pause" to describe tactics implemented by employers to address the need to quickly cut costs across the board.

Amid tough actions like postponing sabbaticals and increasing teaching loads, higher education institutions are also taking the opportunity to think creatively about ways to combine programs and services, such as merging child-care centers and early childhood-development education programs. More are likewise looking to maximize use of their infrastructure through expanded summer programs to provide new revenue streams. In short, when it comes to cost-cutting and revenue-enhancing strategies, nothing is off the table for discussion.

Despite already deep cuts and consolidation, some say the worst is not over. The mood remains somber for many institutions as leaders wait on fall enrollment figures, state budget decisions, and for a stagnant market to regain momentum to mitigate endowment losses. As college and university administrators tackle the short-term need to enact dramatic change, the larger question may be whether some of these interim changes will stick.

Will employers and employees learn to operate within a leaner work environment? Will staffing cuts made today reveal that certain positions were never needed in the first place once priorities are clearly defined? What will change about the employer-employee relationship with regard to performance expectations and loyalty?

Even as new operational norms could be solidifying for business and industry, is a new mind-set among Americans also settling in with regard to work/life balance expectations and enhanced personal initiative to take charge of their financial futures? Highlighted below are overviews excerpted from three recent surveys that offer a glimpse of what may be shaping up as near- and long-term trends.

Hay Group's "Reward in a Downturn"

A total of 2,000 organizations from 88 countries across six continents participated in Hay Group's Reward in a Downturn survey in March 2009—the third in a series of surveys. (For more information or full survey results, go to www.haygroup.com.)

The March survey reveals a deepening recession that has become truly global—one that affects the pay, benefit, and job prospects for employees at all levels throughout the world. Salary freezes have become quite common, with 36 percent of organizations globally indicating such action. Around the world, 27 percent of organizations are decreasing their staffing levels, compared to 17 percent in November 2008. Many organizations that one year ago were having trouble filling vacancies are now resorting to job cuts.

Furthermore, training and development programs are being decreased or eliminated by 27 percent of global respondents. Organizations are also cutting overtime wages (19 percent) and the use of contract laborers (30 percent). However, most are keeping their benefits programs relatively intact for now. Few organizations are eliminating or decreasing health-care benefits (5 percent) or savings plans (3 percent).

Projected responses. Based on the trends in this and previous surveys, if the global downturn continues to deepen, then the following scenarios are real possibilities for the rest of 2009 and beyond:

• An increasing number of organizations will impose salary freezes.
• A growing number of employees will face the choice of either accepting pay cuts or facing job losses.
• Organizations will increasingly look to cut their contributions to pension schemes, and the trend away from defined benefit schemes will accelerate.
• Other benefits, such as medical insurance, which have been spared review so far will come under scrutiny.

Employee versus employer fears. Not surprisingly, the primary concern for employees is job security, with 88 percent of organizations reporting this as a concern. Specifically, 87 percent of organizations state their employees are concerned about salary levels and 85 percent about the cost of living and inflation. The two primary concerns for employers during these challenging times are the ability to retain top talent and employees with critical skills (89 percent of employers stating concern), and the ability of organizations to maintain an engaged and motivated workforce (91 percent).

U.S.-specific findings. Forty percent of U.S. organizations continue to expect business results to be significantly worse than targeted or budgeted levels. This is up from 16 percent in March 2008. As a result, organizations have significantly tightened the reins on wage increases, with executives taking the biggest hit. While 37 percent of organizations have instituted a wage freeze for their employees, more than half of the 511 participating U.S. organizations report that their executives will receive no increase.

In addition to wage freezes and modest salary increase budgets, organizations have also substantially tightened their belts on overall staffing levels. Of the U.S. organizations surveyed, 34 percent report decreasing their overall staffing levels, up dramatically from 19 percent in November 2008.

Within the benefits arena, significant changes to retirement programs are being made as a result of the deteriorating economic conditions. One fifth of organizations with either defined benefit or defined contribution retirement programs are reporting that they are considering making changes to the value of these programs. Of organizations making changes to their defined contribution plans, the vast majority (78 percent) report they are considering decreasing the benefits levels to this plan. Organizations making changes to defined benefits programs indicate the most common likely changes are closing membership to the plan (34 percent), decreasing benefits levels (34 percent), and moving members to a defined contribution plan (32 percent).

EBRI's "Retirement Confidence Survey"

The headline of EBRI's 2009 Retirement Confidence Survey executive summary may say it all: "Economy drives confidence to record lows; many looking to work longer." (The full report of the survey, conducted in January 2009 through 20-minute telephone interviews with 1,257 individuals in the United States, is available at http://www.ebri.org.)

Confidence hits a record low. Workers who say they are very confident about having enough money for a comfortable retirement this year hit the lowest level in 2009 (13 percent) since the survey began asking the question in 1993. This continues a two-year decline from 27 percent in 2007. Retirees also posted a new low in confidence about having a financially secure retirement, with only 20 percent now saying they are very confident (down from 41 percent in 2007).

The survey sought to explore the reasons behind this loss of confidence by asking workers whether they had experienced various financial events over the past year. Roughly half of workers report that the value of their retirement savings decreased (53 percent of those who had saved for retirement), their day-to-day expenses increased (52 percent), and the amount they paid for health care increased (46 percent). Substantial percentages also indicate that the amount they were able to save (41 percent), the value of their nonretirement savings (38 percent), and the value of their home (30 percent) decreased.

Other negative financial experiences that workers report having in the past year include:

• An increase in the amount they pay in mortgage or rent (25 percent).
• A major illness or other medical event suffered by themselves or an immediate family member (25 percent).
• An increase in their level of debt (24 percent).
• A decrease in the level of retirement plan benefits offered by their or their spouse's employer (24 percent of those employed).
• Having to provide significant financial assistance to a family member or friend (23 percent).
• Losing a job or having to move to a lower-paying job (21 percent).
• Home foreclosure (1 percent).

The economy, inflation, and cost of living are top concerns. Not surprisingly, workers overall who have lost confidence over the past year about affording a comfortable retirement most often cite the recent economic uncertainty (92 percent) and inflation and the cost of living (88 percent) as primary factors. Workers who say they are very confident in having enough money to take care of basic expenses in retirement dropped to 25 percent in 2009 (down from 40 percent in 2007), while only 13 percent feel very confident about having enough to pay for medical expenses (down from 20 percent in 2007).

Retirement expectations are delayed. Given these uncertain conditions, workers apparently expect to work longer because of the economic downturn: 28 percent of workers in the 2009 survey say the age at which they expect to retire has changed in the past year. Of those, the vast majority (89 percent) say that they have postponed retirement with the intention of increasing their financial security. Almost two thirds of workers delaying their retirement age (63 percent) say that this change occurred after September 2008. Among the reasons cited for this change are:

• The poor economy (36 percent, up from 15 percent in 2008).
• The need to make up for losses in the stock market (28 percent, up from 3 percent).
• Job loss or change in employment (10 percent, not mentioned in 2008).

While the average age at retirement is likely to continue to increase and many workers may work until their planned retirement age, others could find themselves retiring sooner. The survey has consistently found that a large proportion of retirees leave the workforce earlier than planned (47 percent in 2009).

Workers are changing behaviors. In addition to changing their expectations about retirement, many workers who have lost confidence in their ability to secure a comfortable retirement are responding by taking certain steps to improve their situation. The large majority of these workers (81 percent) say they have reduced their expenses. Others are changing the way they invest their money (43 percent) and working more hours or a second job (38 percent). Steps taken by fewer of these workers include:

• Saving more money (25 percent).
• Seeking advice from a financial professional (25 percent).
• Moving to a less expensive home or area (11 percent).

Among all workers, 75 percent say they and/or their spouse have saved money for retirement, one of the highest levels ever measured by the survey. More workers are also planning to supplement their income in retirement by working for pay. The percentage of workers planning to work after they retire has increased to 72 percent in 2009, up from 66 percent in 2007 and 63 percent in 2008. (This compares with 34 percent of retirees who report they actually worked for pay at some time during their retirement.)

Financial ignorance remains a major factor. Interestingly, the percentage of workers who feel that preparing for retirement takes too much time and effort has increased (from 14 percent in 2002 to 21 percent in 2009). Many workers still do not have a good idea of how much they need to save for retirement. Only 44 percent of workers report they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire—and an equal proportion (44 percent) simply guess at how much they will need for a comfortable retirement.

One of the primary vehicles that workers use to save for retirement is an employer-sponsored retirement savings plan, such as a 401(k). Seventy-eight percent of eligible workers (44 percent of all workers) say they participate in such a plan. The large majority of workers participating in the plan (72 percent) state that they have not changed the percentage of their salary contributed to the plan in the past year. However, 16 percent say they increased the percentage contributed and 11 percent decreased the percentage. Furthermore, half of participants (49 percent) report that they last reviewed how their money is invested in the plan and made any necessary adjustments in the last quarter of 2008. Twenty-one percent say they last reviewed their asset allocation earlier in 2008, while the remainder admit they last reviewed their plan investments in 2007 (12 percent) or even earlier (13 percent).

The harsh reality is that many Americans have little money put away in savings and investments. Among survey respondents providing this type of information, 53 percent of workers report that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. In fact, 20 percent say they have less than $1,000 in savings. Approximately 1 in 10 workers each report total savings and investments of $25,000—$49,999 (11 percent); $50,000—$99,999 (12 percent); $100,000—$249,999 (12 percent); and $250,000 or more (12 percent).

MetLife's "Study of the American Dream"

In January 2009, MetLife commissioned its third annual survey among the general U.S. population. The purpose of the survey, which included responses from 2,243 individuals through online surveys, was to gauge whether the American dream is still alive and how it is being defined by the American consumer. (To download a copy of the full 2009 study, visit www.metlife.com/americandream.)

In short, while the majority of Americans believes they can still achieve the dream, they have indicated that for the next year they'll concentrate on shoring up the foundation of their personal safety nets. For the one-third of Americans who believe they have already achieved the dream, being able to sustain the dream is becoming as important as achieving it in the first place.

Among the key findings:

Half of Americans are living bill to bill. Work—and the paycheck and benefits associated with it—is the linchpin holding together the American dream. With the number of Americans collecting unemployment benefits in early February 2009 at its highest rate since 1982 (according to U.S. Department of Labor statistics), few have cash reserves on hand to cover monthly expenses in the event of a job loss. A disturbing 50 percent of Americans say they are only one month or less away from not being able to meet their financial obligations if they were to lose their job. More than half of these, a startling 28 percent of the total respondents, couldn't survive financially for more than two weeks. Unlike previous downturns, the current economic crisis is cutting across all socioeconomic and political groups; no generation, political party, or racial/ethnic group is immune.

Personal safety nets will play a more important role. For many Americans, worries about their financial instability are intensified by weakening public safety nets and by inadequate levels of personal savings and insurance protection. Across all generations, 8 in 10 Americans say that having a personal safety net—made up of cash, savings, and protection products—will be more important this year than last. Despite this, nearly three quarters of the public admit to not having adequate protection. With uncertainty surrounding the future viability of traditional social and corporate safety nets (Social Security, Medicare, and defined benefit pension plans), three quarters of Americans say they are taking steps to put their own personal safety nets in place. And yet, only 35 percent of Americans are now confident that they will be able to go it alone. This is down slightly from 37 percent in November 2006 and 36 percent in 2008.

Americans also understand that a personal safety net should not only include a cash cushion to cover expenses for a period of several months, but should also contain a broad range of protection and savings products such as health and life insurance and retirement savings. Currently, Americans count auto insurance (60 percent), health insurance (57 percent), life insurance (46 percent), homeowner's insurance (45 percent), a retirement savings plan such as a 401(k) (40 percent), and cash on hand for three to six months (35 percent) as the top six components of their safety net. Among the top 10 items that consumers would most like to have in their safety net, most are insurance-related products such as long-term care insurance, health insurance, life insurance, annuities, or conservative investments such as cash or bonds.

Americans put a premium on protection. In this environment, Americans are putting a premium on protection and stability. Consumers are now eyeing more conservative investments and protection products for their safety nets. Americans are also more interested in guarantees today than they were in years past, with 80 percent of consumers now reporting that they favor stability over returns.

Americans are redefining the American dream. As far as the U.S. economy, the majority of Americans expect the road to recovery to be a long one. Most predict that it will take one to five years for the country's economy to improve, with 35 percent forecasting one to two years and an additional 34 percent saying three to four years. Almost half (49 percent) believe that the creation of new jobs is the action that will do most to jump-start the economy. Increased consumer spending is seen as less important (7 percent).

While the inaugural MetLife study first characterized the American dream as a never-ending chase, today's dream is much more closely aligned with the traditional view of the dream of previous generations, buoyed by American pragmatism rather than unbridled consumerism. While still defined first and foremost by financial security, the dream now also includes a much greater emphasis on personal relationships with spouse, children, and family.

Karla Hignite, principal of KH Communication, is editor of NACUBO's HR Horizons. E-mail: karlahignite@msn.com.