By Trent Teesdale, CEBS | Senior Vice President of Business Development

The outbreak of Coronavirus early in the year caused employers across the globe massive and unforeseen challenges. Following the announcement of the global pandemic, school districts and municipalities were forced to quickly respond by shutting down offices, parks, classrooms and other public spaces to maintain social distancing recommendations. We understand that many entities have had to utilize already limited funding to invest in technology, training, and safety equipment during this time—all while keeping our community resources and public education running smoothly. This expansion of services using the same—or in some cases, less—fiscal resources have many public entities turning to layoffs in order to alleviate the financial burden.

On the other side of the spectrum, some organizations are faced with an increase of attrition due to the fear employees may have about returning to a physical work environment as public spaces slowly begin to reopen.

So how do we combat the cost of mass layoffs (both financially and through a loss of resources) and avoid losing too much of the workforce at once due to attrition?

Avoiding Mass Layoffs through a Strategic Buyout Strategy

Unlike the private sector, local governmental entities rely heavily on employees to keep operations running smoothly, as opposed to technology or process enhancements. Since payroll expenses usually account for 60% of a public sector employer’s operational costs, mass layoffs may seem like a logical step to take to reduce spending. However, layoffs in and of themselves can prove to be pricey and should be a last resort—especially when the majority of employees are involved in bargaining or union groups that often contractually require the least senior employees be laid off first. This means that employers would need to reduce their workforce by twice as much to achieve the same financial relief as perhaps laying off a more tenured employee. Knowing this, you can structure your benefits in a way that creates a win-win arrangement for all. Below is a readily available option.

Offer an Early Retirement Incentive

Creating retirement incentives for those who are close to retirement or eligible for retirement is a mutually beneficial way to reduce your workforce without the added cost of paying for unemployment. Oftentimes employees are hesitant to retire before age 65 because they cannot afford health insurance prior to Medicare eligibility. A Retiree Health Reimbursement Arrangement (rHRA) directly and efficiently addresses this need. Funded upon retirement, the rHRA helps bridge the gap between retirement and Medicare eligibility by providing tax-free funding for medical expenses. Special forms of compensation such as unused sick and vacation pay can be used to fund the rHRA, which means the employer is simply using existing earmarked funds more efficiently.

You can further incentivize early retirement by creatively structuring your HRA. For example, you could offer a certain contribution amount for
individuals who waive access to employer-sponsored health insurance or offer a larger lump sum contribution to employees committing to an early retirement decision in writing. The flexibility of the HRA allows you to design it based on the specific issue you need to solve.

rHRA at a glance

  • Early retirement incentive
  • Bridges gap between retirement & Medicare eligibility
  • Can be funded using accumulated leave
  • Triple tax free (tax-free contributions, growth and reimbursements)
  • Flexible plan design means HRA can be structured to meet your specific needs

Attracting and Retaining Talent to Combat Too Much Attrition

In other cases, there may be instances of too much attrition. Organizations have always struggled with employees leaving in pursuit of higher pay, advancements, or family moves. Now, in today’s climate, this issue may be exacerbated by an increased health risk to employees with compromised immune systems or who are over age 60; the fear of adapting to a new set of challenges once onsite classes resume; or overall reduction in job satisfaction. According to a recent USA TODAY/Ipsos poll, 1 in 5 teachers are not likely to return to work. For those over age 55, it’s 1 in 4. However, with creative solutions, employers can offset some of the unwanted attrition.

Offer a Retention Incentive

If your organization is faced with a potentially damaging workforce reduction, the defined contribution HRA (dcHRA) can serve as an incentive for current employees to stay as well as a reason for jobseekers to choose you. Funded while the employee is actively working, the dcHRA can allow plan factors such as a vesting schedule, which incentivizes employees to stay with their employer until they are fully vested in their benefit. Additionally, opting to make a defined annual contribution into the employee’s plan versus a retirement-based defined benefit is a more attractive option that employees can immediately see. As the employer, you would make a tax-free contribution each year into the employee’s dcHRA. Funds are invested for potential tax-free growth and can be used tax-free post-employment by the employee, their spouse and eligible dependents.

dcHRA at a glance

  • Retention tool
  • Attracts talent
  • Can be funded using accumulated leave
  • Vesting schedules can apply
  • Triple tax free (tax-free contributions, growth and reimbursements)
  • Flexible plan design means HRA can be structured to meet your specific needs

Through these uncertain times, we can work with you to determine a path forward that not only saves your organization money but grants you peace of mind.

To learn more, click the link below that best fits your organization’s current need.

Click here to learn more about attracting and retaining talent to combat attrition.

Click here to learn more about avoiding layoffs through strategic buyout strategies.

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