Client Service May 10, 2022

What Exactly Is Driving the Great Resignation?

Panelists at EBRI’s Spring Policy Forum discussed how various demographic groups tend to reenter the labor force, how workers are supporting themselves if they choose not to return and various other factors impacting labor force participation in 2022. 

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In the first session of its Spring Policy Forum, experts called together by the Employee Benefit Research Institute discussed what is driving the “Great Resignation and Retirement” and offered key insights about what the future holds for the labor force.

As the pandemic reshapes the American labor force—with many leaving old careers or retiring in unexpected ways—the panel discussed the reason that workers are staying out of or returning to the workplace. The speakers included Craig Copeland, EBRI’s director of wealth research; Fiona Greig, JPMorgan Chase Institute co-president; Ragan Decker, strategic research initiative senior researcher at SHRM; and Chantel Sheaks, retirement policy vice president at the U.S. Chamber of Commerce.

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Recounted below are some highlights from the discussion, in which panelists discussed how various demographic groups reenter the labor force, how workers are supporting themselves if they choose not to return to the job, what employers can do to entice them back and whether retirement preparedness will be affected.

Greig on How People Are Financing a Break From the Labor Force

“During the pandemic, the United States expanded unemployment insurance in a very historic way—by increasing the level of benefits through supplements, extending the duration of benefits and also expanding eligibility significantly,” said Greig. “During 2020, we saw unemployment insurance represent 15% of total labor income. That is nine-fold more than ever before, even in prior recessions.

“We wanted to understand this question: How did labor force participation respond to these benefits? We focus on measuring this by looking at the exit rate out of UI. In other words, this is the share of people who exited UI because they found a new job during 2020 and 2021. As a baseline, prior to the pandemic, we would have seen roughly 5% of people exiting UI in any given week.

“When the pandemic hit, that exit rate dropped precipitously, and now what we are trying to measure is the impact that came when the supplements of $600 of weekly payments ceased. Did that cause an uptick in the exit rate when the $600 supplements stopped? Did more people go back to work? That was the big policy debate at the time.

“Ultimately, what we documented here is that the ‘work disincentive effects’ associated with the government support were not very big.

“Why were the work to disincentive effects during UI so small? I think this is an interesting question for this room and it remains important today, even though these expanded UI benefits have terminated. The data sheds some light on some of the underlying structural problems or forces that people were and are facing.

“Whether it is childcare supply or eligibility for childcare, I think that’s a major factor at play. Number two, health care concerns are impacting people’s decisions about work. Obviously, I might not feel comfortable going back to work in a prior workplace, especially if that work involves a lot of in-person interactions. And thirdly, it appears possible that we have overestimated these work disincentive effects in the past. I line up these questions because, as we think about what needs to change in order for the worker to come back and thrive, I think these could be some of the forces at play.”

Decker Shares Key Data on the Great Resignation

“Before turning to why workers quit and how organizations should respond, I would first touch on some data that will provide some additional context with respect to people staying out of the labor force,” Decker said. “According to the SHRM Research Institute, we found that 30% of U.S. workers who quit a job in 2021 did not have a new job lined up when they quit. This is actually up 6% from the figure measured in 2019.

“This might suggest a few things. Maybe workers have more financial freedom to take a break from work. Many people are burned out, and those who can afford it, maybe they are deciding to give themselves a break between jobs. And another thing might be that people are just confident in their ability to find another job quickly. In our research, we found that in the past six months, 98% of organizations had open positions.

“It is important to understand why workers are quitting in the first place. Many assume that there is something unique about why people are quitting their jobs right now, but our data actually doesn’t support that idea. We found that the reason for quitting has been relatively consistent over time, with one exception.

“We found that U.S. workers were actually more likely to leave for better compensation pre-pandemic, and I think this goes a bit against the narrative that a lot of people have been talking about with increased salaries and even inflation. But, while the reasons for quitting have been consistent over time, we are indeed seeing these higher levels of turnover right now.

“Why might this be? According to SHRM, we are suggesting that this might be due to ‘COVID clarity.’ The pandemic has led people to reevaluate their life and really reflect on what is most important to them. And for some, this means reevaluating the meaning of work, which I do think might be contributing to some of what we’re seeing right now.

“Getting to the most common reasons and in our data, we found that people are quitting for better compensation, better work-life balance and better benefits. And I think that these top three don’t come as much of a surprise, especially when we think about how organizations are mostly responding.

“In the first of two really interesting findings, we found that 21% of those who quit a job within the last nine months did so because their organization’s leadership lacked empathy toward employees. Empathy is one of the most important aspects of leadership. It is about being able to put yourself in the shoes of the people you lead and making a real effort to understand how people are feeling at the core. This is just about treating employees like people. And then the other surprising reason for quitting is due to a negative workplace culture, which just highlights the importance of focusing on building a strong culture.

“Organizations are offering higher starting salaries to recruit new employees. When we asked organizations in September 2021 if they were offering higher starting salaries and wages beyond normal yearly increases, as compared to 2020, 58% of organizations said that they were, but within a span of three months, we found that this number jumped to 68%.

“We found that organizations are offering many new benefits to try to reduce turnover. And also, some of these benefits might be helpful when trying to recruit new workers as well. We found that 45% of organizations are offering remote work or flexibility options, 35% are giving merit-based salary increases, 31% are giving current employees employee referral bonuses, 25% are giving spot bonuses—these are bonuses that are not holiday or annual bonuses—and then 25% are providing training and career development opportunities. Additionally, 22% are investing in team-building activities.

“Another strategy that organizations are using to retain current employees is conducting stay interviews. Stay interviews are conducted to help managers understand why employees stay and what might cause them to leave. In an effective stay interview, a manager would ask standard structured questions in a conversational casual manner. This is just a way for organizations to try to be more proactive rather than reactive and try to make some changes before an employee leaves.

“As companies continue to struggle to fill their open roles, former employees represent a potentially untapped pool of talent. A boomerang employee is one who returns to their former employer. They maybe quit, they could have been laid off, they could have been terminated. In some situations, organizations have a lot to gain in terms of lower onboarding and training costs due to pre-existing institutional knowledge.

“The top three untapped talent pools organizations are relying on right now include newly graduated college students, former employees who quit and veterans, but in comparison to last year, organizations are most more often recruiting former employees who were laid off or quit—those are those boomerang employees, as well as those with a criminal record. Traditional methods of recruitment can sometimes overlook these groups of individuals, and organizations really have a lot to gain from these untapped talent pools.”

Compliance May 10, 2022

Another Circuit Court Rules on ERISA Arbitration Rules

The 6th U.S. Circuit Court of Appeals has ruled that certain types of ERISA claims, while brought by individual participants, ultimately belong to the plan as a whole, meaning individual arbitration agreements cannot as a matter of course prevent such claims from proceeding in court.

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A new order issued by the 6th U.S. Circuit Court of Appeals sides firmly with the determination of the U.S. District Court for the Southern District of Ohio at Cincinnati, which ruled that arbitration agreements signed by the plaintiffs in the case could not stymie claims made on behalf of the plan as a whole.

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The plaintiffs/appellees in the case have alleged that their former employer, Appellant Cintas Corporation, breached the fiduciary duties it owed to the company’s retirement plan. They brought a putative class action pursuant to Section 502(a)(2) of the Employment Retirement Income Security Act.

However, as noted in the appellate order, the plaintiffs had each signed employment agreements that contained arbitration provisions. As such, Cintas moved to compel arbitration, arguing that the plaintiffs were bringing individual claims covered by those provisions. The new order rejects these arguments, meaning the case returns to the District Court to recommence proceedings.

In their order, the 6th Circuit acknowledges that the case presented “issues of first impression for this Court.”

“The weight of authority and the nature of ERISA Section 502(a)(2) claims suggest that these claims belong to the plan, not to individual plaintiffs,” the order states. “Therefore, the arbitration provisions in these individual employment agreements—which only establish the plaintiffs’ consent to arbitration, not the plan’s—do not mandate that these claims be arbitrated. Further, the actions of Cintas and the other defendants do not support a conclusion that the plan has consented to arbitration. We therefore affirm the District Court’s denial of the motion to compel arbitration.”

The ruling notes that, in deciding whether a case belongs in arbitration, a court will typically ask whether the party bringing the claim has agreed to arbitrate.

“But sometimes it is difficult to discern exactly who is bringing what claim,” the order continues. “Here, individual would-be plaintiffs agreed to arbitrate certain claims, but the claim they seek to adjudicate is brought through an unusual procedure on behalf of an abstract entity.”

The order explains that the 6th Circuit has not previously determined whether statutory ERISA claims are subject to arbitration. But, as the order states, every other circuit to consider the issue has held that ERISA claims are generally arbitrable, including the 2nd, 3rd, 8th, 9th and 10th Circuits.

“We need not reach that issue, however, because neither party argues that plaintiffs’ ERISA claims could not, in theory, be subject to arbitration,” the order explains. “ERISA imposes high standards of fiduciary duty upon administrators of an ERISA plan. Relevant here, a civil action for breach of those fiduciary duties may be brought by the Secretary of Labor, or by a participant, beneficiary or fiduciary. Cintas contends that the plaintiffs agreed to arbitrate all ‘rights and claims’ relating to their employment, including the ERISA claims at issue here. The breach-of-fiduciary-duty claims and the ‘right’ to assert them ‘belong,’ it argues, to the plaintiffs alone, and therefore this case belongs in arbitration.”

Against this argument, the plaintiffs say it is irrelevant that they may have agreed to arbitrate certain claims, since the plan has not likewise consented to arbitration. The 6th Circuit fully agrees that the plaintiffs’ employment agreements do not force this case into arbitration.

“The derivative nature of these actions comes from common-law trust principles,” the order explains. “Section 502(a)(2) merely codifies for ERISA participants and beneficiaries a classic trust-law process for recovering trust losses through a suit on behalf of the trust. Although 502(a)(2) claims are brought by individual plaintiffs, it is the plan that takes legal claim to the recovery, suggesting that the claim really ‘belongs’ to the plan. And because 502(a)(2) claims ‘belong’ to the plan, an arbitration agreement that binds only individual participants cannot bring such claims into arbitration.”

According to the law firm Proskauer, this ruling means the 6th Circuit has effectively joined the 2nd, 7th and 9th Circuits in rejecting arbitration of ERISA Section 502(a)(2) claims based on a clause in an individual employment agreement. However, as the attorneys emphasize, the 6th Circuit did not directly rule on whether an arbitration clause in a plan document would compel arbitration of 502(a)(2) claims.

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