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Are Islamic-compliant funds in 401(k)s too far to go?
It wasn’t that long ago that offering domestic partner benefits was unheard of among employers of any size. Now, partner benefits have become just another part of the employment landscape and, to a degree, are taken for granted by employees using them. Companies offering these benefits typically report that any additional administrative requirements or plan costs are more than offset by their increased ability to attract and retain talented employees.
As the business world and the workforce become more global and diverse, companies are continually modifying and expanding benefit programs, including retirement plans, health care coverage and paid time off to meet the needs of their current and future workforce.
For example, some employers—particularly hospitals and other health care providers—have begun to expand the definition of dependents to include extended family and adult children who are beyond the usual cut-off age for dependent status under most employer-provided health care plans. The goal is twofold. First, it furthers the mission of these organizations to expand available health care coverage, and second, it allows them to offer something more to current and prospective employees in an industry with a chronic shortage of available talent.
Adding to the need to keep benefit programs current is an employee population that is not shy about asking for employers to accommodate their specific circumstances. “There is definitely a greater comfort level among employees about asking for what they need, including special benefit programs, an evolving definition of family, and more sophisticated time off options,” says Liz MacGillivray, the chair of the global diversity board at ORC Worldwide, a global HR management consulting firm in New York. “Employers are trying to be accommodating,” she adds.
The most common example is the shift away from set days off during the year and toward a specific number of floating holidays that employees can use for personal time, religious observance or other reasons.
Yet even as companies take broad steps to accommodate a more diverse workforce, there are still likely to be situations where employees request greater efforts to meet their specific needs. While it is tempting to handle such requests on a case-by-case basis, that can be a problematic approach if an employer does not apply the same standards to all appeals.
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Instead, companies would be well served to develop policies to help guide these decisions. “There should be some sort of standard that is articulated and allows the employer to say no to a request that conflicts with the needs of the company or other employees,” says MacGillivray.
Employers need to consider not only what is best for their employees and their business but also what is required by law. For example, when it comes to retirement plans, “plan sponsors have a fiduciary responsibility to do what is in the best interest of all plan participants,” not just a few, says Michael Thompson, a partner with the law firm Lehr Middlebrooks & Vreeland in Birmingham, Ala. Therefore, it is a good idea to understand the company’s requirements under federal, state and local laws before making any decisions about benefit accommodation.
One example of how diversity can challenge benefit decisions is whether an employer, as the retirement plan sponsor, feels it can, or should, add as a 401(k) fund option a so-called Islamic investment fund that meets the principles of Sharia, or Islamic religious law.
Such a decision likely is going to be based at least in part on whether the company is operating in areas with a large Muslim population and the number of observant Muslims in the workforce who have made such a request.
Some background: Because Islamic law forbids certain types of financial transactions, many mainstream mutual funds and other investment options in a 401(k) plan could be inappropriate for this employee population. In this case, the company might be able to add mutual funds that invest in adherence with Islamic law to their 401(k) investment menu in order to help these individuals save effectively for their retirement.
But in this case, the employer must balance the desire to help certain employee populations and fulfilling its fiduciary duty to minimize plan costs for participants. “Often, this is about trying to make everyone whole in the workplace,” says Rania Sedhom, a principal at Buck Consultants in New York. “Ideally, an employer can figure how to accommodate most employees with just a couple of changes.”
What about investment funds that are intended to represent Catholic values? Or funds that promise to invest only in financial products that conform with the Halakhah, the body of Jewish religious law?
A better approach can be to help employees understand the investments of currently available mutual funds. “The employer can help individual employees figure out what they can do on their own to make themselves whole,” says Sedhom. This approach helps employers to identify the smallest number of necessary accommodations that help the largest number of employees, thereby avoiding the confusion of developing multiple accommodations for a limited number of situations.
As the above issue suggests, to avoid having small disgruntlements turn into major challenges, companies need to develop open lines of communication with employees that can provide a sense of emerging employee needs and trends. “Someone needs to be keeping an eye on what is happening in the workforce,” says MacGillivray. This way, the company can be better prepared to deal with requests when they come.
HR, of course, can be an important conduit for this information, but front-line supervisors and managers can serve as important sources because they are often the first to hear of—and make decisions about—employee requests.
Although a company cannot accommodate all employee needs and wants, it is important to:
If an employer is seeing growth or a significant level of attrition within a specific employee population, changes to benefit programs might help to remedy the situation. If a company has the goal of becoming the employer of choice in its industry or geographic area, it needs to be willing to take action to stay current with employee needs and expectations.
Managing a diverse workforce has plenty of challenges, and benefit programs are no exception. Misunderstandings, resentments and miscommunication can occur when an employer begins making accommodations for certain individuals or groups of employees. For that reason, employers should treat benefits accommodations as an opportunity to begin a dialogue in the workplace about employee diversity.
“People don’t understand each other,” says Sedhom. “This is an opportunity to teach everyone about diversity and differences.” The good news is that young people tend to be more willing to talk about and embrace differences than some of their older colleagues, which is likely to make these issues easier to manage.
Joanne Sammer is a New Jersey-based business and financial writer. Her articles have appeared in a number of publications, including Business Finance, Consulting, Compliance Week and Treasury & Risk Management.
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