Employers Return Attention to Retirement Benefits

After years of enduring a sour economy, many employers with 401(k) plans now are looking ahead and trying to sweeten their plans to increase their recruitment and retention power.

For many, the first ingredient involves restoring the matching contribution — a benefit that many employers dumped when the downturn hit. Most employers have already taken this step, according to a new industry survey reported in Business Insurance. Three-quarters of employers that suspended a 401(k) match have restored it, according to a poll by Towers Watson. Seventy-four percent of those employers bumped the match back to its original total. Nearly a quarter of companies (23 percent) restored the match but at a lower rate this time around.

In addition to bringing back the match, employers can mix up plan types and help provide information and support to get employees’ retirement savings back on track.

For example, Roth 401(k)s, which allow employees to contribute after-tax funds, are getting serious looks from employers these days. A poll by The Profit Sharing/401(k) Council of America notes that 46 percent of employers offered this choice in 2010, compared with 18.4 percent in 2006, according to Workforce Management.

The Roth option may be attractive to many workers because those employees’ current tax bracket likely will rise as they get older and make more money, the report said. Under that scenario, Roth participants would see savings through a lower tax bill in retirement.

Companies also can encourage their employees to fatten their retirement prospects by encouraging smart investing and finding resources to help them make the right decisions, experts said. A number of industry surveys have shown that advice from investment professionals leads participants to save more and diversify their portfolios.

Luckily for employers, many plans and benefit advisors now offer personalized, full-service advising in addition to educational materials about general investing, according to a report in The Wall Street Journal.

A recent survey by the Plan Sponsor Council of America noted that 58 percent of profit-sharing and 401(k) plans offered investment advice in 2010. Also, the Department of Labor recently relaxed a rule allowing providers to offer advising services directly to employees rather than having to go through a third party.

Unfortunately, employees have been slow to take advantage of either the Roth option or investment advice. For instance, only 16 percent of employees select the Roth plan when it is offered, the Profit Sharing/401(k) Council of America reports. As for investment advice, only a quarter of employees take advantage of that feature when it is available, according to the WSJ report.

Despite these challenges, most companies — including small businesses — are renewing their commitment to their retirement benefits and are working to keep the benefit attractive.

“A few years ago we’d have small-business owners who wouldn’t put [retirement] high on the list of things that attract and retain employees,” Rich Linton of Bank of America Merrill Lynch told Employee Benefit News. Now, however, companies of all sizes are crafting their benefits package to help their employees secure their financial future, Linton said.

Employee benefits: Rising costs will eat into your paycheck

With jobs scarce and pay raises slight, workers can take heart in at least one positive trend: Businesses are restoring some of the benefits they axed during the recession.

The flip side of the trend is not so encouraging: Firms seem resolute in holding the line on benefit costs. So workers who want new benefits from their firms will probably have to pay for many of them themselves.

“Employers are not willing to take on any more” costs of benefits, says Chris Covill, of the national integrated benefits practice at Mercer, a New York-based human-resources consulting firm. “They’re looking for ways to mitigate cost increases and to shift the financial responsibility” for benefits to employees.

The most obvious move is that benefits cut during the recession are starting to reappear. FedEx Corp., the shipping service based in Memphis, Tenn., announced in late 2009 that it would resume merit raises and restore company 401(k) contributions to half their prerecession levels. This past January, FedEx fully restored its 401(k) match. In October, trucking firm Con-way Inc. plans to resume basic and transition contributions to its retirement savings plan, which it had cut temporarily in April 2009 (still not restored: its matching contribution to the retirement plan).

Already, 59 percent of companies had restored all or some of their employee perks that they had cut during the recession, according to a poll of human resources executives by Challenger, Gray & Christmas, a Chicago-based outplacement consulting firm. (Another 23.5 percent of respondents said they had introduced new perks.) Within the next two years, 51 percent of companies that recently trimmed or suspended their 401(k) plan matches expect to reinstate them, says a recent survey by the Transamerica Center for Retirement Studies, a private nonprofit foundation in Los Angeles.

But even as employers reinstate some benefits — to help attract and retain workers once jobs open up — they’re also aiming to keep a lid on costs. That means that more employers want workers to pay a larger share of the benefits bill, especially as the costs of that bill go up. If employees want more employer-sponsored perks, they increasingly have to pay for them out of pocket.

Already, many workers have seen health-benefit costs rise in the form of higher deductibles and copayments. In some cases, plans no longer cover certain items, experts say. Last year, employees paid a larger share of the total health insurance premium: an average of 19 percent for singles and 30 percent for families, up from 17 and 27 percent, respectively, a year earlier, according to the Kaiser Family Foundation. The private nonprofit foundation in Menlo Park, Calif., called it a “notable change from the steady share workers have paid on average over the last decade.”

That trend seems likely to continue. For instance, in its 2011 survey, consulting firm Aon Hewitt found that, while em-ployers still bear most of the cost of insurance, they are accelerating cost-shifting. “There’s no evidence to suggest that the cost-shifting is temporary,” says Mr. Covill of Mercer. “I think staying the current course will be as good as you’ll get” on benefits.

All the while, some organizations are reclassifying as “voluntary” certain benefits — such as vision or dental care — that they once paid for. So employees who want these benefits, or any new ones added to the roster, must pay for them partially or fully.

Such offerings can still be attractive: Buying them at an employer-sponsored group rate can save employees money. In a study of employee benefits trends, insurance giant MetLife found that 61 percent of employees value voluntary benefits as a way to obtain perks that meet their personal needs.

Firms still can be creative with their benefits dollars. Thumbtack.com, an 11-employee online directory firm based in San Francisco, can’t compete for talent with the likes of Google and Facebook on salary, says cofounder Sander Daniels. It does offer health-care coverage, transportation cost benefits, and in-house exercise equipment, but no 401(k) retirement plan.

“So we introduced a perk that everyone loves,” Mr. Daniels says. Five days a week for lunch and three nights a week for dinner, employees can sit down to a meal prepared by a chef trained at Le Cordon Bleu culinary school. “At our Wednesday night dinners, anyone can invite any guests they want.”

The cost to the Thumbtack staff: zero. The cost to the company: probably less than the cost of having to replace workers recruited away.

By Margaret Price

Most popular employee benefits identified

In a time of muted pay growth, a survey has identified the most popular employee benefits extended to UK workers.

Chief amongst these is a pension scheme, followed by healthcare provision and a salary sacrifice scheme, the Chartered Institute for Payroll Professionals (CIPP) have found.

“With pay rises few and far between the overall remuneration package is of vital importance to ensure employees feel valued,” commented Diana Bruce, Senior Policy Liason Officer at the CIPP.

“An employer may not be in a position to provide a bonus or pay rise but they can certainly help their employees by providing benefits such as a good workplace pension scheme where both the employer and employee can save on tax and National Insurance Contributions.”

With the introduction of automatic enrolment next year it is very encouraging to see a high percentage of employers already offering a pension scheme, the CIPP note. Salary sacrifice schemes continue to be a popular benefit, however the government does make the administration increasingly difficult for employers; the changes to Employer Supported Childcare in April 2011 being a prime example.

Other employee benefits which were rated highly in the survey were membership body fees, childcare and a car allowance. The results were taken from 380 people surveyed across the country in all professions and sectors.

‘Best Companies’ Take Collaborative Approach to Benefits

Over the past decade, the “best” U.S. companies have adapted their benefits offerings to meet changing employee needs, according to The Principal Financial Group’s annual 10 Best Companies for Employee Financial Security competition.

The program honors growing companies (with five to 1,000 employees) for their commitment to outstanding benefits. The 2011 winners exemplify three major transformations that have taken place over the last 10 years, according to The Principal Financial Group, an employee benefits provider. These trends are:

• Shifting from do-it-for-them to do-it-with-them. As benefit programs have shifted from the employer making most decisions to employees facing more choices and taking personal financial responsibility, the “best companies” continue to share significantly in the cost. They engage employees through collaboration and strong education to help them make the best use of their benefit dollars.

All winners provide employer-paid one-on-one meetings with benefits specialists and financial professionals to help employees make informed benefit decisions. Companies use a wide range of methods to reach employees, from payroll stuffers to webinars. Employees are encouraged to help run benefit programs.

• Changing from cookie cutter to customized. The last decade witnessed a significant trend toward customized benefit programs tailored to specific employee needs and demographics. Winners actively designed their programs to engage employees, targeting young workers (with 529 tuition-savings plans, adoption insurance and mortgage assistance) and older workers (with 100-percent-paid long-term care insurance and phased retirement), for example.

In addition, “best companies” actively engaged employees in helping to shape benefit programs, using employee surveys, focus groups and employee committees to understand their needs and wants. Most offer flexible scheduling to accommodate changing life stages.

• Viewing security as financial and physical. “Best companies” use a holistic approach that ties financial security to an increased focus on wellness as a way to lower health care costs for both the company and the employee. Winners recognize reducing financial and health stress leads to greater engagement and higher productivity, which ultimately leads to a stronger bottom line. In addition, winners are more likely to offer biometric screenings, health risk assessments and health coaches, and to reward employees for making healthy choices by tying medical insurance premium discounts to wellness participation and offering health savings accounts or health reimbursement arrangements.

Make Employers’ Provision of Group Health Insurance Easier, Less Costly

More than half of all Americans receive health insurance through an employer. Let me advance a bold premise: This is not entirely a bad thing. By insuring 150 million of us, employer-based plans relieve government of the burden of funding our insurance and care, allow doctors and hospitals to be adequately paid for the treatment they render, and permit them to supply that care promptly.

My point here is not to argue that the current system doesn’t need fixing – of course it must be improved, and more people need coverage. My point is that in the process of attempting to improve the system, government should acknowledge this: Employer-based coverage has some real virtues, and if Washington is going to be involved in that effort it should facilitate the employers’ undertaking, not make it unduly costly and burdensome.

Additional Burden

Lockton Benefit Group just completed a survey of its 2,500 mostly middle market clients, and 80 percent of the more than 1,000 who responded said they were concerned or very concerned about the additional burdens last year’s healthcare reform law puts upon administration of their group plans. With good reason.

Even prior to healthcare reform the sponsor of a simple group health plan was required, under federal law and regulations, to provide up to 33 different notices, disclosures and reports to enrollees or the federal government. Healthcare reform adds up to 19 new ones, so far. That’s up to 52 notices and reports under federal rules, for a health care plan.

These health plan notices and reports go to different individuals, at different times, often via different means. Some can be combined with others, some can’t. Some must be “prominent,” some in specific-sized font. A few can be posted, most cannot. The employee can be entrusted with some, while others must be mailed home. Some can be provided online, others cannot. Few employers will have to deliver the full 33, but no matter, they must deliver most, and many must be supplied more than once, often annually.

Failure to supply all these disclosures, at the right times, can trigger huge penalties upon the employer, who all the while is endeavoring to remain focused on providing goods or services, and jobs.

Significant Cost

Let’s find some perspective here. These employers are not processing radioactive waste, or engaged in some other hazardous effort where we’d insist they ensure employees understand the deal. We’re talking about sponsoring a healthcare plan.

There is significant cost to these notices and reporting efforts. Washington, when it levies a new notice obligation, usually attempts to quantify the time and cost burden on the plan. Standing alone, the burden of any single notice is not overwhelming. There appears, however, to be no effort to quantify the aggregate burden, and to weigh it against the true value proposition.

Why the monstrous administrative burden? Washington needs some of the reports to do things it’s required to do. Some of these things are actually useful, like helping Medicare save money. And some of the notices to employees – such as COBRA notices – are important enough to outweigh the burden. But the panoply of other notices to employees has long-reached the tipping point where the burden, particularly in the aggregate, outweighs the virtues.

Here’s how I know.

First, I have some modest level of common sense.

Second, Lockton employees have witnessed countless health plan enrollment meetings where these notices literally litter the floor, particularly around the trash can. Are some employees interested? Sure, a few. So let the employer make those notices available online or on a bulletin board to anyone interested enough to look. I’d even be willing to require the health plan booklet to “prominently” tell the reader where to find the notices.

Let’s synchronize the timing of as many of these notices as possible, and not require things like specific-sized fonts. Let the employer consolidate most notices in a single pamphlet or e-file.

Employers are not looking for a “thank you” from Washington, for supplying insurance to employees. But they don’t deserve to be slapped upside the head either. Health plans are costly enough as they are. Let’s restore a little balance, a little sanity to the endeavor, and not give our nation’s employers yet one more reason to throw up their hands and exit the group insurance game.

By Ed Fensholt