It’s Back to Basics for Benefits Priorities

Prior to the pandemic, ultra-low unemployment put a spotlight on ‘lifestyle benefits’ for employees. The COVID-19 downturn has already shifted the focus of many plan sponsors.

Because the unemployment rate was roughly 3.3% before the advent of the coronavirus outbreak, employers were broadly focused on offering generous benefits, including what are known as “lifestyle benefits.”

Lifestyle benefits include everything from gym memberships to reimbursements for pet sitting, says Brian Colburn, senior vice president of corporate development strategy at Alegeus.

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“In such a competitive market for talent, most employers were not wanting to rock the boat on health or other benefits,” he says. “They were keeping reasonably rich plans, including lifestyle accounts.”

When COVID-19 came on the scene, things changed completely overnight, Colburn says.

“Labor market changes usually take a year or two to occur,” he adds. “With COVID, things changed in a matter of weeks. Employers looked to keep services that generate the most value for employees at a lower cost. This meant cutting back on some ancillary benefits.”

Employers now are focused on the possibility of offering high-deductible health plans (HDHPs) paired with health savings accounts (HSAs), Colburn says. “That is the biggest thing we have seen from our end of the market.”

Scaling back on company matches to 401(k) plans and contributions to profit sharing accounts are two other areas where employers are trying to save money, says Lisa Loesel, an employee benefits partner with McDermott Will & Emery.

“Depending on what kind of plan they have and the terms set forth for them, we have seen plan sponsors delay the timing of their contributions, change the amount, move from a fixed to a discretionary amount or even cut their contributions indefinitely,” Loesel says.

Among sponsors offering a pension plan, more are de-risking their plans.

“The market happens to be favorable for doing this right now,” she says.

Various companies are also offering their employees voluntary early retirement, says Kathy Barber, vice president of benefits and compensation at Ayco. To avoid having to lay off employees or furlough them, some employers are cutting executive workers’ salaries, and this is happening at a higher rate than in prior down markets, Barber says.

Barber also expects that more employers will look to freeze their pensions, following the onslaught of the pandemic.

“I expect to see some companies looking to terminate their pension benefits and get them off the books by transferring the risk to an insurance company,” Barber says.

One area where sponsors seem to be bucking the trend of cutting back, Loesel says, is by offering more financial wellness and education resources. In fact, an AllianceBernstein survey of plan sponsors and participants, conducted before the pandemic occurred, found that financial wellness programs were an area of keen interest. Sixty-five percent of sponsors offer a financial wellness program, up from 43% two years ago, says Jennifer DeLong, senior vice president, managing director and head of defined contribution (DC) for the Americas at AllianceBernstein. The median participation rate in these programs by participants is 50%, up from 30% a year ago.

“While those are very big jumps, they are not surprising, given the fact that the types of financial wellness programs that employers have been offering in recent years have continued to increase,” DeLong says. “Many of the larger companies have been offering these programs to attract and retain employees. There has been increasing interest in holistic financial wellness and retirement readiness, to improve workers’ overall financial lives.”

While Loesel says her clients are increasing their financial wellness offerings, DeLong says the economic uncertainty that the pandemic has created for companies may, in the long run, put these programs at risk. Companies may have to weigh offering a financial wellness program with offering a 401(k) match, she says.

Regardless of the fate of financial wellness programs, Barber says she hopes that employers help employees who have taken advantage of a coronavirus-related distribution (CRD) from their retirement plan.

“Many companies have been surprised by the number of employees who have taken a CRD,” Loesel says. “They should make sure that employees who took coronavirus-related distributions know that they have the opportunity to repay those distributions over three years. They could also move to a stretch match to encourage higher deferral rates. There needs to be a refocus on saving when finances allow.”