Benefits in Crisis, But Employers Staying the Course

April 14, 2009 ( - Despite the tumultuous environment, most plan sponsors seem to be committed to staying the course, at least for now.

According to a survey of roughly 500 HR and benefit executives conducted in February by professional services firm Towers Perrin, nearly half of defined benefit (DB) plan sponsors have closed those programs to new participants, and just 3% plan to do so in the next 18 months. Of the remainder, 10% reported their company was considering the issue, leaving 43% indicating they had no such plans. More than two-thirds (69%) reported they have no intention of modifying their DB plans for current participants.

On the defined contribution (DC) front, fewer than 10% of respondents have suspended – or plan to suspend – company contributions to DC plans. Granted, nearly one-in-five (19%) are considering the action, but nearly three-fourths of respondents have no such intentions.

As for workers, more than half (59%) of respondents said they believed employees planned to postpone retirement in light of the current economic climate. Moreover, 43% of respondents reported that employees were increasing loans and hardship withdrawals from DC plans, while 38% noted declining overall participation in the plans. Only 7% predicted any uptick in 401(k) participation.

Stepping Up

In the face of these actions, employers generally are stepping up efforts to address employee concerns through heightened communications and education, and to position benefits as part of a more holistic total rewards package, or “deal,” with employees.

Amid worries about their 2009 performance (56% of respondents expect to see revenues decline, in some cases by as much as 20% or more), a fair number of respondents see the economic crisis as a catalyst for constructive action, according to the report, which noted that:

  • 70% are increasing communication to address employee concerns, and more than 57% said they were not cutting back on investments in benefit communication or education.
  • 53% are trying or considering new benefit strategies they would not have considered otherwise.
  • 47% reported they are taking a more holistic approach to reward management.

On the retiree medical benefits front, for the most part, cost-shifting efforts remain focused on future, not current, retirees. Just over half (51%) of respondents have taken or plan to take steps to reduce or eliminate subsidized coverage for future retirees, compared with only one-quarter taking or considering such action for current retirees.

Towers Perrin notes that employers are continuing to pursue an array of fairly aggressive actions that have marked recent cost management efforts, including a more targeted approach to cost containment, "zeroing in on program features that reinforce the concept of shared responsibility between the company and employees." For instance, more than 60% say they have tightened or plan to tighten provisions in prescription drug plans and encourage broader use of generic drugs.

Wellness Boost

More than 70% of respondents have increased, or plan to increase, their investments in wellness and care/disease management, and 79% say there are no plans to reduce or eliminate investments in or incentives to participate in wellness programs.

"While the survey findings suggest that employers are keeping their heads in this worldwide recession, there's also no question that they need to find new and effective ways to deal with the immediate concerns of a workforce that is steadily losing its confidence - not to mention its savings," Emmett Seaborn, a Towers Perrin Principal and head of intellectual capital development for its human capital business, said in announcing the results. "As the benefits landscape continues to shift, the companies that will thrive over time will be those that start now to understand what employees value and what trade-offs they are willing to make, and to engage their employees in a change process that will yield more creative solutions to share cost and risk in ways palatable to both companies and workers."

The Benefits in Crisis survey drew responses from 480 HR and benefit executives from a cross-section of midsize and large organizations in the U.S. It was conducted online in February 2009.