Employers: Creative on Costs, Committed to Benefits

October 19, 2006 (PLANSPONSOR.com) - A new survey from Prudential Financial Inc. indicates that employers view their benefit programs as important and are looking at innovative ways to control costs while still maintaining a competitive benefit offering.

The survey found that eight in ten plan sponsors say it is important to offer and subsidize a wide range of employee benefits. Twice as many companies said it is “highly important” (44%) than those who said it is “less important” (22%) to offer their employees competitive benefits programs.

More than half of all employers with 500 or more employees remain “highly” committed to offering competitive benefits. Those who felt benefits offerings were less important tended to be companies with fewer than 100 employees, companies in the midwest region, and companies in the retail and sales/trade industry, according to the survey report.

The Price of Competitive Benefits

However, to maintain their current benefits offerings, employers say they plan to increase cost sharing by employees over the next five years. Thirty-seven percent of employers surveyed said they plan to increase the amount employees are required to pay for benefits by the year 2010 and 31% said they plan to offer a wider array of voluntary benefits where the employee pays 100% of the costs by 2010.

Additionally, nearly half (41%) of respondents said they plan to adopt consumer directed health plans by the year 2010, while more than a third (34%) plan to integrate health and disability management in that time frame. Employers are increasingly innovative with their cost-reduction strategies and showing greater interest in offering employer-paid “starter” plans with basic levels of coverage that can be supplemented by employee-paid voluntary plans.

As benefits costs continue to rise, employers are turning to the finance and risk management and procurement functions, in addition to the usual benefit decisionmakers, to make benefit decisions. Also, as employees share more of the costs of benefits, more employers are turning to outside advisers such as benefits brokers/consultants and insurance carriers to help craft their offerings, according to the report.

Healthy lifestyle benefits are also catching on as an effective cost-cutting measure. According to the report, the number of employers who said they plan to offer healthy lifestyle programs will nearly double to 40% by 2010. Thirty-three percent of survey respondents said they plan to offer mental health counseling and 34% said they plan to offer flexible workplace arrangements as part of a healthy lifestyle program by 2010.

‘Progressive’ Employers

Prudential labeled a small number of employers whose benefits focus on risk management rather than simply cost savings the “Progressives.” According to Prudential, progressive plan sponsors:

  • offer benefits that are competitive within their industry and size segment,
  • understand employees’ financial and lifestyle concerns, and
  • are highly interested in helping employees address their needs, particularly in maintaining a healthy lifestyle, having access to mental health counseling, retirement planning, and maintaining work/life balance.

While 11% of employers surveyed said they consider themselves to be “progressive” and 31% said they consider themselves “above average” when it comes to benefits offerings, Prudential said the number of “progressives” is expected to increase to more than 50% of employers by 2010.

What Employees Want

Prudential's survey of employees found they are concerned about having adequate medical insurance and retirement income, in addition to their family's financial security in the event of their premature death, a disability, or the need for extended care following an illness or injury. However, while the survey indicates that employees need more education about how their employer's benefits offerings can address these concerns, most plan sponsor respondents were unaware of, or unable to meet these needs.

The report shows that 80% of employees feel it is important to have a financial plan in place, but only about a third of surveyed employers recognize this as an important concern for their employees. Large gaps also exist between employee and employer perceptions on the importance to employees of:

  • having long-term care insurance (77% v. 39%),
  • having adequate life insurance (79% v. 46%), and
  • having adequate disability insurance (83% v. 52%).

Despite those expressed employee concerns, employers surveyed seem to be focused on other matters. Asked how they planned to address employees' needs with their benefits offerings by 2010, only about a quarter of employers said they planned to offer financial advice (27%), long-term care insurance (21%), life insurance (23%), and disability insurance (26%). However, they were more inclined to provide education support. Some 48% of employer respondents said they plan to offer employees education on saving for retirement and 43% said they plan to provide education on managing retirement income.

While plan sponsors recognize the need for better employee education on benefits offerings, most are not very interested in asking benefits providers to assist with educational needs. An emerging strategy for benefits education, according to the survey's authors, is life-stage or life-event marketing - offering more customized benefit communications to select employee segments based on personal information the employer has obtained willingly from its employees. According to Prudential, this strategy allows a plan sponsor or its benefits provider to target the right benefits options.

Online Tools

Employers currently offer a wide range of online tools to help employees manage their benefits. By 2010, even more employers will offer employees online tools to, among other things:

  • manage their defined contribution retirement plan accounts (70%),
  • obtain benefits forms (68%),
  • check the status of benefit claims (65%), and
  • update beneficiary information (65%).

Employers also offer a wide range of online tools for benefits administrators. By 2010, 63% of employers will have online tools in place for administrators to process DC plan deferrals, 64% will have online tools to handle enrollment in benefits plans, and 60% will have online tools for administrators to obtain billing info.

However, most plan sponsors surveyed said they feel online tools have not met expectations regarding cost/time savings, data quality, and convenience. While nearly two-thirds (63%) of employers said it was highly important for online tools to reduce costs, only 24% said their applications perform highly in this regard. Delivery shortfalls were also reported by plan sponsors regarding the ability of online tools to allow more time for HR to focus on strategic initiatives (53% high importance v. 21% high performance), and the ability of online tools to improve the quality of information for employees (62% v. 33%).

For its "Study of Employee Benefits: 2006 and Beyond" Prudential surveyed 1,218 employee benefit professionals from companies spanning various industries, company sizes, and geographic regions. Supplemental interviews were conducted with 400 employees of similar size firms. The study report is here .