Offering Competitive Benefits Amid Budget Constraints: A Balancing Act for Plan Sponsors

In order to remain competitive as an employer, it is crucial for companies to conduct frequent benchmarking and measure their benefits offerings against their industry peers.

However, offering a competitive suite of benefits is often a juggling act for plan sponsors, as budgeting concerns come into play, and placing too much of a cost burden on the employee or the employer can be detrimental to the organization as a whole, causing issues with recruitment and retention.

Frequent Benchmarking

Carl Gagnon, assistance vice president of global financial well-being and retirement programs at Unum Group, a financial insurance provider, says Unum’s recordkeeper, Fidelity, does frequent benchmarking for the firm’s 401(k) plan.

Gagnon says Unum typically conducts benchmarking sometime between late February and early June, because at that point in the year, the company starts talking about the following year’s budget. Unum also conducts its annual investment review beginning in late April or early May. This is when the benefits committee, along with Fidelity, evaluates whether investments are underperforming and if there are other products in the marketplace worth adding to the lineup.

Shams Talib, head of workplace consulting at Fidelity, says the frequency of benchmarking depends on the plan sponsor and organization.

“Some plan sponsors may need to review their portfolio annually to ensure their business objectives are met, while others can withstand longer review periods,” Talib says via emailed response. “When considering compensation, our team recommends that companies review their structure and approach annually.”

Mark Smrecek, senior director of retirement at WTW, says most organizations conduct some sort of cost management exercise, which involves identifying the key priorities of the population they are serving.

“A lot of what we’re seeing in terms of cost management includes being able to correctly allocate in a way that makes sense not only for your population, but your prospective population, and then filling the gaps with low- or no-cost solutions, which provide that out-of-plan support that, quite frankly, employees who are struggling financially would really value,” Smrecek says.

Smrecek adds that he is seeing employers conduct benchmarking that goes beyond just their 401(k) plans and their investment lineups.

“Instead of just benchmarking health benefits, or just benchmarking retirement benefits … we’re seeing [employers] benchmarking them all together so that [they’re] able to see in that total rewards package … that [they have] allocated their total rewards in a way that reflects the needs of the organization,” Smrecek says.

Creative Budgeting

When it comes to budgeting and figuring out how to offer a competitive suite of benefits without putting too much cost on the company or the employees, Gagnon compares the exercise to splitting a pie.

“The pie doesn’t get bigger, and it doesn’t necessarily get smaller,” Gagnon says. “So don’t try to add to it or subtract to it—use the pie more efficiently.”

Gagnon says an example of “making the most of the pie” can be seen with Unum’s student loan repayment benefit that allows employees to cash in unused paid time off from the previous year—a maximum of 40 hours per year—in exchange for money to pay back student loan debt. Unum is essentially using a benefit they already offer, PTO, while allowing employees to be flexible with how they want to use it. The increased flexibility  is especially beneficial now, as federal student loan repayments resumed in October following a nearly-three-year suspension during the COVID-19 pandemic.

In the future, Gagnon says he hopes to expand the program to allow workers to trade PTO days for contributions to their 529 college savings accounts, as well.

“The pandemic put a hold on a lot of that creativity, and now I think we’re just finally getting out of that,” Gagnon says. “In that sense, it’s more of an accounting change, where instead of paying in PTO to the employee, we’re paying it to the employee and then to their student loan service and help them pay off debt. … I think it’s about using the employees’ and the employers’ assets efficiently and giving that method of choice.”

Gagnon emphasizes that the company is focused on providing flexibility to its employees through this program, as well as through its recently launched emergency savings program, allowing participants to contribute up to $10,000 to an emergency savings account through their 401(k) plan. These funds, contributed after-tax, can be withdrawn at any time and can be used to pay for any unforeseen expenses, without having to dip into retirement funds or use credit cards.

Talib says, ideally, a plan sponsor’s “total rewards budget,” which encompasses both benefits and compensation, will reflect the investment “necessary to attract and retain the talent needed to drive business success.”

He says determining the “right” amount of budget will be based on several factors:

• What does the benchmarking data show?
• Are total rewards costs being managed effectively?
• Is the business attracting the right talent? Are there key roles or critical skills that the organization is having a hard time attracting or developing?
• What do turnover statistics say about the ability to retain employees? and
• What can the business afford?

Making the Case to Senior Leadership

In addition, Gagnon says it is important for plan sponsors to make a case to their company’s senior leadership and come up with creative ways to pay for the benefits they want to offer. This senior leadership can include anyone from departments like human resources to communications.

“We know from our total well-being survey that the No. 1 stressor in employees’ lives is their job … [and] beyond that, the next three out of five are financial in nature,” Gagnon says. “So how can we utilize the existing benefits that we have to help them financially pay off debt [and] save for an emergency?”

Gagnon says he “doesn’t win all the battles” for enhancing benefits, as he is competing for the same dollars with his counterparts in charge of health benefits and leave benefits.

He adds that Unum frequently measures its benefits offerings against its competitors in the insurance industry. Gagnon says he looks at benchmark grids that compare Unum with its industry peers, such as MetLife Inc., Prudential Financial, Standard Life and Lincoln Financial Corp. in order to see what they are doing in the financial well-being and retirement space.

While benchmarking typically occurs on an annual basis, Gagnon says that occasionally, if he hears about another company doing something different or innovative that may have an effect on recruiting, it could trigger an additional benchmarking exercise.

“We don’t want to be at the top scale, we don’t want to be at the bottom—we want to be competitively in the middle,” Gagnon says. “Sometimes that can mean a more generous PTO program, more generous 401(k), more generous medical. … In the aggregate, we want to be at that very competitive level.”