Plan sponsors are not making massive changes to employee benefits programs this open enrollment season but they are grappling with changed economic conditions that have effected their businesses and benefits’ spend.
Aggressive cost-cutting may not be on the table this year but plan sponsors are not immune to sluggish markets and muted economic growth. Many are taking a “steady approach,” to retirement plan design and expenses, said Sarah Bassler Millar, partner in the employee benefits and executive compensation practice group, at Faegre Drinker Biddle & Reath.
“Going into 2023 is more of a steady state among most companies because they’re just coming off of a couple of years where hiring employees [has] been very difficult and the cost to pay new hires has gone up dramatically,” Millar said. “There’s a hesitation to cut benefits at this point, but that is a strategy some companies have deployed historically in the midst of a recession. It is certainly something we’re anticipating could happen.”
Plan sponsors‘ cost cutting measures to employee benefits are coming to health plans, rather than retirement benefits, according to Millar.
Counseling and advising employee on benefits, she sees plan sponsors balancing the need to maintain their position in the marketplace and provide robust benefits—to attract and retain quality employees—with possibly having to cut costs.
“I’ve not seen a broad trend [of plan sponsors cutting or reducing employer matching contributions],” she said.
Although many plan sponsors are avoiding major benefit changes, some have moved towards cost cutting.
“It depends on the company and we do see some variations where some companies are being more aggressive,” she added. “On the retirement plan side that might look like changes to their match formula, or perhaps changes to their vesting schedules, or additional eligibility requirements all of which have to be managed through the lens of both certain minimum requirements and nondiscrimination rules.”
Employers in some industries like health care that have been dealing with higher-than-normal turnover rates may be less likely to make changes—as they continue hiring employees for roles with persistent shortages, for example, nurses, this open enrollment season, Millar added.
“In the health care industry we’re continuing to see some nursing shortages generally and that is an area where due to the pandemic there’s a fairly high degree of burnout among caregivers and that is having an impact on the workforce, ” she says.
She added companies are considering changing health plan designs, increasing deductibles, instituting cost-sharing arrangements and raising maximum out-of-pocket costs.
Some companies are seeking insights about controlling medical costs and turning to government-sponsored centers for best practices, leadership, research, support and training.
“We’re seeing plans that cover high-cost surgeries looking for strategic alternatives for how to manage those costs,” Millar said. “Companies are looking at Centers for Excellence for certain types of surgeries to try to achieve some cost savings but also facilitate better results for participants. You might see some changes [there].”
In the U.S., Centers for Excellence are funded by grants from the federal government. There are several across agencies and departments: examples include programs administered by the Centers for Disease Control and Prevention, Department of Homeland Security, Federal Aviation Administration and National Institutes of Health, among others.
Plan sponsors have obligations each year during open-enrollment season to distribute required legal notices to participants, Millar and a colleague explained in a blog post, for employers navigating open enrollment.
For employers, there are a host of required legal obligations and notices that must be distributed to beneficiaries.
“There’s a level of complexity because of the number of different notices and the differences in how they get distributed that adds to the compliance burden,” Millar explained. “There’s a lot of nuances and differences between the recipient populations and the disclosure methods. The Summary of Benefits and Coverage, within certain parameters, can generally be posted online and that’s sufficient disclosure but on the flip side, the HIPAA privacy notice, generally has to be sent by the U.S. mail in order to satisfy compliance obligations.”
Federal legislation like the Americans with Disabilities Act, the Affordable Care Act and Health Insurance Portability and Accountability Act of 1996, have increased the “sheer volume of notices,” that need to be distributed, Millar added.
Employers are required to provide benefit notices during open enrollment before year-end for the following, according to Millar:
- The Health Insurance Portability and Accountability Act of 1996 Special Enrollment notice.
- Children’s Health Insurance Program notice.
- Medicare Part D Notice of Creditable Coverage.
- Women’s Health & Cancer Rights Act Notice.
- Summary of Benefits and Coverage notice
- Wellness Program Notices required under HIPAA.
- HIPAA Notice of Privacy Practices.
Plan sponsors are also required to distribute annual notices to retirement plan participants.
“There’s numerous notices that need to be distributed, depending on the type of plan, that often have a December 1 deadline so that they’re distributed 30 days in advance of the new plan year,” she said. “Those notices would include things like your qualified default investment alternative, [or other] notices—if it’s a safe harbor plan—there’s a safe harbor notice that has to go out. If making changes to your fee structure, recordkeeping fees, there may be notices required related to those changes, so those are some of the notices that you would see on the retirement plan side.”
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