Benefit Strategies for a Sluggish Economy

Making sense to weary employers and employees

By Bob Patience

Mr. Patience Vice President, Voluntary Benefits  with Prudential Group Insurance Group. He can be reached at [email protected]

Many businesses can see first-hand evidence that the U.S. economy is continuing to improve, although the pace of recovery is modest and uneven across sectors. Unemployment is slowly coming down, housing prices have stabilized and are increasing in many markets and consumer confidence up again.

Multiple Plan Goals

It’s still a challenging, uncertain economic environment, however, and companies continue to focus on cost-saving opportunities such as reducing benefit-plan spending. Prudential’s Sixth Annual Study of Employee Benefits: Today & Beyond found that 65% of benefit plan sponsors rated “controlling health care-related costs” as very important. Fifty-two percent ranked “reducing the cost of benefits administration” as very important.

Employers aren’t focusing solely on cost cutting, though. The Study found that employers recognize the importance of benefits in attracting and retaining productive employees. There is also growing interest in providing benefits that improve employees’ overall wellness, including their financial wellness. Voluntary benefits allow employers to control costs, offer competitive benefits and enhance employees’ financial wellness simultaneously.

Participants’ Perspective

Economic trends influence plan participants’ outlook and behavior. More than half (53%) of Study respondents reported they have been either very or somewhat negatively affected. About one-third (32%) reported the economy having a neutral effect on them, and 15% reported a positive effect. Those most negatively affected tend to have lower household income and tend to be younger on average.
A weak economy can lead workers to focus more on immediate needs such as job security and paying bills at the risk of losing sight of their overall financial situation. For example, when plan participants were asked to rate the importance of various financial and personal needs, roughly four in five identified job security and making ends meet as “highly important” to them. Among a list of 15 needs, these two concerns rated the highest.

Financial Wellness Gap

Participants also recognized the risks that could prevent them from achieving their financial goals but they rated these risks below short-term concerns. Sixty-three percent said that “having financial security if wage earner can no longer work due to disability or serious illness” was highly important, for instance. But other risks concerned them less: only 50% rated “having financial security in event of a premature death” as highly important. A 2011 LIMRA study supports the lower importance assigned to this risk.

The study found that 79% of individuals with inadequate life insurance said that they had other financial priorities, some of which were more immediate. This gap in protection against potentially catastrophic exposures has created a risk-coverage gap among employees:

Life insurance
Ownership of life insurance is at a 50-year low; according to a 2011 LIMRA study, only 59% of U.S. adults owned life insurance in 2010, down from 70% in 1960.  A 2010 LIMRA survey found that among households with children under the age of 18, 70% say that they would be financially challenged if the primary earner died. Even worse, 40% of households say that they would have trouble funding everyday living expenses immediately after the death of the primary earner
Disability insurance
Approximately two-thirds of private sector workers lack long-term disability coverage. The Council for Disability Awareness reports that lack of coverage is a major risk for households because studies show that a 20-year-old individual has a one-in-four chance of becoming disabled for some period of time before reaching retirement age. In addition, 70% of individuals live paycheck to paycheck and cannot afford a disruption in their incomes, according to the American Payroll Association
Critical illness insurance
Studies by the American Journal of Medicine and other sources  have found that 62.1% of all bankruptcies have a medical cause. It’s a growing problem: there was a 50% rise in the share of bankruptcies attributable to medical problems between 2001 and 2007. Most medical debtors were well educated and middle class; three quarters had health insurance

Covering the Gap with Voluntary Benefits

The study found that 79% of individuals with inadequate life insurance said that they had other financial priorities, some of which were more immediate. This gap in protection against potentially catastrophic exposures has created a risk-coverage gap among employees

The coverage gap for critical protection needs persists for three key reasons:

  • Many individuals lack awareness and education.
  • Access to personalized financial advice is declining, particularly for middle and lower income households.
  • Individuals either assign a low priority to purchasing protection, or lack the urgency to do so.

Voluntary benefits programs can address each of these causes. Employers understand their employees’ needs and can select appropriate products and product providers for them. The workplace is also an effective channel for delivering employee education because it offers a wide range of communication channels through which employers can access employees. The programs directly address the declining access to financial advice by delivering education and solutions to all employees, regardless of their income, occupation, or affluence level. The programs also offer a scalable way to provide employee benefits education, due in large part to the support that many carriers can offer employers in customizing and delivering benefits information to employees.

Finally, voluntary benefit programs can create a sense of urgency for employees to act through the enrollment process’s specific timelines and by providing an attractive value proposition. Employees perceive voluntary benefits as having multiple advantages, including the convenience of payroll deductions, the possibility of lower costs than products available outside the workplace.

Voluntary benefits programs also fit well with plan sponsors’ needs and objectives by:
Cost effectively increasing the attractiveness of employers’ benefit offering
The Study found that more than half (52%) of employees say that voluntary benefit offerings increase the value of their employers’ benefit packages.  About half (51%) of employers say that voluntary benefits help maintain the competitiveness of their benefit programs at little or no cost.
Complementing the substantial investments employers make in retirement and health care benefits
Employers invest significant amounts in retirement and health care benefits to improve their employees’ financial security. Voluntary benefits complement these investments. For example, disability insurance and critical illness insurance can help ensure that employees do not deplete their retirement savings during a period of disability or critical illness.
Reducing the costs associated with employee absences
Voluntary disability insurance helps lower employers’ absence-related costs, such as replacement and retraining expenses, through carrier run “return-to-work” programs that facilitate employees’ reentry into the workplace.
Increasing employee engagement and productivity at work
Improving employees’ financial wellness can help them focus on their jobs. In a recent PriceWaterhouseCoopers’ survey, 61% of employees said that they find dealing with their financial situation to be stressful. In addition, 29% of employees said that personal financial issues have been a distraction at work.

Advisors’ perspective

The adoption of voluntary benefit programs by employers is increasing, creating a business opportunity for advisors who can present these programs. In 2011, 85% of employers with 50 or more employees participating in the Study offered at least one voluntary benefit, up from 60% in 2008. The primary reasons cited were to provide a wider range of employee benefits and to fulfill employee needs. It’s a growing market, as well: A recent survey from CFO Research and Prudential found that 69% of employers said they are very likely or somewhat likely to expand the range of voluntary benefits offered to employees in the next two years.