Benefits January 25, 2013

2013 the Year for Benefits Communication

January 25, 2013 (PLANSPONSOR.com) –With so many changes on the horizon, benefits communication should get more attention in 2013. 
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Companies are refining their benefits strategies to keep pace with health insurance and retirement reforms ahead, a still-uncertain economy and an unstable workforce, according to the 2012 “Inside Benefits Communication Survey Report” from Benz Communications, a human resources and benefits communication strategy firm. These changes mean 2013 could be the year for benefits communication to “get the recognition it deserves,” said Jennifer Benz, founder and chief strategist of the firm.

“I think there will be big, big improvements made this year,” she told PLANSPONSOR. “Companies are making additional investments; there’s just a lot more work that needs to be done.”

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Benz outlined the top three reasons 2013 will prove a valuable year for benefits communication:

HR Strategy Will Require It 

According to Mercer, the five biggest priorities for employer-sponsored health plans this year are: 1) preparing for 2014 health care reform requirements; 2) evaluating the level of benefits provided; 3) determining the role of exchanges in health benefits strategy; 4) ramping up health management (wellness) efforts; and 5) assessing new care delivery models. Each of these priorities demands ongoing communication, Benz explained. 

HR traditionally communicates by piling on information during open enrollment and providing only sparse information the rest of the year, but employees need ongoing useful information, she said. Online platforms like blogs, for example, are a great way to provide engaging nuggets of information to employees. “We think of [social media] as a very practical way to get more information out frequently at a lower cost,” Benz said.

Benz’s survey found that only 38% of employers provide benefits information outside their firewall on the Internet; just 29% communicate with employees year round; only 10% use social media for benefits communication; and, despite the growing number of mobile Internet users, only 28% of employers are using mobile tools of any kind to communicate benefits.

Employees Will Demand It  

More employers are moving to consumer-driven health plans, results-based wellness programs, and increasing employee-paid premiums to reduce their benefits costs and create engaged consumers, Benz said.

As these employer-driven financial and participation requirements increase—and financial concerns elevate—employees and family members will demand better resources. "Employees deserve better and, if they haven't already, this will be the year they start demanding it,” Benz said.

Execs Will Understand the Need 

Despite all the reasons why benefits communication should receive more attention, executives remain hesitant to allocate a bigger investment to benefits communication, Benz said. This year, HR must emphasize to company executives that in order for benefits to be successful, employees must be engaged.  And in order for employees to be engaged, benefit communication efforts must be ramped up. “It really is such a small investment in the overall plan cost,” Benz said.

According to the survey, 68% of companies are getting by on communication budgets of less than $25,000 a year. Large companies with 5,000 or more employees can create “huge results” with an investment in benefit communications that is less than 1% of the total benefits budget, Benz added.

In 2013, more than in previous years, Benz said, HR and benefits managers should expect to hear their execs asking questions such as: 

•             Can we show a return on investments (ROI) in health benefits?

•             How do we lower our health spending while keeping turnover low?

•             What are we doing to make health care expenses more predictable?

•             How will we respond to reform without damaging employee morale?

Benefits communicators will not have good answers for any of these questions without effective employee education and communication, Benz emphasized. “I think that this year, HR really needs to lay out a long-term road map,” she said. This road map should demonstrate to executives how the company will change in response to health care reform and how retirement programs are going to ultimately help both the employees and employer.  

Benz indicated she is concerned that retirement benefits are being put on the backburner because of health care reform. “And that really is a disservice to employees, and it’s going to be damaging to companies long-term,” she said.

Finding the balance between health care and retirement benefits communications will be a challenge because health care demands a lot of attention, according to Benz, but HR should not forget that there is a retirement readiness crisis looming. To balance communications between the two, she suggested integrating multiple messages. For example, messages about wellness can ultimately relate to retirement readiness: Will your retirement funds be spent on health care? How can you prepare now with saving and preventative health measures?

“There’s a very clear road map to making benefits communication successful, and companies can really follow [those] that have done it well and use their formula for success,” Benz concluded.

Benefits January 25, 2013

Executives Should Reconsider Qualified Plans

January 25, 2013 (PLANSPONSOR.com) – Executives and their employers should reconsider qualified retirement plans in light of recently enacted tax changes, according to a PwC source.
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The American Taxpayer Relief Act of 2012, while keeping federal income tax rates the same for almost all Americans, significantly increased ordinary income and capital gains rates for executives and other high earners. By raising the threshold at which top rates apply, the Act makes deferring compensation attractive, because there is more likelihood the compensation may be subject to tax at lower marginal rates when it is received, a PwC HRS Insights report says.  

“Qualified plans are the most beneficial vehicle for deferring compensation from a tax benefits perspective,” Joe Olivieri, a managing director in PwC’s Human Resource Services practice, told PLANSPONSOR. There is no tax at the time of deferral, the amount is taxed upon distribution, and there is flexibility for when an executive can take his money from the plan. In addition, employers get a deduction for contributions.  

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Olivieri explained that if the deduction is attractive for an employer, it may want to consider bumping up its company match contribution to help executives—as well as other employees—accumulate more retirement income that will be taxed at a lower rate.  

Under prior law, taxpayers were subject to a maximum tax rate at incomes of $250,000 and above, but now the maximum federal income tax rate increases to 39.6% for joint filers with adjusted gross income (AGI) above $450,000. Many executives expect to continue receiving income of at least $250,000 during retirement because of income available to them from sources such as their retirement plans, board service or consulting opportunities. With the maximum tax rate at that level, deferral of compensation until retirement would have provided only limited tax savings because the compensation would likely be taxed at the same rate at the time of receipt as at the time of deferral.

Olivieri said most executives who receive compensation above $450,000 do not expect to receive that much in retirement, making deferral more attractive. Employers might be more willing to provide forms of compensation that allow employees some choice as to when they will take the amount into income, and to adopt and expand other deferred compensation programs. In the past, rather than deferring compensation, executives frequently chose strategies to recognize income earlier, and then convert it to tax-advantaged investments.  

In cases where qualified plans are utilized to the maximum extent possible and executives desire further deferral opportunities, nonqualified deferred compensation (NQDC) plans are still a good idea, but Olivieri pointed out that these plans do not offer as much flexibility for timing of distributions, and the tax deduction for deferred amounts is delayed.  

The PwC paper suggests employers may also consider forms of compensation that allow for more of a deferral opportunity, such as restricted stock units (RSUs) rather than restricted stock. Unlike restricted stock, which is taxed at vesting (unless the employee made an 83(b) election to be taxed at grant), RSU programs may allow the employee to timely elect to delay payment (and income tax) until retirement or until a year when they expect their marginal tax rate to be lower. However, any deferral of the tax event for the employee would correspondingly delay the tax deduction for the employer. Still, deferring execution of RSUs could be beneficial to executives, Olivieri said.  

The HRS Insight report is here.

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