Administration November 13, 2014

A Plan Sponsor Makes Plan Participation Easy

Microsoft had a desire to help participants optimize benefits usage and their retirement readiness.
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“We’ve had good participation [in our 401(k) plan], and we have people enrolling at a pretty good deferral rate above what we match, so we weren’t interested in implementing auto-enrollment,” Sonja Kellen, Microsoft’s director of global retirement, based in Redmond, Washington, tells PLANSPONSOR. “But one of things we like about auto-enrollment is that it incentivizes savings behavior regardless of whether there’s a company match. It’s an indication of what employees should do.”

One issue Microsoft noted was how long it took new employees to enroll in the plan. Kellen adds that Microsoft’s goal was not only to drive optimization of benefits use, but to get more employees into the plan’s target-date funds to improve investment diversification.

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At the same time Microsoft was contemplating its issues, Fidelity Investments was considering how to make plan enrollment easier for participants because it was hearing that employees had no idea how much to save or how to invest, and that employees wanted an easy enrollment they could do on a tablet or over the phone, according to Suzanne Howard, Fidelity’s vice president of 401(k) management, based in Covington, Kentucky.

So the two got together—the provider and its client—to develop a tool that would solve these issues.

The result was EasyEnroll, an enrollment experience that allows employees to enroll in their workplace retirement plan with just two clicks. “It was a true collaboration,” Howard says. “Sonja’s team was with us from the concept. Microsoft helped develop the idea, used a research panel, worked with us on the prototype, and was the test client for EasyEnroll.”

Embedded on Fidelity’s NetBenefits site for plan participants, when employees access EasyEnroll, they are presented with three packages created by the provider and employer. For example, employees may be presented with an 8%, 10%, and 12% deferral rate, each of which includes enrollment in an automatic deferral increase feature and enrollment in the plan’s target-date funds. The packages may be customized by the plan sponsor—automatic deferral increases and the default fund are based on the plan’s design, and plan sponsors may choose the deferral rates for each package, according to Howard. Employees click on the package they want, review it, then click again to enroll. Howard adds that employees are also given the option to go through standard enrollment if they want to choose a different deferral rate or their own investments.

Microsoft introduced EasyEnroll to its employees in May of this year.  As of September 30, the company has 65,000 current employees eligible for the 401(k) plan. There are about 77,000 participants overall in the plan including active, terminated, and retired employees, and it has $12.1 billion in assets. The plan enjoys a 91% participation rate, up from 87% last year. Microsoft matches 50% of the first 6% of pay an employee puts into the plan, and participant deferrals average 8%.

Since implementation the issue of the delay in new hires enrolling has also improved. “We’ve seen a 20% increase in the number of new hires who enroll right away,” Kellen says. “Sixty percent of new enrollees are using EasyEnroll rather than standard enrollment, and most of those who opt out of EasyEnroll are doing so to elect higher savings rates, which is good.”

The simplified enrollment experience has also led to an increase in the number of employees using automatic deferral escalation. Before utilizing EasyEnroll, Microsoft allowed employees to opt in to auto-increase—which increases participant deferrals each year at the same time employees get salary increases—but the company didn’t use any campaigns to encourage use of the feature, according to Kellen.  “Before EasyEnroll, about 3,300 employees used auto-increase. Now about 5,500 do,” she notes.

Microsoft has also seen greater utilization of the plan’s target-date funds (TDFs). “The TDFs were already the most popular investment option among news hires, with about half selecting them,” Kellen says. “Since the launch of EasyEnroll, the percent of plan assets in TDFs increased from about 15% to 16%. Looking at the number of participant, about 2,500 more are using the TDFs.”

Going forward, Microsoft plans to experiment with the findings of the research and testing that went into developing an easier enrollment system. According to Howard, they did extensive research and testing to ensure participants would not only be able to move through the enrollment experience, but tested the behavior of employees and whether, when presented with higher savings rates, they would accept them.

With its EasyEnroll launch in May, Microsoft presented employees with packages based on 6%, 8% and 10% deferral rates. Kellen says the company just changed the package rates to 8%, 10% and 12% to see if that will improve overall savings rates or if it will lead more employees to choose standard enrollment. "We think they will still use the easier enrollment,” she says.

Benefits November 13, 2014

Employers and Employees See Higher Health Costs

Average health care costs are expected to increase by 5.5% to $11,304 per employee in 2015, according to Aon Hewitt.

 

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After plan design changes and vendor negotiations, the average health care premium rate increase for mid-size and large companies in 2014 was 4.4%, up from 3.3% in 2013. In 2015, Aon Hewitt projects average health care premium increases will be 5.5% after plan design changes and vendor negotiations.

Aon Hewitt’s analysis showed the average health care cost per employee in 2014 was $10,717, up from $10,266 in 2013. The portion of the total health care premium that employees were asked to contribute toward this premium cost was $2,487 in 2014, compared to $2,355 in 2013. Meanwhile, average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, increased from $2,005 in 2013 to $2,295 in 2014.

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For 2015, employees will be asked to contribute 23.6% of the total health care premium, which equates to $2,664 for 2015. Average employee out-of-pocket costs are expected to be $2,487. These projections mean that over the last five years, employees’ share of health care costs—including employee contributions and out-of-pocket costs—will have increased more than 52%, from $3,389 in 2010 to $5,151 in 2015.

“Over the past few years, the overall economic situation kept consumer spending on discretionary items, including health care, down, and we observed a lower rate of premium increases,” explains Tim Nimmer, chief health care actuary at Aon Hewitt. “Now, with employment rates stabilizing, individuals are feeling more secure about their financial situation and have been willing to re-engage in using the health care system. As these utilization rates increase, we expect to see health care cost increases follow.”

Amid the evolving health care scene, companies are using a variety of approaches to reduce costs:

Using high-deductible health plans (HDHPs): HDHPs are the second most popular plan choice offered by companies, with 15% offering an HDHP as the only health plan option, and 42% considering doing so in the next three-to-five years.

“Gating” health benefits: More than 60% of companies plan to “gate” employees to richer designs in the next three to five years. For example, companies may offer a basic high-deductible plan to their entire workforce, but make a richer preferred provider organization (PPO) option available to those employees who complete a health risk questionnaire or biometric screening.

Managing dependent eligibility and subsidies: Research shows 58% of companies have completed a program audit of covered dependents to ensure only those who are eligible will remain on the plan, 52% are considering using unitized pricing—where employees pay per person and not individual versus family, and 22% of companies have reduced subsidies for covered dependents, while 18% added a surcharge for adult dependents with access to other health coverage, and an additional half of companies are exploring such approaches over the next few years.

Adopting pay-for-performance strategies: Twenty-four percent of companies currently steer participants (through plan design or lower cost) to high quality hospitals or physicians for specific procedures or conditions, and another 56% are considering doing so in the next three-to-five years. Eighteen percent use integrated delivery models such as patient-centered medical homes to improve primary care effectiveness, and another 56% plan to do so in the next three-to-five years. Ten percent have adopted reference-based pricing—where employers set a pricing cap on benefits for certain medical services for which wide cost variation exists with no discernible differentiation in quality, and another 58% plan to do so in the next three-to-five years.

 

Aon Hewitt says private health exchanges are emerging as a credible option to organizations that want to offer employees an expanded choice of plans and insurance companies while lowering future cost trends and lessening the administrative burden associated with sponsoring a health plan. With this approach, companies continue to sponsor and subsidize health insurance, but allow employees to choose from multiple group plan options and insurance carriers via a competitive health insurance marketplace.

“Forward-thinking companies are not only looking for near-term cost mitigation, they are using this period of somewhat dampened health care cost increases to accelerate the pace of change within the health system,” says Jim Winkler, chief innovation officer of Health & Benefits at Aon Hewitt. “As costs begin to rise, companies need to be ahead of the game with a health program that encourages consumer accountability while rewarding health care providers that deliver cost effective, high-quality health outcomes.”

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