Employers Seek to Control Benefits Costs and Risk

The report, “2014 Managing Financial Risk in Retirement and Benefits Programs: Translating Awareness into Action,” finds employers are also looking to outsource some or all of their health benefits administration and management of Family and Medical Leave Act tasks. Although employers are looking at private health insurance exchanges, the authors of the report believe few employers are likely to switch employees out of company-provided health care into the public insurance exchanges established under the Patient Protection and Affordable Care Act.

The report finds that nearly 50% of employers are likely to outsource some or all of their benefits administration, this in addition to the 27% of employers that already do so. In addition, 20% outsource their absence management and Family and Medical Leave Act duties, with another 45% of employers considering it.

Some 70% of employers believe offering voluntary benefits is a way to increase employee satisfaction and 58% say they are likely to expand voluntary benefit offerings.

Employers are still shifting health care costs to employees, says the report, with 80% either transitioning more cost to employees or likely to do so. Only 38% are willing to end employer-paid health care and direct employees to public health insurance exchanges, with 57% saying they would not consider the idea. However, 41% would be willing to provide subsidies to employees for use on private health insurance exchanges.

“Everyone is looking at how to better control benefit costs and health care is still the number one issue,” says Jim Gemus, senior vice president of Product for Prudential Group Insurance, based in Newark, New Jersey. “But they are acutely aware of the need to retain employees and attract new ones. The improving economy and recovery of the financial markets is making it a bit easier to do this.”

Costs and Risks for Retirement Plans

Prudential found 35% of employers have already closed their defined benefit (DB) pension plans to new entrants, and another 25% have frozen them. These employers cite concerns about the impact of DB plans on earnings, balance sheets and their companies’ ability to invest in growth opportunities.

Another concern is the possibility of new mortality figures, with 50% of employers believing the new figures are likely to affect their company’s DB liabilities. In addition, 53% of employers say their companies either have transferred DB liabilities to a third party insurer or are likely to within two years, an increase of 18% compared to 2010.

“The rebound in financial markets has not only restored the value of 401(k) plans but helped improve the funding levels of defined benefit plans as well, though market volatility and other risk factors remain a concern,” says Phil Waldeck, senior vice president, Pensions and Structured Solutions, Prudential Retirement. “Now the focus can be placed on further reducing the risk of defined benefit plans and improving the offering and investment security of defined contribution plans like 401(k)s.”

Other findings related to retirement plans include:

• More than half of employers say they are likely to offer lump-sum distributions to DB plan participants over the next two years.
• More than half of employers believe a significant portion of their work force will have to delay retirement because of inadequate savings; 59% say they have seen the average retirement age increase over the past five years, and 61% believe it will continue to rise.
• Employers are showing a growing interest in defined contribution plan options that enhance the security and stability of workers’ retirement funds. These options include automatic enrollment and developing matching contribution formulas that encourage higher savings rates.
• More than half (53%) of employers believe providing downside risk protection through a guaranteed income feature would help plan participants make better investment decisions. Half of employers are likely to add a guaranteed income feature to their defined contribution plan, and another 5% already offer the feature.

The survey was conducted by CFO Research, on behalf of Prudential, in February. It complements studies done in 2009, 2010, 2012 and 2013. Most of the 182 companies included in the survey had revenues of more than $500 million and more than half had revenues of more than $5 billion.

A copy of the report containing the survey results can be found here.