Benefits July 15, 2015

Employers More Settled into ACA Regime

The number of employers expressing concern about health care law affecting their business is about half what it was three years ago.
Reported by

Issues concerning government regulation in the realm of health care benefits have ebbed in importance for employers during the last three years, according to Littler Mendelson’s 4th annual Executive Employer Survey.

Three years ago, 64% of survey respondents said they were significantly concerned about regulatory issues surrounding health care affecting their business, compared with only 33% of respondents in 2015. However, in response to the challenges to the Patient Protection and Affordable Care Act (ACA) and uncertainty surrounding its implementation, more than half (55%) of employers engaged employee benefits attorneys or consultants to help navigate upcoming regulations and track areas where there are likely to be changes—but this is down from 58% in 2014.                  

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One-third of employers said they have taken no actions or plan to take no actions in response to the ACA in 2015, down from 39% in 2014. In addition, only 9% indicated they are delaying planning in some areas in the event that further concessions are granted, down from 13%.

The number of employers that reported taking a “wait and see” approach increased in 2015 to 18% from 14%. However, Littler Mendelson said this outlook was likely influenced by anticipation of the Supreme Court decision in King v. Burwell, which had not been decided at the time the survey was conducted. The Supreme Court has since made the decision that the ACA provides for health premium subsidies in states that use the federal insurance exchange. For employers already in compliance, the decision won’t have much of an effect, but employers who were waiting on this outcome to take action must turn their focus back on their policies, Littler Mendelson said.

While settling into the ACA regime, respondents to the survey expressed concern about implementing or administering an employee wellness program. Forty-one percent expressed concern about lack of guidance or negative guidance from the Equal Employment Opportunity Commission (EEOC) about what constitutes a “voluntary program” and how not to run afoul of equal employment laws. Even though the EEOC issued guidance about wellness program incentives, 39% of had concerns about how to administer plans and how employees can be legally incentivized to participate.

The survey report highlights insights from more than 500 respondents about a variety of issues impacting employers.
Data and Research July 15, 2015

Auto Enrollment Boosts Participation for Workers 55 to 69

But because defaults are so low, their contributions are lower than those who voluntarily opt in.
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Automatic enrollment succeeds in boosting participation by older workers age 55 to 69 in defined contribution (DC) plans, the Center for Retirement Research at Boston College found. Auto enrollment raises participation to 92.7% for older workers, compared with 84.9% in plans where participants must enroll voluntarily.

Auto enrollment of older workers also boosts participation for long-tenure workers (95.3%) compared with voluntary enrollment for this group (90.5%). The difference is even greater for short-tenure workers, with only 68.2% of this group freely joining the DC plan on their own, compared to 80.8% of those automatically enrolled staying invested in the plan.

Differences in participation are also pronounced, depending on salary. In the bottom earnings quartile, 91% remain in the plan if automatically enrolled, but only 51.6% of the bottom-earnings-quartile older workers voluntarily join the plan. Older workers in the top earnings quartile are more likely to voluntarily join the plan (96.1%), with automatic enrollment for this group lifting participation only slightly, to 97.4%.

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“The results show that automatic enrollment is associated with a higher proportion of older workers included in a DC plans—particularly short-tenure workers and the lowest earners,” the Center for Retirement Research says.

NEXT: Contribution amounts

The problem with automatic enrollment of older workers: because deferral rates are set so low, those who are automatically enrolled in a plan contribute less than those who willingly join the plan on their own, the Center for Retirement Research says.

Because some DC plans are nonparticipatory plans that have the employer make a contribution instead of requiring workers to defer a portion of their salary, the Center finds “that automatic enrollment is associated with a lower likelihood that older workers will contribute to their DC plans. As a result, employee contribution amounts are lower among those who have been automatically enrolled, compared to those who were given a choice to enroll."

While it is true that employers of older workers contribute a higher match to automatically enrolled participants than they do for voluntary participants, the matches “are not high enough to offset the lower employee contributions.” This results in automatically enrolled older workers contributing significantly less than those who are voluntarily enrolled.

Automatically enrolled older workers contribute an average $1,293, and their employers add another $2,248—for total contributions of $4,800. People who join the plan on their own, on the other hand, contribute an average $3,354, and their employers kick in another $1,608—for total contributions of $6,072.

The Center for Retirement Research concludes that “automatic enrollment could do a better job of boosting overall contribution levels among participants. Possible ways to achieve this might be by offering a more generous employer match and by using auto escalation. Moreover, most employers set the default employee contribution in their 401(k) plan at a rate that does not take full advantage of the employer match, [and] participants remain at the lower default contribution rates.” The Center says that default rates need to rise, not just for older workers but for all participants.

The study can be downloaded here.

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