Creating a Successful Open Enrollment Experience

Communications, pushing CDHP enrollment and including retirement plan reminders can help enrollment be successful for both employees and employers.

A successful open enrollment experience not only helps employees by getting them into the right health plan for themselves and their families and helping them improve their retirement savings, but can lead to savings for employers as well.

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A tip sheet from Benz Communications cites a study by Aflac that shows 46% of employees take less than 30 minutes to make benefits decisions, and 89% of people choose the same plans as the year before. Benz says employers should suggest that employees block 45 to 60 minutes on their calendar to review benefits materials and an additional 30 minutes to actually complete enrollment.

“Research shows just the act of scheduling makes you much more likely to complete a task,” Benz says.

Benz also suggests simplifying communications. “Use communications to help workers see their benefits as an extension of their lives so that they can make holistic decisions. To do that, segment your communications to reach employees in various life stages or other demographic slices—for example, those not contributing to their retirement plan, or maxing out their health savings account (HSA). It’ll make your messages—and your plans—feel more personal and relatable,” Benz states.

Create a series of benefits tip sheets based on employee demographics. For example: “Benefits for your family,” “Benefits every Millennial needs to use,” “10 Best ways to make your HSA work for you.”

Simplifying communications involves breaking down unfamiliar and complex health insurance terms into straightforward concepts and simple equations so employees can see what they’re paying for coverage and why. “The reason people often zero in on per-paycheck costs is because it’s easy to understand. Deductibles and out-of-pocket maximums? Not so much,” Benz says. Give employees basic information to see how their plan choices affect their health and wallet over the long term.

Give employees the confidence and freedom to ask any and all questions they may have. Town halls, lunch and learns, benefits fairs—whatever it takes to make sure employees are well informed with accurate and actionable information.

Increasing Enrollment in Account-Based Plans

Employers are interested in increasing enrollment in consumer-directed health plans (CDHPs) paired with a tax-advantaged savings account in order to promote consumerism among employees and help lower overall health benefit costs.

In a webinar, John Young, SVP of Strategy & Consumerism at Alegeus, says the employer is the main factor of whether a program succeeds or fails. “Little changes can make a big difference,” he said.

Young says a study by Mercer shows among large employers, 53% are offering HSAs, but only 24% of employees are enrolled. In addition 83% are offering flexible spending accounts (FSAs), but only 32% of employee are enrolled. “There are enormous missed savings on table,” he says. “A study by Aite found only 17% of eligible out-of-pocket spending is flowing through tax-advantaged accounts.”

For one thing, employers must be knowledgeable about how CDHPs and tax-advantaged savings accounts work, according to Young. To educate employees, the employer, or whomever is communicating with employees, should know the differences in account types and how best to communicate with employees.

Jen Irwin, VP of Marketing at Alegeus, said to start early—two to three months before open enrollment—and communicate often. Communications should start with general education about account features and benefits then move to account comparisons to show which accounts/plan option are right for employees. Communications should also include contribution planning, helping participants decide how much they need to save (in addition to how much to save for long-term expenses); eligibility and spending, answering what employees can spend my funds on; and account tools that show what the employees’ experience will be like.

In addition to using multimedia channels to communicate, Irwin suggested employers use positive terms such as consumer-directed instead of high-deductible health plans. “Speak to the value of these plans, give examples and use interactive tools and quizzes to gauge understanding,” she said.

Young added that employers should show employees the money; help employees see the tax savings and balance that can be achieved with different savings levels and account investing; and for FSAs, show them how their contribution gives them money tax-free for health care but doesn’t cost them the full contribution amount in take home pay. He adds that the contributions to these accounts come out pre-Social Security unlike defined contribution (DC) plan contributions, and if coupled with investments, there is more potential for tax-free growth.

Irwin noted that Alegeus itself had a 90% shift in HSA enrollment due to an adjustment in premiums, adding employer funding to HSAs and FSAs, using an active enrollment process versus passive enrollment, presenting strong executive endorsement, holding mandatory meetings and enhancing communications.

Young suggested that employers disrupt their plan designs. Using a benefit-neutral plan design for the CDHP will make it more appealing to employees. By benefit-neutral design he means designing the CDHP so that it is equivalent in value as the traditional or employee’s favorite plan. ”Target out-of-pocket equivalency—if the out-of-pocket maximum is not same as the traditional plan, employee won’t participate,” he said.

Young cited a CIGNA study that found when a CDHP plan design is benefit-neutral, the plan will save 14% of benefit costs in the first year; utilization continues to dampen because people become more prudent over time. In addition, he said employer funding of tax-advantaged accounts is critical for driving adoption. Alegeus finds a 35% enrollment without employer contributions and 89% participation when employers contribute.

Don’t Forget the Retirement Plan

Alight Solutions says open enrollment is a good time to make sure employees understand and are taking advantage of all benefits offered to them, including retirement plan benefits.

According to Rob Austin, director of Research at Alight Solutions, few people take time to rebalance their retirement plan investment portfolio, yet experts recommend doing this at least annually. During open enrollment, employers can encourage participants to take time to evaluate whether their DC plan asset allocation aligns to their savings goals.

Retirement investing can be complicated and some workers may want professional investment help, Austin notes. More and more employers are offering greater help in the form of professionally managed accounts, and online or phone investment advice. During open enrollment, plan sponsors can remind employees of these options and encourage their use.

Open enrollment is also a great time to increase retirement contributions. According to Austin, about one out of every five workers who is saving to their DC plan is missing out on the full employer matching contributions. Remind employees that’s like leaving free money on the table.

Considerations for Adopting a Safe-Harbor Plan Design

The deadline for adopting a new safe-harbor 401(k) plan is October 1, and while it’s not likely to be met for employers that have not already moved to adopt one, information about the plan design will help employers plan for future years.

A plan without a safe-harbor is subject to average deferral percentage (ADP) and average contribution percentage (ACP) testing requirements, notes Jason Gross, Ubiquity Retirement + Savings’ director of National Sales and Development, based in Chicago.

In many cases, the average deferral percentage for non-highly compensated participants limits the amounts highly-compensated participants can contribute to a 401(k). “This can be problematic, especially with a small business,” Gross says.                 

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To remedy this, the Internal Revenue Service (IRS) allows for a safe-harbor plan design which requires committed employer contributions in exchange for eliminating nondiscrimination testing requirements. Steve Friedman, shareholder at Littler Mendelson and co-chair of the Employee Benefits Practice, based in New York City, adds that a requirement is that contributions employers make are fully vested the date they go into the plan.

Gross explains that, under the safe-harbor plan rules, plan sponsors could make a non-elective contribution equal to at least 3% of all compensation for all non-highly compensated employees eligible to participate, regardless of whether they made any elective deferrals. Alternatively, an employer could agree to provide a 100% match on employees’ effective contributions up to 3% of compensation, and a 50%-minimum match on employee elective contributions up to the next 2% of compensation. Gross says the latter is the most popular option.

Plan sponsors may also use an enhanced match formula of 100% of the first 4% of pay that is contributed to the plan (this is the minimum required under this option), and 100% of the first 6% of pay is the maximum allowed to still get a pass on the ACP test.

If plan sponsors get into a financial bind with the cost of offering these plans, the IRS has issued rules for relief.

Adopting a Safe-Harbor Plan

The deadline to adopt a new safe-harbor plan is October 1; the IRS requires the first plan year to be at least three months.

According to Gross, most plan sponsors adopting a new safe-harbor plan use a prototype document. They have to fill out certain features they want in the adoption agreement, and it has to be signed prior to October 1. Then a written notice must be delivered to participants before October 1. Deposits of contributions need to be made in October to get that three months of coverage.

According to Friedman, any employer can take advantage of the safe-harbor plan design, not just small employers. And, if a plan sponsor has an existing plan it wants to switch to a safe-harbor design, amendments would be required for matching and non-elective contribution sections and other sections as well. Plan sponsors may wish to restate their plans entirely. Gross adds that switches to safe-harbor plan designs need to happen as of the first day of the plan year, with a 30-day prior notice to plan participants.

The October 1 deadline is not likely to be met for employers that have not already moved to adopt a new safe-harbor plan, but Gross says plan sponsors can consider it for future years. “Small business owners are overwhelmed with their business and often something like this is on their to-do list but continues to be pushed down by other priorities,” he says. “It is important to get the word out about these plans so employers can start planning in advance.”

Benefits of Offering Safe-Harbor 401(k)s

Ubiquity’s focus is on small plans—traditionally fewer than 100 employees, and Gross says many plans it puts in place are brand new plans. He adds that many small businesses come with a tax problem after taking years to build their businesses, and a 401(k) is a primary form of retirement savings and tax relief. “There is a low-level of managing tax savings without a safe-harbor plan,” he says. “This is a key piece of our discussion with them.”

A study last year of the 2,767 small business 401(k) plans for which Employee Fiduciary provides Employee Retirement Income Security Act (ERISA) compliance services found 68% of plans use a safe-harbor 401(k) plan design to avoid annual ADP/ACP and top-heavy nondiscrimination testing. But, this is also an advantage to large plans.

According to Friedman, safe-harbor plan designs are important to a lot of employers because employers often have bad news to deliver to highly paid plan participants—namely that they cannot defer enough. The highly compensated often have their contributions curtailed and often matching contributions are forfeited due to failing nondiscrimination testing. “Safe-harbor plans allow highly paid people to make contributions they might not otherwise be able to make and to receive employer match,” he says.

“It seems as though they are becoming more popular as time goes on,” Friedman concludes. “Employers are looking to both retain employees and minimize problems with plan testing. Safe-harbor plans are very attractive to employees.”

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