Benefits January 26, 2006

PA Insurer Latest in DB Freeze Parade

January 26, 2006 (PLANSPONSOR.com) - A Pennsylvania property and casualty insurer has become the latest in a growing line of companies freezing their defined benefit program in favor of a beefed-up 401(k) plan.
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Harleysville Group announced in a Web statement that the changes will affect alI of its 2,100 employees including going to an auto enrollment and default deferral amount for the salary deferral portion of the defined contribution program. As a result of these changes, the company expects to reduce annualized operating expenses by approximately $5 million, officials said.

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The statement said that the changes, scheduled to be put in place by April 1, 2006, “are part of the company’s continuing efforts to provide comprehensive and competitive compensation and benefits programs that are closely aligned with corporate performance, while adding greater predictability to its cost structure.”

The company said the changes include freezing the company’s defined benefit pension plan at current benefit levels and enhancing its 401(k) retirement savings plan. In the DB plan, the accrual of future benefits for eligible employees will cease on March 31, 2006, and all retirement benefits earned at that time will be fully preserved. Eligible employees not currently vested in the plan will become vested if they are employed by the company for a total of five qualifying years.

The company also unveiled a revised defined contribution plan, the Harleysville Retirement Savings Plus plan, which it said will provide employees with a company contribution ranging from 5% to 12.5% of salary each year, depending on company results and employee contributions.

According to the company statement, the plan also features:

  • a “company core contribution” equal to 5% of salary, which automatically will be contributed to all eligible employees’ accounts on a bi-weekly basis regardless of the employees’ salary deferral amounts
  • the option for employees to make bi-weekly, pre-tax deferrals from 1% to 100% of salary (subject to annual federal limits)
  • a “company guaranteed match” contribution equal to 50% of the first 6% of salary deferred by each employee
  • a “company performance match” contribution that provides employees making salary deferrals the opportunity to receive an additional company match of up to 75% of the first 6% of salary deferred. A company performance match will be made when the company’s operating return on equity exceeds 8%.

In order to ensure 100% participation in the plan, an account will be established for all eligible employees, effective April 1, 2006, to accept the automatic bi-weekly company contribution of 5% of salary. Employees hired after that date, also will be enrolled automatically in the salary deferral component of the plan at the rate of 3% of salary, unless they opt out.

“These changes reflect Harleysville Group’s ongoing efforts to strengthen the link between the company’s compensation programs and its performance – both at the individual and at the corporate level – while expanding these programs to ensure that all employees have the opportunity to benefit financially from strong company performance,” said Michael Browne, Harleysville Group’s president and chief executive officer, in the Web statement.

A number of other companies have followed a similar path in recent months (See Two More Companies Join DB Plan Freezing List ).

Benefits January 25, 2006

CDHP Costs Keep Rising but at Much Slower Rate in 2005

January 25, 2006 (PLANSPONSOR.com) - Consumer directed health plans (CDHP) grew at a significantly slower rate in 2005 than other types of health plans, a new survey found.
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A news release from the Deloitte Center for Health Solutions found that CDHP costs increased by an average of 2.8% from 2004 to 2005, according to the survey of 152 major US employers. That compares to an 8% increase in total premiums for health maintenance organizations, an 8.5% increase for point-of-service plans and a 7.2% increase for preferred provider organizations. Traditional or indemnity plan costs increased 6.4% last year, according to the survey. The average for all types of plans was 7.3%, the announcement said.

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“Employers are increasingly turning to consumer-driven health plans to reduce costs and help workers and their families make better health care decisions,” said Tommy Thompson, the independent chairman of the Deloitte Center for Health Solutions, in the news release. “Not only do companies protect their bottom lines, they help make employees better health consumers.”

The survey also found that businesses are projecting similar rates of cost growth in 2006, including 2.6% for consumer-driven health plans, 7.4% for health maintenance organizations, 7.3% for point-of-service plans, 7.5% for preferred provider organizations, and 6.6% for traditional or indemnity plans. The average for all types of plans is projected to be 7.1%.

Not surprisingly, 40% employers said consumer-driven health plans offer “the most effective approach for managing costs and maintaining quality care,” while 35% said preferred provider organizations were the most effective. Eighteen percent selected health maintenance organizations, 6% said point-of-service plans, and just 1% said traditional or indemnity plans.

A Deloitte study released in November found that 43% of US companies either have a consumer-driven health plan in place (22%) or will be offering one in the next two years (21%). Another 51% said they are reviewing consumer-driven options and may offer one in the near future if they can be proven to be attractive to employees while saving money.

The survey, held in conjunction with Deloitte Consulting LLP’s Human Capital practice and co-sponsored by The ERISA Industry Committee, was conducted over four weeks in December and early January.

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