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Benefits Business Securing employee benefits for the executive class There can be a definite relationship between appropriate benefits for executives and their productivity By Len Strazewski Employee benefit programs are all about providing basic security for employees: health care in case of illness and personal accident, income protection in case of disability, and family financial resources in case of an employee death. But not all benefits are adequate for all groups of employees, says Peter D. Lizotte, an employee benefits broker with Executive Financial, Inc., in Los Angeles. Executive Financial is a 30-year-old agency with five employees, specializing in employee and executive benefits. And bringing group benefits up to 21st century values may be prohibitively expensive—if done the old-fashioned way, he says. Many employers are so worried about the rising cost of their group employee benefits for the breadth of their employee base that they have neglected the evolving security needs of their older executive workforce. These executives’ lifestyles are built on higher salaries, commissions and bonuses, which are not protected by standard benefits. “Most employers are obsessed with their biggest employee benefits cost concern—health care costs,” Lizotte says. “They find it difficult to focus on adding new benefits, paying for new benefits or creating new and more complicated benefit programs.” As a result, executive needs may be ignored—at least until a senior executive recognizes the need personally or sees the connection between appropriate benefits for higher-paid employees and their continued productivity. The recognition should be obvious, Lizotte says, because steadily increasing salaries for executives and stagnation in group term life insurance, long-term disability benefits and other coverages have created a huge gap in protection. Pamela J. Delaney, vice president of health and executive benefits in the Infield, Connecticut, office of MassMutual, agrees. Closing the executive benefit gap may be essential for effective recruitment and retention of executives, she explains; and as the U.S. workforce ages, the cost of experience is rising. “This has become a huge problem for human resource executives and employee benefit managers,” she says. “How do you control your costs while continuing to provide the kinds of benefits and personal security higher paid executives need to stay productive in the workplace?” Both experts agree that instead of continuing to increase limits on group benefits, many employers may actually meet their executive needs by lowering or stabilizing group plans and adding voluntary supplemental programs. Life insurance Life insurance benefits provide a good example, Lizotte says. Most employers provide very adequate group term life insurance for rank-and-file employees with the traditional one to three multiples of salary up to $1 million. However, “a million isn’t very much money these days to executives who may be undertaking mortgages on homes valued at $2 million or more,” he notes. Delaney agrees. She points out that most financial advisors now recommend family life insurance values of 7 to 10 times salary—levels that are generally unavailable in the group term life insurance market. “This provides an opportunity for agents to recommend a coordina-tion of group benefits with a supplemental voluntary insurance program. Life insurance limits of up to $3 million are readily available in the voluntary market at deeply discounted rates for an employer-based group,” she says. By adjusting the group term life benefits and offering supplemental life for executives, the employer can essentially lower the overall risk of the group program and reduce the group rates somewhat, actually lowering the group program costs. Even if the employer contributes to the cost of the supplemental coverage, overall costs can be held stable with higher benefits for key employees. “The benefits are portable and affordable to executives,” Lizotte says, and executives may choose to supplement with group universal life rather than term in order to build cash values that can be used in retirement savings. Disability benefits Disability benefits pose a similar problem, the experts say. Most group long-term disability plans top out at 50% of employee salary up to about $15,000 a month. If the employer pays the premium, the benefits are also taxable. “This seems like a generous benefit,” Lizotte says, but it does not include bonuses and other salary incentives upon which most executives depend—and build their financial plans. Their disability coverage will pay a fraction of their income in case of a claim.” Delaney adds, “And if there is a claim at the top end of coverage, expect a substantial rate increase in the next three-year renewal cycle.” According to a recent buyer study conducted by Unum in Chattanooga, Tennessee, the disability income protection gap will continue to widen. “Increasing life expectancies and the aging of the baby boom generation means there is an older labor pool,” the study says. “This aging workforce is creating additional pressures, particularly in the areas of health insurance and disability income protection. “Consider shifting a portion of employee disability coverage to supplemental policies to help stabilize group rates,” the company advises. Supplementary disability coverage coordinated with a more modest group benefit removes the risk of the huge executive disability claim from the group program’s risk profile, potentially stabilizing costs, Delaney explains. And the higher supplemental benefits, paid for by the executives, will not be taxable. Delaney says insurers offer discounts ranging from 10% to 35% for employer-based voluntary disability coverages. According to Lizotte, the discounts may actually work out higher in certain circumstances; for some employees, particularly female executives, discounts could be as high as 75%, he says. Females generally pay higher rates for disability insurance in the individual market, but they are billed at unisex rates in group-based voluntary programs, compounding the discounts, he explains. Long term care If you are introducing your employer clients to coordinated voluntary benefits, you may also have the opportunity to address long term care insurance as part of the program. It’s still not a particularly popular benefit measured by overall employee participation, but more executives are asking about the coverage as they think about their retirement nest egg and the skyrocketing costs of care. Insurers generally discount 10% to 20% for employer-based long term care groups, and the discounts can increase to 35% for large groups with better than average participation. Whom do you call on when you are ready to promote executive benefits? “You need to get to the right person who can make the decisions about approving supplemental benefit programs,” Lizotte explains. In small firms, owners and partners may make buying decisions, but executive benefit programs appeal more to medium- and large-sized employers with a pronounced gap in income between senior executives and rank-and-file employees. Lizotte says his producers work primarily with the same client execu-tives who control standard employee benefits: chief financial officers and employee benefits managers. “These are the decision-makers who can recognize the advantages of adding benefit programs that, in most cases, will not move the needle on their overall benefit costs, while adding substantial value to their executive compensation,” he says. * The author |
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