2012 Voluntary Benefits Special Report

Voluntary benefits, financial education play a bigger role

HR & financial executives collaborate in an era of rising costs

By Len Strazewski

Who feels more insecure? Employers facing increasing health care costs and the confusion of health reform? Or their employees, facing less lucrative health plans, fewer rich retirement benefits and fewer employer-paid benefits overall?

The recession of 2008 forced both employers and their employees to make difficult financial decisions—and four years later, the decisions haven't gotten easier. Employers continue to struggle with rising employee benefits costs, and employees with the erosion of their employer-paid benefits and retirement savings.

Recent industry research paints a picture of increasing anxiety over benefits costs and financial security and a growing need for more flexible and voluntary benefits to fill the gaps left by cuts in employee health and retirement savings benefits. Financial education and retirement planning have also become important tools to help employees make the most of their choices.

One of the first indicators of increasing corporate concern is a change in the way benefits decisions are being made, leaning more toward dealing with cost concerns and less toward recruitment and retention strategies. When money was easy, human resource directors and their employee benefit managers controlled the budget for group benefits, which paid for a diverse package designed to help them recruit and retain top performers. When money got tight, financial executives began to intrude more aggressively into the budget process, and the benefits that once were standard became voluntary—and paid for all or in part by employees. Now, as health reform legislation poses both financial and regulatory changes, corporate financial leadership is playing an even greater role in benefits decisions.

Towers Watson, a New York-based risk management and employee benefits consulting company, now reports a tighter-than-ever partnership between human resource executives and financial executives in employee benefits decision-making, driven by concerns over health reform and increasing costs.

Survey documents changes in thinking

In September, Towers Watson and Forbes Insights, a division of Forbes Media, conducted a survey of more than 300 human resource executives and financial executives at U.S. companies. Respondents came from employers ranging in size from 1,000 to 25,000 employees and a broad range of industries. The participants identified a series of changes in employee-benefit decision-making, primarily driven by health reform and economic issues.

While a majority of executives in both areas of management agreed that human resource executives still took a lead in benefits strategy, about half of respondents said they saw financial executives making more decisions about benefits budgets and calling for more flexibility in shaping rewards and benefits.

"Companies are just beginning to grapple with the complex set of decisions triggered by the new health reform law—decisions that will have a direct impact on their broader set of employee rewards," noted study author Randall Abbott, senior health and group benefits consultant at Towers Watson. "The fact that both finance and HR leaders see a role for each other in developing reward strategy and budgets in the future suggests a powerful framework for joining forces at a time when the stakes for close collaboration have never been greater.

"Health care reform is a significant business issue that has the potential to test the relationship between human resources and financial executives. And with so much change quickly approaching, it highlights the need for both groups to start working more closely now to leverage their respective expertise and knowledge."

The survey found that in addition to regulatory concerns, benefits costs has become the single biggest decision driver for both sets of respondents. About 82% of human resource executives emphasized cost concerns and 69% of financial executives highlighted cost issues.

While both sets of respondents still predicted increases in benefits spending as health care costs continued to increase, more than half of the financial executives said they expect their reward programs to be more flexible in the future, compared with about one-third of human resource executives.

The survey also revealed that a small but significant portion of both sets of respondents was also concerned that their benefits spending may be making them less competitive in recruitment and retention. Another small but significant percentage said they believed they were spending too much on "environmental" rewards, such as career management and flexible work arrangements compared to traditional health benefits.

Health benefits aren't the only concern that employers and employees have noticed. Income security and pre-retirement financial well-being are also waning in the post-recessionary economy, industry experts say. As a result, agents, brokers and insurers that specialize in voluntary benefits report an increase in employer interest in income protection benefits such as short- and long-term disability, critical illness insurance and, to a lesser extent, long-term care insurance.

Financial "wellness"

Their goal, employers say, is to provide opportunities for employees to relieve their anxiety with benefit choices.

"Financial wellness is a relatively new but growing concept, and there is an increasing recognition, across the globe, of the negative impact of financial distress on employee health and productivity," says Michael Malouf, senior vice president of global strategies and sales at MetLife in New York.

General financial stress contributes to both employer and employee anxiety. According to MetLife's Ninth Annual Study of Employee Benefit Trends, 58% of employers say financial "illness" plays a role in employee absenteeism, and 78% say that concerns over financial problems while at work can affect employee productivity.

Late last year, the insurer published a white paper, "The MetLife Study of Financial Wellness," researched in coordination with the Boston College Center for Work and Family. The study combined previous reports on financial wellness with interviews with global benefit executives in China, Hong Kong, India, Ireland, Japan, Mexico and the Netherlands, as well as the United States.

The study indicated:

—Financial difficulties have a direct impact on employee health and well-being—which can increase absenteeism and reduce productivity.

—Consumers are generally poorly prepared to make good investment choices. While most people recognize that government will not provide them with adequate retirement income, the understanding doesn't translate into more savings.

—Financial education can have a beneficial effect on employee wellness and offset the issues that affect productivity and absenteeism.

The study also highlighted some multinational employers that have responded to the financial malaise with voluntary income security and retirement benefits, including expanded financial education and increased savings opportunities. American Express Corp., for example, introduced financial education programs and personal financial planning services designed to encourage employees to better manage their short-term and long-term savings and investments.

In the study, Barbara Kontje, American Express director of Global Retirement, noted: "We believe that the program has had a positive impact on their financial wellness, and we are very pleased with the results we've seen. Since the launch of Smart Saving, there has been a 71% increase in calls to the financial planning counseling service and an 8% increase in 401(k) participation."

The author

Len Strazewski has been covering employee benefits issues for more than 30 years. He has an M.S. in Industrial Relations from Loyola University in Chicago.