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How to Make the Right Voluntary Benefit Choices

May 21, 2002
Related Topics: Work/Life Balance, Benefit Design and Communication, Latest News

Household International’s benefits needs, like those of most other bigcompanies, are as varied as a delicatessen menu. Company surveys report thatsome employees want child care or adoption assistance, whereas others seek autoinsurance or help caring for an elderly parent. To meet these disparate needs,Household beefs up its core health-care and retirement packages with voluntarybenefits that employees pay for at discounted group rates. "We want the bestand the brightest and are willing to pay for them with our benefits," saysKaren Bundy, manager of benefits communications.

Voluntary benefits range from vision and dental insurance to legal andhomeowner protection -- perks that are available at little or no cost to theemployer. The company’s expenses are limited to administrative costs.Typically, employees pay the premiums. At a time when employers are trying tocontain costs and retain employees, voluntary benefits will continue to grow,industry observers predict.

Jean Hamilton, CEO of Prudential Financial’s institutional and employeebenefits division, says these types of benefits are coming of age. "In the1980s, companies were paternalistic, and their basic goal was to accommodateemployees with a basic benefits plan," she says. "In the ’90s, employersneeded to lower costs, due to great increases in health-care costs and benefitscoverage. Companies today are caught in this squeeze where they have to reducewhat they spend for benefits programs and at the same time attract and retainemployees."

Jodi Wishart, corporate benefits manager for Scholastic Inc., says voluntarybenefits enhance the publisher’s reputation. "We want to be perceived as anemployer of choice, and we feel we need a broad array of benefits for ouremployees," she says. Wishart calls voluntary benefits "soft hits," extrasthat add appeal to an already comprehensive employee package. Their presencetells employees that Scholastic cares about them, and is willing to do legworkon their behalf, she says. The information available through the company’svoluntary-benefits Web-based portal also cuts down on the time employees spendsurfing the Web for insurance products.

Employees are growing accustomed to paying for a portion of their benefits and consumer choice is considered a virtue.

As flexible benefits and shared-contribution options become more popular, theline is blurring between voluntary and flexible benefits. Many employers, likeHousehold, weave together packages of core, flexible, and voluntary benefits.The company bundles many options into a full package to boost employeesatisfaction and recruiting efforts. Employees can opt to contribute todependent-care accounts for children or elderly family members, for example,with a company match of 50 cents on the dollar. Or they may choose disabilityinsurance, vision care, or other insurance options.

Household is planning to expand its workforce by 10 percent in the nearfuture, and Bundy says the benefits program will help to attract new employees.

Give them only what they need
HR professionals are faced with a dizzying array of choices when it comes tovoluntary benefits, and the list is growing. Before choosing voluntarybenefits, analyze your workforce demographics, says Richard Johnson, author of Flexible Benefits: A How-To Guide (International Foundation of Employee BenefitPlans, sixth edition, 2001) and president of Partners in Performance, a Chicagoconsulting company. Employers should examine their entire benefits package, fromhealth care and voluntary benefits to parking and cafeteria allowances, andpromote those that cater to employees’ concerns. "Provide products andservices to help them from a productivity perspective," Johnson says. "Oneof the big things employers should help employees with is stress."

Voluntary benefits can help reduce stress, because they usually come hand inhand with financial and life-planning advice. They may be available individuallyor as part of broker or provider packages. Insurance products such as life,disability, and dental insurance remain the most popular group-purchased plans.But others are making their way onto the scene, including auto, legal, vision,and long-term care insurance.

Growth in long-term care insurance enrollment reflects Americans’ concernsabout protecting their assets as they age. In 1990, providers sold one millionlong-term care policies. By the end of the decade, that number had increased tosix million, according to a Health Insurance Association of America study, "WhoBuys Long-term Care Insurance in the Workplace? 2000-2001." Employers areattuned to this trend; since long-term care was launched in 1987, sales of thesepolicies in the workplace have increased at an average annual rate of more than30 percent. Yet long-term care insurance is a complex and costly benefit, andnational enrollment remains relatively low.

Because new benefits products are constantly cropping up, it’s important tounderstand them well, says Fran Pullano, of Pullano & Company, a benefitsbroker in upstate New York. "For example, we’re seeing more new benefits forcancer care and critical illness," she says. "Any of these specialtybenefits require a lot of consultation." Before they purchase benefits,employees should understand how they will fit into their personal health andfinancial plans.

Voluntary benefits are coming of age at a time when employees are growingaccustomed to paying for a portion of their benefits and consumer choice isconsidered a virtue. Flexibility is one major advantage. Employers can add orsubtract products as the needs of the workforce change. Household International,for example, tweaks its benefits package after receiving employee feedback inannual surveys and additional polls.

"Another way we really define the need is that we pay attention to trends,"Bundy says. "For example, our population is aging, and we provide theFamilyCare benefit for our employees to address that." The company’svoluntary and flexible package also caters to employees who express interest inless traditional programs, like adoption assistance or senior advocate services.

Analyzing needs and tracking participation helps employers tailor benefits to employee populations.

Tax benefits
Qualified voluntary benefits fall under IRS section 125, which allowsemployees to purchase insurance on a pretax basis, including health, disability,medical supplement plans, and group term-life insurance. This means employeespay fewer taxes and the employer pays fewer FICA contributions. Some voluntarybenefits, however, do not qualify for pretax deduction. Employees should begiven information on how much will be deducted from their paychecks and how muchthey will save through group discounts.

Tax advantages and group-rate discounts help offset decreasing employercontributions to health care. In 2000, health-care costs went up 7.2 percent,the largest increase in a decade, according to the Center for Studying HealthSystem Change. Hewitt Associates LLC, a human resources consulting firm,predicts average rises in health-care costs in 2002 of 13 to 16 percent,depending on the plan. The firm predicts that some employers will pick up theextra cost, but many will pass on up to 30 percent of the additional expense toemployees.

Educating employees
Johnson suggests that HR managers start the benefits-education process assoon as possible. "Who are the key audiences we need to communicate with?"he says. "Engage employees in the process. This is more than just askingwhether they would like an EAP. Ask them, ‘What happens in the day that takesyou away from the job, such as elder care or child care?’ " He saysemployers should develop a communication program not just for employees, butalso for their spouses.

A study conducted in 2000 by Conning & Company and Eastbridge ConsultingGroup found that work-site insurance enrollment procedures are often inadequatein educating and counseling employees about benefits choices. The result is thatemployee enrollment may fall below expectations and unit costs rise.

Analyzing needs and tracking participation helps employers tailor benefits toemployee populations. When too many voluntary products are offered, enrollmenttends to decrease, says Patrick Leary, manager, distribution research, for LIMRAInternational, a membership research and marketing organization for financialservices. In Worksite Marketing of Voluntary Products: Measuring EmployeeParticipation, 2002, LIMRA surveyed 38 major voluntary-benefits carriers andfound that about two-thirds track enrollment monthly or annually. About the samenumber also monitor participation over the course of the plan.

Determining whether a program is successful depends on objectives definedfrom the start. Providers want to increase enrollment rates, and employers aimto increase workplace satisfaction. LIMRA’s study found that most of theemployers surveyed depend on the benefits carrier to provide eligibility andenrollment information. Companies can partner with the carriers to analyze thisinformation and determine whether the voluntary benefits continue to meetemployees’ needs.

The HIAA report underscores the importance of communication. It states, "Studieshave shown that the nature and extent of employer support can make a differencein employee participation rates. When long-term care policies are offered notonly to employees but also to their spouses, participation increases."

Philip Cohen, president of Broad Reach, a voluntary-benefits broker, sayssavvy work-site marketing reaps employee satisfaction. "If HR people areastute, they’re trying to offer more benefits that offer true value withoutcosting the company money," he says. "It’s our job to educate the employeron these plans." Participation depends largely on the workforce. The needs ofa manufacturing worker may be different from those of a person in IT. Cohen saysthat enrollment in Broad Reach’s Vision Discount program is currently low, butthat dental plans remain extremely popular and interest in legal plans isgrowing.

Provider information makes it easier to educate employees about benefits, butit is also a marketing tool. Ideally, HR managers partner with the provider orbroker to ensure that employees receive accurate and objective information.

Bundy says that well-informed employees focus on the benefit rather than theout-of pocket expense. "The company makes it clear from the start whichbenefits will be paid for in full or partially by the employer and whichbenefits are paid for entirely by the employee. We encourage our HR departmentto do orientation; one-on-one meetings go a long way in explaining the benefits."The company also uses posters, e-mail, newsletter articles, and other tools toinform employees during enrollment. 

Web portals ease administration
Technology supports administration of voluntary benefits. Last yearPrudential invested $69 million in RewardsPlus, a Web-based benefits providerbased in Hunt Valley, Maryland. The insurer also entered into an alliance withRewardsPlus to enable a self-service portal and to streamline processes. Thetechnology integrates and consolidates benefits delivery, communication, andadministration. "Most companies would love to offer additional voluntarybenefits, but concern about administration is the biggest obstacle," saysSteve Fecko, vice president of marketing for RewardsPlus. "We have reduced thework involved with setting up and ongoing administration and management."

The portal allows for Internet access so that employees can make benefitsdecisions at work or at home. "Employees make better benefit decisions withlife-planning tools, content, and calculators that allow them to look at theirbenefits in the context of their lifestyle," Fecko says. Voluntary benefitsare used more often when delivered in tandem with core benefits. "In today’senvironment, more employers are considering the addition of voluntary benefits,and employees are starting to expect them."

Workforce, March 2002, pp. 42-48 -- Subscribe Now!


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