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How to Make the Right Voluntary Benefit Choices

Voluntary benefits build retention at little cost to employers. But the dizzying array of choices means that HR needs to do its homework and decide what benefits best serve its workforce.

July 15, 2002
Related Topics: Work/Life Balance, Benefit Design and Communication, Compensation

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

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

Jean Hamilton, CEO of Prudential Financial’s institutional and employee benefits division, says these types of benefits are coming of age. "In the 1980s, companies were paternalistic, and their basic goal was to accommodate employees with a basic benefits plan," she says. "In the ’90s, employers needed to lower costs, due to great increases in health-care costs and benefits coverage. Companies today are caught in this squeeze where they have to reduce what they spend for benefits programs and at the same time attract and retain employees."

Jodi Wishart, corporate benefits manager for Scholastic Inc., says voluntary benefits enhance the publisher’s reputation. "We want to be perceived as an employer of choice, and we feel we need a broad array of benefits for our employees," she says. Wishart calls voluntary benefits "soft hits," extras that add appeal to an already comprehensive employee package. Their presence tells employees that Scholastic cares about them, and is willing to do legwork on their behalf, she says. The information available through the company’s voluntary-benefits Web-based portal also cuts down on the time employees spend surfing 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, the line is blurring between voluntary and flexible benefits. Many employers, like Household, weave together packages of core, flexible, and voluntary benefits. The company bundles many options into a full package to boost employee satisfaction and recruiting efforts. Employees can opt to contribute to dependent-care accounts for children or elderly family members, for example, with a company match of 50 cents on the dollar. Or they may choose disability insurance, vision care, or other insurance options.

Household is planning to expand its workforce by 10 percent in the near future, 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 to voluntary benefits, and the list is growing. Before choosing voluntary benefits, analyze your workforce demographics, says Richard Johnson, author of Flexible Benefits: A How-To Guide (International Foundation of Employee Benefit Plans, sixth edition, 2001) and president of Partners in Performance, a Chicago consulting company. Employers should examine their entire benefits package, from health care and voluntary benefits to parking and cafeteria allowances, and promote those that cater to employees’ concerns. "Provide products and services to help them from a productivity perspective," Johnson says. "One of the big things employers should help employees with is stress."

Voluntary benefits can help reduce stress, because they usually come hand in hand with financial and life-planning advice. They may be available individually or 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’ concerns about protecting their assets as they age. In 1990, providers sold one million long-term care policies. By the end of the decade, that number had increased to six million, according to a Health Insurance Association of America study, "Who Buys Long-term Care Insurance in the Workplace? 2000-2001." Employers are attuned to this trend; since long-term care was launched in 1987, sales of these policies in the workplace have increased at an average annual rate of more than 30 percent. Yet long-term care insurance is a complex and costly benefit, and national enrollment remains relatively low.

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

Voluntary benefits are coming of age at a time when employees are growing accustomed to paying for a portion of their benefits and consumer choice is considered a virtue. Flexibility is one major advantage. Employers can add or subtract products as the needs of the workforce change. Household International, for example, tweaks its benefits package after receiving employee feedback in annual 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 the FamilyCare benefit for our employees to address that." The company’s voluntary and flexible package also caters to employees who express interest in less 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 allows employees to purchase insurance on a pretax basis, including health, disability, medical supplement plans, and group term-life insurance. This means employees pay fewer taxes and the employer pays fewer FICA contributions. Some voluntary benefits, however, do not qualify for pretax deduction. Employees should be given information on how much will be deducted from their paychecks and how much they will save through group discounts.

Tax advantages and group-rate discounts help offset decreasing employer contributions 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 Health System 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 the extra cost, but many will pass on up to 30 percent of the additional expense to employees.

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

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

Analyzing needs and tracking participation helps employers tailor benefits to employee populations. When too many voluntary products are offered, enrollment tends to decrease, says Patrick Leary, manager, distribution research, for LIMRA International, a membership research and marketing organization for financial services. In Worksite Marketing of Voluntary Products: Measuring Employee Participation, 2002, LIMRA surveyed 38 major voluntary-benefits carriers and found that about two-thirds track enrollment monthly or annually. About the same number also monitor participation over the course of the plan.

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

The HIAA report underscores the importance of communication. It states, "Studies have shown that the nature and extent of employer support can make a difference in employee participation rates. When long-term care policies are offered not only to employees but also to their spouses, participation increases."

Philip Cohen, president of Broad Reach, a voluntary-benefits broker, says savvy work-site marketing reaps employee satisfaction. "If HR people are astute, they’re trying to offer more benefits that offer true value without costing the company money," he says. "It’s our job to educate the employer on these plans." Participation depends largely on the workforce. The needs of a manufacturing worker may be different from those of a person in IT. Cohen says that enrollment in Broad Reach’s Vision Discount program is currently low, but that dental plans remain extremely popular and interest in legal plans is growing.

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

Bundy says that well-informed employees focus on the benefit rather than the out-of pocket expense. "The company makes it clear from the start which benefits will be paid for in full or partially by the employer and which benefits are paid for entirely by the employee. We encourage our HR department to 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 to inform employees during enrollment. 

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

The portal allows for Internet access so that employees can make benefits decisions at work or at home. "Employees make better benefit decisions with life-planning tools, content, and calculators that allow them to look at their benefits in the context of their lifestyle," Fecko says. Voluntary benefits are used more often when delivered in tandem with core benefits. "In today’s environment, 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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