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Much Obliged? No, Benefits Are Optional, but ..

August 31, 2011
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Related Topics: Benefit Design and Communication, Health and Wellness, Health Care Benefits, Featured Article
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Are employers obligated to offer certain benefits to their workers?
That's a question some companies may be asking themselves as they struggle with rising benefit costs. There are indeed mandatory benefits, but only a few. Except for Social Security, workers' compensation and a few state requirements, employers are free to choose whether to provide other benefits.
But that doesn't necessarily mean companies should start shedding benefits. Stacy Kinsler, a payroll and human resources professional in Dallas, says, "Duty? No. Are we obligated to by law? No. To retain employees and be competitive, yes."
With continually rising costs and the advent of health care reform, some companies are paring benefits. MetLife's ninth annual Study of Employee Benefits Trends revealed that in the six months before March, 20 percent of employers reported they had decreased employee benefits, the highest level since the fall of 2008. Employers continue to scale back on health care coverage for employees (91 percent) and spouses and dependents (89 percent), according to the MetLife study.
More than 2 in 5 corporations offer one or more high-deductible health plan options, almost 98 percent offer dental benefits, and almost 83 percent offer one or more defined-contribution pension plans, according to the International Foundation and International Society of Certified Employee Benefit Specialists' Employee Benefits Survey: U.S. and Canada 2011. And as of March 2009, paid sick leave was available to only 61 percent of private industry workers according to the U.S. Bureau of Labor Statistics.
With 2014 health care reform provisions on the horizon, nearly 1 in 5 employers responding to Lockton Benefit Group's May 2011 Employer Health Reform Survey said they were considering ending group health coverage. Most of the survey's respondents plan to retain health coverage as a recruitment and retention tool, and because of concerns about the costs employees would have to pay if they used health exchanges to obtain coverage.
Some experts believe employees would leave companies in droves if benefits were taken away, and spur a resurgence in unionization.
"Employees view their benefits as entitlements, and I don't know how an employer escapes that mentality," says Greg Dresh, president of Emeritis Human Resources in Dallas. "If we give employees vouchers to buy health insurance on their own, we'll have a rebellion at the gates. There is simply no legitimate alternative to employer-sponsored health insurance in the United States."
Nancy Ross, a partner with law firm McDermott Will & Emery in Chicago, says providing benefits are primarily driven by financial considerations. Yet there's a paternalistic obligation as well.
"Most employers are decent animals who still want to be benevolent for the most part," Ross says. "Would they rather diminish or eliminate a benefit, or lay off 20 percent of the workforce?"
Ross points out that employer-provided benefits have dwindled since the late 1980s when employers started realizing their growing cost and risk—especially health care.
A Society for Human Resource Management survey reported that 77 percent of HR professionals said the economy negatively affected benefits in some way in 2011. The survey also found employee responsibility for managing their retirement savings, leave and health care costs continues to grow.
"Benefits that used to be inexpensive and a nice perk are now costly and put companies at risk," Ross says. "Employers see companies being sued over benefits they don't have to provide, so they are now considering the risks associated with offering a benefit. Employers may think offering benefits is the right thing to do, but overall, it's a headache for them."
According to a July study by Towers Watson & Co., 70 companies in the Fortune 100 currently offer only a defined contribution plan to new hires, compared with 63 companies at the end of last year and 57 companies at the end of 2009. Seven of those 100 companies announced this year they will stop offering defined benefit plans to new hires and adopt a defined contribution-only plan. Meanwhile, 13 companies offer a traditional defined benefit plan vs. 17 companies at the end of 2010, while 17 companies offer a hybrid pension plan today, a decline from 20 companies at the end of 2010.
Ross says defined contribution plans will continue to be offered in companies of all sizes, primarily to remain competitive in acquiring and retaining talent.
"If you're not offering a 401(k) plan to salaried employees, you won't be able to recruit them," she says.
Workforce Management Online, August 2011 -- Register Now!

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