It remains a challenging environment for employee benefit plans. Prudential Insurance Company of America’s 7th annual Study of Employee Benefits: Today & Beyond, conducted in July 2012, found fewer employers and employees than in 2010 reported severe negative economic effects from the economic crisis. In contrast to the 2010 results, however, both groups also reported less confidence that their financial positions would improve over the next near.
One consequence of this mixed outlook is that businesses have become increasingly focused on their benefit strategies (up 17 percentage points since 2010). From a financial perspective, employers need to control benefit costs. But they also must offer benefit packages that employees will value.
Voluntary benefits (i.e., 100 percent employee-paid products) can help companies meet these multiple objectives. From an advisor’s perspective, offering voluntary benefits can generate additional business from existing clients as well as attract prospective clients.
How employers benefit
The sluggish economy has forced companies to cut costs and increase employee productivity. That requires attracting and retaining the right workers. A 2011 CFO Magazine/Prudential survey reported that providing a competitive benefits package is important to employers, with 86 percent of finance executives saying that benefits are just as, or more, important for attracting and retaining employees than they were a year earlier.
There are other reasons why benefit programs — and voluntary benefits, in particular — are important in today’s economy. Employers want to support the substantial investment they’re already making in retirement and health care benefits to ensure their employees’ financial security. Voluntary benefits complement these investments.
Benefits programs can also reduce the costs associated with employee absences. Voluntary disability insurance, for example, helps lower employers’ absence-related costs, such as replacement and retraining expenses, through carrier-run return-to-work programs that facilitate employees’ reentry into the workplace.
Employers participating in the Prudential study cited several financial and operational advantages to offering voluntary benefits: lower cost of benefits (67 percent); convenience through payroll deductions (59 percent); and competitiveness of benefits program with little or no cost (52 percent). Overall, 40 percent of employers in the study strongly agree that offering voluntary benefits had a positive effect on their employees’ satisfaction with their benefits program.
What’s in it for employees
The decision to offer voluntary benefits is about more than just cost savings, however. Employers recognize that employees’ wellness, including their financial wellness — or lack thereof — influences their ability to focus on their jobs. PriceWaterhouseCoopers’ Financial Wellness Survey in 2011 found 61 percent of employees said they find dealing with their financial situation to be stressful. Additionally, 29 percent of employees said personal financial issues have been a distraction at work.
One source of financial concern for employees is the gap in their risk-protection plans. Consider these statistics:
- LIMRA research shows that ownership of life insurance is at a 50-year low. Only 59 percent of U.S. adults owned life insurance in 2010, down from 70 percent in 1960. That lack of coverage poses a serious risk to many households. For instance, among households with children under the age of 18, 70 percent say they would be financially challenged if the primary earner died. Even worse, 40 percent of households say they would have trouble funding everyday living expenses immediately after the death of the primary earner.
- Approximately two-thirds of private sector workers lack long-term disability coverage, according to the Council for Disability Awareness. Lack of this coverage is a major risk for households, because studies show that a 20-year-old individual has a 1 in 4 chance of becoming disabled for some time before reaching retirement age. In addition, the American Payroll Association in 2008 estimated that 70 percent of individuals live paycheck to paycheck and cannot afford a disruption in their incomes.
- The financial impact of critical illness is another major gap. Studies by the American Journal of Medicine and other sources have found that more than 62 percent of all bankruptcies have a medical cause. It’s a growing problem: there was a 50 percent rise in the share of bankruptcies attributable to medical problems between 2001 and 2007. Most medical debtors were well-educated and middle class; three-quarters had health insurance.
Voluntary benefits can help employees close these coverage gaps at little or no cost to employers. Employees want these benefits; 63 percent of workers participating in the Prudential study said voluntary benefits increase the value of their company’s benefits program. Roughly half (47 percent) agreed that voluntary benefits provided access to a wider range of useful benefits that might not otherwise be available to them. Some of the most popular benefits included dental insurance (65 percent), life insurance (61 percent), vision insurance (53 percent) and disability insurance (50 percent).
See also: 7 voluntary products to watch in 2013
Why communications matter
Building an attractive package of voluntary benefits is a good first step, but employee participation rates are likely to be low if an employer fails to offer those benefits effectively. It’s vital for plan sponsors to understand that communication methods and messages must be tailored for their target audience. A 25-year-old employee is likely to prefer different communications methods and a different benefits focus than a 55-year-old at the same company. That means messages’ content should be adapted for and relevant to employees’ life stages — young parent versus pre-retiree, for instance.
Providing information through multiple formats can increase message delivery effectiveness. Employers in the Prudential study said the most successful forms of benefits communications (outside of plan materials) included group meetings, one-to-one meetings, email, a toll-free help number and mail to home or work. Employees rated workplace email as the most effective (47 percent), followed by mail at home (29 percent) and online presentations that could be viewed anytime (24 percent).
Newer technologies are also gaining acceptance. Social media and mobile technology are becoming part of companies’ communications strategies, although with mixed degrees of success. For social media, the communications are more likely done on an internal platform for company-access only. Larger companies are more likely to say they have used this approach versus smaller firms. Smaller firms are more likely to say they have used a mobile benefits communication strategy and have had success.
A successful offering strategy goes beyond simply presenting information across multiple platforms, however. The next step is to help employees understand which benefits best meet their financial needs. Prudential has developed a needs estimator that individuals can use during the enrollment process to accomplish this. With voluntary life insurance coverage, for instance, the estimator uses the employee’s demographic information — age, gender, number of children — to generate an estimate of the coverage needed. Employees can review the estimate and adjust it for their specific circumstances using objective, third-party information resources. This approach personalizes the enrollment process and helps employees make better-informed decisions.
Another strategy for increasing participation rates is to offer these products outside of the fall enrollment period, during which employees must consider numerous benefit offerings. Typically, they focus their attention most heavily on medical and retirement plans and overlook products such as life and disability insurance. Taking these voluntary benefits outside of the annual enrollment period and providing an enrollment period in the summer or another off-cycle time gives employees more time to understand the products. This helps them recognize their needs more clearly and make better-informed selections.
Employer sponsorship of voluntary benefits continues to grow. The Prudential study found that 88 percent of employers offer at least one voluntary benefit, an increase from 60 percent in 2008. Brokers currently selling voluntary benefits agree that the market is growing: 52 percent expect demand to increase more than it has in the past over the next five years. They believe the adoption rates for critical illness insurance, accident insurance and long- and short-term disability will see some of the largest increases. These trends indicate that brokers who don’t offer voluntary benefits through their employer-clients’ plans are overlooking a valuable market.