Employers are “embracing benefits planning and combining traditional benefits communication with financial planning to help employees,” Liz Davidson, CEO and founder of Financial Finesse, said in a webcast on Tuesday.
One of the most common questions to Financial Finesse’s employee hotline is how the Affordable Care Act will affect employees, Linda Robertson, a senior financial planner at Financial Finesse, said on the call.
Robertson said that as a result of the ACA, one in four companies are predicting an increase in premiums in 2013. “The good news is that there is an expanded focus on wellness incentives, and a full one in four companies are actually predicting an increase or more of a focus on expanding their wellness incentives.”
“Over the last few years, there’s been a huge increase in premiums, over 131% for family coverage,” Robertson said. Historically, 66% of employees had access to employer-sponsored health care coverage, now that’s fallen to 63%.
Another common question is on target-date funds and managed accounts. “Employees are not recognizing that the TDF itself is a vehicle for allocating assets appropriately. It’s far too common that they will choose the target-date fund among other investments and end up with an allocation that can be very different from what they were expecting or hoping for based on their risk tolerance,” Davidson said. “Employers are really struggling with striking a balance between making these options available, especially the managed accounts, and making sure they’re not overpromoted or that employees are unaware of the fees associated.”
Davidson stressed that employees are very engaged and responsive with the benefits process and more likely to make behavioral changes if it “starts with them.” She noted that employees have been demonstrating for several years that they can’t depend on their employers for financial security and that they have to take responsibility for it. “We've been seeing increasing recognition of that fact, but this recent quarter, Q1 2013, we really saw a tipping point in terms of employees embracing this idea, not only accepting that their employers aren’t going to completely take care of them, but embracing the idea that this is in their control.”
Another indication that employees are shouldering more responsibility for their financial situation is their use of wellness programs. “Among a stable client base, we’ve seen double the utilization of our financial wellness programs.”
Davidson added that there are “plenty of workplaces” where the majority of workers are using financial wellness tools on an ongoing basis. “That was unheard of a decade ago. A decade ago, utilization, if you were lucky, was five to 10% of employees.”
Long-term behavior has yet to be changed substantially, though, Davidson acknowledged.
Robertson identified several challenges from an employer’s perspective. “We’re still seeing employers looking at cost containment, whether that’s passing on some of the costs of increased premiums to employees, or perhaps reducing the benefits themselves.”
That particular challenge leads directly to another: disgruntled employees unhappy about higher costs and fewer benefits. “There are some that have reached that level of acceptance where they’re making changes proactively, whereas there are some that are still at that anger stage, and these are the ones you need to worry about. Even though they’re a minority, they’re probably a vocal minority.”
Other challenges include operating with a lean benefit budget and a tougher legal environment.
To meet those challenges, Robertson said they’re seeing employers increase communications with employees regarding benefits. “We’re seeing a lot of employers who are increasingly using total rewards statements to look at it from a holistic point of view and put together all the benefits so employees can see how it impacts their own personal financial situation.” Customized and targeted benefit statements are also popular.
The most important return on investment for better benefits communication, Davidson said, is the reduction in the number of employees who delay retirement. “Employees who no longer want to work—they’re not engaged, they don’t want to work but they have to for financial reasons—this group of employees ends up costing the company a lot of money, both tangibly and intangibly,” she said. Those costs include the difference in salary a company pays an older worker compared with a younger counterpart, higher health care costs and the presenteeism and drop in performance and productivity they suffer because they don’t want to work.
Davidson stressed that not all employees will experience that drop in productivity and value to their company as they near retirement. She related a story about a law firm Financial Finesse recently spoke at where some of the partners were in their 80s and still highly engaged in the firm. “In their case, they don’t want to retire and they’re a net asset to the firm, but that is not the reality for most employees.”
Second, benefits communication helps retain talented employees. Davidson said 94% of employees say benefits are an important reason to stay with their company. “The more they appreciate, understand and maximize the value of their benefits, the more likely they are to stay, and intellectual capital makes it incredibly important to retain talented employees.”
Finally, employers can realize lower health care costs when their employees understand the value of their benefits. “There’s significant connection between health care costs and decreases in financial stress and better adoption of health and wellness programs,” Davidson said.
Read Want a More Profitable Firm? Let Employees Work From Home by Angie Herbers on AdvisorOne.