A number of questions arise from an attraction and retention perspective alone: Are the benefits that employers currently offer competitive from a millennial’s perspective? How do millennials define benefits, anyway? Do they even care about benefits? Should they care?
This article endeavors to address some of these questions, and provide a springboard for future thought and action in offering competitive benefits to millennials.
Millennials as a predominant force
The millennial generation, also known as Generation Y, typically represents those whose dates of birth range from the early 1980s to about 2000. This generation follows Generation X, which in turn followed the baby boomer generation. As baby boomers continue their journey into retirement, they are increasingly being replaced by millennials in the workplace.
In 2000, millennials represented 6 percent of the U.S. workforce, compared to the baby boomers’ 48 percent and Generation X at 33 percent. While the Generation X’s percentage has remained largely steady over the last 15 years, the other generations have changed materially. Millennials have jumped to 35 percent in 2015, while the baby boomers have dropped from 48 percent to 31 percent. Millennials currently make up the largest portion of the workforce, and this shift will continue, with many experts expecting millennials to represent 75 percent of the country’s workforce within the next 10 years.
One can no longer think of millennials as the “kids in the office.” They are the office. (Click on the charts to enlarge them.)
When Generation Xers or baby boomers think of benefits, they will typically first think of a medical, dental or retirement plan, or perhaps life or disability insurance. There are many other benefits available, but these typically make up a large part of a core benefits package. This certainly makes a lot of sense, since these plans provide important protections for employees and their families. But where do millennials, the majority of the workforce, prefer that employers focus their attention?
According to a Price Waterhouse Coopers survey, the number one most valuable benefit to millennials is training and development. Number two on the list is flexible working hours, followed by cash bonuses. These benefits, based on the survey, are more important to millennials than even free private health care, which came in at a distant fourth. While employers spend a large amount of time each year toiling over copayments, deductibles, and which carrier to use for their health care plans, millennials may prefer that their employers spend more time thinking about how to assist them in their quest to grow professionally or establishing policies that allow for flexible schedules. While this preference may not ring true for older generations, employers must increasingly consider their evolving workforce.
Illustrated below, PWC conducted a global survey of millennials and what benefits they most value from employers. While it is important to note that millennials outside of the U.S., many of whom have access to some form of public health care, would not rank free private health care quite as highly, this study does illustrate key trends in what benefits millennials value.
Who chooses the benefits?
Compared to other generations, many millennials do not want their employer to pick many of their benefits for them, instead preferring that their company provide them with a list of benefits to choose from on their own. According to a recent study by the Employee Benefit Research Institute and Greenwald Associates, only 30 percent of millennials want their employer to choose their benefits the way they do today, while 45 percent would prefer to receive a defined dollar amount and then choose their benefits from a list. This suggests a shift toward the defined contribution approach that is being promoted by the private exchange industry today.
In many cases, millennials would go even further. They would prefer to just take the employer money that otherwise would go to benefits and decide for themselves outside the workplace which benefits — if any — to purchase. In fact, twenty-four percent of millennials would prefer this type of total control.
This trend calls into question the role that the employer plays in benefits selection for its employees. Is part of the employer’s role to protect employees from themselves, especially those in the younger generation who may not have the life experiences to know better? What would happen if employers indeed just gave employees the money and let them decidetheir own benefits?
Handing the reins over to employees: The long-term disability example
Today, the majority of large employers offer company-paid long-term disability insurance to their employees. This is a valuable benefit, as it generally pays out a percentage of pre-disability income until the employee’s normal retirement date.
It’s a challenge to be without income for a short-term disability, but when a disability can potentially last for decades, long-term income replacement becomes critical. While Generation Xers and baby boomers may well appreciate this, millennials, on the other hand, may not be interested in spending money on long-term disability insurance that they do not think they will ever need. Instead, they may prefer to focus on paying for more immediate concerns, like student debt payments or day-to-day living expenses.
The up-and-coming private exchange model is one type of benefits delivery model that helps illustrate this point. In this model, employers typically set a defined dollar amount for benefits, and employees choose from a list of plan options. In one private exchange carrier’s experience, they cite that when given a choice, 55 percent of employees (all employees, millennials or otherwise) choose long-term disability insurance as one of their benefits choices.
While 55 percent is seemingly a high number, this of course means that almost half of all employees either have individual disability insurance of their own or, more likely, choose to go uninsured. Although employees are free to make their own choices in this model, a material number of people are less protected than they would have been if the employer had continued to maintain the company’s paid long-term disability plan. This raises the question: Do the 45 percent making this choice have full information and understanding of the risks?
While this example focuses on long-term disability plans, it can be expanded to medical plans and other benefits, as well. Benefits are complicated, they are evolving each year, and they carry great financial risk if one chooses unwisely. Although millennials may prefer more individual control of their benefits choices, will employers be comfortable with the inevitable results?
Is there an app for that?
In addition to what millennials value in their benefits packages, and how much latitude they want to choose from among options, the method of benefit selection and utilization is also a phenomenon worth noting. It is well documented that millennials, more than any other workforce generation, have grown up accustomed to technology. So it should be no surprise that, compared to other generations, millennials are more likely to use employer-provided online programs. According to the EBRI/Greenwald & Associates study, 65 percent of millennials are either “extremely likely” or “very likely” to use a no-cost, employer-provided online program.
This preference can potentially take shape in multiple forms. Millennials may prefer to enroll in benefits using a portal or a smartphone app. They may prefer to compare the costs of different medical providers online, using various cost estimators, or they may prefer an online wellness program. They may even be more open to “seeing” their doctor on their phone, leveraging a recent trend towards increased telemedicine.
Putting it all together
What are the lessons to be learned by employers from these millennial benefits preferences?
1. Millennials are already the largest part of the U.S. workforce, and will be 75 percent of the workforce by 2025. Therefore, employers must pay attention to their benefits preferences in order to attract and retain top talent.
2. Millennials are perhaps not quite as enamored with traditional benefits packages. Employers need to pay attention to other “benefits” such as training and development and preferences for flexible work schedules. Millennials also want more control over their benefits choices. That said, employers may want to be careful about handing over the reins entirely. When given the choice, millennials — or any employee for that matter — may make unwise decisions without having sufficient life experience, or detailed knowledge of the benefits features.
3. Finally, whichever benefits are offered, employers should continue to support the use of online programs to help millennials make the best use of their benefits. Millennials will embrace technology, whether it is enrolling in benefits, choosing providers, or even seeing their doctor using an app!
We’re in the midst of a dramatic change in how the workforce views the role of the employer, with benefit options front and center. The onus is on employees to educate themselves and ask the right questions so that they can position themselves well for long-term financial and physical health. Employers also have a responsibility to understand what their employees expect from them, so that they can better serve and retain valued workers. As millennials become an increasingly predominant force in the workplace, it can be expected that employee benefits will continue to evolve.