The rising price tag of healthcare and the risks and costs associated with funding pension plans continue to be a concern for finance executives in the United States.
That’s according to a Prudential Financial and CFO Research Services survey, Balancing Costs, Risks, and Rewards: The Retirement and Employee Benefits Landscape in 2013.
Pursuing balance in insurance benefits is translating into interest in providing employees with the discretion to choose the benefits they value most.
Overall, 74% of survey respondents agree that the use of voluntary benefits is a cost-effective way to increase employee satisfaction with benefits. This interest in the use of voluntary benefits represents a substantial increase over the 2012 survey results, in which 56% of respondents agreed.
Read: Most employees favour voluntary benefits
“This shift toward greater use of voluntary benefits makes sense, in part, because of the prominence that healthcare costs continue to have in benefits planning,” the report states.
Companies continue to ask their employees to shoulder more responsibility for their healthcare costs. Twenty-eight percent say that their companies have already shifted a large portion of costs for healthcare coverage to employees, 34% say their companies are very likely to do so within the next two years, and an additional 26% say that their companies are somewhat likely to do so.
In terms of pensions, finance executives report that their companies are continuing to de-emphasize DB plans, with 36% noting that they have already closed DB plans to new entrants and an additional 27% saying their companies are likely to do so within two years. Nearly one-quarter (23%) of respondents have frozen or terminated DB plans, and an additional 28% are considering doing so.
This year’s survey indicates that pension risk transfer continues to be an emerging option. Although only 6% of respondents say that their companies have already transferred DB plan risk to a third-party insurer, approximately 40% of finance executives indicate that they will seriously consider doing so within the next two years.
“Nearly half (47%) of survey respondents agree that pension risk transfer solutions would allow them to focus more on their core business, rather than on managing pension obligations,” states the report.
Employers are also looking at ways to enhance their DC plans to improve retirement outcomes.
Target-date funds (TDFs) have been increasing in popularity over the years. But in this year’s survey, a majority of respondents say that TDFs should be enhanced in order to provide more protection against market volatility (60%) and that these enhancements need to include the option of providing participants with guaranteed lifetime income (63%).
Sixty-one percent of respondents agree that participants in DC plans will make better behavioural decisions if they are invested in an option that includes a guaranteed income feature. The reluctance to consider these kinds of products is on the decline. This year, 26% of respondents say that their companies are not at all likely to offer such products, compared with 37% in 2012’s survey.
“Clearly, the research highlights the ongoing challenges CFOs face balancing their companies’ fiscal responsibilities and serving the needs of employees who expect competitive workplace benefits,” says James Gemus, senior vice-president for group life and voluntary benefits with Prudential Group Insurance. “CFOs are looking to benefits providers for solutions that are cost-effective and that offer employees choice and options for guaranteed retirement income.”
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