Today’s workforce is made up of four different generations—gen X, gen Y, boomers and traditionalists—but that is only one aspect of workforce diversity. Family units have changed drastically over the last several decades and could include any number of scenarios. For plan sponsors, this means the needs of their workforce are changing.
But plan sponsors have needs, too. They need older workers to stay on a little longer, they need younger employees to fill in knowledge gaps, and they need people to start thinking in terms of total rewards when it comes to their job and its value—including benefits and retirement programs—and not just what they see on their pay stub.
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“[It’s] not news that benefits costs are increasing,” said Jim Pearse, a principal with Mercer, at a recent education session on flexible benefits. “Increasingly, clients are thinking of total rewards—compensation, benefits and retirement—and communicating the whole package with employees….[Employers] are seeing that the total rewards package is changing. They are increasingly seeing their role as a facilitator, offering basic benefits and then giving [employees] a choice of other options that are available in the marketplace.”
And just as the pension market has moved from a DB to a DC approach, Pearse said that the changing factors of the workplace and cost pressures are pushing plan sponsors to do the same on the benefits side, moving toward a more flexible benefits arrangement.
Prevalence of flex
According to Mercer data, said co-presenter Edyta Mroczkowski, a senior Associate with Mercer, in Europe, the U.K. has the highest percentage of flexible benefits programs, while the Asia-Pacific region and Latin America are starting to jump on-board with these benefits.
While a number of Canadian programs do offer some sort of flexible options (optional life and critical illness insurance, for example), Mroczkowski said true flex plans are not overly prevalent in Canada.
Why is that? Pearse explained that for many plan sponsors, administration of these benefits and costs are a main concern. But flexible benefits have changed. “Flex doesn’t have to be complex,” said Mroczkowski. “You can have simple benefits but still provide flexibility. You can really be creative in what you offer.”
And, she added, insurers are getting much better at administering these types of plans. In fact, while 54% of those surveyed for the firm’s Global Survey on Employee Choice in Benefits felt that the complexity of administration was going to be the most significant challenge in implementing a flexible benefits plan, of those who actually implemented a plan, only 20% felt that way.
Implementing flex
Although flex plans have evolved since their first rendition, there are still risks and concerns during implementation. The driver behind doing so should be not only to better meet the needs of your workforce but also to relieve cost pressures—current and future.
When implementing a flex plan, or just adding some flexibility to your existing traditional plan, keep these points in mind.
- Don’t provide too many options. Too many will be overwhelming and confusing for members. (Learn from the DC pension experience.)
- Repackage benefits to provide employees with the coverage they need, but don’t break it down so much that you’ll get “cherry-picking.” “If you do, you will end up with a plan with very high usage, and that will drive up costs,” explained Mroczkowski.
- Simplify the price/credit structure.
- Have well-planned communication. One reason that plan members don’t put as much value on their benefits plan is simply due to a lack of understanding. “Typically, employers that offer traditional benefits don’t put the effort into communicating the value of these benefits,” said Mroczkowski.
The reality of the times is this: plan sponsors cannot continue to foot the bill for everything health- and dental-related. Employees need to be informed about this and learn to use what they get more effectively. Employers need to reinforce this message.
“Do a business plan around benefits. Determine where your costs are headed,” advised Pearse. “What does your business plan say you can afford? We need to get out the knee-jerk reactions on renewals. What are the key decisions you need to make as a company to keep your plan sustainable?”
Or course, with any type of cost-sharing or benefits plan change there will be winners and losers, Mroczkowski said, and plan sponsors have to be aware of this and decide how they will deal with it. “If you do need to put in cost controls, you need to decide where you are going to do that and what you are going to offer [employees] in return,” added Pearse.
According to the 2009 Employee Choice in Benefits Survey, 86% of Canadian respondents indicated that employee response to their flex plan was generally positive. And 79% of Canadian respondents believed that their benefits plan costs were either unaffected or lower with the implementation of flex plans.
Flexible benefits, or simply adding options to a current plan, seems like it could be a win-win situation—if done properly. It is certainly an option for plan sponsors to consider if they are feeling pressure from costs, while also looking to better serve their workforces and remain competitive in the looming talent war.