Jacques Latour, vice-president of sales, group insurance, with Standard Life Canada, admits that when it comes to benefits and retirement savings plans, small employers are at a disadvantage. “You have less choice and less flexibility in the programs you can introduce. There is still a lot of choice but, [for example,] you can’t have a complete flex program if you have 30 employees.”
Many sponsors of small plans can’t make an economical case to implement or get access to a full flexible benefits plan and, therefore, end up with more traditional benefits. This can be costly for employers and limit employee choice.
Jahan Roohi, controller and vice-president of finance for Buchanan Rubber Ltd., a wholesale distribution company, says that implementing a flexible benefits plan is at the top of the list of things he’d like to do. Currently, the company has just under 50 employees located in Quebec, Ontario and Alberta, and everyone has the same plan. “If we could implement a flex plan, we would. Everyone would be able to take what they need to spend and what is important to them.”
Westcott adds, “[Small businesses] are looking to find more flexibility in their plans. Based on size, they may not be able to build full flex, but they are also looking to contain their costs. HCSAs are becoming a more popular option among all employers—smaller employers included—to contain their costs.”
For retirement savings programs, options for small employers are also limited—mostly due to resources. Defined benefit (DB) plans no longer make economical sense for many employers, especially small ones, even if they do have the resources to manage such a program. “Capital accumulation plans (CAPs) appeal more to the smaller employers,” says Deborah McMillan, a consulting actuary with Buck Consultants. “It’s easier to administer for the sponsor, costs are predictable and [they are] easier for plan members to understand.” Because of the lack of funding responsibilities and limited administration work, group registered retirement savings plans (RRSPs) are the most common types of plans offered by small businesses.
And for small- to mid-size employers that do have the resources to offer pension plans, the quality of the service they receive is variable. “From the DB perspective, access to best-of-breed managers is limited for the smaller employers because they can’t outsource different pieces of their DB plan to different managers,” explains Zaheed Jiwani, an investment consultant with Hewitt Associates. “Each investment manager has minimums they require in regards to asset sizes and, in most cases, small plans are with one manager who is managing all assets. Therefore, they can’t, [for example,] get the best equity manager or the best fixed income manager. On the DC side, the scope is not as limited because plan sponsors can tap into what the recordkeepers offer, and they typically offer the same list of managers to all plans, of all sizes.”
Although flexibility within benefits and retirement savings programs is difficult for small employers to offer, the lack of bureaucracy and red tape in smaller organizations often means they can be more flexible with HR policies—something that may not be found in larger organizations. “As a small employer, we want to offer as much flexibility as possible…we try to be relaxed. We don’t have a manual for everything you want to do,” Roohi says, adding that if people need to go to appointments, come in late or leave early it’s not an issue, as long as others are made aware of what they are doing and their jobs get done.
Westcott agrees that finding other ways to offer flexibility is important. “Flexibility outside of the traditional plan—opportunities to job-share, time off with pay, more work/life balance issues…wellness is becoming more and more popular with small employers as well. For instance, on-site flu clinics and health risk assessments, these are things that [employers] realize will help employee health in the long run and help employers contain and manage the costs.”
Room to Grow
Administration support and a better level of service are significant needs that small employers want plan providers to address. While online tools and automated systems have streamlined administration and claim processes, Roohi says he has yet to see cost savings from these improvements.
“In our business, if people place orders online, it’s a given that we have to give them a discount because they eliminate using our people to place the order. I expect the same things on the group benefits side—something I haven’t seen,” he says. “Companies are encouraging employees to do things online, and that’s good, but…if we are reducing paper costs and reducing administration costs, I’d like to see some cost savings. There needs to be some creativity from plan providers without increased costs so we can actually use these creative methods.” He adds, “I’d also like to see more prevention education programs from providers, that don’t cost extra. I know they have them, but there is not a whole lot of emphasis on them, and, at times, they aren’t very cost-effective.”
It’s clear that small employers have needs and wants that aren’t being met by most service providers, but that is starting to change. According to research done by Standard Life, more than 50% of employers with less than 50 employees don’t have group benefits and retirement savings programs, meaning there is growth potential in this market. Since large plan sponsors don’t often switch carriers, insurance providers that are keen to increase their market share have started to expand their services to address the needs of small businesses.
“As the Canadian economy shifts a bit, there will be a shift of focus by recordkeepers to the smaller market. If they serve it well, there will be an opportunity to grow their business,” Shakeel says. “I think we will see more creative and innovative solutions for smaller organizations. [For example,] there may be an opportunity to aggregate small employer plans with more limited investment options to gain economies of scale.”
Jiwani adds that some recordkeepers are already starting to look at some of the things they are doing for large plan sponsors (for example, customized communications) and are scaling back those features to offer a version that meets the needs—and the price point—of mid-size plan sponsors. He expects that increased use of technology will eventually enable the recordkeepers to do the same for smaller plan sponsors.
Michael Milos, director of Canadian business development for SunAdvantage Group Benefits with Sun Life Canada, says that employee empowerment is a trend among small employer groups. He notes that options such as HCSAs and personal spending accounts (PSAs) that allow employees to make decisions, as well as voluntary benefit products such as critical illness and optional life, are getting more interest from small employers and employees. “We are definitely seeing a higher request for HCSAs and PSAs over the last little while,” he says. “Also, wellness is a big thing that we are seeing moving forward.”
While employers and employees are looking for more choice in benefits, the opposite seems to be true for retirement savings plans. “Two trends that we are seeing are a desire for simpler plans with fewer investment options, and an increased need and request for education and advice,” confirms Snyder.
When the economy recovers and the labour shortage hits its peak, the idea of more plan options being made available to small employers is exciting. But for the moment, most small plan sponsors are focusing on the present: what’s available to them now, what they can afford—and what they will have to do without.
April Scott-Clarke is assistant editor of Benefits Canada.
april.scottclarke@rci.rogers.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the March 2009 edition of BENEFITS CANADA magazine.