An improving American economy and stable financial markets have given financial executives confidence to explore a range of options to help their companies better manage the costs and risks of their healthcare, pension and other benefits programs, according to a report.
The report released by Prudential Financial and CFO Research Services finds that financial executives believe improvements in funding DB plans will make it easier to reduce or completely eliminate risks associated with those plans.
The report also found financial executives continue to believe controlling the cost of healthcare benefits is their top priority in managing benefits. Companies are also looking to outsource some or all of their benefits administration and management of Family and Medical Leave Act tasks. Although employers are looking at private health insurance exchanges, few are likely to switch employees out of company-provided healthcare into the public insurance exchanges established under the Affordable Care Act.
“Everyone is looking at how to better control benefit costs, and healthcare is still the No. 1 issue,” says Jim Gemus, senior vice-president of product for Prudential Group Insurance. “But they are acutely aware of the need to retain employees and attract new ones. The improving economy and recovery of the financial markets is making it a bit easier to do this.”
The survey finds that 35% of the responding companies have already closed their pension plans to new entrants and another 25% have frozen them. These executives cited concerns about the impact of DB plans on earnings, balance sheets and their companies’ ability to invest in growth opportunities.
Another concern is the possibility of new mortality standards, with 50% of responding executives saying they believe new standards are likely to affect their company’s DB liabilities. In addition, 53% of finance executives report that their companies either have transferred DB liabilities to a third-party insurer or are likely to within two years, an increase of 18% compared to the 2010 survey.
More than half of the respondents believe a significant portion of their workforce will have to delay retirement because of inadequate savings. And 59% say they have seen the average retirement age increase over the past five years, and 61% believe it will continue to creep up. Finance executives are showing a growing interest in DC plan options that enhance the security and stability of workers’ retirement funds.These options include auto-enrollment and developing matching contribution formulas that encourage higher savings rates.
Fifty-three percent of the financial executives believe providing downside risk protection through a guaranteed income feature would help plan participants make better investment decisions. Half of the respondents are likely to add a guaranteed income feature to their DC plan and another 5% already offer the feature.
Nearly 50% of the financial executives said they are likely to outsource some or all of their benefits administration on top of the 27% that already do so. In addition, 20% outsource their absence management and Family and Medical Leave Act duties with another 45% considering it.
Some 70% of the respondents believe offering voluntary benefits is a way to increase employee satisfaction, and 58% are likely to expand voluntary benefits offerings.
Companies are still shifting healthcare costs to employees, with 80% either transitioning more cost to employees or are likely to do so. Only 38% say they are willing to end employer-paid healthcare and direct employees to public health insurance exchanges, with 57% saying they wouldn’t consider the idea. But 41% would be willing to provide subsidies to employees for use on private health insurance exchanges.
The survey targeted senior financial executives at companies with DB plans holding US$250 million or more in assets. Most of the 182 companies included in the survey had revenues of more than US$500 million, and more than half had revenues of more than US$5 billion.
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