Between a Rock and a Hard Place

According to Tilak De Silva, controller with the Toronto Cricket Skating and Curling Club, this year, the organization had no choice but to reduce its coverage and share more costs with its 114 plan members. “The [cost of the] group benefits plan was going to increase by 40% this year,” he says. “We couldn’t afford that.” Employees used to get 80% coverage for all prescription drugs and $50 of each paramedical visit paid for (up to $500 a year). Plan members now have 90% coverage for generic drugs, 75% coverage for brand name drugs and only $30 of coverage per paramedical visit with a $300 annual limit. However, the club is still able to continue paying 100% of the plan premiums.

Plan members have access to $200 ($300 for families) health care spending accounts (HCSAs), which could help with some of the increased costs that they may face due to the recent plan changes. However, the HCSA funds are also intended to cover dental expenses—and $200 can go only so far.

Though the changes to the sports club’s plan may not be drastic, they are reflective of the realities that small businesses are facing during these tough economic times. But the struggle that these plan sponsors have with annually increasing costs is not simply a result of the recession. Cost containment of benefits and retirement savings programs is always a challenge.

“For small plan sponsors, administration fees [for retirement savings plans] are greater on a per member basis,” explains Martine Sohier, a senior consultant with Watson Wyatt Worldwide. “You always face fixed fees. There is a smaller population to disburse [them] among, so it costs more. The fees for investment management would be greater on a per member basis as well.” Chris Westcott, a benefits consultant with Hewitt Associates, adds, “I think cost is the No. 1 challenge [for small businesses] with benefits and investment programs…the recordkeepers are providing less flexibility and less access to things on both sides. The bigger you are, the more leverage you have.”

Stuart Ferrie, chief administrative officer with Toronto Montessori Schools, agrees. He says that although the organization has approximately 100 members in its plan, it is considered small by insurers. “I’m not convinced we get the same discounts that a large employer would get.”

As the country buckles down to weather a global recession, cost may be even more of an issue for smaller employers that offer benefits and group retirement savings programs. “I have had a couple of clients give the go-ahead to reduce coverage levels,” says Camille Coutu, a health and productivity consultant with Buck Consultants. “Most of my clients send the message that if you provide good things during good times, it can only be expected that these good things must be scaled back during difficult times. It’s a message that most employees understand. I am certain that our clients will be asking us to review plan costs with the objective of cutting [expenses] more and more in the next year.”

Standard Service

Many small companies don’t have more than a one-person HR department—and some don’t even have that. It’s often an owner or controller who wears the HR hat. For service providers and advisors, this means providing these organizations with more support.

“Small businesses don’t usually have significant HR departments. So the HR people are doing a lot of different things, and it’s hard for them to be experts in complex areas like pension and retirement services,” explains Doug Snyder, national vice-president of corporate accounts, group retirement services, with Sun Life Financial. “What sponsors are looking for from us is support in terms of knowledge and plan design, and in terms of responsibilities in handling plan governance. They are also looking for us to help them with the administration of their plans: withdrawals, transactions, things of that nature.” Fifty or 100 people in a plan might seem significant to the sponsor, but for insurers that have plans with thousands of members, the best and most experienced people are often assigned to the accounts that produce the most revenue.

According to Mazen Shakeel, a plan design consultant with Hewitt Associates, “With some of the carriers, the bigger plans get more attention, and sometimes more junior people are supporting the clients with smaller plans. They may not get the same level of service that the bigger sponsors may get.”

Just as the support may be limited, sponsors of small plans may also have limited flexibility and plan options. “When you are a large employer, you can call the shots to a certain extent of how you are going to manage your program financially, how it’s going to be funded,” says Coutu. “You can tell the insurance companies, ‘These are the expenses we deem competitive,’ and they can take it or leave it. The smaller you get, the less flexibility you have. Insurance companies come in and say, ‘This is the cost’ and you pretty much have to take it or leave it. There are limited options.”

Finding Flexibility

It’s not a nine-to-five world anymore, and employees are looking for flexibility in the workplace. Organizations are trying to meet these new desires as a way to become preferred employers. However, giving employees flexibility within their benefits or retirement savings plans can be difficult for employers with limited funds and resources.

Ferrie says that in his experience, the biggest problem with building benefits and retirement savings programs as a small employer is that there is little choice. The suppliers are few and offer many of the same products.

“Plans are typically off-the-shelf products that do not necessarily allow plan sponsors to customize their benefits products,” agrees Coutu. “In addition, most health and dental benefits plans for small employers are insured and, therefore, subject to the insurer’s standard cost practices. And the smaller you are, the less flexible it becomes.”