Employees Supplement Benefits with "Extras"
When it comes to creating a benefit strategy that meets the needs of both employees and the bottom line, Bob Dylan may be right on the money:
“If your time to you is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin”
When employers – large or small – consider the monumental changes in both workforce demographics and the economy during the past few years, it’s clear that a one-benefit-package-fits-all approach may no longer be feasible – or in your company’s best interest.
While it’s true that offering a competitive benefits package goes a long way in attracting and retaining talent, today’s workers define “competitive” in many different ways. Further complicating matters is the recession-driven squeeze on budgets and significant increases in medical insurance. Both forces have taken their toll on benefits packages, prompting many employers to cut back.
Voluntary Benefits Fill Gaps
The use of voluntary benefits to supplement company sponsored benefits is a concept that has taken root of late. Voluntary benefits enable even smaller employers to offer a wide range of benefit options to workers without incurring additional cost. Employees select and pay for these benefits themselves – giving them the flexibility to tailor benefits to meet the needs of their particular situation. And many of these products are guaranteed-issued so employees do not need to pass a physical exam to purchase the benefit. Because voluntary benefits are offered through the worksite workers may receive a lower group rate and get the convenience of using a payroll deduction instead of paying a monthly bill.
“Employers – in Rochester and across the country – view voluntary benefits as a cost effective way to round out their benefit packages and offer employees more choice,” said John Lenihan, regional director, marketing for the Farmington Company, a company based in Farmington, CT that communicates and administers voluntary benefits for companies nationwide. “Disability and life insurance tend to rank the highest in popularity but we’re also seeing increased interest in critical care, accident and cancer insurance.”
Adding voluntary benefits, Lenihan said, helps smaller employers level the playing field with their larger counterparts. While Farmington typically works with companies with 100 or more employees, there are other agencies that offer voluntary benefits to smaller groups.
A Win Win
Providing access to a variety of benefits has strengthened the overall benefit package at Jewish Senior Life, an organization that provides housing, nursing home facilities and long-term care for seniors in the Rochester area. In 2008, JSL, which employs nearly 900, expanded its voluntary benefits offering. “We found employees appreciated the ability to “buy up” or supplement their benefits,” said Emy Giacalone, JSL’s senior vice president of human resources and staff development. “And many of these benefits are portable so if the employee leaves he or she can take their cancer or critical illness insurance with them.”
Expanding voluntary benefits also has helped with employee recruitment, Giacalone added. “When we hand the candidate a list of all the benefits offered their eyes light up, and many have commented how impressed they’ve been with the benefits JSL offers as an employer and what employees can buy into,” she said. “It sends a message that we care.”
A Dizzying Array of Choices
In addition to life and disability insurance, voluntary benefits can range from vision and dental insurance to legal and homeowner protection and pet insurance – and the list is growing.
Before choosing which benefits to offer, employers need to pay attention to the company’s particular workforce population, and keep an eye on trends in the industry, said Maureen Dempsey-Frazer, benefits manager at SentrySafe, a manufacturer of security safes in Rochester that employs about 500.
Sentry sees its voluntary benefit offerings as “extras” that add appeal to an already comprehensive employee package. Because the insurance industry is constantly coming out with new and “better” products, it’s important to pick the types of benefits that add value and make a company’s particular workforce happy. “Some voluntary benefits such as long-term care are expensive and might not be affordable,” she said. “If you are going to take on the extra administrative work of going through an enrollment, you want the offerings to be appealing so that you get broad participation.”
Choosing the Right Provider
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) added a new prescription drug program to Medicare, referred to as Medicare Part D. Prescription drug coverage under Medicare became available starting January 1, 2006.
By definition, voluntary benefits are sold directly to employees by outside insurance companies or agents. Because they will be directly communicating with your employees, it’s vitally important to choose providers with a record of customer service. “Pay close attention to how the provider explains the plans, and ask to see their communication plan,” said Dempsey-Frazer.
Providers often will offer perks, such as creating benefit statements for each employee which outline the entire benefits package. These statements help employees understand how much the company contributes to the overall benefits package, said JSL’s Giacalone. “We’ve found these statements to be a very good tool for retention,” she said.
Another key consideration is to make sure the provider can administer the program electronically. Benefit specialists should have technology partners that understand data integration.
Benefit Administration
Although employers play a role in explaining why voluntary benefits are being offered in the first place, it’s very important that the third-party provider or agent directly communicate the benefits to employees. An employer’s direct participation in these plans could subject the benefits to ERISA, the Employee Retirement Income Security Act of 1974.
In general, voluntary plans that are individually owned by the employee; portable when employment ends; fully paid for by the employee; sold directly by outside insurance companies/agents are not subject to ERISA if the employer is merely taking payroll deductions for premiums and remitting premiums to the insurance company. It is best to consult an attorney to make sure your company is in compliance.
And it’s important to note that many voluntary benefits cannot be taken on a pre-tax basis. Farmington’s Lenihan does not recommend setting up any voluntary benefits on a pre-tax basis as it can have tax consequences when a claim is made. For example, voluntary benefits that are paid on a pre-tax basis may not be dropped except during open enrollment or if there is a COBRA qualifying event. And if a life or disability policy is paid on a pre-tax basis, the employee will be taxed on the benefit payments that are made.
Conclusion
An increasing number of employers – large and small – use voluntary benefits as a way to fill the gap between core offerings and cost control. Industry reports indicate many U.S. workers welcome these “extras” and view the out-of-pocket benefits as a way to gain access to enhanced coverages that otherwise might not be available to them.
