U.S. employers are increasingly offering voluntary benefit options as the way to meet the needs of a diverse workforce, according to a survey by the not-for-profit International Foundation of Employee Benefit Plans (IFEBP). Meanwhile, a survey by Mercer finds growing benefit options worldwide.
Reshaping U.S. Benefit Offerings
The IFEBP survey, Top Trends in Voluntary Benefits, was conducted in August and September 2009. Of the 833 U.S. employers surveyed, most (91 percent) were corporations. The survey defined voluntary benefits as supplementary benefits made available by an employer, often at a group rate or premium discount to employees.
A key finding: 84 percent of the respondents offer voluntary benefits, and 5 percent plan to offer voluntary benefits. Of employers who offer voluntary benefits, the most common options include:
• Term life insurance (73 percent).
• Vision insurance (53 percent).
• Long-term-care insurance (51 percent).
• Long-term-disability insurance (50 percent).
• Accident insurance (49 percent).
• Dental insurance (48 percent).
A smaller but still significant number of employers offer newer niche voluntary products including automobile insurance (32 percent), homeowners’ or renters’ insurance (29 percent), debt counseling and financial planning (22 percent), identity theft coverage (22 percent), college savings plans (21 percent) and pet insurance (19 percent).
The large majority (78 percent) of employers believe that offering voluntary benefits results in only slight or moderate increases in administrative costs.
“The survey shows voluntary benefits are a significant part of plan sponsors’ strategic benefits approach, and they are poised to increase in prevalence in the coming years. These benefits improve employee satisfaction, with minimal administrative costs for employers,” says Sally Natchek, senior director of research at IFEBP.
“Long-term care is one of the fastest growing voluntary benefits,” Natchek points out. “Aging Baby Boomers, who have perhaps experienced the overwhelming costs of custodial care with a parent, are expected to drive the future trend in purchasing long-term-care insurance.”
Meeting Employees’ Needs
The majority of employers, 68 percent, identified providing employees access to a greater array of benefits and supporting employee choice and flexibility as the main reasons for offering voluntary benefits. “Workers are taking more accountability for their own future, preferring to pick and choose their benefits based on their specific needs and costs,” Natchek comments.
Other reasons reported include filling gaps in employer-sponsored benefits (42 percent) and helping employers get better prices at group rates (41 percent).
Only 4 percent indicated that supplementing or replacing employer-sponsored benefits that have been reduced or eliminated is a top reason why they offer voluntary benefits.
Employee Participation Levels
U.S. employers indicate various levels of voluntary benefit participation among their employees. The most common participation rate is 20 to 40 percent, reported by nearly a quarter (23 percent) of employers. Only 9 percent reported that less than 10 percent of their employees purchase at least one voluntary benefit, while 10 percent report that more than 80 percent of their employees participate in at least one voluntary benefit program.
Most employers (89 percent) indicated that their employees have expressed a positive view of the benefits.
Eighty percent of employers agree or strongly agree that with the aging of Baby Boomers, voluntary products with guaranteed issue provisions (meaning applicants cannot be denied coverage based on their health status) will become more popular and participation will increase.
Employers feel that portability will continue to be an important characteristic (88 percent); 50 percent of employers think that voluntary benefits will increase if phased retirement becomes popular. The majority (69 percent) believe that employee education about financial literacy and personal responsibility/accountability will increase employees’ perceived value of voluntary benefits.
Non-U.S. Employers Offer More Choices
One out of four global employers now offers their employees choice in the benefits they receive, with a third of the remainder considering doing so, according to a survey of more than 1,700 organizations in 47 countries — excluding the U.S. — by HR consultancy Mercer.
The most important reason for providing choice is to “respond to diverse workforce needs and values,” but an additional factor is the ability to manage costs, cited by nearly a third of organizations offering flexible benefit programs.
According to the Mercer survey, 27 percent of large non-U.S. employers provide at least some choice in the benefits they offer (such as allowing employees to exchange some or all benefits for others or for increased coverage), while 14 percent have comprehensive flexible benefits programs offering core benefits plus optional benefits, with credits and a spending account to supplement the purchase of optional benefits.
The survey results indicate that these numbers will grow. Of employers who currently offer a standard package of benefits to employees, 37 percent say they are planning to add choice or are considering it. “In the current economic environment, many employers can’t afford generous pay increases, so they are relying more on their benefit programs to keep employees happy,” says Beth Umland, Mercer’s head of health and benefits research.
Choice in benefits is more common in Canada and Europe than in Asia-Pacific or Latin America. But there is considerable variation within regions, most notably in Europe. Employers in the Netherlands, Spain and the U.K. are the most likely to provide choice (53 percent, 44 percent and 42 percent, respectively), while employers in Italy and Russia are the least likely (13 percent and 16 percent, respectively).
“Many factors affect the decision to implement a choice program, starting with the level of state benefits and local regulation and policies affecting taxation of benefits,” says Umland. “In addition, employee expectations vary widely by country and by industry. For example, in the U.K., Canada and Singapore, there is an expectation that desirable employers in certain industry sectors will offer flexible benefit schemes. In many developing countries, such as China and Eastern Europe, workforce competition is driving the need for innovative ways of offering benefits.”
Success of Choice Programs
The majority of respondents agreed that their benefit choice programs had met their original objectives (82 percent). In addition, most employers said that the employee response to their programs had been positive (83 percent).
“We were interested to see that more than eight out of 10 employers with choice programs said these had met their original objectives, from both a business and an employee satisfaction perspective," comments Umland. "Given this, we can expect the trend toward offering choice and full flex programs to continue—especially as advances in technology make them easier and less costly to administer.”
Although the most common reason given for not offering benefit choice is the perceived cost (cited by 60 percent of respondents without choice programs), the majority of employers worldwide offering choice have found that they are cost neutral (42 percent) or save money (30 percent). “Employers can shift the effects of inflation and other cost increases to their employees by placing a maximum limit on their contributions to the benefits package through a flexible benefits scheme,” Umland notes.
Across all survey respondents, insured benefits most likely to be offered through flexible benefit programs are:
• Medical (71 percent for employees, 48 percent for dependents).
• Life insurance (57 percent).
• Dental (52 percent).
• Accident (47 percent).
• Vision care (35 percent).
Other benefits commonly offered are retirement/employee savings plans including voluntary pension (46 percent), health screenings (28 percent) and holiday buy/sell options (24 percent).
Administration of Flex Programs
Nearly half of employers offering comprehensive flexible benefit programs handle them exclusively or primarily in-house (49 percent). More than one-fourth (28 percent) outsource the entire process, with just the key decisions remaining in-house. Another 23 percent use a co-source approach with a mixture of in-house and outsourced resources, with claims payment and administration and the help desk/call center most often outsourced.
The majority of respondents’ employees enroll via an online enrollment system (68 percent) while 47 percent use printed materials and 7 percent use a telephone voice-response system. Some of these employers use a combination of methods.
Stephen Miller is an online editor/manager for SHRM.
Missed Open Enrollment Can Mean Higher Costs for Workers, SHRM Online Benefits Discipline, October 2009
Workers' Engagement Levels Drop, Along with Their Expectations, SHRM Online Benefits Discipline, September 2009
Six Benefit Trends for 2010, SHRM Online Benefits Discipline, September 2009
Voluntary Benefits Valued by Employees but Few Employers Measure Success, SHRM Online Benefits Discipline, February 2006
SHRM Online Benefits Discipline