The future of employee benefits
The future of employee benefits
03/06/2013

Employers face tough decisions

Employee benefits are nothing new in the workplace. The first recorded employee benefits in American history, according to the Employee Benefit Research Institute, involved a profit-sharing plan in 1797, and before that, a military retirement program that was in place as far back as 1636.

Today, benefit packages are used both as a recruiting and retention tool to attract and keep top talent at a company. Those packages often include a combination of health insurance, life insurance, retirement funds, vacation time, sick days and more.

In fact, federal tax laws over time have changed, creating incentives and credits for employers who offered voluntary employee benefits, which sparked the explosion of all kinds of benefit programs that exist today.

However, just what a benefits package might look like in the future can be anybody’s best guess, depending on the state of the economy and just what it costs employers to implement the Patient Protection and Affordable Care Act.

“There’s always a question of attracting the right employees and the tax-favored nature of employee benefits as a chief cause for companies offering benefits,” says Neil Trautwein, vice president and employee benefits policy counsel for the National Retail Federation, Washington, D.C.

“There also is strong evidence that if a company provides health benefits, it is more likely to keep employees healthy and less distracted. Also, if you don’t offer these benefits, your competition might, so employee benefits can be a competitive advantage,” Trautwein says.

Aaron Matlock, senior account executive, Ruhl & Ruhl Insurance, Davenport, Iowa, who has worked with the American Rental Association (ARA), says offering benefits programs comes down to “employee retention and trying to do what is right to take care of an employee and his or her family. There is the tax advantage for the employee as the premium is deducted from pre-tax income and the company gets to write it off on the expense side of the business.”

Aflac, Columbus, Ga., which designs insurance policies that can be used to help with out-of-pocket expenses not covered by existing major medical coverage, lists offering robust benefits while staying within budget/cost constraints and understanding the changing health care landscape as the top benefits challenges companies face today.

The 2012 Aflac Work Forces Report completed last year also showed that decision-makers at retail businesses believe an overall benefits package has a major influence on job satisfaction, loyalty to employer and willingness to leave an employer.

Many business owners and managers agree that benefits programs help with retaining employees, increasing employee satisfaction and, when it comes to health insurance, increasing productivity by maintaining a healthy workforce.

For many businesses, however, the cost of benefits has become a key factor in determining just what it can and can’t offer employees. For example, some employers who once covered health insurance for employees now only pay a percentage of the premium with the employee paying the rest.

During the economic downturn, other companies suspended or eliminated company contributions to 401(k) retirement plans. Some have added other types of benefits that do not have direct costs, such as flexible hours, but the future of benefits packages as many have known them in the past are now in flux.

ARA’s 2012 Compensation and Benefits Report, based on a survey of members, includes a section on employee benefits and policies. The section shows that of the equipment rental companies responding to the survey, a majority do offer some form of a health care plan to employees with more than 75 percent either offering a preferred provider organization (PPO), traditional indemnity plan or a health maintenance organization (HMO) with an average 9.8 percent health care costs as a percent of total compensation.

Most respondents do not offer flexible spending accounts, short-term disability, long-term disability, dental benefits or life insurance.

Less than half of the respondents, 44.2 percent, offer a retirement plan to employees. Among those that do, half offer a 401(k) plan or a simple 401(k) and a large majority who offer such a plan match employee contributions.

Those that offer vacation and paid time off increase the available days based on length of employment and the average number of paid holidays per year most companies offer is between five and six per year.

Some respondents also offer an average of about two sick days per year for salaried employees and a little less than two sick days for hourly employees.

About 60 percent of the respondents pay for uniforms; 61.5 percent furnish tools; about 21 percent allow personal use of company vehicle; 73.6 percent pay for a holiday party; and 61.5 percent pay for a company picnic/party/outing.

Many, however, are now keenly aware of and concerned with how health care reform will impact what they are required to offer and at what cost. Implementation of the law is ongoing, different size businesses will be affected differently and no business will be unaffected, leaving many to wonder what will be next.

“It still remains to be seen because the government doesn’t have all the issues decided upon. In 2014, exchanges will start to be set up and insurers will start to be taxed by the government for providing benefits in that state. These taxes will be a pass-through to the companies, along with a fee that is going to be charged by the government on a per member per month basis. There are a lot of calculations the government is requiring companies to do to determine if benefits are offered to employees,” Ruhl & Ruhl’s Matlock says.

“You are going to see a lot of companies being very conscientious of the hours their employees work in a month as that will determine health insurance availability through the employer. This is why you are seeing a lot of large employers dropping the hours of their employees to below 30 per week, so they don’t have to offer the benefit,” Matlock says.

NRF’s Trautwein’s advice is for employers to stay vigilant and be informed. “At this stage, I would urge small business owners to
be alert to changes and to have a clear understanding of his or her workforce,” he says.

“Business owners need to know who is working which hours and what the effect will be of the new limit on hours for eligibility as well as those dollars that the business is looking to spend,” he says.

Trautwein said the NRF has developed a health care mandate cost calculator online at nrf.com/healthcare and at  retailmeansjobs.com/healthcare that allows business owners to input workforce size. If a company has fewer than 50 employees, the calculator asks for part-time employee hours to yield a full-time equivalent (FTE) number, which is what is then used to determine what a company needs to do when it comes to offering health insurance.

ARA offered the seminar, “Healthcare 101,” at The Rental Show in Las Vegas last month to help equipment rental store owners and managers better understand some of the key elements of the law, such as how to calculate who is full time, what happens if you have more or less than 50 employees, who needs to be covered, what is considered “affordable” coverage and more.

John McClelland, ARA’s vice president for government affairs, led the presentation, which also included a timetable for provisions of the law to take effect.

While things can change before the law is implemented, McClelland outlined what health care reform could cost a company if it does nothing.

For example, a company with more than 50 employees is expected to have to pay employer mandate penalties, an individual mandate tax, verify employee salaries to the exchange, pay a new Medicare tax and pay an investment tax.

Those with fewer than 50 employees are expected to have an individual mandate tax, Medicare tax, investment tax and have to verify employee salaries to the exchange.

If a company offers health coverage, he said there would be the cost of insurance premiums, a tax of about $500 per employee, a temporary reinsurance fee for three years of $60 to $84, a Medicare tax and an investment tax.

McClelland says equipment rental owners and managers should start planning now to implement the law, talk with their respective health insurance agents and become familiar with their respective state’s insurance commissioner’s website for more information.

While implementing and understanding how to comply with the health care law will need to be a key focus in the short term, there also is a question about how all employee benefits will evolve over time.

“I’d still like to think there is a place for these benefits to be offered through employers,” Matlock says. “I think you will see a major scaling back of the benefits being offered and more out-of-pocket expenses being pushed on to the employees. With this, you will see more optional insurance being purchased, such as accident policies, cancer policies and things of that nature to help with the bigger claims that might arise.”

“Future of Retirement and Employee Benefits, Finance Executives Share Their Perspectives,” a report prepared by CFO Research Services in collaboration with Prudential Financial, published in May 2012, comes to a similar conclusion.

“An increasing number of employers expect to move to an ‘employee choice’ benefits model over the next two years, giving employees discretion over the types and levels of benefits selected. In conjunction with this, many employers plan to make a broader range of voluntary benefits available to enhance the attractiveness of their benefits offerings. Just as employees have had to take on more responsibility for their retirement security, it appears that they will be taking on more responsibility for other benefits, such as group life and health insurance, as well,” the report states.

The report explains that in an “employee choice” model, each employee is provided with a fixed amount of funding for benefits and employees select their benefits using those funds as well as their own funds.

In the end, each company will have to weigh its options, talk to peers, consult with accountants and more to determine the best course of action when it comes to providing employee benefits.

“There’s a lot of change on the road,” Trautwein says. “I think we all will be struggling through a transition together in the equipment rental and retail industries, as well as for the workforce at large.”