Employee Benefits: Between A Rock and A Hard Place
Containing costs and increasing flexibility within group benefits and retirement savings programs are issues that small businesses face year after year. And, in light of the recession, they may need to make some big decisions.
BY APRIL SCOTT-CLARK
Employee Benefit Consultants and employers have warned that reducing health and dental benefits can have a negative impact on workforce morale and productivity. But for some small businesses, cutting back on employee’s benefits means staying afloat and keeping everyone employed.
According to Talak 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 $50.00 of each paramedical visit paid for (up to $500.00 a year). Plan members now have 90% coverage for generic drugs, 75% coverage for brand name drugs and only $30.00 of coverage per paramedical visits with a $300.00 annual limit. However, the HCSA funds are also intended to cover dental expenses – and $200.00 can go only so far.
Though the changes to 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 results of the recession. Cost containment of benefits and retirement savings programs is always a challenge.
“For small plan sponsors, administrative fees [for retirement savings plans] are greater on a per member basis,” explains Martin Sohier, a senior consultant with Watson Wyatt Worldwide. “You always face fixed fees. There is 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. Cost is the No. 1 challenge [for small businesses] with benefits and investment programs… the record keepers 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.
Many small companies do not 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 Dough Snyder, national vice-president of corporate accounts, group retirement services, with Sun Life Financial. “What sponsors are looking for 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 employees in a plan might seem significant to the employer, 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.
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 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 product,” 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.”
Jacques Latour, vice-president of sales, group insurance, with Standard Life Canada, admits that when it comes to benefits and retirement savings plans, small employers are at a disadvantage. “You have less choice and less flexibility in the programs you can introduce.
“[Small businesses] are looking to find more flexibility in their plans. HCSAs are becoming a more popular option among all employers – smaller employers included – to contain their costs.”
For retirement savings programs, options for small employers are also limited – mostly due to resources. Defined benefit (DB) plans no longer make economical sense for many employers, especially small ones, even if they do have the resources to manage such a program. “Capital accumulation plans (CAPs) appeal more to the smaller employers. It’s easier to administer for the sponsor, costs are predictable and [they are] easier for plan members to understand.” Because of the lack of funding responsibilities and limited administration work, group registered retirement savings plans (RRSPs) are the most common types of plans offered by small businesses.
Room to Grow
Administration support and a better level of service are significant needs that small employers want plan providers to address. While online tools and automated systems have streamlined administration and claims processes, clients have yet to see cost savings from these improvements.
“In our business, if people place orders online, it’s a given that we have to give them a discount because they eliminate using our people to place the order. I expect the same things on the group benefits side- something I haven’t seen,” he says. “Companies are encouraging employees to do things online, and that’s good, but… if we are reducing paper costs and reducing administration costs, I’d like to see some cost savings. There needs to be some creativity from plan providers without increased costs so we can actually use these creative methods.”
It’s clear that small employers have needs and wants that aren’t being met by most service providers, but that is starting to change. According to research done by Standard Life, more than 50% of employers with less than 50 employees don’t have group benefits and retirement savings programs, meaning there is growing potential in this market. Since large plan sponsors don’t often switch carriers, insurance providers that are keen to increase their market share have started to expand their services to address the needs of small businesses.
“As the Canadian economy shifts a bit, there will be a shift to focus by record keepers to the smaller market. If they serve it well, there will be an opportunity to grow their business, “Shakeel says. “I think we will see more creative and innovative solutions for smaller organizations. [For example,] there may be an opportunity to aggregate small employer plans with more limited investment options to gain economies of scale.”
Michael Milos, director of Canadian business development for SunAdvantage Group Benefits with Sun Life Canada, says that employee empowerment is a trend among smaller employer groups. He notes that options such as HCSAs and personal spending accounts (PSAs) that allow employees to make decisions, as well as voluntary benefit products such as critical illness and optional life, are getting more interest from small employers and employees.
While employers and employees are looking for more choice in benefits, the opposite seems to be true for retirement savings plans. “Two trends that we are seeing are a desire for simpler plans with fewer investment options, and an increased need and request for education and advice,” confirm Snyder.
When the economy recovers and the labor shortage hits its peak, the idea of more plan options being made available to small employers is exciting. But for the moment, most small plan sponsors are focusing on the present: what’s available to them now, what can they afford – and what they will have to do without. BC
The Leslie Group Advantage Plan
This article summarizes that small-to-mid-sized businesses want enhanced value and services for their benefit dollars. The Leslie Group has met this challenge with the creation of our Multi-Employer Advantage Plan that increases the buying power for small-to-mid-sized corporations with enhanced financial arrangements, creative and flexible plan designs and preferred providers (Preferred Pharmacy network) that offer value and lower costs to employers without sacrificing competitive coverage or service. Should you wish to explore The Leslie Group Multi-Employer Advantage Plan please contact The Leslie Group at (416) 510-8966.
The Leslie Group is a full service benefits consulting firm that is, in keeping with market conditions and legislative changes, committed to providing you with the best advice needed to manage your group benefits program. We would be pleased to address any questions and can be reached at (416) 510-8966.