Don’t drop the ball

In an exclusive interview with Dallas Salisbury, President & CEO of the Employee Benefit Research Institute, HRM gets some hard facts on the issue of the provision and importance of employee benefits and finds out just how big a challenge it presents to companies today.

HRM. How important are retirement plans and other financial benefits to potential employees?
DS. The EBRI’s Value of Benefits surveys have consistently found that 20 percent of workers find these to be the most important benefits to them as employees. Nearly 50 percent of those questioned found them to be the second most important, behind health insurance, which is the first choice for over 75 percent. Health insurance is also a financial benefit, but for current expenses and risks, rather than the long term.

HRM. So how crucial is their provision in attracting and maintaining high calibre employees?
DS. Nearly one third of workers say they are locked into their jobs because of health insurance. Workers over 50, in particular, place a very high value on savings and retirement plans, and also take this factor into account when selecting jobs and deciding whether or not to stay in their present position.

HRM. Where does an organization that is looking to assess its retirement offering, or to implement a new plan, start?
DS. The first question to ask is why you want the plan and what are your objectives. For example, do you simply want to give people an opportunity to save or do you want to push it with auto-enrollment? Perhaps you want to add a bribe with a match? Or do you want to assure that after a certain number of years with the company someone will have enough money to retire?

HRM. And how does that organization determine which kind of contribution is most suitable to it and to its employees?
DS. The answers to the questions above will drive the cost issue. An employer that just wants to provide access could simply provide salary reduction into an IRA. If you want all involved, then do a Money Purchase Plan with 100 percent participation and a base contribution and include a 401k feature for added salary reduction. Want to help more? Then either increase the base contribution or increase the value of the match. If you are looking to assure a result for long service workers, the solution could be either a DB plan with an effective contribution of at least 10 percent or a Money Purchase Plan with a base of 10 percent and a 401k on top of that. If, on the other hand, you want to help while making it possible for workers to get over the top, you could go for a base plus match as well as a great deal of education and advice and ideally one on one financial planning.

HRM. Is there currently enough understanding among companies of benefits policy, and what avenues exist to raise that knowledge?
DS. There is understanding and there is also tremendous change taking place in the objectives that employers feel they can afford to fulfil going forward, hence the move away from DB.

It is important for employers to focus on this for a number of reasons. First of all, workers without sufficient income to retire will have to keep on working – assuming they have the health to do so – until a ripe old age. Second, workers that retire too early without resources will not have money to buy the products and services companies want to sell. Third, their kids will have to help them out, which will affect the saving and spending of the next generation. Finally, if the low income elderly population climbs, as the over-65 population goes from 13 to 22 percent of the population, government will eventually have to raise taxes on businesses and workers to pay for the basic needs of the growing elderly population. Like all things in life, it is a case of pay now or pay later.

HRM. And what activities is the EBRI involved with in this area?
DS. We undertake a series of studies each year aimed at spreading the message and we use ebri.org as a means of international distribution. We also maintain a www.choosetosave.org website and run both TV and radio public service announcements around the nation to raise understanding.

EBRI gives more than 150 presentations every year at meetings and conferences across the nation in an effort to have individuals and decision-makers focus on the need for financial security – and the need for goals, a plan, consistency, education and advice to make that happen.

HRM. Are US employers confident in their retirement plans today? If so, what can the negative impact of that be?
DS. Employers are very concerned about all of their programs today. They feel conflicted between what they would like to provide and what they feel today’s competitive environment allows them to afford. When an employer is concerned about the ability to survive it can result in a reduction in health and other financial benefits, and to reduced 401k matches. It may also lead to DB plan terminations or freezes. The concern among employers can also lead to higher employee health premiums and copays and deductibles, which reduces what workers can contribute to savings plans themselves. In short, it produces a nasty cycle that puts employers, workers and the nation at greater risk.

HRM. What are the main challenges in delivering quality, cost-effective plans and investment schemes?
DS. All of the programs and tools that are required exist. The biggest hurdle is a growing reluctance on the part of employers to require participation and to provide the advice most know their workers need – or to simply to manage the plans themselves. As employers doubt their ability to make a 100-year promise they are reluctant to force action.

There is also an unspoken competition between what is happening in health insurance and the retirement savings area. With each change that requires employees to pay more for healthcare making it more difficult for them to save. The absence of integrated benefits planning has always been a problem, and it still is today.

HRM. What impact is the rising cost of healthcare having on companies’ delivery of those plans?
DS. It is bringing cost shifts to workers that lead to lower savings. More workers are going without health insurance because they do not have the upfront cash to pay the premium. It is also bringing the most severe issues to those employers that still have retirees with health insurance as it adds a cost that competitors without retirees with health insurance don’t have to deal with. In order to cover the cost of healthcare, there is less money available for raises, retirement plans, etc. In short, health costs are driving most employee benefits and compensation – even if not in a well planned way.

HRM. Are any other issues likely to rear up in the coming years?
DS. The biggest change will come as the Government Accounting Standards Board and Financial Accounting Standards Board further tighten the calculations and reporting of costs and liabilities for retiree health benefits and pensions. This will cause more and more employers to move away from those benefits, and will improve their competitive position, while at the same time creating problems for current and future retirees.

The government is, at the same time, moving to protect the PBGC as opposed to encouraging employers to keep pensions. And, the Administration has a series of proposals that would shift tax incentives to the individual and make it unnecessary for an employer to have a plan in order to have all the tax benefits. That could cause management, particularly in small firms, to drop plans at work, since they would now be able to do it all on their own – and leave most workers without assistance. The benefits landscape for workers is not a pretty one. Goals, a plan, consistent action, and constant learning are what is needed – now more than ever, by every worker.

President and CEO of the Employee Benefit Research Institute (EBRI) Dallas Salisbury joined the institute at its founding in 1978. He is currently a member of a number of commissions and study panels and serves on many editorial advisory boards. He is a Fellow of the National Academy of Human Resources, recipient of the Award for Professional Excellence from the Society for Human Resource Management, and the Keystone Award of WorldatWork. He currently serves as a member of the Board of Directors of the NASD Investor Education Foundation, the Advisory Committee to the Comptroller General of the United States, and on the GAO Advisory Group on Social Security and Retirement.

Salisbury was a delegate to the 1998 and 2002 National Summits on Retirement Savings, hosted by the President and congressional leaders. He has served on the Secretary of Labor’s ERISA Advisory Council, the Presidentially appointed PBGC Advisory Committee, the Board of Directors of the Society for Human Resources Management, the US Advisory Panel on Medicare Education, and the Board of Directors of the National Academy of Social Insurance.

The EBRI’s mission is “to contribute to, encourage, and enhance the development of sound employee benefit programs and sound public policy through objective research and education.” The Institute has earned widespread regard as an organization that ‘tells it like it is’, without lobbying, advocating or opposing any particular policy position. As such, its reearch provides an invaluable resource for researchers, policymakers and the media. EBRI is funded by both for-profit and non-profit bodies seeking to better understand US economic security progams.