Health care reform and rising health care costs are among the biggest challenges affecting retirement plans, making a plan sponsor’s objective setting strategy all the more important. Historically these two benefits [health insurance and retirement plans] have stayed somewhat separate in the eyes of employers.
Today, employers have limited benefit dollars and they must decide how to allocate those dollars among health plans, retirement plans, and other benefit plans to meet their objectives. With health insurance taking up a bigger piece of the pie, retirement and other benefits can suffer ripple effects. Due to this, it is imperative plan sponsors create a unified strategy when it comes to their benefit plans.
The biggest risk is that, despite all the time and money an employer spends on their benefit packages, the benefits still fail to meet the company’s business objectives. For example, almost a third of total compensation dollars are spent on benefit plans, but many feel these benefits don’t live up to the money spent. Ultimately, though, the benefit may not meet the objective; whether that is recruiting and retention or a long-term cost management strategy. Employers need to think about having a holistic benefits objective in order to align their plans (both their dollars spent and plan design) with that objective.
By thinking of the benefit package as one, plan sponsors may find that money can be spent in an inventive way on health insurance while also creating a benefit for the retirement plan participants. For example, if a company has low participation in the retirement plan because their health care costs are too high in the minds of their employees, then it will not matter how rich of a matching contribution is given. Think about how one benefit may affect the other. In the above situation, an increased company contribution to an employee’s Health Savings Account could help spur savings into the retirement plan. The contribution may allow the employee the ability to use money earmarked for health expenses expected throughout the year (especially for those that have children or are on medication) and shift it to retirement savings.
By identifying a coordinated objective for the benefit package, the plan sponsor will be able to spend dollars in an efficient and beneficial way.