As Budgets Shrink, Voluntary Benefits Grow

As Budgets Shrink, Voluntary Benefits Grow

Optional benefits helping to compensate for rising employee contributions

When listening to employees talk about their jobs, school officials may hear questions, concerns, and even fears about health care insurance. How much more will I have to contribute this year for premiums? Can I afford it? Will my coverage shrink? While the spotlight is on health care, not much is being said about trends regarding employee voluntary benefits, such as vision, supplemental life insurance, and long-term disability. With stretched budgets, many higher ed institutions are adding these benefits as an employee retention tool to help meet the diverse needs of their changing workforce and also to help cushion the blow for employees whose out-of-pocket contributions for core benefits and co-pays have soared.

Shenandoah University (Va.) officials recently formed a cross-functional committee of 13 staff and faculty to explore what types of benefits employees prefer, shares Kelly Samson-Rickert, HR and benefits manager at the school, which supports about 865 employees and 3,600 students. "We had a very old-fashioned benefits plan, a one-size-fits-all, get it or not," she says, adding that employees contribute an estimated 15 percent toward the cost of core benefits. "Now we have a different philosophy. We want to make Shenandoah University the place of choice [for staff]. We asked our employees, 'What is it going to take to get us there?'"

Too many voluntary benefits could lead to mass confusion among employees.

HR learned the top voluntary benefits were vision, a flexible spending account, supplemental life insurance, and a pretaxed savings account, which she refers to as a Christmas savings account. Other suggestions were pie-in-the-sky, such as an onsite gym, a daycare center, and a private jet for conference travel (the school sits across the street from the city's airport).

While the university already offered a flexible spending account for health care, a change was made in 2010 that increased utilization of pre-taxed accounts: having a third-party administrator manage them. Samson-Rickert believes usage may have risen because another layer of employee privacy or confidentiality was added.

The school also introduced vision and supplemental life insurance, invited a local bank to set up Christmas savings accounts, and expanded voluntary benefits to domestic partners. She says there was never any "pushback" from staff about paying the full cost of these benefits. Even more surprising: Despite the poor economy, employees are saving the maximum amount, or five percent of their salary, to receive the school's matching eight percent contribution, another voluntary benefit.

Looking ahead, Samson-Rickert says HR will probably add more after-tax vehicles for retirees and also employees, such as a Roth IRA, in addition to a group rate for long-term care insurance.

Employees are "hungry" for voluntary benefits and also want a say in what those benefits should be, she adds.

Since higher ed institutions traditionally adopt a paternalistic approach toward employees, voluntary benefits are also being used to offer staff more financial stability. "Some things we've seen as being very prevalent are employers providing access to additional supplemental coverages, whether it be life or disability insurance, but also purely employee paid benefits, such as group legal or group auto and home," says Glenn Petersen, vice president of voluntary benefits sales at MetLife in Bridgewater, N.J.

The fastest growing MetLife voluntary benefit is critical illness. He explains that it complements coverage for major illnesses like cancer, heart attack, or stroke by paying expenses beyond traditional medical care like fees for parking or child care services when patients visit a doctor or the hospital for medical treatment.

Some organizations with shrinking budgets have taken the plunge by converting core benefits over to the voluntary side.

While it's tempting for HR to pile on voluntary benefits during a down economy, Petersen believes too many could lead to mass confusion, making it difficult for employees to prioritize their needs, which can ultimately jeopardize the effectiveness of a voluntary program.

Likewise, rising costs on both sides of the aisle--for employers and employees--is driving yet another change. "The trend that we expect to continue over the next few years is employers looking for more efficiency in delivering and administering their voluntary benefit programs," says Petersen, adding that MetLife recently developed an online benefits portal for employees that helps schools gain administrative efficiencies and save on implementation costs.

More employers across the board--not just in higher ed--are promoting voluntary benefits as an employee convenience, mainly due to payroll deduction and affordability of group rates, says Jim Archer, senior consultant at Towers Watson in Parsippany, N.J., who has corporate and higher ed clients. "In an environment where their benefits budget is constrained and they're having to find ways to do more with less, it can be an appealing opportunity for them to say, 'We're not going to give you more on the traditional side, but offer you chances to buy things like pet insurance, home and auto insurance, or long-term care,' " he says.

Among the voluntary benefits being added is group legal, he says. Employees are using it for financial protection, such as resolving credit issues, refinancing their home, or filing personal bankruptcy.

Also gaining attention is long-term disability. The country's aging population has persuaded many schools to take a second look, especially since more employees may be able to afford this costly benefit if offered at a group rate.

Although Archer doesn't see radical changes in voluntary benefits themselves, he believes school will continue offering them whether or not employees pay a greater share for core benefits.

Meanwhile, he says some organizations with shrinking budgets have taken the plunge by converting core benefits like vision over to the voluntary side. Schools can still offer value without increasing their benefit costs while helping employees save money through a group rate. "Even if the economy improves, the underlying cost of providing medical coverage continues to increase faster than everything else," says Archer. "I can see an environment where more universities would convert things like vision. I can see dental coming under [financial] pressure as well."

That scenario keeps some HR professionals awake at night. If the economy continues to struggle, reaching double-digit unemployment nationwide, some core benefits could become extinct. "Everyone's fear is that benefits currently subsidized by the university could turn out to be voluntary benefits down the road," says Kathy Snyder, director of HR at Frostburg State University (Md.), which supports roughly 1,000 faculty and staff.

Like other public universities, Frostburg's budget has been hit hard. For at least the past three years, Snyder's chief concern has been maintaining the current level of employee core benefits. "Our state appropriation operating budget was reduced in FY2009 by 3.5 percent and again in FY2010 by 4 percent. Also, our fund balance--money we are required to have set aside--has been reduced by 65.8 percent from the end of FY2008 until now. For FY2011, we have had no reduction in state appropriations, but did have a reduction in fund balance."

So far, no core or voluntary benefits have been axed. But if employee contributions continue to rise for core benefits, workers may not have enough left from their paycheck to afford voluntary benefits. Without sufficient participation, schools could also lose the ability to offer voluntary benefits at group rates.

While no school wants to discard any benefit at any time, Snyder says everything must be scrutinized. Employees are most concerned about hanging on to what they have, she says. "I think you're going to see a lot of things change, particularly if the economy doesn't improve. Sometimes when you don't offer a traditional benefits package that's as robust as it once was, you offer more voluntary options."

Colleges operating on a smaller scale face the same challenge. Hanover College (Ind.) reviews its medical and life insurance plans each year, says Shelley Preocanin, director of HR at the school, which supports about 300 employees.

Since most workforces are aging and people live longer now, she says long-term care is a hot topic among her colleagues. The college's long-term disability insurance doesn't kick in immediately, leaving a six-month gap, she explains. If a supplemental plan can't be offered as a voluntary benefit, she says the school may bring in a provider who can explain the types of programs now available, make comparisons between them, and address key questions.

Although the college doesn't offer a wide range of voluntary benefits, she shares, last year it added an on-site Weight Watcher's program, a free wellness program, and a second retirement option (TD Ameritrade) so employees now have another platform for investing their retirement funds.

"I think colleges as a whole want to provide as many benefits as they can," Preocanin says, adding that long-term care is the school's future focus. "Our movement will be to listen to [employees] and see what their needs are and provide them with resources for that."

Carol Patton is a Las Vegas-based freelance writer who specializes in covering HR issues.


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