Rising benefits costs have caused many mid-size and large corporations with defined benefit pension plans to rethink their cost management strategies.
According to a survey of senior financial executives administered by Prudential and CFO Publishing LLC in December 2011 and January 2012, employers still believe that offering good benefits is a great way to attract and retain talent, but because of recent market volatility, companies must now balance benefits attractiveness with affordability.
Many companies will shift to more of an employee choice benefits model, meaning employers provide a set amount of funds to their employees for benefits and it is up to them to select their own benefits options. Only 15 percent of respondents said they have implemented an employee choice model. Nearly 30 percent said they plan to adopt employee choice strategies within two years.
Voluntary benefits for active employees and retirees are increasingly appealing to companies looking to offer a variety of benefits at manageable costs, the report found. More than half of all respondents agreed that voluntary benefits was a cost-effective way to increase employee satisfaction with benefits, while about half agreed that offering voluntary benefits such as group life and dental insurance is the best way to provide employees with access to these types of insurance.
It also found that finance executives are closer to making a decision about their defined benefit plans, whether that includes implementing liability-driven investment or pension risk transfer solutions.
Executives surveyed for the report were concerned that employees are delaying retirement because they don’t have enough in savings. They are exploring ways to spur retirement investment, including target-date funds, stable value products and guaranteed income products to improve defined contribution plan outcomes.
Their top three priorities in the 2012 survey were reducing employer costs for health care, minimizing the impact of increased health care costs on employees and reducing the cost of employee benefits other than health care. The conclusion of the survey was that more employers are exploring ways to shift benefits costs from themselves to their employees.