Benefit trends that employers should watch in 2018: Guest view
Employee benefit options evolve with the times and as we head into 2018, we're seeing the effects of a changing economic landscape, a growing senior workforce, longer life spans and mounting student debt.
How will these trends manifest themselves in specific plan design features and benefits? Here are the top three benefit trends that local employers are likely to consider in 2018:
Health savings accounts
Introduced in 2003, health savings accounts (HSAs) are gaining momentum 15 years later, signaling a trend towards the integration of health care and retirement savings.
As people continue to live longer and the cost of medical care rises, individuals are looking for alternative ways to supplement retirement savings and cover medical expenses.
In contrast to other medical savings accounts, HSAs are owned by the individual — not the employer — and the savings carry over each year. The individual ownership model encourages preventive health care, which constrains long-term costs. Additionally, the savings and tax benefits of HSAs are unique. Contributions are tax deductible, accounts grow tax-free, and even withdrawals are tax-free if used for qualified medical expenses. No other savings account offers this triple tax advantage. And if funds are not used for health care they can still be used during retirement on a tax-deferred basis, similar to a traditional IRA.
Student debt management and financial wellness programs
With college tuition increases, young employees are struggling to balance student debt and living expenses. For many millennials, saving for retirement is an afterthought to paying student loans. But with very few employers offering pensions and people living longer, millennials need to start earlier and save more than the generations before them.
The resulting stress of these competing priorities has been linked to reduced on-the-job performance and more employees taking sick days. For employers looking to invest in the health of their team and improve workplace deliverables, financial wellness programs are a growing trend.
Financial wellness programs take a holistic approach to financial security, providing employees with budgeting and debt advice, investment consulting and retirement planning resources. By making financial planning services easily accessible to employees, employers are aiming to decrease stress, increase on-the-job performance and facilitate greater health and happiness for their employees.
Auto-enrollment and auto-escalation features in 401(k) plans
The average American is unprepared for retirement. According to a report by the Government Accountability Office, more than half of individuals 55 and over don’t have enough money to retire.
As more employers find that their employees are not prepared for retirement, they are likely to automatically enroll employees in their retirement plan. Auto-enrollment means a certain percentage of an employee’s pay is automatically contributed to the 401(k) plan — no election is made by the employee. Employers typically set the initial enrollment at a modest amount, around 3 percent of pay, so that employees are less likely to opt out.
While auto-enrollment sets employees on the path to early saving, it’s not enough. Employees should be saving between 10 and 15 percent of their annual income in order to achieve desired retirement outcomes. To significantly impact employees’ savings, auto-escalation is the next step. This plan-design feature increases the employee contribution percentage over time. A typical arrangement might be a 1 percent annual increase, with a cap at 10 percent of pay. Employees can opt out at any time, but studies show that this is rare — once employees develop a habit of saving, they are likely to stick with it.
At a high level, these trends point to increased plan integration and greater employee ownership. Through the introduction of HSAs, auto features and financial wellness programs, we see employers ramping up education efforts and empowering employees to take ownership of their health care and retirement savings.
John Jeffrey is a consulting actuary specializing in retirement plan consulting and post-employment health care benefits, for Conrad Siegel Actuaries, based in Susquehanna Township, Dauphin County.