Health care costs still key for financial execs

July 08 01:00 2014 by ushadmin

Controlling the cost of health care benefits continues to be a top priority of financial executives, according a new survey of pension, health care and other benefits by Newark-based Prudential Financial.

The study found most employers don’t plan to drop health coverage and switch employees to the public insurance exchanges established under the Affordable Care Act. Instead, employers are looking at private health insurance exchanges, where the employer continues to fund health benefits but the employees chose the health plan they want from a menu of choices.

Companies are still shifting health care costs to employees, with 80 percent either transitioning more cost to employees or likely to do so. Only 38 percent say they are willing to end employer-paid health care and direct employees to public health insurance exchanges, with 57 percent saying they wouldn’t consider the idea. But, 41 percent would be willing to provide subsidies to employees for use on private health insurance exchanges.

The report, by Prudential and CFO Research Services, found that an improving economy and stable financial markets have given financial executives the confidence to explore a range of options to help their companies better manage the costs and risks of employee benefits.

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“Everyone is looking at how to better control benefit costs, and health care is still the No. 1 issue,” said Jim Gemus, senior vice president for Prudential Group Insurance. “But they are acutely aware of the need to retain employees and attract new ones. The improving economy and recovery of the financial markets is making it a bit easier to do this.”

The survey was conducted among senior financial executives at companies with defined benefit pension plans that have $250 million or more in assets. These are plans that pay out a specified benefit to retirees. Most of the 182 companies included in the survey had revenue of more than $500 million and more than half had revenue of more than $5 billion.

The survey found 35 percent of the companies already have closed their pension plans to new entrants and another 25 percent have frozen them. These executives cited concerns about the impact of defined benefit pension plans on earnings, balance sheets and their companies’ ability to invest in growth opportunities. The survey found that companies continue to prefer “defined contribution” plans like the 401(k) where the employees contribute their own money to their retirement plan, usually with some matching dollars from the company.

“The rebound in financial markets has not only restored the value of 401(k) plans but helped improve the funding levels of defined benefit plans as well, though market volatility and other risk factors remain a concern,” said Phil Waldeck, senior vice president, Pensions and Structured Solutions, Prudential Retirement. “Now the focus can be placed on further reducing the risk of defined benefit plans and improving the offering and investment security of defined contribution plans like 401(k)s.”

Other key findings:

More than half of the financial executives surveyed said they are likely to offer lump sum distributions to defined benefit pension plan participants over the next two years.

More than half of the respondents believe a significant portion of their workforce will have to delay retirement because of inadequate savings. And 59 percent say they have seen the average retirement age increase over the past five years and 61 percent believe it will continue to creep up.

Nearly 50 percent of the financial executives said they are likely to outsource some or all of their benefits administration on top of the 27 percent that already do so.

Some 70 percent of the respondents said offering benefits is a way to increase employee satisfaction and 58 percent are likely to expand their benefit offerings.