In today’s diverse and dynamic workplace, fostering a culture of diversity, equity, and inclusion (DEI) is not just a moral imperative but also a strategic business necessity. One critical aspect of this commitment involves designing employee benefits packages that ensure fair and equitable treatment for all employees, regardless of age, gender, income, education, geography, or any other characteristics. In this article, we will explore how employers and HR teams can enhance their DEI efforts through inclusive employee benefits packages.

Conduct a Comprehensive DEI and Benefits Assessment

To create a benefits package that promotes DEI, it’s essential to start with a thorough assessment of your organization’s current practices and culture. You may want to consider:

• Benchmark current programs through surveys, focus groups, data collection, industry tech and other tools to evaluate current pain points and employee trends.
• Collect and analyze demographic data on age, gender, income, education, and other relevant characteristics to understand representation and disparities.
• Team up with subject matter experts like our actuaries, data analysts, or clinical pharmacy team to understand utilization and what is driving your claims costs, as this will give you a picture of the different demographics and health issues represented in your plans.
•  Review existing health plan designs through different economic lenses based on your employees’ salary ranges, considering factors like coverage levels, deductibles, and co-pays.

Offer Flexible/Voluntary Benefits

One way to promote DEI in your benefits packages is by providing flexibility. Recognize that employees have different needs and circumstances. Consider offering a range of options to level the playing field, such as flexible work hours, remote/hybrid work opportunities, or voluntary benefits packages, allowing employees to select benefits that align with their individual requirements.

• Implement flexible work arrangements, such as flextime, earlier/later hours, or telecommuting, allowing employees to balance work and personal responsibilities.
• Introduce voluntary benefits such as disability insurance, hospital indemnity insurance, commuter benefits, etc. which allow employees to select benefits that fit their lifestyle and cater to their unique needs.
• Provide wellness days, caregiver leave or additional paid time off for employees to use as needed for personal reasons, including family responsibilities.

Address Healthcare Disparities

Healthcare benefits are a crucial part of any employee benefits package. To ensure equity, take steps to address healthcare disparities. Consider the following:

• Offer health insurance plans that include coverage for diverse healthcare needs, such as mental health services, transgender healthcare, and preventive care.
• Ensure that health plan networks include a wide range of healthcare providers to accommodate different geographic locations and healthcare preferences.
• Promote regular health check-ups and screenings through wellness programs, with a focus on educating employees about available resources.

Support Family and Caregiver Needs

Recognize that employees may have diverse family structures and caregiving responsibilities. To support DEI in your benefits package:

• Provide paid parental leave that covers all caregivers, including adoptive parents, and consider extending the leave duration for parents who give birth.
• Implement flexible scheduling options or remote work arrangements for employees caring for children, aging parents, or individuals with disabilities.
• If budget allows, consider stipends or other benefits related to childcare or eldercare services.
• Review current employee leave trends and industry patterns to identify what types of leave and support employees need most.

Encourage Financial Wellbeing

Financial wellness is a critical aspect of employee wellbeing. Consider these steps to enhance financial equity in your benefits:

• Offer retirement plans with automatic enrollment and contribution matching to promote retirement savings for all employees.
• Provide financial education and counseling services to help employees better manage their finances and plan for their future.
• Consider offering income protection benefits, such as short-term and long-term disability insurance, to safeguard employees against income loss due to an unexpected illness or injury.
• Provide student debt relief and education support resources to help employees of all backgrounds enhance their educational background without financial stress.

Promote Professional Development

To ensure DEI in career growth opportunities, invest in professional development benefits:

• Establish mentorship programs that match underrepresented employees with experienced mentors who can help guide their career growth.
• Offer tuition reimbursement or scholarships for further education or job-related certifications, with a focus on supporting employees from diverse backgrounds.
• Create leadership development programs that actively seek out and nurture talent from underrepresented groups, ensuring equitable access to advancement opportunities.

Raise Awareness and Foster Inclusivity

Create a culture of inclusivity by:

• Conduct regular DEI trainings/webinars for all employees to increase awareness of unconscious bias, microaggressions, and ways to promote inclusivity.
• Celebrate cultural and religious holidays and observances through inclusive events, workshops, or cultural competency training. Also, consider floating holidays that employees can use at their leisure to celebrate holidays meaningful to them.
• Establish a clear and confidential reporting system for employees to report discrimination, harassment, or bias incidents, with a commitment to investigating and addressing such concerns promptly.

Monitor and Adjust

Regularly review and assess the impact of your DEI-focused benefits initiatives. Solicit feedback from employees and adjust your benefits package as needed to address evolving needs and challenges.

• Continuously collect and analyze data on employee satisfaction, turnover, and the utilization of benefits to identify areas where adjustments may be necessary.
• Engage in regular dialogues with employee resource groups (ERGs) or diversity councils to gain insights and gather feedback on DEI initiatives.
• Stay informed about evolving legal and industry standards related to DEI in benefits and make necessary updates to your benefits package accordingly.

By conducting this recommended process, employers can proactively enhance DEI in their employee benefits packages, fostering a workplace culture that values diversity and promotes equitable access to opportunities and resources for all employees. Championing DEI efforts in benefits also often leads to greater outcomes in engagement, recruitment, and retention.

Running a small to medium-sized business (SMB) can be financially challenging, especially when it comes to providing competitive employee benefits and managing insurance costs, since economies of scale generally benefit larger organizations. However, with strategic planning and calculated decision-making, SMBs can maximize savings without compromising on the well-being of their employees. In this article, we’ll explore cost-saving methods for SMBs in the areas of health insurance and employee benefits.

1) Conduct a Comprehensive Benefit Audit

Before making any changes, start by conducting a thorough audit of your current benefits package. This will help you understand where your company is overspending or underutilizing benefits. Key points to consider:

• Employee Communication: Ask your employees which benefits are most important to them through surveys, emails, etc.
• Data Review: Analyze the usage of existing benefits and what is driving claims to identify areas where costs can be optimized or solutions should be introduced.
• Benchmarking: Compare your benefits package with industry standards to ensure competitiveness.

2) Emplore Self-Funded Health Plans

Many smaller organizations look past a self-funded model due to resource constraints and risk appetite, but various versions of self-funding can work for smaller employers. According to Kaiser Family Foundation’s 2022 Annual Survey, 35% of workers in small firms (3-199) are in a level-funded plan, a self-funding option. Level-funded plans often have a steady monthly rate employers contribute to cover claims, administrative costs, and stop loss coverage. Many of these plans limit offerings to smaller companies with fewer covered lives.

3) Leverage Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), and Flexible Spending Accounts (FSAs)

Consider HSAs, HRAs and FSAs for employee healthcare expenses, or if you are already offering one of these solutions, be sure to communicate the offering and encourage utilization among your workforce. These help employees pay for medical expenses beyond what is covered by your health plan and are particularly well-suited to pair with a high deductible health plan. Some offer tax advantages and can help reduce the financial burden on employees demonstrating that the company is invested in them. Depending on what path is chosen, employers can contribute to the account.

4) Offer Telemedicine Services

Telemedicine services have gained popularity, especially in the wake of the COVID-19 pandemic. By offering telehealth options as part of your health plan, you can potentially reduce healthcare costs associated with office visits and encourage preventative care. In 2023, most health plans provide some level of telehealth, but allowances and nuances vary, and it is worth a closer look.

5) Implement Wellness Programs

Wellness programs can lead to healthier, more productive employees and lower healthcare costs. Consider offering incentives for employees who participate in wellness initiatives such as fitness challenges, smoking cessation programs, or health screenings.

6) Negotiate with Insurance Providers

Leverage your broker/consultant to negotiate with insurance carriers and ensure you are getting the best coverage at the best rate. Our team helps clients explore options for bundling different types of coverage or increasing deductibles to reduce premium costs, and regularly seek competitive quotes from multiple providers.

7) Promote Employee Education/Communication

Educate your employees about their benefits and how to use them effectively. By ensuring that employees understand their coverage, they are more likely to make informed choices, reducing unnecessary healthcare expenses. Effective open enrollment communication strategies are essential in ensuring employees take advantage of benefits offered.

8) Consider Voluntary Benefits

Voluntary benefits, such as dental, vision, and life insurance, can be offered at little cost to the employer. These benefits can be partially funded by the employer, or fully funded by employees, depending on your budget and strategy. In any case, it will help bring costs down and provide nontraditional and more customized coverage for employees based on their needs (e.g., pet insurance, identity theft protection).

9) Review and Adjust Annually

Market conditions and employee needs change over time. Regularly review your insurance, health plans, and benefits package to ensure they align with your business goals, budget, and employee demographics. Adjustments may be necessary to stay competitive and cost-efficient, and new tools and solutions are being launched at a rapid pace.

10) Seek Professional Advice

Consult with insurance brokers, benefits consultants, or financial advisors who specialize in working with SMBs. Subject matter experts, like our team at Spring, can help you navigate the complexities of insurance and benefits, ultimately saving your company time and money.

In conclusion, cost-saving methods in insurance, health plans, and employee benefits for SMBs require strategic planning and a commitment to employee well-being. By conducting regular reviews, being as targeted as possible, negotiating with providers, and exploring innovative options like telemedicine, SMBs can achieve a balance between cost savings and providing valuable benefits to their employees. Remember that a well-crafted benefits package can be a valuable tool for attracting and retaining top talent in a competitive job market. If you’re interested in reevaluating your current benefits package or wonder how your programs stack up, our consultants and actuaries would be happy to assist.

Executive Summary

In the ever-evolving landscape of employee benefits, wellness solutions have emerged as a pivotal focus point for employers with a long-term view of health and productivity. Recognizing the vital link between a healthy workforce and organizational success, employers are redefining wellness programs to meet the diverse needs of their employees.

Employee wellness programs have undergone a remarkable transformation since the start of the pandemic. Once limited to in-person fitness challenges and generic health screenings, these programs have evolved into holistic initiatives that prioritize the everyday wellbeing of employees (both inside and outside of work). Employers are now taking a proactive approach, aiming to not only prevent health issues but also enhance employee engagement, productivity, and job satisfaction. In a survey conducted by Glassdoor, 60% of job seekers reported that benefits and perks are a significant factor in considering job offers. A robust wellness program signals an employer’s commitment to employee well-being, making the company an attractive destination for skilled professionals seeking an organization that values their health and work-life balance.

What is the impact on healthcare spending?

Investing in employee wellness is no longer a discretionary choice; it’s a strategic imperative. The cost of poor employee health is significant, leading to decreased productivity, increased absenteeism, and higher healthcare expenditures. According to Harvard researchers, every dollar spent on employee wellness yields a reduction in healthcare costs of $3.27 and a decrease of $2.73 in costs related to absenteeism¹. A similar ROI study conducted by the International Foundation of Employee Benefit Plans determined that employers save between $1 and $3 on healthcare costs for every dollar spent on wellness initiatives.

These cost savings are from both direct and indirect triggers, and it’s important to also include more qualitative factors like retention and productivity when you look at the cost/reward analysis.

Point Solutions Overview

Employee wellness is an important yet broad and nuanced space. Over the last decade, we have seen a significant increase in point solutions dedicated to well-being outcomes, some of which include:

• Fitness Coaching, Apps and Trackers: Applications designed to support the physical health of employees.
  • Wearable devices connected to apps that track steps, calories burned, and other indicators have grown in popularity.Team Challenges via apps, such as walking/biking challenges, are great tools to encourage healthy habits amongst dispersed workforces. Incentives can be used to boost participation.
  • Digital fitness classes provide a library of specialized activities and workouts individuals can take advantage of to meet health goals.
• Nutrition/Weight Loss tools: Platforms that promote healthy eating and physical wellbeing practices. 
  • Dietary apps can provide an array of healthy recipes and record eating/snacking habits.
  • Weight management platforms offer a range of tools including nutrition plans, weight trackers and virtual support.
• Personalized Apps: Tailored resources that provide personalized goal tracking, and virtual coaching.
  • Smoking cessation tools and programs can help people track, reduce, and quit tobacco/nicotine consumption.
  • Alcohol misuse programs allow individuals to access workshops, webinars, and other tools to reduce drinking.
• Mental Health Support Platforms: Offerings that focus on stress reduction, mindfulness, meditation, and access to mental health care.
  • Sleep/meditation apps are being used to lessen stress, reduce anxiety and drive productivity.
  • Digital therapy platforms are great for reaching out-of-state and international workers.
• Financial Wellness: Programs that provide tools for managing financial stress, planning for retirement, and addressing debt.

What should I do as an employer interested in wellness point solutions?

For committed employers, point solutions should be just one component of an overarching wellbeing strategy that takes into account the following:

1. Assessing Current Health Trends: Analyze health data to identify prevalent health issues and trends within the employee population.
2. Designing Tailored Solutions: Use this data to inform decisions around point solutions. It is rare the overcommitting to point solutions will produce the desired results; we recommend a more pointed approach. Craft an approach that addresses specific needs, encompassing physical, mental, and emotional well-being.
3. Benchmarking and Surveys: Compare your offerings to industry standards and continually assess its effectiveness through employee feedback and measurable outcomes.
4. Incorporating Cutting-Edge Technology: This is where point solutions come in; leverage technology and tools to provide engaging and accessible wellness resources, from wearable devices to wellness apps.
5. Promote Inclusivity: Ensure that wellness solutions cater to a diverse workforce, taking into account geographic, cultural, and accessibility considerations.

The journey towards a healthier and more productive workforce begins with employers’ commitment to holistic wellness solutions. As employee needs evolve, so too must wellness programs. By embracing innovative models, tailoring benefits to specific needs, and fostering a culture of well-being, employers can embark on a transformative journey that not only enriches the lives of their employees but also contributes to the overall success of the organization. Wellness point solutions, if tackled thoughtfully, can be a tool in your toolbox to arrive at a healthier, happier, and more vibrant workforce.

¹ https://www.bravowell.com/resources/do-wellness-programs-save-companies-money

Demand for new weight loss medications continues to rise and employers remain concerned about budget impacts if they decide to offer these costly medications as part of their benefit package. These medications, known as GLP-1 agonists have skyrocketed in popularity and are thought to be “miracle drugs” by many. The reality is that weight loss requires a multi-modal approach and not all people who use them will achieve significant weight loss. Studies have shown that once discontinued, patients gain an average two-thirds of the weight back¹. The reality is there is no miracle cure, but these medications have helped to destigmatize obesity and make clear the benefits of taking a multi-faceted approach to sustain weight loss.

Employer Case Study

As is the case with many organizations, weight loss drug strategy was recently of particular interest to one of our clients, edHEALTH. The client was interested in the positive impacts yielded but was daunted by the complex dynamic of long-term cost versus benefit.   

Spring assisted edHEALTH in assessing a best practice avenue for weight loss drugs, keeping in mind that spending on obesity-related conditions result in approximately a 12% increase in total healthcare costs².  Wegovy (semaglutide) has an average price of approximately $1,349 a month, or more than $15,000 annually. That is more than double what the Institute for Clinical and Economic Review (ICER)³, a private entity that provides an independent source of evidence review and creates cost-analysis reports, recommends, instead stating that Wegovy should be priced somewhere around $7,500–$9,800 per year to fall into the cost-effective threshold.

We worked with edHEALTH and its PBM partners to fully understand their weight loss medication utilization management and monitoring parameters. As a member consortium, edHEALTH is committed to providing their member institutions with the information needed to assist them in determining the best cost-management strategies. Therefore, a key part of our evaluation was to prioritize the education of staff and faculty on the protocols and side effects of these medications to potentially narrow the interest to those highly motivated groups. There is no one size fits all solution, but there are specific points of consideration and educational resources that can help organizations of any kind address this topic with stakeholders.

Additional recommendations included:

• Ensuring plan participants understand that treatment should extend beyond the medication
  • A comprehensive approach is critical and ideally includes behavior-management coaching, nutrition support, an exercise plan, and accountability check-ins.
  • Non-medication initiatives might include fitness reimbursements, nutrition programs like WW (formerly Weight Watchers), and/or employee walking challenges. Incentives should be woven into these programs.
• Reauthorization requirements with the PBM should be in place (approximately every 6 months) to confirm patients are receiving the expected positive response to therapy related to goals.

For example, edHEALTH hosts an annual walking challenge between member schools, with prizes and check-ins along the way. The healthy competition creates a simple yet effective way to get employees moving more than they might otherwise, and a tactic like this pairs nicely with an overarching weight loss strategy.

Considerations for Employers

Ultimately the choice to cover these medications is an organizational decision, but it’s critical to have all the information necessary to make this decision, starting with a robust view of your population demographics. With high rates of obesity for most health plan sponsors, a prudent and thoughtful approach to expanding weight-loss coverage will be required. Attempts like this to tackle the obesity epidemic could produce long-term savings with lower overall healthcare costs, prevention of progression of existing diseases, and most importantly a better quality of life and employee experience. 

No matter your decision on offerings, the more you can offer through communications and education will help your plan participants make informed decisions and understand their role in achieving and keeping weight off. To realize tangible results, all parties must be committed.

Our clinical pharmacist and benefits consulting team is here to help you assess weight loss as a component of your benefits strategy, including not only weight loss drugs but also wellbeing initiatives and data analytics for monitoring success. Get in touch for assistance in navigating this nuanced and rapidly evolving area.

¹ https://www.nbcnews.com/health/health-news/happens-stop-taking-wegovy-ozempic-many-people-regain-weight-rcna66282
² https://www.hsph.harvard.edu/obesity-prevention-source/obesity-consequences/economic/
³ https://icer.org/news-insights/press-releases/icer-publishes-evidence-report-on-treatments-for-obesity-management/

Introduction

With employers being challenged with attraction and retention, employee benefits and perks take center stage. Many organizations are aware of the importance of benchmarking when it comes to the competitiveness and performance of an employee benefits program, but are unsure about how to get started or what programs to compare.

Benchmarking can be conducted across a range of offerings, but recently time off programs have been a significant area of interest for employees and employers, especially around parental and family leave.  If your organization is considering changes to your program – or just looking to verify your time off programs remain competitive – benchmarking is critical. 

Getting Started

No matter which benefit you want to benchmark, including time off programs, it’s important to set the stage before the number crunching phase. Start with:

1. Confirm benchmarking objectives: be sure to establish what you want to accomplish and why. Think about what problem you are trying to solve, or question you are trying to answer. What specific outcomes can be associated with the metrics you are trying to highlight? You might want your benchmarking to inform how your program is performing so you can make the case for additional resources, or how your program is structured, so you can explain how it could be more competitive for attraction and retention.
2. Determine how you will gather data: the more focused you can be in your efforts, the more expediently you can get to the results. This starts with deciding which programs you are going to benchmark and metrics you are going to compare. You will also want to confirm whether you are interested in:
   • Internal benchmarking, where the comparison is made against your own data over time
   • External benchmarking, where metrics or practices of your company are compared to one or many other companies
   • Both internal and external benchmarking

External benchmarking is perhaps the more talked about path, but both can provide real value and insights based on what you are trying to achieve.

Digging In

When it comes to paid time off, policies worth evaluating might include:

• Vacation/Paid Time Off (PTO) or Flexible Time Off
• Sick Leave as a standalone offering vs. included in PTO
• Other types of leave, such as:
  • Personal Leave
  • Bereavement Leave
  • Mental Health Days
  • Volunteer Days
  • Sabbatical
  • Military Leave
• Parental Leave (birthing and bonding)
• Family Care Leave

When conducting external benchmarking to compare your leave benefits with those of other companies, you might be interested in analyzing the following categories:

• Accrual vs. front loading
• Duration by leave type
• Eligibility by leave type
• Percentage of pay by leave type
• Contribution methodology (e.g., perhaps you have employees in states with Paid Family and Medical Leave (PFML) laws)
• Equity across workforce demographics, for example:
  • Leave tracking systems
• Variations based on employee status, tenure, and employee type or classification

It may also make sense to filter your evaluation by parameters like company size, location, industry, etc., so that you have as clean of a comparison as possible.

On internal benchmarks, it’s important to understand what’s actually happening in your population.  Utilization data may be your best source of “benchmarking” related to time off programs. Work to understand when employees are using time, establishing patterns of behavior among different employee classes. Use this data to defend maintaining the status quo or making changes. 

There are many ways in which you can slice and dice benchmarking data related to time off programs, and you don’t have to do it all. Always go back to your established goals and then work backward to identify which data sets will inform those objectives.

Industry Standards

We are constantly fielding questions around the competitiveness of leave offerings, particularly related to parental leave and PTO/vacation days. Data in this area is varied, but below are some statistics that can give you a gauge of norms.

• 82% of companies offer vacation or PTO¹
• 11% of companies offer unlimited PTO (more common for large employers and those in the Information Management/IT sector)¹
• Large employers (1,000+) tend to offer more time off compared to smaller companies¹
• 51% of employers offer paid parental leave²
• 46.5% of employers offer paid family care leave²
• 40% of employers offer mental health days²
• 92% of employers offer sick leave²
• 66% of employers offer “other leaves of absence” like personal, bereavement, jury duty, and/or military leave²

Number of Time Off Days Given Based on Years of Service¹

Get in Touch

If you’re interested in benchmarking your benefits programs such as leave offerings, or are wondering how your programs stack up, Spring’s subject matter experts would love to hear from you.

¹ Alera Group Healthcare & Employee Benefits Benchmarking Survey, 2022
² Spring Consulting Group’s 2022 Integrated Employer Survey

As a mark to the end of summer, The Disability Management Employer Coalition (DMEC) hosted their Annual Conference in the beautiful (and beachy) San Diego! The conference is in a different city every year, and it was refreshing being by the water this time. DMEC is one of the leading organizations in the absence and paid leave landscape; their conference brings together stakeholders from all across the industry to connect and discuss trends and best practices.

Here are some buzzworthy topics I wanted to share from the conference:

1) Mental Health Support

Although the demand for employer support for mental health and wellbeing services may not be as high as it was during the COVID-19 pandemic, it remained a hot button topic at this year’s conference. As mental health support solidifies its place in the benefits industry, employers are looking at innovative ways to stand out and cut costs. Some related presentations I found insightful include:

-The very first session of the conference, “A Mental Health Culture Shift: Addressing It from the Top Down,” brought together representatives from multiple health systems to discuss the importance of developing mental health resources that work for employees of all levels.

– In the presentation, “The Echo Pandemic: Mental Health, Lost Time, and Benefits Spend,” the speaker reviewed the ROI impact of preventative wellbeing solutions on benefits spend and workplace culture.

– In a one-of-a-kind presentation, a licensed psychologist reviewed “Regulated Psychedelics for Mental Health & What You Need to Know.” As psychedelic therapies are expected to be approved in 2023-2024 for PTSD treatment, this session reviewed how this will impact employers and their mental health offerings.

2) Compliance Strategies

It seems like at every conference and event I attend, compliance is top of mind for employers across the nation. With shifting national, state, and local regulations, it can be difficult to stay compliant while satisfying a dispersed workforce. Here are some noteworthy sessions related to compliance:

– During my final session I was joined by industry experts to discuss “New Models for PFML: Education and Action.” We broke down various state programs, private versus state plans and considerations for PFML insurance policies under voluntary programs.

– Two compliance managers reviewed important cases when the DOL and EEOC disagreed with court decisions and how it eventually played out in their presentation, “Flip or Flop: When the Courts (and Regulations!) Disagree.”

– As mandatory paid sick and safe time (PSST) regulations continue to shift, presenters in the session “Time for a PTO Overhaul! Why the Legal Landscape Compels Us to Consider a Multi-bank Paid Time Off Structure,” discussed how to stay compliant while maintaining a single-bucket PTO approach.

3) Returning to the Office/WFH Approaches

As the worst of the pandemic echoes behind us, many employers are trying to revert to tradition and get people back in the office (or find some middle ground). Decisions made regarding this dynamic will lay the foundation for employee culture and how employers approach leave management. Below are some relevant presentations I wanted to highlight:

– Experts discussed “Transitional Return-to-Work Programs that Last,” this included the cost benefits of these programs and tactics to educate and motivate front-line managers.

– A representative from Headversity, provided tips and resources to help empower future generations of women leaders. This included addressing accommodations that support the work-life balance of female employees.

4) Leveraging Tech

Tech in the absence and disability space continues to evolve with the introduction of new innovations and tools that can help create efficiencies and drive best practices. Even building on existing tools and systems can help us better understand current patterns and trends. Here are some presentations I found most insightful:

– In an interactive session with DMEC’s CEO, Terri Rhodes, Spring’s Jackie Myers and me, the attendees engaged in DMEC Benchmarking Jeopardy, which spotlighted DMEC’s new benchmarking platform that Spring helped build, which will give users an easy and user-friendly way to compare and contrast absence management policies and procedures.

– My colleague Marcy Updike and I reviewed survey data that analyzed the monetary value of flexible time off programs and their potential impact on recruiting and retention during our session, “The Value of Workforce Flexibility: Impact & Tradeoffs.

– Representatives from three different absence software companies discussed “Key Considerations for Selecting & Implementing Software as a Solution.” They reviewed employee considerations for implementing absence software and tips for managing day-to-day operations.

As a regular attendee and partner of DMEC, I have to say this may have been my favorite destination to date! As we approach the end of summer, it was great enjoying a few days of sunny weather. Throughout the busy few days, the Spring team and I had a great time reconnecting with industry leaders and deepening our knowledge of innovations in the leave management space. We are excited to see what next year’s conference has in store for us!

As pharmacy and prescription drugs continue to drive healthcare costs for employers. Many are reevaluating their Pharmacy Benefit Manager (PBM) arrangement to ensure transparency, strategic alignment, and fair pricing. Click here to access our Q&A and generate your PBM Report Card.

It has been 30 years since the Family and Medical Leave Act (FMLA) was passed at the federal level under former President Bill Clinton. FMLA grants eligible employees with unpaid, job-protected leave for qualifying family and medical reasons with continued employer-sponsored group health insurance coverage, if applicable. Since then, some adjustments to FMLA have been made, such as the inclusion of workers with a family member in the military and those in a legal, same-sex marriage. However, the evolution has been slow and limited; many believed or at least hoped that over time FMLA would evolve into a paid leave model, but over the last three decades, it is states that have taken initiative in establishing PFML programs for their workers.

Starting with California in 2004, 11 states and Washington, D.C. now have some type of established PFML program, with several other states including Maryland, Colorado, and, most recently, Minnesota, in the regulatory phase where a law has passed but benefits are not yet available. Plans vary by percentage of wage replacement, maximum weekly benefits, the contribution split between employer and employee, benefit duration, and other factors. The newest trend in PFML law, however, relates to PFML as an insured product.

PFML Insurance Rules

Recently, states including Virginia, Tennessee, Florida, and Alabama have passed legislation related to a voluntary PFML insurance product, as opposed to the more traditional, mandatory PFML programs that we had been seeing in previous years. With this new model, state laws create a new line of family leave insurance that may be written as an amendment or rider to a group disability income insurance policy, or as a separate group insurance policy purchased by an employer.¹ Employers may offer the product for their employees without obligation to do so, in a setup similar to other voluntary benefits like short-term disability or vision insurance. In this way, it is purchased through an employer but at the individual’s expense and discretion and a third party insurance carrier is used to carry out the program.

As an example, under the Tennessee Paid Family Leave Insurance Act, a new line of insurance called paid family leave (PFL) insurance has been established. It can be offered as a rider or included in a policy for short-term disability, life insurance, or as a standalone PFL policy. Qualifying reasons for a leave of absence include the birth or adoption of a child, placement of a child for foster care, care for a family member with a serious health condition, and reasons related to a family member’s active military duty. The insurance is purchased through an employer arrangement, but unlike the voluntary program launched this year in New Hampshire, there are no tax incentives for employers who offer the PFL product.

Preliminary Results

PFML as an insurance product is a new concept that we expect to evolve over time.  

Take-up by employers will likely vary on their size, culture, geographic spread, and most importantly their current benefit offerings.  Some employers may appreciate the model law as a guide to providing a new benefit for employees, or a competitive benefit to what is offered in other states so that equity could be achieved across locations.  Others could feel it is too costly for them to offer, or they may already have equivalent benefits in place.  Whatever the case, employees are becoming increasingly aware of these laws, and employers need to be ready to explain why they are or are not supporting them.   

At the state level, it may be an intermediary step to the establishment of a mandatory PFML program, or it may be a way of offering some benefit without the budgetary and resource constraints required to build out a more traditional plan.

This new wave of PFML laws is just getting started, however, and our team will be closely monitoring utilization and legislative developments. In the meantime, check out our absence management services here or get in touch with our team if you have questions about the direction of PFML.

¹ (2023). Absence Advisory June 2023. Aflac

Current State

Costs, risk, regulations, and complexity have all contributed to a decrease in these employer-sponsored retiree benefits over the last few decades. When we combine today’s rising healthcare and benefits costs, economic instability, and an aging population, the result is a quandary for employers with retiree liabilities. 

Organizations are looking for solutions to lessen and manage these liabilities. A 2022 MetLife study found that 85% of plan sponsors say their company’s post-retirement benefits received significant attention in 2022 from their corporate management because of the financial effects that their volatility and related risks place on their corporate balance sheet and income statement. In fact, the same study estimates that pension risk transfers represented between $50 and $52 billion in 2022. The study surveyed plan sponsors with one or more post-retirement medical and/or post-retirement life insurance plans for current or former employees. 78% of the survey’s plan sponsor respondents work for companies with $100 million or more in retiree medical and/or retiree life insurance plan obligations, putting serious strain on fiscal matters and causing a shift in priorities.

Solutions Available

Insurance companies like taking on pension risk for retirees, because payment amounts are known, as is the form of payment. In addition, the risk is somewhat short-term, related mostly to mortality. Accordingly, insurance companies quote on retiree liabilities with competitive prices, and several plan sponsors have settled some or all of their retiree liability.

Contrast this with terminated vested participants, who may have several decades until retirement. In this case, the benefit amount is dependent on several factors like age at retirement and form of payment elected. There is also substantial investment risk for plan sponsors. While these uncertainties are commonplace in pension plans, insurers build in substantial margin to compensate them for taking on these risks. This can be especially problematic for plan sponsors who have already settled much of their retiree liability, leaving only the less attractive liability to insurers on the books.

U.S. GAAP sets out stringent employer requirements when it comes to accounting for the accrual of estimated total retiree medical and other benefits; however, it does not force employers to fund these obligations. Employers are merely required to recognize them. Recognition nonetheless creates a liability without an offsetting asset.

The good news is that innovative funding mechanisms are available to assist with plan termination. One example is the SECURE Act 2.0, signed into law on December 29, 2022, which paves the way for overfunded pension plans – now defined as those that are at least 110% funded – to transfer up to 1.75% of plan assets to a program used to pay for retiree health and retiree life insurance benefits through 2032. Derisking and buy-out solutions continue to be prevalent as well, although they often come with a substantial margin for insurers. A retiree medical buyout leverages a customized group annuity issued by a highly rated insurance company to transfer the retiree benefit obligation from the corporate sponsor to the insurer. MetLife reports that 84% of surveyed planed sponsors are considering such a buyout for their retiree life insurance liabilities.

More and more plan sponsors are transferring or allocating excess pension assets from overfunded defined benefit pension plans to fund other retiree benefit obligations, such as retiree medical and life insurance. According to MetLife’s 2023 Post Retirement Benefits Poll report, 55% of plan sponsors surveyed have already transferred assets in this way.

Another tactic gaining traction as a viable funding solution for retiree benefits is captive insurance. Companies can rely on IRS Revenue Ruling 2014-15 to set up a captive that exclusively writes noncancellable accident and health insurance to cover retiree health benefits. With the coverage being life insurance, the captive’s reserves will receive life insurance tax treatment which thus allows the reserves to grow tax free. More importantly, the company is able to fund the retiree health benefits in a new captive without DOL approval since they do not fall under ERISA. This is the type of status-quo-challenging strategy that may prove critical for organizations grappling with defined benefit plan promises, given today’s difficult market conditions.

Case Study: Utilizing a Captive Insurance Arrangement to Manage Defined Benefit Pension Risk

Spring has worked closely with the pension risk transfer groups at insurance companies, who consistently price liabilities for settlement at 20% or higher than the US GAAP liability that plan sponsors recognize on their books for vested terminated participants. This is significantly higher than retirees, who can sometimes be priced at or even below the US GAAP liability.

Spring has developed solutions for clients to settle plan liabilities at very close to what plan sponsors currently recognize. This is a substantial savings to plan sponsors, and it allows the plan to be terminated sooner. Below we are bringing some of these concepts to life with a case study.

The Challenge:

A plan sponsor with a billion-dollar pension plan wanted to review risk management options for their plan, including how best to manage a large bulk annuity transaction. The organization had previously completed smaller transactions, including retiree annuity buy-outs as well as vested term lump sums. They were now looking to complete a much larger annuity transaction, but they wanted to better understand the full spectrum of options. A traditional annuity transaction would have been quite expensive given the conservative nature of how commercial carriers price deferred liabilities. While many factors impact the price of a transaction, the low interest rate environment, mortality risk charge, as well as conservative long-term investment options all contributed to a much higher transaction cost under a standard plan termination than the sponsor felt was reasonable.

The Process

Spring assessed various risk management options for the organization to consider, including an additional vested term lump sum window with a robust communication program to increase the take rate as well as a much larger bulk annuity transaction for the entire plan. The organization was interested in exploring an additional lump sum window, but ­first wanted to focus on how best to move forward with a cost-effective bulk annuity transaction. Rather than exploring these options with their plan actuary, the plan sponsor was also looking to work with an organization that could provide for a more objective and independent analysis without any conflicts of interest.

We reviewed options for a possible bulk annuity transaction with the organization which included both buy-in and buy-out strategies. We recommended exploring the use of a captive to improve the overall cost and participant security of the bulk annuity transaction. Using a captive can substantially lower the cost of the overall transaction, particularly for plans looking to transfer obligations for more than existing retirees only. A captive provided several benefi­ts including:

• Lower cost of overall transaction
• Increased operating income
• Control over assets
• Risk diversi­fication in the captive
• Improved participant security

The Results

This strategy yielded the following positive impacts:

1. Over a 10% reduction in the one-time premium outlay for the transaction
2. Participant security is enhanced because the captive provide an additional commitment to pay the bene­fits in addition to the fronting carrier.

Conclusion

Innovative tactics are available for organizations facing financial stress related to defined benefit plan liabilities, combined with the volatile market circumstances we’re seeing today. If your organization has pension plan liabilities and is looking for a strategy to mitigate this burden, you may want to evaluate the different options available to ultimately help you realize savings and enhance your risk management strength.