RSM Resources

If you’re like most employers, planning your annual benefit package can be a quandary. If your offerings are out of sync with competitive trends, you may risk losing valued employees or limit your ability to recruit top candidates. If your benefits go above and beyond what the market typically offers, you may see expenses disproportionate to your returns or face complex administrative hurdles. Savvy companies regularly take a fresh look at the benefits they provide, evaluate whether they offer the best mix of employee benefits and find ways to make those offerings price-competitive.

Key trends in employee benefits
With the cost of employee benefit packages continuing to rise, no company can afford to take a casual approach to their offerings. The Government Accountability Office (GAO) reports the real cost of a U.S. employee’s total compensation — wages and benefits combined — grew 12 percent between 1991 and 2005. Although overall benefit costs climbed 18 percent during that period, wages increased only 10 percent. The big spike in benefit expenses hit in 2002; previously, wages and benefits had increased by about the same percentage. Since then, however, benefit costs have outpaced the growth in wages year after year.

While health insurance and retirement benefits are primarily responsible for the escalating price of employee benefits, health-care expenses may be showing signs of leveling off. According to a new study for the National Business Group on Health, U.S. employers are expecting an average 8 percent increase in their health-care expenses in 2006, down from the 10 percent hike they saw in 2005. Of the employers surveyed, 86 percent said their health-care costs came in at or below budget for 2005. Looking ahead to 2007, most employers predicted that their health-care costs will hold steady.

Beyond core health-care benefits, the Society for Human Resource Management (SHRM) reported in a 2005 survey that companies are providing some new benefits and perks. Nationally, more employers are offering both medical and dependent-care flexible-spending accounts, and many are increasing their matching charitable contributions. Also, in the wake of the continuing conflict in the Middle East, more organizations are offering paid military leave beyond what law requires.

Benefits that help employees balance their work and personal lives remained popular in the SHRM annual survey, particularly scheduling options such as flextime and telecommuting. Companies also offered benefits such as professional-development opportunities, bonuses, educational assistance, and a variety of retirement and financial-planning services.

The best-fit benefit package
Given these different dimensions of employee benefit planning, it’s more critical than ever for employers to closely examine the big picture of what they offer. Make sure to use your company dollars effectively, both from an overall financial perspective and with the unique needs of your employees in mind.

John Sweeney, an information specialist for SHRM who tracks emerging trends and best practices in employee benefits and compensation, emphasizes that the first step in building or refining a benefit package should be to open dialogue with your employees.

"Too often, companies go into autopilot and make assumptions about what their employees want and expect from their benefits," Sweeney says. "I’m a big believer in conducting annual surveys, where workers are asked to rank the importance they place on the different benefits they receive. Just by asking for a simple priority ranking of current benefits, employers can get timely — and sometimes surprising — information about where they should consider investing more or fewer dollars."

To really hone in on what employees value, Sweeney recommends a "forced-choice" survey that asks participants to choose among different benefits and perks.

"This process can really illuminate what benefits will motivate employees to join or remain with your company," he says. "It also allows you to test concepts and quantify how employees might respond to new or different types of benefits. And, because employees are being asked to make tradeoffs — ’Would you rather have benefit X or benefit Y?’ — you’re getting a much better look at what your workers want and how you can make your benefits package a competitive advantage."

To complete the information-gathering process, Sweeney adds that employees should have a forum to suggest benefits to their employers.

"This can be as straightforward as adding an open-ended question to a written survey, through informal conversations or in round tables or focus groups," he says. "What’s most critical is that you as an employer come out of this process with all the information you can get about how to create benefits that best fit your organization."

Managing benefit costs
No matter how many or what types of benefits they offer, employers always are concerned about costs, Sweeney says: "Basically, there are two major ways to address the costs in your system. There’s the cost of providing and administering the benefits themselves, and the mechanics of your annual-enrollment process."

Employers should be assertive when selecting benefit providers and issue requests for proposals to a variety of vendors to ensure that they are getting the best possible combination of service and price. Companies can cut administrative expenses by converting to electronic, telephone or Internet-based enrollment systems that substantially lower print,distribution, mailing and data-entry costs.

"We’ve seen that workers are supportive of and comfortable with leaving paper-based enrollment systems behind," Sweeney says. "People use technology and automation in so many other parts of their lives, using a PC or shared kiosk for benefits enrollment is an easy transition."

Indeed, online enrollment for benefits was the No. 1 choice for U.S. employees in 2004, when nearly eight in 10 used the Internet to enroll for benefits — more than triple the level from five years earlier, according to one survey. And the benefits of online enrollment go beyond cost savings for employers. As benefits choices have grown more costly and complex, employers have offered more online educational content and enhanced decision-support tools, including health-plan comparison charts and cost calculators, flexible spending account estimators and provider information. Meanwhile, employers have decreased paper confirmations, and use of interactive voice response and call centers is down.

Ultimately, one of the most critical elements of making your benefits package affordable is to tie your offerings to your high-level business strategy.

"Employee benefits should never be considered in a vacuum," Sweeney says. "They are so intrinsic to your business, and you want to construct a benefits approach that is going to support your growth goals and respond to your ongoing employment and operational needs. If you don’t think long-term, you may miss out on opportunities or delay choices that can really affect your ability to expand and grow. Benefits come with asignificant price tag, so above all, you want to make sure that it’s money well spent, both on behalf of your company and your employees."