Economy Weighs on Benefits Managers as 09 Kicks Off

By Kristin Hunt

Jan. 9, 2009

Benefit managers have entered 2009 with a host of concerns regarding their departments’ operations and their employee benefit offerings amid the dismal economy.

    From curbs on benefit offerings as companies look to cut budgets, to retirement savings issues as workers see their 401(k) accounts shrink and health care reform as a new administration takes office, benefit managers face numerous uncertainties as the year begins.

    Jack Towarnicky, associate vice president of benefits planning at Nationwide Mutual Insurance Co. in Columbus, Ohio, knows cuts will have to be made somewhere. He just doesn’t know where yet.

    “Like many other large financial services firms, the economic downturn means we’re likely not going to hit all our financial metrics,” Towarnicky says. “Expense savings are expected throughout the organization, including benefit plans.”

    However, his organization and others still were able to enhance their benefit packages for 2009. Nationwide did not raise employee contributions for its two most popular health care options from 2008. It did not change dental coverage or rates, or life insurance or rates, and it lowered the cost of vision coverage. Towarnicky says the company still is matching a portion of contributions to health savings accounts and didn’t reduce its 401(k) match. Nationwide continues to enroll new hires in its defined-benefit pension plan as well.

    Kathy Dupree, benefit manager for Core Laboratories in Houston, says her company added more benefits too, enhancing its wellness program and adding a smoking cessation program. She says the organization was able to take such actions without increasing employees’ rates. Dupree acknowledges many other companies and benefits departments were unable to do the same as a result of the poor economy.

    Just as benefits managers are waiting to see how their benefit departments will be affected by the economic downturn, they are pondering whether and when health care reform will occur and how their organizations will be affected, says Chantel Sheaks, a principal with Buck Consultants in Washington.

    “I think for employers, when they’re doing their planning and looking forward, it’s very difficult in this political climate to really plan on the health care side for next year,” Sheaks says. “Many employers have to plan as if nothing is going to happen.”

    Chris Cannova, director of compensation and benefits for the Archdiocese of Chicago, says that while he is interested to see how President-elect Barack Obama’s health care strategy plays out, he isn’t counting on any immediate drastic changes, and he planned for the year ahead accordingly.

    “I’m taking a wait-and-see approach,” he says.

    Dupree believes that another outcome of the faltering economy is that insurance companies likely won’t be able to subsidize some of the ancillary services such as wellness programs or smoking cessation programs, ultimately changing their product offerings. Additionally, they might have to increase costs for their medical plans, causing employers to drop their plans, make them more restrictive or increase employees’ premiums, Dupree says.

    The economy isn’t only affecting health care plans, benefit managers say. Towarnicky is worried the state of the economy is going to hit employees’ plans for retirement and their saving habits.

    “I’m worried fewer people will be prepared or on track for retirement, and I’m afraid they’ll get discouraged,” he says. “It will change their behavior and they’ll reduce their savings. They’ll conclude a financially secure retirement is not obtainable or achievable.”

    Towarnicky is particularly concerned about possible support from elected officials to waive the 10 percent early distribution tax penalty on 401(k) plans, therefore encouraging withdrawals from retirement accounts. “I’d like to see more focus on improving loan provisions so they foster repayment versus making it easier to take a distribution,” he says.

    To help mitigate employees’ potential knee-jerk reactions to the economy, such as pulling money out of their retirement plans or reducing their contributions, the Archdiocese of Chicago is implementing communication plans and offering education seminars this year to help settle employees’ concerns, Cannova says.

    Benefits experts say fee-disclosure legislation is likely in 2009.

    “I don’t think there is any employer who disagrees there should be transparency and that you should know what the fees are,” Sheaks says.

    Dupree says she would like to see more transparency regarding fees from service providers and mutual funds to plan sponsors and from plan sponsors to participants.

    “I’d like to know more as a plan sponsor,” she says. “I have no reason to believe that my participants should not have this information readily available to them. They should know everything that goes on with their 401(k.”

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