This Month:
Voluntary benefits protect employee and employer
Misconceptions prevent small businesses from offering big benefits
60 million 401k plans put at risk by Treasury
Protect business relationships with COLI-funded deferred comp
Smart Sale: Executive Bonus plans that fund Universal Life
Timing is everything with SS benefits
Group Benefit Sales - Changing strategies with changing times
Healthcare costs rise, employees bear burden in down economy
Things looking up for voluntary benefits
Voluntary benefits remain flexible to serve recessionary marketplace
Benefit offerings do matter to employees
Communication key to employee appreciation of benefits package
One size does not fit all in executive carve out coverage
Effects of financial crisis shake employers into action
Health Savings Account enrollment reaches 8M


Voluntary benefits protect employee and employer

by Ron Agypt

Ron Agypt is Aflac's Vice President of Market Development and Broker Sales. He can be reached at brokerrelations@aflac.com.

We hear a lot these days about the significance of attracting and retaining workers, but few have considered the importance of also protecting workers. In view of the significant investment employers make in enticing and recruiting potential employees to their organizations and ensuring they stay for the long haul, aren't companies missing an important piece of the puzzle? Protecting today's workers from financial, health or emotional turmoil not only conveys a message that they matter, but it helps protect an employer's investment in those human resources.

When you look at all the elements of the employer-employee contract, there is only one that can greatly impact the attraction, retention and protection of workers, benefits.

Job seekers pay close attention to what benefits, specifically health care benefits, an employer has to offer. In a 2010 Global Workforce Study by Towers Watson, U.S. workers named "competitive health care benefits" as the third most important attraction driver, behind only pay and time off. Once workers have joined an organization, benefits play a leading role in keeping them on the job. Benefits rank as the most important retention driver for U.S. employees. For employees to be fully engaged in their work and on the job, they must feel safeguarded and protected from potential financial or health-related setbacks. Sixty-two percent of all personal bankruptcies in the U.S. in 2007 were caused by health problems.

The picture is crystal clear. The size and scope of a company's benefits package can directly impact its ability to compete for talent, keep them and help protect them.

EASIER SAID THAN PAID FOR

Despite a clear connection between benefits and the ability to better recruit and protect workers, companies are stuck between the figurative rock and a hard place. A perfect storm of economic recession, health care reform and rising health care costs have made it difficult for companies to justify investments in benefits. Gross health care expenditures will increase per employee, pushing the average total cost above $10,000 this year, for the first time in history. The idea of achieving financial gain from investing in big benefits feels a bit like robbing Peter to pay Paul for some business leaders.

This daunting challenge is impacting companies of all sizes and industry. However, given that small businesses represent 99.7 percent of all employers, according to the U.S. Department of Commerce, this segment is arguably the most affected. Furthermore, without the financial reserves and cushion that big business enjoys, for smaller organizations any surge in employee turnover, absenteeism or mismanaged health care costs can mean the difference between success and closing their doors.

WHAT IF THERE WASN'T A HIGH PRICE TO PAY TO ATTRACT, RETAIN AND PROTECT EMPLOYEES?

This is the question brokers ought to be asking of their potential and current clients. A solution exists that is often overlooked and underexposed to smaller businesses, voluntary insurance policies. Supplemental or voluntary insurance achieve the goal of boosting health care coverage, offering more comprehensive benefits packages and helping protect workers. It also comes at no direct cost to companies and can even possibly reduce corporate taxes by cutting FICA tax contributions.

Commonly misunderstood as a solution reserved primarily for big business, voluntary insurance is in fact a perfect fit for small employers who are interested in matching the broad range of benefits offerings touted by large companies, but that come with a small price tag.

Not only are small businesses struggling to compete in today's environment, there are high expectations for them to help the country emerge from a recessionary climate. After all, these small companies are often referred to as the engine that drives the U.S. economy. Many voluntary insurance companies recognize the importance of offering greater support to the small and midsize markets. To that end, these companies have made a monumental change in the availability of group voluntary insurance to small and mid-size companies. In the past, group voluntary policies have only been available to companies with 500 or more employees. Today, they are now accessible to organizations with as few as 100 employees making group insurance much more obtainable for smaller employers. These plans include short-term disability, life, accident, cancer, specified health event, and others.

BROKERS CAN BENEFIT TOO

Employers, particularly small to mid-sized, need help. Brokers are in a unique position to educate and inform an already interested group of employers. In fact, 43 percent of small businesses are now more interested in voluntary insurance policies than a year ago. Many organizations still maintain the misconception that voluntary insurance is only available to large employers; others may think they have voluntary insurance covered, but in reality aren't leveraging them effectively to yield substantial hard and soft cost savings.

Small and mid-sized companies are operating today at lean capacity, employing a core group of workers to get the job done. Relying on a few star performers means greater pressure to satisfy them. However, recent research shows that small businesses that do offer attractive benefits packages boast significantly lower turnover rates. And, when hiring begins again, these smaller employers will need to boost their benefits offerings in order to compete.

For brokers, an opportunity exists to advise employers of all sizes to integrate employee-paid offerings into their benefits packages in order to better attract, retain, and protect its workforce. This is especially achievable for smaller companies today, given the new group insurance on the market and the ability to customize these products to fit any organization.

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Misconceptions prevent small businesses
from offering big company benefits

by Tim Starkey

Tim Starkey is Vice President of Sales at Northeast Colonial Life & Accident Insurance Company. He can be reached at tstarkey@coloniallife.com.

Small businesses with fewer than 500 employees represent 99.7 percent of all employers. Yet 34 percent of them still don't offer a single voluntary product.

Why? Four common misconceptions prevent many small businesses from exploring their options. Address these myths, and you'll be on the way to helping your clients offer the same benefits as the big guys, at no additional direct cost.

Concerns about the perceived administration burden on HR

Many small businesses mistakenly think expanding their benefits packages is complicated and takes too much time to administer. With limited HR resources, they fear becoming overwhelmed with details. Choose a good voluntary benefits partner that will seamlessly and effortlessly handle the administration for your clients. The right carrier can make implementation streamlined and efficient.

Belief that employees aren't interested

Many smaller firms don't want to expend the effort to implement new programs if workers aren't going to be interested enough to participate. But interest in voluntary products is on the rise. In fact, employers believe their employees are more interested in voluntary benefits than ever. In a recent survey, 71 percent of employers expect their workers to be more enthusiastic about voluntary benefits during the coming year.

Worry that enrollment monopolizes employees' time

Couple the education and enrollment of employees in a new voluntary benefits plan with the traditional enrollment process for core benefits, and small companies find themselves wondering when any work will get done. In reality, only one in 10 businesses perceives the time it takes to enroll employees in voluntary benefits interferes with productivity and takes away from core business operations. To minimize the amount of time needed from employees, select a well-designed plan that's simple to use and communicate. And choose a voluntary benefits partner that offers one-to-one education sessions on both core and voluntary benefits.

Belief that voluntary benefits are designed for large corporations

Smaller employers don't want a one-size-fits-all benefits approach that doesn't address their unique HR needs and challenges. With voluntary benefits, employers can expand the choices offered to their employees and can let employees select the coverage that best meets their individual needs. Participation requirements are also minimal. Most voluntary benefits plans are suitable for businesses with as few as five employees. A carrier attuned to the special needs of small business can demonstrate how voluntary benefits work well regardless of a company's size.

FREQUENTLY OFFERED VOLUNTARY BENEFITS

Our research shows the top three most frequently offered voluntary benefits by small businesses are short-term disability, long-term disability and supplemental life. However, both cancer and accident insurance are gaining traction among smaller firms. With more than one-fifth (21 percent) of small businesses moving to higher deductible medical plans, interest in supplemental medical coverage will continue to grow. In addition, long term care insurance is considered to be one of the fastest growing voluntary products. Much of the growth in this product reflects interest from Baby Boomers who are now bearing the responsibility and expenses associated with caring for their parents.

COMMUNICATE THE VALUE OF A BENEFITS PROGRAM

Large companies typically have a human resources department to help manage their benefits programs. However, most small businesses don't have the staff or resources to effectively enroll employees in their benefits, communicate the benefits and help employees understand the value of them. And many enrollment companies don't enroll small business, so you'll need to find a voluntary benefits partner willing to enroll in this market. The best voluntary benefits carriers provide the following services for both a company's core and voluntary benefits:

A good voluntary benefits partner can provide a professional team of benefits counselors to help you deliver effective enrollments and benefits communications during the initial enrollment, new hire enrollment and annual re-enrollments, at no direct cost to your clients. This is a huge advantage in the small business market where cost savings are critical.

HOW TO CHOOSE A VOLUNTARY PARTNER

There are numerous voluntary carriers from which to choose, but companies should be careful to select a partner that's a good fit with their business. Employers should scrutinize the carrier just as they would any other vendor partnership. Take these factors into consideration when evaluating a voluntary benefits partner:

EXPOSE THE MYTHS

Don't let myths and misconceptions keep your clients from exploring a solution that could save them money and expand the choices in their benefits plans. Show them how voluntary benefits can help them compete in the marketplace with quality benefits packages just like the big guys.

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60 million 401k plans put at risk by Treasury

by Philip Davis

Philip Davis is the President and Founder of Corporate Compensation Plans and WealthSecure. He is the author of the book So You Think You Have A Pension Plan! and the creator of 401kSecure�, a program that continues contributions into disabled employees' 401k accounts so their assets will continue to grow. He can be reached at ptdavis@corpcompinc.com.

The biggest threat to 401k participants' retirement security is not market risk; it is the risk of becoming disabled before they retire. When that happens their 401k contributions, along with their employers' matching contributions, stop. The result is the potential for catastrophic losses in their projected retirement assets. For example:

And even a relative short term disability can create a significant loss of assets. For example, our 45-year-old employee above has $20,000 of total 401k contributions. She is disabled but is able to recover and return to work in three years at the same salary and level of 401k contributions:

In this example, just three years of disability has caused a 27 percent loss of assets.

The chances of becoming disabled compound the problem. For example, according to the Council on Disability Awareness, one out of every seven American workers will be disabled for more than five years before retirement. And, as our population continues to age, these odds will increase.

The solution to this serious problem was a special disability insurance plan that enabled employees to purchase disability insurance with their pre-tax 401k contributions. In the event they became disabled, the insurance company would continue their contributions directly into their 401k accounts so their retirement assets would grow just as if they were working. Let's see how this would have worked for Jane Smith, our 45 year old employee with $15,000 of 401k deferrals and a $5,000 employer match:

Jane is offered 401k insurance at discounted group rates. She elects the protection and the premium is taken from her pre-tax deferral. Unfortunately, the next month she has a serious stroke and is permanently disabled:

(When Jane receives her $735,722 in 401k distributions at age 65 they would be taxed just the same as any other payments from her qualified retirement plans.)

401k-disability insurance was offered under the tax guidelines of two Internal Revenue Private Letter Rulings. As a result of those rulings, several large insurance companies designed a special group disability plan to fund the program and IBM was the first large company to offer the protection to their employees.

Then inexplicably in 2007 the Treasury proposed regulations that, if adopted, would effectively revoke their prior Private Letter Rulings. Several organizations filed objections and recommended that the regulations incorporate the 401k disability protection benefit. However, the regulations still have not been finalized and therefore employers are hesitant to offer this vitally important benefit to their 401k plan participants because of the tax uncertainty surrounding it.

The Treasury action flies in the face of sound public policy for three reasons:

The Internal Revenue Service is in the process of setting a priority list to review their proposed tax regulations and revenue rulings and, in the best interest of 60 million 401k plan participants, it certainly should put 401k disability insurance at the very top of that list.

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Protect business relationships with COLI-funded deferred comp

by Kurt Shallow

Kurt Shallow is Vice President, Risk Products Distribution, at The Guardian Life Insurance Company of America, New York, N.Y. He can be reached at kurt_shallow@glic.com.

Brokers face an increasingly competitive market for their services. Owners of small and medium-sized businesses are crunched for time as they attempt to survive and thrive in an ever-changing competitive landscape. They're seeking to minimize the hassles associated with offering employee benefits. Meanwhile, the current economic environment has more firms reevaluating their trust in financial institutions. Business owners want to know they're dealing with stable companies that won't let them down in the long run.

Under these conditions, your own book of business is more susceptible than ever to being undercut by other brokers. Even with contracts safely in place, one of your competitors could still win a sale from one of your clients by offering a solution with easier administration or stronger financial backing.

A business strategy that's working among savvy brokers is to offer an employee benefit the employer needs but doesn't have yet. The plan is administered seamlessly and backed by an insurer with impeccable ratings. The broker makes every effort to do such a good job on that small piece of business that the employer allows him or her to take over more substantial parts of the portfolio: the 401(k), perhaps, or the disability plan.

This camel's-nose-in-the-tent strategy may sound aggressive, but there's a good reason to do it. Simply put: If you don't, someone else will.

PROTECT YOUR TURF

The best way to prevent other brokers from encroaching on your hard-earned business is to build a "moat" around each client by offering a comprehensive suite of quality employee benefit products. But it doesn't happen overnight. All brokers have to start somewhere with a new client. It is rare for a new broker to approach a business and take over all lines of employee benefit products at once.

You can start digging your moat by providing a state-of-the-art solution to your client that no one has offered him or her before. If the client is thrilled by that product and service, you will likely be rewarded with additional lines of business. Depending on the client, a deferred compensation plan funded with corporate owned life insurance (COLI) can be an extremely effective approach to secure that initial piece of business and win a business owner's trust.

Deferred compensation has long been part of executive retention strategies, as it is primarily used to supplement retirement savings for a company's top leaders. Vesting schedules can be structured to keep high-earning executives interested in staying with the company to earn their full retirement benefit. What's more, a so-called "salary reduction" deferred compensation plan helps shield an executive's income from taxation, something that's increasingly appreciated by those with high incomes in today's political climate. In addition, COLI values grow income tax-deferred, and also reflect positively on a company's books.

The small and midsized marketplace has been underserved when it comes to COLI-funded deferred compensation plans, which traditionally has been viewed as a Fortune 500 benefit. But that's changing as insurers roll out new platforms to bring this valuable and needed offering to companies that, arguably, need it most. By bringing a quality, turnkey deferred compensation plan to the closely held and midsized business market, you can boost your credibility, your income, and your future prospects as a broker.

COLI AND THE NEW MARKET

The sweet spot for deferred compensation plans in the closely-held and midsized marketplace tends to be companies with 100 to 250 employees, perhaps 10 percent of which are highly compensated executives capping out on their 401(k) plans. These employees desire a way to save more money for retirement on a tax favorable basis.

Firms in the market for a deferred compensation plan want a platform that is easy to use and understand. Traditionally, deferred compensation programs have tended to be segregated. The product, the administration and the enrollment can each come from different providers, often resulting in headaches for human resource executives. A few insurers, however, are starting to offer plans in a bundled package that combines all these elements.

A bundled plan is an easier sell for the broker, especially if it includes seamless customer service and options for executives to get timely and accurate benefit information online, instead of having to bother the HR department.

What also makes for a good sale in today's market is offering a COLI product that is backed by an insurer with impeccable financial strength. Employers want to know that the company behind their plan is not going to go out of business or be unable to administer the plan at a later date due to financial difficulties. The discussion around this point has never been more relevant in light of recent financial institution failures.

Do the homework on the insurers you decide to represent. Check their COMDEX ratings, as well as those from industry analysts like Fitch, Moody's, Standard & Poor�s and A.M. Best. Ask about their capitalization ratios and what their investment portfolio looks like. Assess their reputation in the marketplace by doing Internet searches and talking to your colleagues.

Once you have determined which companies have the most unshakable financial strength, look at what they have to offer you, as well as your client. Some insurers use an assisted wholesaling model in which the insurance company positions the deferred compensation/COLI opportunity to a client while deferring completely to the existing broker-client relationship. This approach entails no cost to the broker. He or she still gets all the commission. The advantage of this model to brokers is they do not have to enter arrangements with other brokers in order to sell or administer the plan. It also eases administrative headaches for the client.

Two landmark pieces of legislation in recent years have brought deferred compensation and COLI more into the public eye. Internal Revenue Service Section 101(j) requires employee notice and consent before issuing COLI coverage, while Section 409A places stricter rules on how deferrals can be made. Make sure the insurers you work with have updated their forms and processes for complying with these laws.

Pension brokers, group brokers and brokers who work predominantly in the business marketplace are ideally positioned to sell deferred compensation plans. If you are among this group of insurance professionals, you may find yourself with many new business opportunities, not to mention stronger relationships with your existing clients, as this market continues to evolve.

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Smart Sale: Executive Bonus plans that fund Universal Life

by Glenn Plotkin

Glenn Plotkin is vice president of marketing at American General Life Companies, and primarily responsible for advanced markets support. He can be reached at glenn.plotkin@aglife.com.

All businesses are in competition. They compete to bring the best products and services to the market and to provide user-friendly, cost effective efficient systems. They also compete to employ the best and brightest talent available. In order to stay competitive, however, and recruit and retain key employees, employers must compensate their most highly valued employees in meaningful ways.

For employers, especially small to medium-sized businesses, salaries and other employee benefits may not be enough to retain and reward employees. Such compensation may also miss the mark with respect to helping key employees fund the benefits they really need. In addition to qualified retirement plans and other employer-provided benefits, perhaps something else can either attract or keep the employee that helps make your business successful.

The questions are: What is the best way to compensate an employee? What type of asset can provide both immediate gratification and long-term benefits? The answer to both questions may be an executive bonus plan that's designed primarily to provide additional compensation to fund the purchase of a universal life insurance policy benefiting the employee and his/her family.

Employee Benefits

An executive bonus arrangement that funds permanent life insurance provides two primary benefits to employees: substantial tax-deferred cash accumulation that may be eventually accessed on an income tax-favored basis; and an income tax-free death benefit payable to the insured employee's named beneficiary. Notwithstanding the potential promise of supplying substantial post-retirement income, universal life insurance is often especially appreciated as a unique asset due to its meaningful death benefit.

Employer Benefits

The flexibility inherent in executive bonus arrangements is incomparable. Unlike qualified retirement plans governed under ERISA and non-qualified plans now governed by IRC Sec. 409A, executive bonus programs that fund life insurance plans do not require approval from or filings with the Department of Labor or the Internal Revenue Service. In addition, the selection of eligible employees can be both discreet and discriminatory. An employer can enter into a bonus arrangement on an isolated basis or engage in a program that includes several employees and spans several years. Also, the bonus is generally income tax deductible, the plan is easily installed and administered and executive bonus plans help to retain key employees by paying premiums for death benefits and cash value accumulation.

An employer can pay bonuses directly to the employee, who then uses them to pay insurance premiums. Alternatively, the employer can pay the premium directly to the insurance company. Income Tax Consequences of Funding Executive Bonus Plans

The amounts bonused to an employee or paid by the employer directly to the insurance company are generally realized as ordinary income by the employee in the year received. Consequently, for non-pass through business entities such as C corporations, such bonuses may be entirely income tax deductible in the year of payment subject to reasonable compensation restrictions set forth under IIRC Sec. 162.

Some employers choose to provide a "double bonus" to the employee. In addition to covering the required insurance premium, the double bonus also provides sufficient additional compensation to the employee to pay income taxes payable as a result of the bonus. From an income tax arbitrage perspective, an executive bonus plan may be particularly attractive to C corporations subject to a higher income tax rate than the employee receiving the bonus.

You may also want to illustrate to employers the benefits of restricted executive bonus plans, in which the employee cannot access the plan's cash value without the employer's written consent. The restriction does not change the policy value in any way.

Why Universal Life Insurance?

Employers often choose universal life insurance to fund executive bonus plans. The reasons are many:

Policy choice generally depends upon the needs of the employee and perceived risk tolerance. Today, a wide variety of universal life policies are available that appeal to various employee needs and risk tolerances. Examples include indexed universal life, variable universal life and low-cost guaranteed universal life.

Estate and Business Planning Applications

Policies funded through executive bonus plans may have ownership and beneficiary structures that provide for substantial estate tax relief. For example, a bonused employee may establish an irrevocable life insurance trust that serves as both owner and beneficiary of the policy. Properly structured, insurance policies owned within an ILIT may be deemed to be outside the employee/insured's estate and escape estate taxation upon the employee's death. Amounts distributed by the employer or employee to the ILIT trustee to pay ongoing premiums may, however, be deemed taxable gifts by the employee.

An executive bonus plan funded with universal life may also provide an excellent financial source to guarantee completion of a business succession or buy-sell arrangement between business associates and shareholders.

Applying Restrictions to Portability

One of the key benefits of individually owned life insurance funded through an executive bonus plan is the portability of the policy. Employees know they own something that has value not tied to the success of the business or the whims of its management.

Employers concerned about the portability issue have some options. For example, the plan can require the bonused employee to enter into a restrictive endorsement of the policy cash values in favor of the employer for a stipulated period of time or upon the attainment of a specified event. As a result, the employee has restricted access to the policy cash surrender value, but his/her beneficiaries always have full access to the policy death benefit.

Final Considerations

Executive bonus plans, particularly those that fund universal life policies, have found favor with both employers and employees for many years due to the simplicity of their administration, straightforward income tax consequences and perceived economic value. The influx of new products on the market provides more choices than ever for funding such plans.

Your understanding of these options will be invaluable in helping you most effectively present executive bonus arrangements. Of course in all cases, your clients should be encouraged to also consult an independent tax, legal and/or financial advisor.

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Timing is everything with SS benefits

by Paul Silva, CLU, ChFC

Paul Silva is affiliated with National Long Term Care Brokers, Clifton Park, N.Y. He can be reached at psilva@NYLTCB.com.

Sometimes the most obvious way to improve your business is too obvious. Think of all the potential and existing clients who don't know how to figure out when the best time is to start collecting Social Security benefits. The opportunities are all around us.

Maybe we don't take advantage because we think the problem doesn't really bother any one. Perhaps we learned about how Social Security works so long ago that it has stopped being interesting. Even if you do know all about it, do your prospects?

My opinion is that the importance of Social Security benefits has been downplayed for so long, we've become immune to discussing them. There have been two recent developments that have changed the landscape.

Remember when your clients used to say, "Oh, I don't think Social Security will be there for me, so I just plan as if it doesn't exist."? Have you noticed they don't say that any more? All the bad press about the system becoming insolvent was very effective in undermining public confidence.

While still a concern, it has been lessened by predictions of the system remaining solvent until 2047. Now it's a different ballgame. This is mostly because of the psychological impact of the combined recession and market correction.

Now you are more likely to hear clients express concern about when to collect, because the benefits represent a larger proportion of their expected retirement income. (See Pie Charts)

The trend away form defined benefit pensions put more responsibility on the shoulders of the workers to save for retirement. The market correction made most people more aware of the limitations of relying on huge growth rates.

The result? Like it or not, the public is taking a new, longer look at what proportion of their retirement income will be coming from Social Security. That reality causes a greater concern about making the most of the benefits available.

Since we can't really impact the rate of return on this important source of retirement income, we have few options available. The most important, in terms of public awareness, is deciding when to start collecting.

The "Good Ol' Days" advice was to collect as early as possible. The thinking was, who knows how long the benefits will be available? Currently this thinking may no longer be appropriate. As Social Security benefits have grown in relative share of income from retirement income sources, their certainty of being supported has grown as well. What I mean by that is whatever tax increases it will take; it will be funded. There will simply be too many collecting and dependent upon benefits to politically allow the collapse of the system.

So the question becomes is it worth it to defer benefits to avoid taking a reduced amount? Again, the proportionate importance of these benefits having grown means taking a cut for early collection may be less advisable. A breakeven analysis will show how long a person would have to live to come out ahead by deferring.

Two aspects of the recent changes in the economic landscape will impact on this decision. People are living longer now. I'm assuming people will continue to enjoy improving longevity as medical improvements continue to accelerate. Of course it remains to be seen if "enjoy" will be the right word to use in connection with this lengthened life span. It further could be argued that pending health care reform may make some medical improvements unavailable.

Nonetheless, the scene has shifted. People are now much more open to considering the financial effects of living "too long". Deferring collection of Social Security benefits has also been made more attractive by the market correction. It can easily be shown that putting off collecting raises the monthly benefit by eight percent per year. Now it is harder than it was a couple of years ago to imagine getting a guaranteed risk free return in excess of eight percent on any investment. When taxes are considered, this eight percent increase becomes even more attractive.

Another crucial, but under-appreciated factor exists. It is the Cost of Living Adjustment applied to monthly income. Deferring the collection of benefits actually increases the total number of dollars received. By starting out with the higher monthly income figure, all subsequent adjustments are made on a percentage basis to that larger number. Barring a premature death, this is advantageous to both the worker and the spouse.

Calculating the effect on the higher amounts collectable by the spouse must include the COLAs he/she would qualify for. It is suggested to use 2.8 percent in your estimates. I know this year throws a monkey wrench into the whole COLA issue. This is the first year the system has not had an increase. The drop in gas prices wiped out the inflation for the period measured by the Social Security Administration. How often is that going to happen?

Failing to calculate either the potentially larger benefits payments available to those who defer, or the COLA enhancements sacrificed will be viewed as malpractice. Failing to consider the potential effects of the lost survivorship benefits is unfortunately more the rule than the exception.

Helping people make educated decisions about how to handle the benefits they have earned and paid for will endear you to them in a meaningful way. You can hardly imagine the scenario where this service has been provided that the conversation will not reveal a sales opportunity.

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Group Benefit Sales

Changing strategies with changing times

by Larry Blanchard

Larry Blanchard is Vice President of Group Sales and Operations for Security Mutual Life Insurance Company of New York. He can be reached at lblancha@smlny.com.

The marketplace for selling group employee benefit products today is changing rapidly and may require you to re-examine your strategies for selling group and other insurance products.

The group employee benefits marketplace has always evolved in terms of new products, services and technology, but are we on the verge of more radical change? Many experts believe we are and they are predicting major changes in the very near future.

Many factors are poised to cause this radical shift, including higher levels of government intervention, a competitive shrinking global economy, changing consumer needs and demands, changes in the typical family structure, new insurance competition and trends that influence the way individuals research and purchase insurance products.

Few would claim to know what the ultimate impact of pending federal healthcare legislation will be on the employee benefits marketplace. In an extreme scenario, a single-payer government health plan would radically change the benefits landscape in terms of compensation, broker influence and opportunity. While that type of radical health insurance reform is unlikely to be adopted in the short term, it should cause all insurance producers to re-examine and broaden their role as an employee benefits adviser.

Even if there is little change in health insurance reform, a rapidly shrinking global economy and an aging employee population will continue to put pressures on employers that will demand new employee benefits strategies and advice. The employer in Boston, Mass., who used to compete with an employer in Syracuse, N.Y., is now competing with employers from across the globe, global employers that may have lower cost structures and employees who expect far less from their employers in terms of wages and benefits.

The American work force is also aging, which is driving up costs at all levels and across all product lines. How can employers continue to offer incentives to older loyal workers while attracting new younger employees who typically have more diverse needs and demands?

These new challenges demand new strategies and bold ideas. New products like "Tenured DI" offer long-term disability benefits that are tied to an employee's length of service. A combination of core group, buy-up, voluntary and worksite products can also reduce an employer's costs while addressing the diverse needs of all employees, from young to mature.

The demand for more diverse benefits will also cause a demand for better administrative systems and more robust employee education and communication systems. The days of carrier-based legacy systems may be numbered. Those systems are likely to be replaced by specific employer-based administration systems that will consolidate billing, employee eligibility, electronic enrollment and day-to-day administration. Commonly known as HRIS (Human Resource Information Systems), these systems are available today and are being marketed by brokers, consultants, insurance carriers, HRIS companies and payroll vendors. Human Resource Information Systems currently offer a wide range of capabilities, but are likely to become more standardized over time. In the short term, you should at least understand their basic functions, costs and availability. If you do not, others will, and you can quickly lose control of additional sales opportunities as well as your existing clients.

These new specific employer administrative systems are critical to many new benefits strategies. For example, the advent of more voluntary benefits needed to address employer cost and employee choice issues will demand more employee education and ease of enrollment. Today's HRIS can address both issues by reducing employer administrative expenses through automated enrollments and by educating employees about the value and availability of their employee benefits through customized employee benefit summary statements.

Ultimately, many believe that we will see a shift in the employee benefits market from today's "defined benefit" model to a true "defined contribution" model. We have seen that kind of transformation in the retirement world over the last few decades, and it has great appeal to employers offering benefits today. A defined contribution model fixes an employer's annual cost, gives employees greater benefits flexibility and helps employees become more actively involved in both the benefits decision-making and funding process.

As employees become more involved in benefits funding and decision making, a host of new sales opportunities should open up for you. Few would dispute that Middle America is currently underserved by the financial services industry. Tapping into that underserved market through employers and payroll deduction should lead to significant new life, disability, health and other insurance sales opportunities.

While new opportunities should abound for those who adopt and promote new benefits strategies, new competition awaits those who do not. To take charge of your destiny, you must provide cutting edge advice to your clients. Today's benefits adviser has an edge based on experience, reputation, connections and expertise. In the future, however, benefits advisers are likely to see strong competition for their benefit clients from banks, mutual fund companies, payroll companies, Internet providers and others. While these competitors may lack deep benefits experience, they do have good strategies, dedicated employees and, in many cases, deep pockets. If you ignore new technologies, benefit strategies and emerging potential competitors, you do so at your own risk.

So how do you build your new benefits strategy? First, educate yourself on all current benefit enhancements available today. Seek out carriers and other partners who are looking to the future and can help you and your clients craft a better, more cost-effective benefits program. You can no longer afford to be passive in terms of quoting the "in-force plan." A better, progressive benefits strategy will help you write new business and allow you to retain your current clients.

Your carriers and benefits partners should also be open minded about new products, product combinations, administrative interfaces, employee communication, education and enrollment support. Strong progressive benefits partners are critical to your success and the success of your clients' benefits programs.

The future design of employee benefit plans may be uncertain, and change will certainly abound. At the same time, sales opportunities will be plentiful for those who embrace new benefits strategies.

Have you crafted yours?

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Healthcare costs rise, employees bear burden in down economy

Against a backdrop of prolonged recession, U.S. employers will see an increase in their medical benefit expenditures of seven percent in 2010. The cumulative effect of ongoing cost increases combined with the current economic climate are creating significant affordability challenges for both employers and employees.

According to data from Towers Perrin's annual Health Care Cost Survey, many employers are preparing to take action by embracing new approaches to benefit management that have the potential to fundamentally transform the current model of health care delivery.

The seven percent rise in 2010 medical benefit expenditures, although marking the sixth consecutive year of single-digit percentage increases, will mean record-high costs for both employers and employees. The average annual per-employee spend will, in 2010, cross the $10,000 mark, and while employers will continue to fund 78 percent of that amount, the actual dollar burden on employees has grown due to the ever-increasing cost base and the added impact of benefit design-related increases in out-of-pocket costs.

Employee premium contributions, on average, will rise by 10 percent, or just over $200, during 2010, a bigger jump than the eight percent increase seen in 2009. This additional burden is exacerbated by indirect cost shifting through benefit design changes such as increased copayments, which add significantly to the overall cost for employees.

The Towers Perrin Health Care Cost Survey has been providing an in-depth, prospective (versus retrospective) look at health care costs for employers for more than 20 years. The 2010 database includes detailed information on the health benefit programs provided by approximately 300 of the nation's largest employers. These companies provide health care coverage to 5.2 million U.S. employees and dependents, collectively spend $29.4 billion on health care every year and, as such, represent a significant force for change in the health care marketplace.�

Analyzing the 2010 data by coverage level, the average reported cost of medical coverage is $5,124 annually ($427 per month) for active employee-only coverage, $10,500 annually ($875 per month) for employee-plus-one-dependent coverage and $15,084 annually ($1,257 per month) for family coverage.

Employers continue to shoulder most of the burden. However, despite ongoing employer support, the affordability gap for employees continues to grow as wages lag significantly behind health care cost increases.

Health care reform looms large

Will health care reform alleviate the growing affordability challenges facing both employers and employees? Data suggest that reform, as evolving, has the potential to actually increase the cost burden for employers and that those additional costs would be passed on to employees, further widening the already pronounced affordability gap.�

For example, one of the most recent, and controversial, provisions of reform proposed by the Senate Finance Committee is an excise tax that would apply, beginning in 2013, to health programs with combined coverages (medical, dental, vision, flexible spending accounts, etc.) valued at more than $8,000 per year for individuals and $21,000 for families. Although these caps sound high, as the chart above shows, more than 50 percent of companies will hit the caps within the next three years if current cost trends continue, and the impact of the caps will increase over time, even with indexing on the tax thresholds after 2013.

Another potential impact of health care reform could be further increases in the prevalence of account-based health plans (ABHPs). To reduce their costs, many employers in recent years have adopted ABHPs, which feature tax-favored savings opportunities for employees. Because these plans have lower actuarial value than traditional health plans, they could actually help employers delay hitting excise tax cap limits by up to two years.

ABHPs continue to gain ground

Employer adoption of ABHPs has risen significantly over the last five years, from 20 percent to 60 percent of companies, as employers recognize and embrace the value of these plans in controlling their health care costs and reducing the employee affordability gap.

These plans provide both employers and employees with a clear cost advantage. Premium costs for a traditional ABHP are $8,927 per employee annually, which is 13 percent less than the average traditional plan and unused account funds roll forward to defray future out-of-pocket costs. The lower cost of these plans also provides employers with a solution to hold family benefit values below the proposed $21,000 excise tax cap.�

Because these programs are fundamentally different from traditional plans, however, employers have had varying degrees of success with them. High-performing companies, in particular, have had more success meeting their objectives:

High performers achieve financial advantage, insulation from reform cost hikes

The survey identified wide variations in the costs faced by high- and low-performing companies, with high performers paying 16 percent less, roughly $1,800 per employee, for their health benefit programs. This cost differential means that a high-performing organization with 10,000 enrolled employees would spend, on average, $18 million less annually than a low-performing competitor.

The survey revealed some other important characteristics that differentiate high from low performers, which point to future trends that all employers will begin to adopt to keep their costs down while continuing to deliver health care value.

Employer actions point to new directions for health programs

With the convergence of ongoing cost increases and the growing recognition that new health management programs can slow and even reduce the rise of chronic disease, employers seem far more receptive to taking steps in new directions to evolve health care delivery in ways that better address these growing challenges. Furthermore, health care reform proposals evolving in Congress would support many of these new and innovative health care delivery platforms.

The data show employers adopting a range of bold changes aimed at influencing employee behavior and decision making, adopting leading-edge technologies and taking other innovative actions that hold the potential to disrupt, for the better, current delivery models. Employers are eyeing a number of new directions including:

Employee incentives

High-performing employers will, over the next few years, expand their use of incentives to engage employees in health and wellness initiatives, such as health risk assessments, wellness programs and biometric screenings.

Behavioral economics

Employers are beginning to leverage the potential behavioral economics holds to improve consumer decisions about health and health care, with 15 percent of high performers using this innovative decision design model today and 48 percent expecting to do so by 2012. Also expected to grow are related programs that promote good decisions and offer convenience as an incentive, including on-site biometric screening, promotion of healthy foods and access to retail clinics.

Personalized health management and care delivery

Just as doctors are taking steps to personalize treatments to individual needs and preferences to improve outcomes, employers are moving toward segmenting their employee populations and using a broad range of personalized approaches to influence employee behavior and decision making. New directions in customization include:

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Employees turn to employers for LTCi education and perspective

by Henrik Larsen, MBA, CLTC

Henrik Larsen, MBA, CLTC, is VP, Marketing of Advanced Resources Marketing, a national distributor of Long Term Care insurance, Boston, Mass. He can be reached at 800-269-2622 or at hlarsen@armltc.com.

On Oct. 14th, the U.S. military reported that all four services had met or exceed their yearly recruiting and retention goals, as well as their overall quality goals for 2009. This was the first time that had been accomplished since the end of the draft, more than 25 years ago. This probably comes as no surprise as employment numbers have been trailing the recent recoveries we have seen in the stock markets and other economic indicators. And when asked, the recent military recruits responded predictably that their primary reason for entering the service was job security, and benefits.

There is no doubt that most of the population has been and is very concerned about their overall job situation. The concerns take three successive forms:

  1. Do I have a job?
  2. How secure is my job situation?
  3. I need to take a closer look at understanding and managing my benefits.

It appears that a majority of employees currently find themselves somewhere between two and three.

Despite the overall long term care insurance (LTCi) industry being down some 15 to 20 percent year-to-date, we have experienced an increase of 12 percent in our employer group LTCi production year-to-date (Q1-Q3) compared to the same period last year. Equally interesting is the fact that this increase pertains to both contributory/employer funded plans (up 14 percent) as well as non-contributory/voluntary plans (up 11 percent). This increase can be attributed to some interesting trends holding great promise for the months ahead.

TRUST

As we have all seen our qualified retirement plans and other investment portfolios being "impacted" by the economy, employees are increasingly turning to their employer for not just financial products but to a larger and larger degree also for independent advice. Many employees are, rightfully or not, to some extent blaming their financial planners or stock brokers for the decline in their investment portfolios. Add to that, the same employees have a sincere appreciation for simply having a job, and the result is a newfound respect for their employer in general and their benefits package in particular.

Case in point - In May 2009 we enrolled a non-contributory LTCi program to a company with about 800 employees. The enrollment was postponed by six weeks as the company went through layoffs of close to 100 employees. Our participation came in at 20 percent and premium results exceeded estimates based upon census demographics by 87 percent.

EDUCATION

While employees are looking to their employers for advice, similarly they are looking for education and perspective. Employees are seeking not just information about a particular benefit but also how it relates to their overall benefits portfolio. Other than a qualified retirement plan or a pension, LTCi is generally the only benefit an employee will port into retirement. We have found that this represents a unique educational opportunity. LTCi needs to be positioned as retirement income protection.

Much like STD, LTD, and DI provides for income protection during working years, LTCi provides income protection during retirement. This concern is increasing in importance among employees. A MetLife survey conducted in late 2008, showed that second most important retirement concern was providing for spouse's/partner's long term care needs and the importance of this concern had increased between August 2008 and November 2008 by more than any other retirement concern: 17.3 percent.

Case in point - We recently enrolled a non-contributory LTCi program to a company with approximately 1,500 employees. During the first two weeks of the open enrollment period, we conducted 12 one-hour educational seminars. We had an average attendance of 35 employees per session for a total of 420 attendees. This exceeded the attendance for the roll-out of their qualified retirement plan by over 20 percent. Overall participation exceeded estimates based upon census demographics by 35 percent.

Interest Origin. When I started in the LTCi industry in 1995, the average age of my client at time of purchase was 71. As we have all seen, the average age has dropped significantly over the years as we are marketing LTCi to younger and younger consumers. Currently, the industry average is around 57 and in the employer group market it is closer to 50. This trend has had an interesting effect on participation and how multi-life cases originate:

The uninsurable "buyer"

Eight to 10 years ago, we often heard from employers who wanted to put a plan in place to cover an older uninsurable employee.

The affected buyer

As the average age of the LTCi buyer dropped, this trend was replaced by employees who had seen firsthand the devastating effect the need for long term care can have on a family's financial and emotional wellbeing. Their experience was with a parent or other family member.

The affected buyer II

Lately, as a natural consequence of the prevalence of LTCi, we have now seen employees who have seen the remarkable effect existing LTCi can have in situations were long term care is needed for parents or other family members.

Case in point - We are about to enroll a non-profit company with about 100 employees. The President of the company has decided to fund significant coverage for 11 (executive) employees and strongly promote the plan among the rest of the employees. This will be the first discriminatory contributory plan of its kind within the company. The reason? Both the CEO's parents are currently receiving long term care reimbursed by insurance.

Executive compensation

This last trend pertains to executive carve-outs where we have seen an unexpected increase in production due to an interesting factor: bonus offset. We have enrolled four cases year-to-date where the employer for various reasons decided not to pay bonuses in 2008 but wanted the executives to have something.

Most interestingly though, in conversations with the decision makers we posed the question for obvious reasons whether the carve-out plan would be sustained when/if the economy is better and bonuses conceivably return. The answer was affirmative as key decision makers are aware of the renewed attention to and appreciation for benefits. One CFO expressed it best, when she said that employer provided (executive) benefits are better tools to communicate job security than are bonuses.

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Things looking up for voluntary benefits

by Ron Fields

Ron Fields is Territory Sales Manager for the Maryland/Delaware/Washington, DC offices of Colonial Life & Accident Insurance Co. He can be reached at RFields@ColonialLife.com.

During strong economic times, it's human nature to think things are okay and they're going to remain okay. It's when times are tough that we tend to reflect more deeply on what we stand to lose. That's why today's economy actually holds promise for brokers and financial advisors.

With job losses, reduced benefits and foreclosures weighing heavily on the minds of your clients and their employees, everyone's more open to solutions to help combat the aftermath of the recession. So there's no better time than now to position voluntary benefits as a viable option to your clients' most pressing benefits concerns.

Clients Are Struggling

Managing finances, getting credit, reducing expenses and improving cash flow are just a few of the worries employers face right now. Today's economic realities and an unrelenting competitive environment have forced companies of all sizes to rethink the way they handle their operations. And with human resource departments stretched to the limit, companies are looking for ways to manage employees' concerns about hiring reductions, layoffs, salary or wage freezes and changing benefits packages.

Financial Safety Nets Are Eroding

Employees are also wrestling with the effects of a downturned economy. Every day, families are faced with tough choices between making payments on mortgages or credit cards, purchasing basic necessities, paying utilities or continuing to carry insurance, especially health coverage. Living from paycheck to paycheck means an unexpected medical expense or the sudden loss of income can quickly send families spiraling into debt that's difficult or impossible to pay off.

Changes made to benefits plans, such as increased premiums and deductibles, larger co-pays and reduced coverage, are also placing employees at increased risk. In fact, a recent survey by Colonial Life showed that 68 percent of employees feel their insurance may not provide adequate coverage.

Benefits Are More Important Than Ever

In the midst of today's economic challenges, benefits are the mainstay of an employee's financial security. That's why strengthening an employee benefits package with voluntary benefits makes sense right now. Integrating voluntary benefits with core group offerings allows your clients to help employees protect themselves against increased financial exposure and help alleviate the economic pressures so many businesses are now experiencing. Voluntary insurance plans also allow your clients to offer a cost-effective, expanded benefits package at little or no direct cost to them. They're especially helpful in the following situations your clients deal with during poor economic times:

Voluntary Benefits Offer Many Advantages to Your Clients

Employers gain many benefits from offering voluntary benefits, according to recent research by LIMRA. Companies see value in the following areas:

Choose a Benefits Partner Wisely

Brokers have a variety of voluntary carriers with whom they can choose to partner. But not all carriers are the same. To find the carrier that's right for your agency, evaluate a partner based on the following criteria:

Take a Proactive Approach

Most brokers are spending an abnormal amount of time right now hanging on to the business they have. Voluntary benefits allow you to deliver a message that's more palatable to your client. By being proactive and offering voluntary benefits as a solution, you'll be ahead of the curve and can address your clients' needs at a time when they need you most.

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Voluntary benefits remain flexible
to serve recessionary marketplace

by Barry Petruzzi

Barry Petruzzi is 2nd vice-president for Group Life/DI with Guardian Life Insurance Company of America. He can be reached at barry_petruzzi@glic.com.

In a recessionary market, even as employers and employees scrutinize every dollar they spend, sales of voluntary life benefits have held up quite well.

There are some very clear reasons for this. Voluntary benefits, and life coverage in particular, have bucked the economy's slide because they offer value and make very good sense in an uncertain climate. Employees understand that critical protections are a foundation to any personal financial plan through good times and bad. They look to their workplace for protection, even if offered on an employee-pay all basis. Employers, for their part, see that benefits play an increasingly important role in recruitment and retention, particularly at a time when payrolls are pinched and headcount and employee morale may both be down. But let's not overlook the important role carriers have played in this scenario as well. New, flexible plans have helped to drive home the message that voluntary life insurance is a smart move, particularly now.

Creativity to meet the challenge

Creative insurers have risen to the occasion to offer value at a time when the economy's direction seems quite unclear. In some cases, carriers have set up re-enrollment options that allow policyholders to increase benefits at a regular annual rate without a medical exam, a feature that acts as a hedge against inflation (which we all hear could possibly ramp up in the next few years). Insurers have taken other steps as well to make life insurance coverage more flexible. Some now allow employees who enroll in voluntary benefits the option of increasing coverage in the first few years of their policy without undergoing an additional medical exam. In a labor market where salaries are constrained, that move allows employees, and young workers who are starting off careers in particular, a chance to elect coverage at a reasonable initial price point and build upon a foundation of basic protection over time.

Our industry needs to keep up efforts like these, considering the fact that voluntary benefit solutions play an important role. After years of steady premium sales growth, group and voluntary plans offered on the job have in many instances become the primary or sole source of critical protections such as life insurance for millions of people. While 50 years ago, a majority of those same workers might have also been in contact with an insurance agent, today less than half have come in direct contact with an advisor. That comes at a time when industry surveys have shown that Americans feel they are underinsured.

Employer solutions - The case for voluntary benefits

Voluntary life coverage and other workplace options have filled in as a perfect solution. Voluntary benefits give employers an opportunity to sponsor a valuable benefit. By providing a voluntary life plan, companies offer a rich selection of essential protection options to employees who in turn benefit from their company's purchasing power by having choices they might not be able to afford on their own. That's an important point at a time when salaries are being frozen and payrolls cut. In many cases, fewer employees are now asked to take on more work at the same or lower pay. And, don't overlook the fact that voluntary benefits make sound financial sense as well. Current tax codes exempt from employee income the premium on the first $50,000 of employer-paid group life coverage. Add that base to a voluntary supplement and small businesses can fashion a very attractive group of benefits at a good price.

Benefits for employees - Providing protection when needed most

There's an equally compelling case to be made for voluntary life coverage from an employee's standpoint. To many workers these are times of tough choices. Household budgets are squeezed and people of every economic stratum are facing a challenge to get the most out of limited resources. Consumers are postponing or cutting expenditures in order to make ends meet. At first glance, the notion of expanding life coverage might seem counter-intuitive under circumstances like these. Our message to the consumer marketplace is for people of all ages and walks of life to step back and consider just how much value they get from their life policies. Voluntary plans offer relatively inexpensive protections to cover very large sums of money: a policyholder's income over time in the event of a crisis. Life coverage provides invaluable comfort to loved ones and beneficiaries, all for about the cost of a cup of coffee for a week.

Focusing on value

In the current economy, neither employers nor employees can afford to slash away at expenditures blindly. Instead, it's important to remain focused on value and just what plans are the best at the best price. There are several things employers should focus upon when shopping for coverage and employees should consider:

Carrier commitment-Employers and employees are busier than ever. Their time is precious. It's imperative, therefore, that insurers provide a lot of support to clients. A carrier can simplify choices for company management by reaching out to employees, who are often overwhelmed with choices and confused about the decisions they must make. Guardian surveys have in fact shown that many workers would rather spend time shopping for presents than sift through benefit plan choices. An experienced carrier will have brochures, websites, flyers and a team of advisors, all at the ready to step in and guide policyholders before, during and after enrollment.

Carrier stability-In these times, it's important for employers to seek out a strong, stable carrier as well. That's especially true for life and disability coverage which require long-term financial commitments. It's important to look for a company that has not only established a track record of providing benefit solutions, but has been recognized as steady and resilient by industry rating agencies such as A.M. Best. Objective sources like these are able to examine an insurer's capitalization with regard to long-term obligations.

Employee concerns-Employees should examine how much insurance they can get under a guaranteed issuance without additional underwriting or medical hassles. Because they need to keep up with inflation and the exigencies of their changing lifestyles over time, it's important to sign on with life insurers that can accommodate by allowing them to increase coverage automatically or when policyholders choose. Finally, flexibility is a key concern in an era when we can expect members of the workforce to change jobs regularly. The ability to transfer coverage from one workplace to another helps policyholders maintain protection throughout their careers.

Rising to the Challenge

Yes, the challenges we face today in the current economy are formidable. The solutions offered under voluntary life coverage, however, can make them more manageable. We're providing stability in a world of uncertainty, a safety net that can put our clientele at ease. Our ability to fashion creative, flexible options can help steady employers' and employees' nerves in a turbulent time.

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Benefit offerings do matter to employees

by Marc Warrington

Marc Warrington is senior vice president of sales at Assurant Employee Benefits, Kansas City, Mo. He can be reached at marc.warrington@assurant.com.

 Small businesses can face significant challenges when competing against larger organizations, particularly when it comes to things like price points, technological capabilities and even employee benefits offerings. Still, their size and nimbleness can allow them to innovate and, when the economy allows, create new jobs at a faster rate than their larger competitors.

Because many small businesses have no dedicated human resources professional on staff, employee benefits often become one more burden that business owners are forced to take on. While employers may not welcome the challenge that choosing benefits can present, this scenario provides a great opportunity for brokers to partner with their small business clients and demonstrate both their benefits knowledge and value as trusted advisors.

Industry statistics indicate that smaller businesses generally offer less extensive employee benefits plans than their larger counterparts. As a broker, you can show them how large the gap is and why it's important to shrink it. Here are a couple of startling findings from the 2007 National Compensation Survey:

Why was there such a difference between the benefits offerings of smaller businesses and larger ones? Were these smaller employees overwhelmed by the options available in the marketplace or under-informed about what's available? Perhaps they were intimidated by the potential cost of offering employee benefits.

There are many choices and price variations out there and you can help them make sense of it all. According to many industry studies, first-time buyers in particular are significantly influenced by their broker's opinions when deciding what benefits to buy and when. Without you to educate these employers about the value of providing employee benefits, they might never compete with larger competitors for the top-quality talent they need to keep their businesses successful.

According to the Employee Benefit Research Institute's November 2004 Issue Brief, 79 percent of workers reported that the benefits a prospective employer offered were very important in their decision to accept, or reject, a job. Another 16 percent indicated that benefits were somewhat important to their decision to take or leave a job. Clearly, benefits matter to employees. And in a down economy, when many employers are unable to provide pay increases, benefits can be more important than ever to help keep employees engaged.

A particularly important benefit for employers to offer is disability insurance, but many small business owners may not realize just how likely disability really is.

The Council for Disability Awareness, a non-profit group established to help the American workforce become aware of the growing instances of disability and its financial consequences, is an excellent resource for both employers and employees. It offers the following information for you to share with your clients:

While many people think that disabilities are typically caused by freak accidents, the majority of long-term absences are due to back injuries and illnesses, such as cancer and heart disease.

Given these alarming statistics, it's no surprise that employees are attracted to companies offering options beyond traditional health insurance. You can advise your small business clients on how to find plans that are right for them.

An increasing number of carriers are developing ancillary products specifically with the small business community in mind. Many offer the choice and flexibility typically provided by much larger companies. While it may be difficult for smaller business owners to provide the same level of benefits that many large companies offer, there are affordable disability, dental and life insurance options available that can help make them more competitive against larger organizations.

When working with small business clients, customize your pitch by finding carriers that focus on this segment of the market. LIMRA International and JHA, among others, are excellent resources for determining major players in the small business market. As their trusted benefits advisor, your clients depend on you to know which products and carriers are the best fit for them. As you put together your pitch, consider the following:

DISABILITY INSURANCE

With so many Americans living paycheck to paycheck, income protection in the event of disability is a valuable benefit for all employees and their families. Both short-term and long-term disability plans can easily be customized to provide the level of protection employees need and want. And disability benefits can also protect employers if one of their highest income-generating employees becomes unable to work due to disability.

DENTAL INSURANCE

Everyone needs regular dental care, as it can help improve overall health as well oral health. While dental plans may appear to be the same on the surface, features such as multiple free cleanings each year or a large provider network can be particularly important to smaller employers.

LIFE INSURANCE

Life insurance is an affordable and attractive benefit that can enable employees to protect their family members even after they're gone. Life insurance policies vary and can be customized based on an employee's income.

VOLUNTARY COVERAGES

Voluntary group benefits are a flexible and affordable option for smaller employers with tight budgets. Because they are 100 percent employee-paid, cost to employers is reduced to only administrative expenses. At the same time, employees are able to purchase benefits they want and need at favorable group rates through convenient payroll deduction.

Small businesses fuel the U.S. economy and there are many insurance carriers dedicated to assisting this segment of the market. An investment by brokers in educating their small business clients and providing creative options that meet their needs can result in significant financial benefits. When you partner with your clients to help them be more competitive in the benefits arena, you can continue to build and strengthen your relationships with them as they grow and add to their benefits packages.

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Communication key to employee satisfaction with,
appreciation of benefits package

by Donna K. Owens

Donna K. Owens is Director, Multi-Life Segment Strategy, for Berkshire Life Insurance Company of America, Pittsfield, Mass., a wholly-owned stock subsidiary of The Guardian Life Insurance Company of America, New York, N.Y. She can be reached at donna_owens@berkshirelife.com.

An employer can take great care to structure a first-rate benefits program. But if that same employer doesn't take just as much care to communicate those benefits, employees may not even appreciate the effort.

That's what a 2005 Watson Wyatt Worldwide Study proved. In organizations with rich benefits but poor communications, only 22 percent of employees reported being satisfied with their benefits. But in companies with less attractive benefits but better communications, 76 percent of employees were satisfied. Benefit advisors, take note: regardless of the benefit strategy you suggest to your clients, communications are crucial.

In this challenging financial climate, it is vitally important that employers ensure that every dollar spent providing benefits is maximized; benefits are not only understood by employees, but also valued and appreciated. This is especially true as employers are looking for ways to enhance benefit plans to increase employee morale and retain talent.

Case study: Education makes the sale

Consider the recent experience of a human resources director at an industrial real estate development and property management company. With eight regional offices, more than 200 employees and assets in excess of $894 million, this firm has a reputation for providing excellent benefits to attract and retain employees. However, when the HR director's financial advisor uncovered a significant exposure in her disability income insurance coverage, she also uncovered a major exposure for her company. To say the least, she was very surprised to learn how significant the gap was.

Although the real estate firm's long-term disability plan was good, including a generous $15,000 a month benefit cap, it only covered base salary. "I think that was the biggest eye opener for me," she said. "I'm in an organization where bonuses and commissions can make up a large percentage of an employee's total compensation. I was amazed that a significant portion of employee income would not be protected."

This is where a disability income provider focused on the worksite market can make a meaningful difference. Based on the company's profile, we developed a voluntary supplemental disability income insurance program that met all of the company's needs, including a guaranteed standard issue $5,000 monthly benefit, along with riders covering modified own occupation, basic residual and a three percent cost of living adjustment.

Working with the employer, the team was able to customize a funding solution that worked for both the employer and the employees, essential in this economy when both are looking for ways to manage expenses. The real estate firm further demonstrated its commitment to the voluntary program by promising to fund 50 percent of premiums for employees (up to $50 per month).

When benefits are offered on a voluntary basis, education is crucial. So key to a successful implementation of this particular enrollment was helping employees understand their current coverage and how accepting the voluntary offering could help fill any gaps. The team not only developed a detailed implementation timeline and communication strategy to guide the financial advisor and HR director through case set-up activities and into enrollment, it offered hands-on consultation and tools to communicate the program's strengths, as well as other tactics for increasing participation.

Technology played a role, too, in enhancing the employees' appreciation of the value-added benefits available to them. Our online enrollment web site combined personalized education and income scenarios based on each individual's situation with actionable navigation that made it easy to begin the application process.

Voluntary benefits not a one-size-fits-all proposition

That same technology-enabled flexibility not only allowed each employee to select the coverage option that best fit his or her needs and budget, it also gave the HR director the ability to design variations for different employee groups within the company.

The end result: we enrolled 87 of the 110 eligible employees, an amazing 79 percent acceptance rate. Not only did this strategy fill the gap of the existing group LTD plan, it also educated the employees on exactly what their benefits cover. For the financial advisor, the case resulted in more than $135,000 in premium; it also opened the door to nearly 90 new client opportunities for personal planning.

But the education didn't end with the enrollment. As the HR director explains,"Even after the enrollment was completed, the team helped me by providing a one-page report I could use for employee exit interviews to explain the product's portability." Going forward, the carrier will provide the HR director with targeted engagement tactics for new hires, employees who may have declined coverage earlier and those eligible for coverage increases, underscoring the notion that customized education is an ongoing imperative for a voluntary benefits program to be truly effective.

Bridging the divide between employees' awareness of the need and their appreciation of their benefits requires a more customized communication program, which is why the most effective supplemental disability insurance communications are customized four ways:

These are just a few of the supplemental DI program attributes that financial advisors and their benefit manager clients should expect from carriers to engage employees in learning about, and taking greater advantage of, the supplemental disability benefits offered by their employers.

After all, a person's ability to earn an income is one of the most valuable assets he or she has. It's time employees see their employer's protection of that asset as one of the most valuable benefits available to them.

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One size does not fit all

Customization essential in executive carve out coverage

by Dianna Duvall

Dianna Duvall is senior vice president - risk operations at Assurant Employee Benefits, Kansas City, Mo. She can be reached at dianna.duvall@assurant.com.

When it comes to group employee benefits, one plan doesn't necessarily fit all, especially when an employer is seeking to protect multiple classes of employees, including high-earning executives. The good news for you and your clients is that it's possible to structure coverages that can work for every employee in a group and at the same time provide the higher levels of financial protection that executives need and expect in a benefits plan. The key is customization.

Finding flexibility in disability insurance plans

Let's start with group disability insurance plans, which can be customized to accommodate different benefit schedules for different job classes or titles. As an example, an employer can opt to implement one level of coverage for executives, another for salaried employees and a third level for hourly employees.

For most executives, it is as important to protect their ability to continue working in their chosen occupation or specialty as it is to protect their income. Incorporating a different definition of disability that includes an own occupation or own specialty test into the executive portion of a group disability insurance contract can help ensure that protection.

An alternate earnings definition can also be implemented for executives to ensure that any disability benefit they may be paid is based on their total income, not just base pay. The definition can be expanded to include commissions, bonuses, deferred compensation, other pre-tax contributions such as employee contributions to 401(k) plans and other retirement plans, which make up a significant portion of many executives' overall compensation.

Equally important to consider with executive disability coverage is a higher benefit maximum. Long-term disability insurance contracts typically pay a benefit of 60 percent of pre-disability pay, to a set monthly maximum, often $3,000, when an insured experiences a qualifying disability. While that would cover someone earning up to $60,000 annually for a full 60 percent of their income, most executives would be severely underinsured under such a plan. A higher monthly benefit maximum is crucial to properly protect high-earning individuals.

Employers seeking to provide added protection at the executive level should be aware of a disability policy's offsets and how they are applied, as this can significantly impact the benefit paid to an insured. Insurance carriers typically reduce their disability benefits by the amount of other income an insured may receive, such as Social Security disability benefits, but it's possible to reduce or eliminate such offsets. Doing so would result in larger benefit amounts for insureds.

In addition to providing for the financial protection of executives in the disability contract itself, employers can help ensure that this group of employees receives the maximum benefit possible by adjusting the way the premium for disability insurance is paid. When an employer pays the premium, any disability benefits an employee receives are taxable to that individual, which means he or she ultimately receives less benefit overall. To ensure that employees receive the entire benefit amount to which they are entitled, employers can either pay the disability premium and increase employees' taxable pay by that amount, or increase employees' taxable pay by the amount of the disability premium and then deduct the premium from their salaries. That way, the premium has been taxed, which makes any benefit paid tax free.

Protecting key employees and the businesses they benefit

An employee is not the only one that can suffer due to disability. Many small businesses in particular would suffer as well if certain key employees, including executives, were unable to work, even for a short time, because of a disability. As a result, some insurance carriers offer optional benefits in conjunction with their disability coverage that are designed to help businesses minimize financial loss when a key employee becomes disabled.

With this type of benefit, policyholders can generally specify a set number of revenue-generating or key executives whose disability and subsequent absence would result in the business sustaining a substantial financial loss. The policyholder is typically paid an amount equal to a disabled employee's benefit amount to help the business maintain financial stability while waiting for the employee to recover and return to work.

High earners require more life insurance

Group term life insurance is among the most common benefits provided by employers to their employees. It can be easier and less expensive to obtain than individual insurance, particularly for older employees or those with health issues, and is another coverage that can easily be customized to appeal to executives. As with disability insurance, these high earners need higher amounts of life insurance to effectively protect their family members, and sometimes help ensure the continuation of a family business, in the event of an untimely death. The higher guaranteed issue amounts they require can be incorporated into the executive portion of a group term life insurance plan that covers all of a business's employees.

Options for dental insurance

According to research released by LIMRA International in 2003, employees rank dental insurance as the second most important employee benefit after health insurance. Fortunately, a number of group plans are available for employers to offer in the workplace on either an employer-paid or employee-paid basis. While most executives are unlikely to be particularly concerned about the premium cost for group dental insurance, there are dental coverage plans that have been created to meet a wide range of dental care needs and budgets. For employers who offer such a plan, the impact can be somewhat similar to the customized disability and life options discussed earlier. There may be no specific benefits included especially for executives, but that group of employees has the opportunity to select a comprehensive dental plan if they choose to do so.

While the financial protection needs of executives may be considerable and complex, the solutions don't have to be. In many cases, group insurance plans can effectively address the requirements of your clients and the individuals that lead their businesses. By working closely with your clients and carrier sales representatives, it's possible to craft options that result in a winning situation for everyone involved.

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Effects of financial crisis shake employers into action

As the crisis continues, employees' growing concern seems to be not how they will finance their future, but how they will finance their present

As the financial crisis continues, it appears U.S. employers view the situation as significantly more serious than they did just six months ago. A follow-up survey conducted by the International Foundation of Employee Benefit Plans in May 2009 found that the crisis has forced both defined benefit (DB) plan sponsors and defined contribution (DC) plan sponsors to make changes to their retirement coverage and plan design.

"Six months ago, many retirement plan sponsors reported they were 'taking the long view' of the situation," said Sally Natchek, Senior Director of Research at the Foundation. "Now, employers seem to view the crisis as more severe. There's been a jump in the number making changes to their offerings, categories of employees covered, asset allocations and employer matches."

DB plans change asset allocations and reexamine offering pension benefits

The survey found that the financial crisis has prompted 42 percent of DB plan sponsors to make changes to their strategic asset allocation, more than double the 20 percent who reported having changed allocations six months earlier. Of the DB plan sponsors who changed asset allocations as a result of the crisis, the most common changes are increasing fixed income assets (37 percent), reducing U.S. equity allocations (17 percent) and increasing alternative fund investments (13 percent).

In addition to changing their asset allocations, DB plan sponsors are reexamining offering a pension plan at all. More than a quarter of DB plan sponsors (27 percent) have discontinued offering pension benefits for all or some employees and 21 percent have closed their plan to new participants. Respondents from the corporate sector are the most likely to have implemented these changes with 40 percent reporting they had discontinued offerings to some or all employees and 34 percent stating they had closed their plan to new participants.

DC plans change product offerings and reconsider employer matches

As of May, 13 percent of DC plan sponsors have changed their investment product offerings, almost double the seven percent who reported executing changes six months earlier. Of the 13 percent who have implemented changes, 21 percent added more low-risk investment choices, 18 percent increased diversification, 16 percent added life cycle (target-date) funds or money market funds, and 15 percent added government-backed options.

Besides impacting investment offerings, the crisis is also having an impact on the employer match. Sixteen percent of DC plan sponsors reduced or eliminated employer matches as a result of the economic situation. Of those who report having changed their match, 44 percent have reduced the amount of the match and 52 percent have suspended the match all together; corporations are the most likely to have taken this action.

"Although the number of plan sponsors who have reduced or eliminated their employer match is relatively small, the number is still significant since any change tends to result in the employee lowering his or her contribution," said Natchek.

Impact of the crisis causes employees to alter their DC plan contributions

The ongoing crisis appears to be having a substantial impact on employee efforts to save for retirement. A large percent of DC plan sponsors, 44 percent, report a decrease in participants' overall amount of contributions. This is a sharp uptick since October 2008 when just 28 percent of plan sponsors reported this trend. Even more notable, 40 percent of DC sponsors report an increase in the number of participants completely stopping plan contributions.

Hardship withdrawals and loans from DC plans are also on the rise with 42 percent of plan sponsors reporting an increase in the number of participants making hardship withdrawals and 40 percent reporting an increase in those borrowing from retirement accounts. This is in contrast to six months ago when 29 percent of plans sponsors reported an increase in hardship withdrawals and 28 percent indicated an increase in loans.

"It's important for employees to keep contributing to their 401(k) accounts to ensure a secure retirement, however if the crisis continues we're likely to see these numbers increase even higher," said Natchek. "This could have a potentially devastating impact on the retirement future of many Americans."

Job security ranks as employees' number one concern

As the crisis continues, it appears that employees' main concern has shifted from retirement worries to anxiety about their job security. Plan sponsors report decreased job security as the major concern of their employees given the current crisis (48 percent). This is in contrast to six months ago when job security ranked fourth among major concerns at 34 percent, while delaying retirement topped the list.

"As the crisis continues, employees' growing concern seems to be not how they will finance their future, but how they will finance their present," said Natchek.

It seems that employees' worries are justified as half of employers (50 percent) have already implemented layoffs or reductions in their workforce and an additional 11 percent expect to take such actions in the next 12 months. In addition, 52 percent of organizations have a hiring freeze in place.

Finally, the survey found that employees' view of the severity of the crisis may differ based on whether they are enrolled in a DC plan or a DB plan. DC plans sponsors (47 percent) were more than twice as likely as DB sponsors (23 percent) to think a majority of their participants view the long-term impact as severe. These findings are noticeably higher than just six months ago, when 31 percent of DC plan sponsors and 19 percent of DB plan sponsors reported that a majority of their participants viewed the long-term impact as severe.

The survey includes responses from 1,305 U.S. pension plan sponsors. Respondents represent a cross section of employee benefit sectors: corporate plans, public and governmental plans, multi-employer plans and others with pension plans.

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Health Savings Account enrollment reaches 8M

Eight million Americans are covered by Health Savings Account (HSA)-eligible insurance plans, an increase of more than 31 percent since last year.

These are the findings of a new census released by America's Health Insurance Plans (AHIP). Health Savings Accounts were authorized starting in January 2004. Since then, AHIP has conducted a periodic census of its members participating in the HSA/high-deductible health plan (HDHP) market.

Another report found HSA account holders have a broad range of incomes across the country. The report, Estimated Income Characteristics of HSA account holders in 2008, used a geo-coding technique to estimate the income characteristics of HSA account holders.

"HSA plans provide coverage to a number of consumers of all ages and incomes across the country, and they represent an important choice for employers and individuals when looking at the portfolio of coverage options available," said Karen Ignagni, President and CEO of AHIP.

Key findings from the census:

Key findings from the income characteristics analysis:

For more information about the 2009 census and the income report, visit www.AHIPResearch.org.

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