Employers Creating Strategies For Health Care Legislation Compliance

As employers assess the impact of the newly enacted health care legislation on their organizations' health care plans and benefit offerings, certain responses and strategies are emerging, including an increasing tendency to review medical benefits for retirees, according to a recent survey conducted by the International Foundation of Employee Benefit Plans (IFEBP).

The survey of more than 1,000 employers, representing over seven million workers, asked respondents how they are responding to the passage of the Patient Protection and Affordable Care Act (PPACA) and which strategies they are implementing to ensure compliance with the new requirements.

Three-quarters of the employers (75%) identified extending coverage to adult children until age 26 as the major reform requirement affecting plan costs. While 20% of respondents said they are taking immediate action to change eligibility requirements to comply with this provision, more than two-thirds (67%) indicated that they will not extend coverage to dependents up to age 26 until required to do so. In addition, 42% said they intend to extend dental plan coverage to adult children in order to match their medical plan requirements, and 32% said they will extend vision benefits to adult children. At the same time, however, 53% of respondents told researchers they are not yet sure what actions they will take on these issues.

The survey also showed that just over half of the employers who currently offer medical benefits to retirees (52%) plan to take advantage of the one-time Federal reinsurance program established by the health care reform legislation. Meanwhile, more than one-third (35%) reported they have not yet decided whether they will apply, and just 13% said they have decided not to apply. The findings indicated that 61% of respondents who currently offer medical benefits to retirees plan to review their health plan benefit strategies for early retirees in the next 12 months, while half of the respondents offering retiree coverage said they intend to examine their strategies for retirees who are 65 and older.

The results confirmed that the new requirements have not caused employers to waver in their commitment to offering health care benefits to their employees, with 87% saying that their organizations will continue to offer health care plans because these benefits are critical to employee recruitment and retention. Of the respondents whose plans currently include lifetime maximum provisions on essential benefits, only 4% said they are removing lifetime maximums before they are required to do so, 86% said they are not making changes until required, and 10% indicated they were not yet sure. Similarly, 4% of respondents who offer plans with annual maximums said they are removing them before they are legally required to do so, 84% said they are not making changes until required, and 12% said they are not sure.

The results further indicated that 21% of respondents are planning to add or increase emphasis on high-deductible health plans in the next 12 months, with close to 70% of these employers saying they are likely to focus on account-based plans linked to health savings accounts. Additionally, nearly half of the employers (48%) said they are focusing on redesigning their health plans so that their plans will avoid triggering the excise "Cadillac" tax for high-value plans, and two-thirds (66%) said their organizations will take advantage of the new legal provision that will offer increased financial incentives to employees who participate in employer provided wellness programs.

When asked how they plan to communicate and educate their employees on the new legislation, 51% said they expect to e-mail participants, 49% said they are preparing written communications, and 42% indicated they will use their organization's website. The survey showed that just over one-third of plan sponsors (37%) have already communicated with employees, and 42% are planning communication efforts for annual enrollment.

"Both large and small employers are carefully scrutinizing their options," said Sally Natchek, senior director of research for IFEBP. "Employers at this point are reacting to the first wave of requirements, knowing they need to make some initial immediate decisions." Natchek observed that many employers are also looking at the next few years and how the timeline of regulations will impact their organizations. Nevertheless, she added, "in the midst of a host of health care reform challenges, employers remain confident that they will continue to offer health care benefits to their active employees."

Corporate Sustainability Considered Critical To Success

An overwhelming majority of corporate chief executive officers (CEOs) predict that sustainability will be critical to the future success of their companies, according to a new study released by the United Nations Global Compact and Accenture.

The study's findings are based on the results of a survey of 766 CEOs around the globe, as well as extensive interviews with 50 of the world's leading CEOs. The term "sustainability" refers to environmental, social, and corporate governance issues. Results showed that 93% of respondents consider sustainability key to the future success of their businesses, and the global economic downturn has heightened, rather than dampened, corporate commitment to sustainability, with 80% of the CEOs saying the downturn has raised the importance of sustainability.

When asked to identify the most important development issue they face for the future success of their business, 72% cited education, and 66% said climate change. Moreover, 91% said their companies would employ new technologies over the next five years to address sustainability issues, such as developing renewable energy and improving energy efficiency.

Researchers observed that, as businesses address current challenges, sustainability is being recognized as a source of cost efficiency and revenue growth, and many executives view sustainability as a critical element in driving growth in new markets. They also noted that, compared with just a few years ago, the current findings seem to suggest that businesses are taking sustainability more seriously: In a similar survey conducted in 2007, 50% of respondents said that sustainability issues had become part of their company's strategy and operations, compared with 81% in 2010.

Although many of the CEOs surveyed in 2010 reported that their organizations have made progress over the past three years in transitioning from developing a sustainability strategy to execution, respondents also cited several barriers to achieving their goals. These include the complexity of implementing strategy across business functions (49%), competing strategic priorities (48%), and a lack of recognition from the financial markets (34%).

In addition, CEOs told researchers they believe that several conditions must be met before sustainability can be fully integrated into a company's core business, and businesses need to take a leadership role in bringing them about. Specifically, respondents said that action will be required in several key areas: shaping consumer tastes in order to build a stronger market for sustainable products; training management, employees, and the next generation of leaders to deal with sustainability issues; communicating with investors to create a better understanding of the impact of sustainability; measuring performance on sustainability; and explaining the value of business in society.

Yet, on the issue of creating a friendlier investor environment for business sustainability, the survey showed that, of the respondents who head listed companies, fewer than 50% indicated that sustainability issues are included in their discussions with financial analysts. Researchers pointed out that, even though CEOs overwhelmingly believe their sustainability activities have a positive impact on their company's valuation—in terms of revenue growth, lower costs, reduced risks, and enhanced brand reputation—they have so far been unable to quantify that value with traditional metrics, such as cost reduction and revenue growth. The survey showed that persuading investors that sustainability is good for the bottom line and regaining the trust of all stakeholders in the wake of the global financial downturn are among the critical issues faced by CEOs.

Trends In Early Retirement Account Withdrawals

Lower-income workers are more likely to see their accrued retirement savings erode due to early withdrawals from their accounts in response to adverse events such as job loss or poor health, or a desire to buy a home, a new study published by the Retirement Policy Program of the Urban Institute has found.

"Understanding Early Withdrawals from Retirement Accounts," was written by Barbara A. Butrica, Sheila R. Zedlewski, and Philip Issa. Using Census data from 2004 and 2005, the authors examined all withdrawals from 401(k)s and IRAs made by respondents over a two-year period in order to understand how these withdrawals are correlated with certain demographic characteristics, economic characteristics, or life-changing events. The sample consisted of 32,685 respondents between ages 25 and 58 in 2004, around half of whom owned an IRA or defined contribution retirement account.

Despite recent losses due to the economic downturn, the assets held in defined contribution plans and IRAs are expected to grow over time as more private sector employers move away from traditional pensions to 401(k) plans, the authors observed. However, they added, while government and employer rules discourage participants from making withdrawals from these retirement accounts, the funds still can be easily tapped to finance pre-retirement needs.

Results of the analysis showed that, of the retirement account owners, 8.3% made at least one withdrawal between 2004 and 2005. The likelihood of withdrawing was highest among the youngest adults, those without college degrees, African Americans, and those with the lowest income and assets. For example, 9.4% of adults ages 25 to 34 made withdrawals from their accounts during this period, compared with only 6.2% of adults ages 55 to 58. In addition, 13.0% of African Americans made withdrawals, compared with only 7.8% of whites. Finally, 10.2% of those in the bottom income group and 12.0% of those with negative or zero financial assets took withdrawals, compared with only 6.6% of those in the top income group and 4.5% of those in the top assets group. Researchers added that patterns are fairly similar for IRA and 401(k) owners.

Overall, however, withdrawals from 401(k)s were found to be much more common than withdrawals from IRAs. "The higher withdrawal rate for 401(k)s relative to IRAs probably reflects the tempting opportunity to withdraw retirement savings at a job change or the special financial needs that arise after losing a job or becoming disabled," the authors said. They also speculated that, since many IRAs are established after a job change, individuals with these accounts may have a preference for retirement savings.

The analysis further showed that the distribution of withdrawal amounts was fairly wide, with about one in six respondents withdrawing less than $1,000 in retirement savings, three in five withdrawing less than $5,000, and only about one in 10 withdrawing more than $15,000. On average, withdrawals from retirement accounts were found to represent a large share of the account holder's savings, with average withdrawal amounts between 2004 and 2005 comprising 20.9% of average 2004 account balances. Younger and lower-income workers were found to have withdrawn larger percentages of their account balances.

According to the study, the events that were most likely to trigger a retirement account withdrawal were losing a job, changing jobs, onset of poor health, divorce or the death of a spouse, or the purchase of a home. By contrast, individuals who reported the birth of a child over the two-year period were found to be less likely to withdraw from their retirement accounts.

The authors observed that retirement account owners with limited education, low income, and few financial assets more often withdraw from these accounts over a two-year period. However, they added, results from their analytical model suggest that the lack of other financial assets to draw upon, as well as the occurrence of events that trigger financial need, explain these withdrawals to a greater extent than education and income differences.