Employee Benefits

Employees with good morale and a strong work ethic are essential for the success of any company. Equally important is the strength of a company's Employee Benefits Package. At Honeycutt, Smith & Associates, we recognize the significance of a strong benefits program and provide unique solutions to our clients based upon their individual corporate philosophy, affordability, and employee need. Through our partnership with TRIFLEX Corporation we provide a proactive method of consultation, implementation, and maintenance of each employer's employee benefits program including Medical, Dental, Vision, Life, Disability and other ancillary benefits needs.

Strategic Benefit Planning

As Benefits Consultants we help employers develop a partnership with their employees with shared responsibilities. Employer responsibilities include: 1) provide a competitive option package, 2) make an adequate contribution, 3) provide quality support services and most importantly, 4) educate the employees. Employee responsibilities include: 1) learn to make wise choices, 2) become a more prudent consumer, 3) adopt a healthier lifestyle and 4) pay their fair share. This helps employers more effectively:

• Control benefit costs
  
• Improve plan efficiency and save money
  
• Utilize benefits as a recruitment and retention tool
  
• Assess and eliminate compliance risk
  
• Reduce HR time and manpower for benefits
  

The Planning Process

Elements of the planning process we utilize are:

• Discovery - a one page fact finder to identify risk exposure and opportunities
  
• Benefit Strategies Proposal - strategies to be evaluated (contains no product information)
  
• Employee Benefits Survey - input from the "other partner"
  
• Plan Design Presentation - includes product and plan design recommendations and much more
  
• Plan implementation strategy - structured timeline and responsibilities for enrollment
  
• Enrollment
  
• Annual review and update
  

The following chart shows the "needs-based" approach to benefit planning:

Needs Based Planning

One strategy that we have used successfully for well over 30 years is to encourage the employer to utilize a defined contribution benefit payment strategy. Employed wisely it has significant benefits to both the employer and the employee. In its simplest form it provides the employer with a tool to control costs, save money and create transparency in the cost and value of the benefits provided.

The employer can effectively control their contribution and in some cases even save money without shifting costs. It can also be used as a valuable tool that “empowers” the employee to utilize employer provided funds for other, more appreciated, ancillary benefits. Employee control over employer provided funds and expanded benefit options allow the employee to tailor benefits to meet their individual needs and to accept the increased financial responsibility that may be required.

Before going further, we need to define our terms. Employer payment strategies fall into two basic categories, “Defined Benefit” and “Defined Contribution”. See Diagrams A & B.

Defined Benefit: Here, the employer determines their contribution on a "benefit", either a percent of premium or the cost to the employee. Usually, the employer's contribution is for a base product. The employee then pays the amount not paid by the employer for the products they select. With this methodology, usually all that is communicated to the employee is their cost for the benefits offered. It is simple but not very transparent.

Defined Contribution: Here, the employer determines an overall contribution that is communicated as "dollars" or "credits" that can be utilized by the employee to purchase their benefits. Anything chosen that is not covered by the employer contribution is paid for by the employee. This methodology may appear to be more complex but it is transparent as to the cost and value of the benefits.

Both of these employer payment strategies, of course, have many possible variations to accommodate employer objectives and meet employee needs. Significant benefits can be achieved for employers and employees by utilizing the defined contribution approach. However, to effectively utilize this approach, the employer must have a variety of benefit options from which the employee can choose. An effective education and support system is also critical to achieve optimum benefit. The concept is simple but the implementation is a bit more difficult to communicate.

Communication is the Key to Success
In developing a communication strategy several things need to be carefully addressed to successfully implement a smooth working defined contribution strategy.

Employee engagement is required (partnering): Employees must take responsibility and accountability for their benefit choices. By utilizing "flex credits" (see diagram B) the employee can be empowered to make wise benefit choices and be held accountable for the consequences of their decisions.

Employee education is critical: It is like changing from the American to the Metric system of weights and measures. We know it is better but resist taking the time to learn. If the employer is going to require the employee to take on more of the financial responsibility for their benefits the employee must learn how to make wise choices based on their own budget and risk tolerances. The employer has the controlled environment necessary to adequately educate the employee and the responsibility to do so.

Age rated medical plans create a level of difficulty in the defined contribution model. With age rated medical plans, up to 50 employee groups,we developed software that "does the math" and creates rate charts and contribution levels for all employer-sponsored benefits on a single page.

The primary benefits to be achieved with an employer defined contribution payment strategy are:

1. Benefits cost control
   
2. Premium savings
   
3. Improved recruitment and retention value of benefits
   
4. Superior benefits management tool
   

Benefits Cost Control

Defined contribution is an effective tool to control costs. It supports and makes real the concept of a total compensation communication to employees. Putting a dollar value on the employer's contribution for benefits helps tie contribution increases to normal compensation criteria. Factors such as inflation in the cost of living (CPIU), profitability, competition for employees, employee performance, etc can be considered. In an environment where employees partner with the employer, cost sharing is a more acceptable alternative, in fact in many cases is embraced by employees. This is because the employees get positive trade-offs to offset increased costs to them. Some of these benefit enhancements are detailed below in the discussion of the recruitment and retention values of this type of plan strategy.

Premium Savings

The opportunity for premium savings, without cutting benefits, is limited to employers who have a reasonably "rich" benefits package. Employers who pay for all or all but a few dollars of the employee premium for medical, dental or vision insurance have the opportunity for substantial savings.

A defined contribution plan design which offers employees "flex credits" (Figure B) allows the employee to utilize a portion of the employer contribution for any benefits offered. This feature makes it too costly for an employee to double cover themselves and does not jeopardize employee participation requirements of the carrier.

Improved Recruitment and Retention Value of Benefits

One might ask, "How can a strategy that tends to shift costs to the employee, improve the recruitment and retention value of benefits?" This is a valid question. A well-designed defined contribution strategy does several things to offset the impact of any necessary cost shifting.

1. It allows for expanded benefits to be made available to employees at no direct cost to the employer (see example above). In fact, in many cases pre-tax employee contributions to new benefits create a significant savings to the employer.
   
2. It gives the employee greater control over employer dollars which, along with expanded benefit choices, allows employees to tailor benefits to their individual needs and risk tolerances.
   
3. It makes the employee a "partner" in the benefits - employees appreciate things they own.
   
4. It communicates the full value of benefits to the employee.
   
5. Premium increases, if "covered" by the employer, are communicated as a "raise" to the employee. Even if the employer increases its contribution in line with normal inflation but less than the premium increase, it is still communicated as a raise rather than a take away.
   

Superior Benefits Management Tool

From a financial point of view, defined contribution is a strong management tool. It enables a simple calculation of the real "per employee cost" of benefits. However, this type of calculation is more cumbersome in an age-rated medical plan environment. In this market, employers are more inclined to rely on their brokers for sound financial information.

The real impact of premium increases can be masked by age rating. As an example, one of our clients with 18 employees experienced a 15% rate increase one year and an 11.5% rate increase the next year. In each of those years the employer's "knee jerk" reaction was to shift costs to the employee. When we were able to show the employer that the "age adjusted increase" each of those two years was actually 7% and 5% respectively, the employer increased their contribution to cover the cost increase. This type of calculation can also identify the negative impact of a premium increase where an employer has experienced an increase in the average age of employees.

Design and implementation of a well-crafted defined contribution strategy can do a great deal to benefit the employer and the employee. It can also enable you to put more dollars in your pocket by leveraging employer contributions into more profitable and cost stable products.

What is a Cafeteria Plan?

A cafeteria plan is a program that employers can implement to help employees pay for qualified expenses with pre-tax dollars. The employer may establish a plan (a Plan Document and Summary Plan Description are required) that provides one or more benefit options from which the employee may choose. Employees then "reduce their salary" to pay for benefits that they elect and the employer uses that money to buy their benefits. Employees like cafeteria plans because they are allowed to buy benefits with pre-tax dollars, giving them more take-home pay. Well-designed plans allow employees to pay only for benefits they really want like ordering lunch á la carte, hence the name "cafeteria". Employers opt for cafeteria plans because, in addition to having happier employees, they also save payroll taxes by reducing matching Social Security and, in some states, including California, workers compensation on employee salary reductions used to pay for benefits. And, once everyone gets the hang of it, cafeteria plans are easy to understand and operate.

The following chart shows an example of a Defined Contribution Benefit Plan with a Benefits "Menu" from which employees may make selections:

Enrollment Support

We provide all the communication and educational support services necessary to effectively educate and engage the employees in their benefits. Since the employer cannot financially provide everything that is needed because of the wide range of employee needs, ancillary benefits provided on a voluntary employee-paid basis offer an attractive solution. Enrollment support includes:

• Group meetings (core and voluntary)
  
• One-on-one enrollments
  
  • Face-to-face
    
  • Internet enroller assisted
    
  • Call center
    
• Internet self-enrollment
  
• Voluntary benefit case management
  
• Coordination of core and voluntary benefits
  
  • Claims and administration assistance
    
  • Annual re-enrollments
    

Below is a list of our qualified insurance carriers:

• Aetna
  
• Allstate
  
• Anthem
  
• Assurant Benefits
  
• Blue Shield of California
  
• CIGNA
  
• Colonial Life & Accident
  
• Health Net
  
• Kaiser Permanente
  
• Principal Financial
  
• Reliance Standard Insurance
  
• SeeChange Health Insurance
  
• Sharp Health Plan
  
• The Standard
  
• The Hartford
  
• United Healthcare