Employers re-examine retiree benefits

The vast majority of employers realize that retirement medical benefit security is important to their retirees, but rising costs and risk concerns have prompted many of them to adjust their offerings.

The biggest hurdles for employers are the accounting liability attributable to the benefit, ongoing administration and expense of maintaining the benefit, ERISA obligations, including reporting, disclosure and fiduciary responsibilities, and absence of an efficient funding vehicle.

The number of employers offering retiree medical benefits has “definitely dwindled from where it was 20 years ago, before the advent of recording accounting liability,” says Cara Jareb, senior consulting actuary for Towers Watson. “There are still quite a few who do sponsor them.”

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These types of benefits differ depending on the target audience. A recent survey by Towers Watson of 144 HR executives at companies that sponsor retiree medical benefits found that about eight in 10 companies or 78% currently provide retiree medical benefits to both pre-Medicare and Medicare-eligible retirees.

The advent of private health exchanges with the Affordable Care Act has made it possible for employers to shift some of the risk off their books while still being able to offer employees a medical benefit in retirement.

It is a “win/win for the company and the retiree because the company can reduce its costs by offering a stipend that is less than a traditional group plan,” says Jareb. Retirees, by accessing plans through the market, will have access to Medicare Advantage and many other plans that might be a better fit for their needs.

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“We found that stipends typically purchase as much or more benefits as they had in the employer plan. It has really worked out well for employers and retirees,” Jareb says.

Exchanges work well for post-65 retirees, she says, but the pre-65 market is a little different.

“Medicare doesn’t provide primary coverage for those individuals. We are finding that there’s a lot of interest in the evolution of exchanges in general and our survey indicated that by 2017, 35% of employers believe exchanges will be viable for pre-65 retirees as well,” she added.

Public exchanges offer, in many cases, a federal subsidy for low and middle income pre-65 retirees, “as long as the ACA is upheld,” Jareb says.

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One of the interesting points gleaned from the Towers Watson survey was that many employers continue to offer retiree medical benefits but they haven’t examined them in a while to see if they still fit with the company’s workforce management goals.

Only 38% of survey respondents said their “retiree medical benefit is effective at achieving their attraction, retention and retirement planning goals,” the report found.

“A lot of these programs were put in place decades ago and they could use a strategic relook in terms of what they are accomplishing and how to better align them with workforce management goals,” Jareb says.

Employers may have made small changes to their programs in the past like raising contributions or changing the deductible but they haven’t taken “a larger look at the whole benefit and what it is doing, how it is affecting retirement patterns and what place it has in the organization’s objectives today,” she says.

“As a result of looking at those issues, you may find that there are some newer marketplace initiatives, like exchanges, that may better suit your needs,” Jareb adds.

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Although not all companies offer retiree health benefits, the report shines a spotlight on the fact that most people don’t fully understand the cost of retiree medical coverage.

“It is more important to educate employees about the costs associated with living longer in retirement and how best they can financially manage those costs,” says Jareb.

According to the survey, about 53% of plans do communicate with employees about the medical costs they will incur past the employer subsidy and 49% are using wellness programs that promote health, wellness and disease management to help reduce out-of-pocket health care costs and help employees to better manage diseases so they don’t have high medical costs associated with them.