Benefit adequacy is a recently-coined catch phrase among the retirement industry, and with good reason. Many individuals have not saved enough to pay for the costs of health in retirement, let alone broader retirement income needs.
Workers today face enormous challenges, especially with health care costs potentially exceeding Social Security benefits. For couples retiring in one year, HealthView Services Retirement Health Care Costs Index cites that 98% of their Social Security benefits will be required to cover health costs.
To date, much of the industrys efforts to improve benefit adequacy have focused on increasing savings. Often overlooked: Lowering expected health expenses in retirement. Unfortunately, less than half of baby boomers are confident theyll be able to cover medical expenses in retirement, with retirement income increasingly impacted by health expenses.
Employers have an immense opportunity to help inform and improve benefit adequacy for employees, while recognizing their active role in financial wellness initiatives. The benefits are two-fold: Employees can ultimately save more over the long-term, and decrease their health care expenses. Separately, this also equates to longer-term health care success, with employees (and employers) spending less on medical and more on retirement.
With an employers increased focus on driving employee outcomes, the question today comes down to measurement. How should employers be more strategic about measuring benefits plan success? A snapshot of past vs. future metrics considerations provides perspective.
The focus of past benefits metrics has been:
- Balancing physical and financial wellness separately.
- On the retirement savings front: promoting auto-features, altering employer match provisions to encourage higher savings, income replacement ratios, tailored participant communications based on age/years toward retirement, and holistic financial wellness tailored toward life events.
- On the health metrics front: biometric screenings, health risk questionnaires, health coaching participation rates, employee satisfaction rates, or decreases in absenteeism/presenteeism.
In the future, internal employee metrics will still be core to benefit program success but best practices in vendor/provider searches will now also be considered in the planning process.
New metrics must focus on how an employer can work smarter with industry partners to provide participant-based tools that can help better inform the basic principles of health care reform and its impacts on the benefits landscape. Already, several providers have developed tools that estimate general health care costs in retirement, as well as assess the financial impact of escalating health care costs from insufficient savings. Partnering today means choosing vendors that will meet a plans goals in a holistic way, but also ensuring coordinated messaging among multiple vendors.
Appropriate monitoring and selection of health savings account vendors is one example of the new metric evaluation process. An increasingly common savings tool, HSAs provide a tax-advantaged way to pay for qualified health care expenses, especially for employees seeking to address both current health care needs, as well as long-term wealth accumulation. Effective HSA vendor selection can play an important part in a retirement savings strategy. This comes at a time when estimated health care costs for a married couple in retirement have reached new heights of $220,000, or more.
Employers should seek vendors who actively portray HSAs as a long-term investment tool, specific to retirement health care needs. In the vendor selection process, some key questions include:
- Are there other services/products that you offer that integrate and/or help with a high-deductible health plan?
- What investment options are offered? Who selects and monitors these?
- Are there capabilities to illustrate HSA and 401(k) balance information on the same statement, and online?
- How does your HSA work with your 401(k) platform? What are the advantages of using both retirement and the HSA through this same vendor?
- Is there any additional offering of executive financial planning services, Social Security optimization, withdrawal calculators, or HSA savings calculators available?
These questions and others can ultimately provide employers with a roadmap to help employees better address the benefits adequacy issue head-on. Asking the right vendor selection questions provides a more holistic view of health and wealth. Employees may start viewing tools like HSAs as longer-term savings vehicles, similar to 401(k)s. Employers, meanwhile, benefit from increased cost savings that result from better-engaged employees.
Shelby George is practice leader, benefits solutions with Manning & Napier, an investment management firm.
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