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Is a Defined Contribution Plan Right for Your Organization?
The Affordable Care Act has changed the way HR managers are considering all employee benefits — especially those that have previously been considered ancillary add-ons. With all the changes and choices employers have had to make about health insurance coverage, many are weighing the decision to offer benefits in a new defined contribution model.
Instead of a defined benefits offering, where an employer chooses benefits and offers them to all employees regardless of their preference, defined contribution plans give employees more of a choice. This is because an employer gives each employee a set amount of money annually to purchase the benefits he or she wants from a set offering that may include major medical, disability, life, dental, vision, critical illness, accident and hospital indemnity. The options even extend to auto, home and pet insurance, in some instances.
For employers considering this move — here are a few questions to ask to help get a lay of the land:
- Is your current benefits offering attractive to your employees? Competitive benefits packages usually include health insurance and a retirement savings plan. What additional benefits could your company offer to help attract and retain talent? Other popular benefits include disability, life, dental, vision and accident insurance. A defined contribution plan can give these ancillary offerings higher priority. Survey your employees on what matters to them and their product preferences.
- What is your employee makeup? A workforce of younger employees (think millennials and young Gen Xers) may not value a disability insurance offering as highly as older employees. Younger workers may think they are invincible to the conditions against which disability insurance protects, or they may think an employer’s workers’ compensation package could cover them for an on-the-job injury. They aren’t necessarily thinking about that 24-hour — outside of work — protection.
- What is the value proposition? There are additional benefits to selecting a defined contribution plan than a more-robust benefits offering. Consider other organizational benefits:
- Ease of administrations. How would switching to a defined contribution plan reduce the burden on your HR staff? Think of how centralized administration could assist with billing, enrollment, updating beneficiary designations and employee life event changes.
- Employee support. Consider carrier products backed by a robust system of decision support tools — such as educational modules. These tools empower employees to make informed decisions based on their lifestyle, family status and needs assessment that can result in increased satisfaction and lower costs for the employee and employer.
- Automated Enrollment. Defined contribution plans offer sophisticated enrollment systems that make paper and manual processes obsolete — a process preferred by millennials.
A robust benefits offering is the ultimate way to attract and retain top talent. Considering these questions, along with consulting your benefits broker, can help ensure that you are making the most of your benefits plan.