Full implementation of the Affordable Care Act by 2015 is prompting employers to rethink the way they offer benefits, with many increasingly eyeing a transition to defined contribution (DC) benefit models. According to Group Benefits and the Defined Contribution Model, the second in a series of five research briefs based on the Prudential Insurance Company of America’s Eighth Annual Study of Employee Benefits: Today & Beyond, nearly half (47%) of employers report they are moving or have moved to a DC model.
Employers say the top two reasons for contemplating a switch to DC benefit models are to lower healthcare costs and to offer their employees more choice in the allocation of their benefit dollars (59% and 40%, respectively). Employees report they would allot 75% of their benefit dollars to health, dental, and vision coverage, leaving 25% for other coverages such as voluntary life, disability, accident, and critical illness insurance. Even with this allocation by employees, 42% of brokers feel the shift to DC plans will lead to an uptick in sales for voluntary products.
“While employers struggle to fund increasing healthcare costs and more look to shift to DC plans, employees will realize a higher level of choice when it comes to benefits selection and aligning their benefit dollars with personal priorities,” said Jim Gemus, senior vice president, Products, Prudential Group Insurance. “Carriers and brokers have an opportunity to ramp up employee awareness and educational efforts in order to help ensure employees fully appreciate the value of the voluntary benefits available to them.”
According to the report, brokers feel the increased number of choices employees are given under DC plans will be the biggest boost to increasing voluntary sales in the next five years. Brokers report the biggest detriment to voluntary sales in the next five years will be employees not fully recognizing their financial needs.
“Clearly, strong financial needs assessment tools, educational materials, and communications are critical in helping employees make the best decisions for their financial wellness. Our keen focus remains on partnering with and supporting our brokers and employers so that employees can make these decisions,” Gemus said.Related Articles: