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1 PRUDENTIAL S GROUP INSURANCE S T U D Y O F E M P L O Y E E B E N E F I T S : & B E Y O N D The Prudential Insurance Company of America IFS-A153548

2 Study of Employee Benefits: 2008 & Beyond Table of Contents Welcome 1 Study Overview 2 Methodology 3 Key Themes 5 Benefits Strategies for a Multigenerational Work Force 6 Voluntary Benefits Planning for Success 26 Benefits Web Technology The Future Is Now 38 Absence Management You Can t Manage What You Don t Track 52 The Benefits Buyer Profile What Drives a Company s Benefits Decisions? 60 Summary of Key Findings 86 About Prudential 89 2

3 Welcome We are pleased to introduce our latest research report, Study of Employee Benefits: 2008 & Beyond. This is the third consecutive year we have conducted this research and, as in previous years, we are sharing this valuable information to help you develop effective benefits strategies today, while keeping an eye toward the future. The Study of Employee Benefits: 2008 & Beyond delves into a wide range of topics to uncover important trends in the marketplace and reveal the top concerns of employers and employees regarding benefits. Our research findings continue to show that group benefits trends are evolving, and may even surprise us consider that the Baby Boomer generation s preference for online benefits presentations is stronger than that of the tech-savvy Millennial generation. Another unexpected finding is the significant shift in employers attitudes surrounding voluntary benefits. Once seen strictly as a cost-saving measure, voluntary benefits are now used by many plan sponsors to maintain a competitive benefits package financial savings are secondary. We are also seeing so-called progressive activities like return-to-work assistance and absence management become more mainstream. In fact, employers expect to increase their return-to-work and absence management activities by almost 50% over the next five years. These findings remind us to make no assumptions when it comes to employee benefits. Rather, we should keep a close watch on emerging trends to make sure we are offering the benefits employees need via the communication vehicles that prompt action, while helping employers link their benefits plans to their financial goals. These are challenging tasks to be sure, but not impossible, and certainly necessary as employees continue to expect more from their employers, and employers seek ways to retain a talented and motivated work force. We hope this research gives you new insights into the benefits landscape and proves to be a useful tool as you plan your benefits strategies. Sincerely, Lori High President, Prudential s Group Insurance 1

4 Study Overview This has been a challenging year for U.S. employers. Revenues and earnings are down while business costs and the competition for talent and customers are up. It is increasingly difficult for employers to maintain a competitive benefits package while trying to stabilize related costs. Many employers seek greater value from their current benefits offerings through enhanced communication and enrollment efforts, increased use of web technology, improved wellness and prevention programs, and better tracking and reporting of absences. Prudential s latest research looks at these and other trends that will continue to shape the employee benefits landscape over the next five years. Research Objectives For the third consecutive year, Prudential has surveyed a representative cross-section of benefits plan sponsors and benefits plan participants across the United States and compiled the findings here, in the Study of Employee Benefits: 2008 & Beyond. This year s study addressed many of the emerging issues and trends facing employers and their employees with respect to workplace benefits, including: Ways employers plan to accommodate the diverse needs and lifestyles of a multigenerational work force The perceptions of voluntary benefits among employers and employees The use of web technology among plan administrators and participants Effectiveness of absence management in reducing absence costs and increasing productivity The importance of cost versus employee satisfaction in employers benefits decisions Five Key Themes from This Research 1. Benefits Strategies for a Multigenerational Work Force: Employers Must Support Baby Boomers Needs, While Also Helping Younger Generations Maximize Employee Benefits 2. Voluntary Benefits Planning for Success: Identify the Right Voluntary Programs, Set Participation Goals, and Implement Effective Communication and Enrollment Strategies 3. Benefits Web Technology The Future Is Now: The Use of Web Tools Has Expanded Substantially, but Employers Struggle to See Cost Savings 4. Absence Management You Can t Manage What You Don t Track: Employers Must Implement a Comprehensive Absence Tracking System to Improve Productivity 2 5. The Benefits Buyer Profile What Drives a Company s Employee Benefits Decisions? Companies Have Different Philosophies and Priorities with Respect to Employee Benefits

5 Methodology The Study of Employee Benefits: 2008 & Beyond was conducted via the Internet during May 2008 and consists of two distinct surveys: one among benefits plan sponsors and the other among benefits plan participants. This dual focus allowed us to compare and contrast opinions of employers and employees on key benefits issues. This year s study was conducted for Prudential by the Center for Strategy Research, Inc., a Boston-based, independent, market research firm. Overview of Plan Sponsor Survey Plan sponsor results are based on a national survey of 1,729 employee benefits decision-makers. Respondents included business executives, business owners, human resources professionals, and financial management professionals. The survey sample covers all industries, including government, and is nationally representative of all U.S. businesses with at least 50 full-time, benefits-eligible employees. Data shown in this report are weighted to reflect the actual proportion of U.S. businesses by company size, industry, and region based on data from the U.S. Census Bureau. The margin of error is +/- 2.0% at the 95% confidence level. Below is a breakdown of survey respondents by survey participant region, job function, industry, approximate 2007 sales, years in business, and business ownership. Region Job Function Industry 21% West 21% Northeast 24% Midwest 34% South 19% Other 34% Executive/Owner 21% HR/Employee Benefits 26% Accounting/ Finance/Treasury 8% Wholesale 27% Other 8% Manufacturing 8% Health Care 33% Services 8% Retail 8% Construction 2007 Sales or Fee Income Less than $10 million 23% $10 million to under $50 million 45% $50 million to under $200 million 12% $200 million to under $500 million 3% $500 million to under $1 billion 3% $1 billion or more 4% Don t know 11% Years in Business Less than 10 14% % % 50 or more 24% Mean 36 Years Median 35 Years Business Ownership Private 87% Public 13% 3

6 Methodology Overview of Plan Participant Survey Plan participant results are based on surveys conducted among 1,820 employees, age 18 or older who work full-time for a company with at least 50 employees. The survey of employees was conducted during the same time period as the employer surveys. The survey sample is nationally representative of all U.S. workers at companies with at least 50 full-time employees. Data shown in this report are weighted to reflect the actual proportion of U.S. workers by gender, region, race and ethnicity, education level, household income, and age based on data from the Bureau of Labor Statistics and the Census Bureau. The margin of error is +/- 2.0% at the 95% confidence level. Below is a breakdown of survey respondents by age, region, household income, employer industry and size, gender, racial and ethnic background, and education level. Age Region Household Income 20% 50 to 59 10% % 18 to 29 20% Northeast 34% South 12% $150, % $100,000 $149,000 30% Less than $50,000 25% 40 to 49 25% 30 to 39 23% West 23% Midwest 18% $75,000 $99,000 28% $50,000 $74,000 Employer Industry Manufacturing 14% Public Administration 11% Financial 9% Retail 9% Services 8% Health Care 7% Education 7% Other 35% Gender Male 57% Female 43% Racial Background Caucasian 80% African-American 13% Asian 5% Other 2% Education Some High School 3% High School Graduate 37% Some College or Technical School 28% College or Technical School Graduate 24% Post-Graduate School 8% Employer Size % % % 1,000 2,499 9% 2,500 4,999 9% 5,000 9,999 10% 10,000 24,999 9% 25,000 or more 25% Ethnic Background Hispanic 15% Non-Hispanic 85% 4

7 Key Themes This study looks at the latest trends within the benefits landscape and how those trends will continue to evolve over the next five years. The following key themes from the research show how employers and employees are at once driving and reacting to those trends. 5

8 Benefits Strategies for a Multigenerational Work Force: Employers Must Support Baby Boomers Needs While Also Helping Younger Generations Maximize Employee Benefits Issues Surrounding an Aging and Multigenerational Work Force Will Become Increasingly More Important in Shaping Benefits Programs over the Next Five Years As the largest generation of U.S. workers grows older and nears retirement, a confident and technologically savvy generation of workers enters the work force. We asked plan sponsors about several workforce diversity issues and found that most are not considered to be very important in shaping employee benefits programs, including issues related to workforce age: Only 27% cite the aging workforce as highly important. Only 21% see a multigenerational work force as highly important. Plan sponsors do recognize the increasing importance of these two issues and both are rated much higher in importance five years from now. In fact, the perceived importance of a multigenerational work force nearly doubles in five years among plan sponsors an increase of 16 points. However, that is still less than two-fifths of all plan sponsors (37%) who think it will be highly important by Other concerns, such as work/life balance, single working parents, and multicultural work forces are expected to be of equal or greater concern than the multigenerational work force over the next five years. IMPORTANCE OF WORKFORCE DIVERSITY ISSUES 2008 VS PERCENTAGE OF EMPLOYERS RATING ITEMS HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) Workforce Diversity Issue Change The growing number of employees age 50 and older 27% 53% +26 Balancing work and personal life 33% 51% +18 Single working parents 26% 40% +14 A multigenerational work force 21% 37% +16 A multilingual/multicultural work force 21% 37% +16 Workforce education and income gaps 19% 34% +15 Dual-working couples 23% 32% +9 Same-sex partners 9% 18% +9 6

9 While plan sponsors see the multigenerational work force as an issue of growing importance, they may be underestimating just how important it will be. Different generations have different priorities, and consequently, they value different aspects of their total compensation and benefits packages. Plan sponsors who pay attention to these differences can avoid wasting the time and expense of structuring and communicating benefits programs that are ineffective for a large portion of their work force. Plan sponsors in Public Administration are more likely than others to rate the aging work force and multigenerational work force as highly important in the next five years. Human resources and benefits personnel believe that the aging work force and multigenerational work force are highly important trends that will continue to affect their benefits programs over the next five years more so than senior executives such as CEOs, CFOs, and presidents. 7

10 Today s U.S. Work Force Consists of Four Distinct Generations of Workers; Plan Sponsors Should Recognize the Differences Between Them When Developing and Communicating Benefits Programs The term generation generally refers to a cohort of people born into and influenced by the events, trends, and developments of a particular span of time. The generations people are born into can, and often do, form their world views and behaviors. Probably one of the most well-known generations is the Baby Boomer generation (Boomers), so-called because they were born during a period of an extraordinary increase in birth rates after World War II. As such, this generation represents a very large group of people, comprising 28% of the U.S. population (and an even larger proportion of the U.S. work force). More than two-fifths of employees surveyed for this study are Boomers. The generation following the Boomers is typically referred to as Generation X (Gen-X ers). Nearly two-fifths of employees surveyed report being Gen-X ers, and about one in five report being Millennials the youngest generation of workers. The different generations are at different life stages Boomers are near the end of their career, Gen-X ers are in the middle of their careers, while Millennials are just entering the work force. Boomers are more likely to be widowed or divorced, while Millennials tend to be single. More than half of Millennials have never been married, compared to 24% of Gen-X ers and 10% of Boomers. About three in five Millennials (58%) have no financial dependents (parents, children, etc.), compared to 30% of Gen-X ers and 37% of Boomers. The four generations outlined on the opposite page have varying needs when it comes to employee benefits. Plan sponsors must understand these differences in order to develop more effective strategies for communicating with and educating these segments of their work force. 8

11 Silent Generation* Baby Boomers Generation X Millennials Age 63 to 83 as of 2008 Age 44 to 62 as of 2008 Age 29 to 43 as of 2008 Under age 29 as of 2008 Experienced World War II in childhood 14% of the U.S. population 5% of the work force Born after World War II Raised with television Part of the 1960s counterculture Experienced the Vietnam War, the Civil Rights movement, and the Women s Liberation movement Grew up during the 1980s with the inception of MTV Saw the end of the Cold War and the collapse of the Soviet Union 21% of the U.S. population 37% of the work force Also known as Generation Y Grew up with the rise of the Internet Very tech-savvy Saw the 9/11 attacks at a relatively young age 14% of the U.S. population 19% of the work force Parents of Gen-X ers and Millennials 28% of the U.S. population 39% of the work force *Due to its relatively small representation in the full-time, benefits-eligible work force, this theme and its supporting discussions do not address the Silent Generation. PLAN PARTICIPANTS SURVEYED BY GENERATION 41% Total Baby Boomers 17% Late Baby Boomers 38% Generation X 24% Early Baby Boomers 17% Millennials 4% Silent Generation 9

12 LIFE STAGE DEMOGRAPHICS BY GENERATION Overall Boomers Gen-X ers Millennials Marital Status Married 57% 62% 59% 38% Never Married 22% 10% 24% 54% Divorced 15% 21% 14% 5% Separated 3% 4% 2% 1% Widowed 2% 3% 0% 0% Prefer Not to Say 1% 0% 1% 2% Financial Dependents Yes 62% 63% 70% 42% No 38% 37% 30% 58% Values that are significantly different than the other groups 10

13 Boomers Express Greater Employee Benefits Needs and Place More Value on Their Benefits Than Do Younger Generations Boomers, raised during unprecedented prosperity and with unequaled expectations of the future, are now approaching retirement. In fact, the oldest Boomers can begin to retire with age-dependent benefits this year (the oldest Boomers reach age 62). According to the Census Bureau, 330 Boomers turn age 60 every hour. Financial and lifestyle issues are of greater concern to Boomers than to younger generations. This is not surprising given their advancing age and the fact that many Boomers are caring for their own aging parents. (In fact, the importance of most financial and lifestyle considerations generally increases with age.) Boomers rate having appropriate health insurance more important than do Gen-X ers and Millennials (90% saying highly important vs. 85% and 80%, respectively). Maintaining a healthy lifestyle is also more important to Boomers as compared to Gen-X ers and Millennials (63% saying highly important vs. 49% and 53%, respectively). Boomers rate medical insurance the highest in importance when deciding to take a job (other generations rate salary the highest). Boomers are more concerned about being financially prepared for retirement than other generations. Boomers are more likely than Millennials to rate needing to save for retirement as highly important. Boomers rate retirement benefits more important than do both Gen-X ers and Millennials when making a job-related decision. When deciding whether to take a job, Boomers rate other insurance benefits as more important than do other generations. They rate life insurance and disability insurance as being more important than do Gen-X ers and Millennials, and they rate long-term care concerns much higher than do Millennials. In general, Boomers place greater importance on employee benefits compared to Gen-X ers and Millennials. While this suggests that benefits communications about education efforts will find a more receptive audience with Boomers, it also suggests that the message needs to be targeted to different generations given the varying financial and lifestyle priorities. 11

14 Voice of the Baby Boomers I would say employee benefits are very important when deciding whether to stay with a company or take a new job. Sometimes the benefits of the job are worth more than the salary, because, at my age, although I don t have any problems, I just want to make sure that I have some type of coverage. And with the costs going up so much in the private sector for getting health insurance, that is a big draw as far as companies being competitive. Woman, age 55, married with grown children Employed by a service company, 500 1,000 employees IMPORTANCE OF EMPLOYEE FINANCIAL/LIFESTYLE CONCERNS BY GENERATION PERCENTAGE OF EMPLOYEES RATING ITEM HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) Employee Concern Boomers Gen-X ers Millennials Having appropriate health insurance 90% 85% 80% Needing to save for retirement 77% 72% 66% Having financial security if a wage earner can no longer work due to a disability or serious illness 74% 60% 56% Maintaining a healthy lifestyle (such as having periodic physical exams, attaining and maintaining a healthy weight, getting regular exercise, not smoking) 63% 49% 53% Having financial security in the event of a premature death 62% 54% 51% Having to provide for long-term care needs of either yourself or a spouse 48% 44% 38% 12

15 IMPORTANCE OF BENEFITS WHEN DECIDING TO TAKE A JOB BY GENERATION PERCENTAGE OF EMPLOYEES RATING ITEM HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) Benefit Boomers Gen-X ers Millennials Medical insurance 82% 77% 70% Salary 77% 84% 79% Retirement insurance 70% 59% 49% Paid time off 64% 62% 57% Other insurance benefits (e.g., life, disability, long-term care) 51% 43% 33% Job flexibility 35% 31% 26% Bonus 31% 32% 29% Areas in which Boomers are significantly different than Millennials only Areas in which Boomers are significantly different than Gen-X ers and Millennials 13

16 Boomers Want Information and Advice That Will Help Them Understand How to Make the Most of Their Employee Benefits While Boomers recognize the value of their benefits, they need support in understanding how to best use them, particularly those related to retirement planning and investing. Access to financial advice is also important to Boomers. Nearly three-fifths (57%) rate having advice about how to invest retirement money as highly important ; this is significantly higher than both Gen-X ers and Millennials. Nearly half (45%) of Boomers cite finding a trusted source for financial advice as highly important, compared to only one-third of Gen-X ers and Millennials. Boomers are most receptive to information and advice about their retirement benefits and their overall financial situation. Voice of the Baby Boomers I d like to retire at 65. It ll probably be longer. I'm doing what I can though. Making sure I have no bills. Making sure I save so much every month and of course, I have a 401(k) here and I have an IRA from another job, so I have those things in place. But I don t feel like I m on track financially to retire by 65. We re in a recession now, so every little penny you have, you don t know what the value is going to be by the time you retire. Also, if there were to be health problems that develop, with the high cost of health care and all of that, that's a concern. Insurance after retirement, those types of things are all a concern. Woman, age 55, married with grown children Employed by a service company, 500 1,000 employees I'm expecting to retire at age 65. Currently, I ve got a 401(k), investments, stocks, and a pension. I have worked with a financial advisor and I m planning for retirement. But I am probably not well prepared financially to retire at 65 because my children are so young. I started later in life. By the time I pay for college and things of that nature, I just don t know how things will be at that point, but my house will be paid off, so that will probably be my biggest asset, so it all depends what I do with that. I am slightly worried that I won t be able to fully retire. Realistically, I ll probably always have to have some kind of job, which I have accepted. Man, age 45, married with two small children Employed by a financial services company, 5,000 10,000 employees 14

17 ATTITUDINAL DIFFERENCES ABOUT RETIREMENT PLANNING AND FINANCIAL ADVICE BY GENERATION PERCENTAGE OF EMPLOYEES RATING ITEM HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) Overall Boomers Gen-X ers Millennials Importance of Employee Financial/ Lifestyle Concerns When nearing retirement, having advice about how to invest your retirement money and how to make it last as long as you need it to 53% 57% 49% 48% Finding a trusted source to provide financial advice 40% 45% 34% 35% Resource Used in Benefits Decision-Making Reading benefits enrollment materials 82% 85% 80% 79% Talking to a financial professional outside the workplace 10% 12% 9% 6% Having access to a financial professional on site during benefits enrollment 7% 10% 6% 2% Having access to a financial professional through a toll-free phone number provided by employer 5% 6% 5% 3% Areas in which Boomers are significantly different than Millennials only Areas in which Boomers are significantly different than Gen-X ers and Millennials 15

18 Gen-X ers and Millennials Tend to be More Self-Reliant and Focused on Short-Term Goals; They Place Less Value on Insurance and Retirement Benefits While employee benefits are viewed as generally important for overall financial security, neither Gen-X ers nor Millennials value their insurance and retirement benefits as highly as their salary. Gen-X ers and Millennials place lower importance on employee benefits when making job decisions (81% and 77%, respectively) than do Boomers (87%). They also have less favorable perceptions about the value of their employee benefits when compared to Boomers (52% and 48%, respectively). The oldest Boomers place the most importance on employee benefits (89% saying highly important ) and view the perceived value of their benefits very positively (62% saying highly valuable ). In addition, employees who work for large companies (25,000+ employees), those in the Health Care and Public Administration sectors, and those recently widowed or divorced also place greater value on their benefits. 16

19 IMPORTANCE OF EMPLOYEE BENEFITS IN JOB DECISIONS BY GENERATION PERCENTAGE OF EMPLOYEES RATING ITEM HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) 87% 81% 77% Baby Boomers Gen-X ers Millennials THE VALUE OF EMPLOYEE BENEFITS BY GENERATION PERCENTAGE OF EMPLOYEES RATING ITEM HIGHLY VALUABLE (7 OR 6 ON A 7-POINT SCALE) 58% 52% 48% Baby Boomers Gen-X ers Millennials 17

20 Currently, Gen-X ers Have More Financial Responsibilities Than Other Generations and Need Greater Assistance With Planning and Advice Gen-X ers have greater financial responsibilities when compared to other generations. Seven in ten Gen-X ers say they currently have financial dependents (e.g., children, parents), versus 63% of Boomers and 42% of Millennials. Gen-X ers also tend to have a higher number of dependents, on average, than do other generations. In today s economy, with the price of gasoline and other consumer goods surging, it s not surprising that Gen-X ers rate salary as the most important employee benefit (84% rate it highly important ) higher than Boomers (77%) and Millennials (79%). Gen-X ers tend to have the least amount of disposable income available (percentage-wise) for retirement savings. Voice of Generation X In recent jobs that I ve had, I ve never been able to really take advantage of retirement benefits and so they are not of any great importance, but only because my finances and my income have not permitted me to participate. I do see 20 years or 25 years or 30 years coming up on me really fast and yet, like I say, that s a benefit that I find very difficult to tap into. And some companies I ve heard about, both in public and private sectors, seem like they re hurting their employees more than helping, such as changing or terminating these plans or under-funding them for their own benefit, like with Enron, so I look at it as being kind of a slippery slope. Man, age 40, married with children Employed by a construction company, employees Gen-X ers are clearly struggling the most with work/life balance. They are highly concerned about having flexible workplace arrangements such as working from home, job-sharing, and flexible hours, to better balance work and personal life demands. 18

21 Voice of Generation X Other than health insurance, vacation time is the most important employee benefit to me because it gives me an opportunity to recharge my batteries. I think a certain amount of time away from work brings you back more focused and more excited. Vacation gives you a chance to recover from those periods when you've put in tons of hours to get a project out. And you need it to balance work with life outside work. I spend every day trying to balance work and life. I have a new schedule with every other Friday off so I get to spend quality time with my family every other Friday. Woman, age 44, married with children Employed by a retail company, 1,000 5,000 employees IMPORTANCE OF FLEXIBLE WORKPLACE ARRANGEMENTS TO BETTER BALANCE WORK AND PERSONAL LIFE PERCENTAGE OF EMPLOYEES RATING ITEM HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) 39% 47% 42% Baby Boomers Gen-X ers Millennials 19

22 Millennials Are Inclined to Switch Jobs More Often, Making It a Challenge for Plan Sponsors to Satisfy and Retain These Employees Millennials are motivated and success-driven. They are not afraid to go after a better opportunity. They expect a lot from their employers. Some Millennials admit they lack a sense of loyalty to employers; they clearly do not mind moving from one job to another. More than one-quarter of Millennials (26%) indicate they have switched jobs in the past 18 months that s nearly twice as many Gen-X ers (14%) and almost four times as many Boomers (7%). Not surprisingly, Boomers have worked for their current employers longer than both Gen-X ers and Millennials; more than half of Boomers (51%) have been with their current employer more than 10 years. On the flip side, Millennials have been in the work force the shortest amount of time. More than half of Millennials (53%) have been with their current employer for two years or less; nonetheless, most have already worked for multiple employers. More than one-quarter of Millennials say they have had three different employers in the past five years. This trend presents challenges for employers in many respects, particularly in the area of employee benefits. Millennials are the most predisposed to frequent job changes and also place the least value on employee benefits, in general. So, for plan sponsors whose benefits strategies are designed to attract and retain talent, they may need to re-evaluate their current benefits programs and communication/education efforts to better address the priorities of their youngest workers. 20

23 SWITCHED JOBS IN THE LAST 18 MONTHS PERCENTAGE OF PLAN PARTICIPANTS BY GENERATION 26% 14% 7% Baby Boomers Gen-X ers Millennials NUMBER OF EMPLOYERS WORKED FOR IN PAST FIVE YEARS PERCENTAGE OF PLAN PARTICIPANTS BY GENERATION Boomers Gen-X ers Millennials One other employer 45% 37% 31% Two 40% 39% 31% Three 12% 18% 26% Four 3% 3% 4% Five or more 1% 4% 7% Survey base: Employees who have been at their current job five years or less 21

24 Millennials Have a Positive, Albeit Somewhat Unrealistic, Outlook on Their Financial Futures By the year 2013, there will be close to 58 million Boomers between the ages of 66 and 84 (55% of whom will be women). 1 Furthermore, by 2031 when all Boomers will be over age 65 there will be 2.1 workers for each Social Security beneficiary, compared to 3.3 today. 2 While life expectancy is rising, Americans are also retiring at younger ages, thus their retirement incomes will need to last even longer. From 1950 to 1955, the median age of retirement was 66.9 for men and 67.7 for women; from 1990 to 1995, it was 62.7 for men and 62.6 for women. 3 The median retirement age from 2000 to 2005 was projected to be 61.7 for men and 61.2 for women. 4 Despite these trends, Millennials do not seem to be concerned about outliving their retirement incomes. Only two in three rate saving for retirement as highly important. However, they are optimistic that they will retire even earlier than their parents and grandparents. More than one in five Millennials believe they will retire by age 55 or sooner. How do they expect to fund a retirement that could last up to 20 years? According to a recent study by AARP, Preparing for Their Future: A Look at the Financial Status of Gen X and Gen Y, 38% of younger generations report that they or their spouse have already begun to save money for retirement. However, Millennials are much less likely (27%) to have begun saving than Gen-X ers (45%). These findings suggest that, in addition to being optimistic about the future, Millennials, and Gen-X ers to a lesser degree, are somewhat naïve in their retirement expectations U.S. Census Bureau 2 U.S. Social Security Administration 3 U.S. Bureau of Labor Statistics 4 Employee Benefits Research Institute

25 Voice of Millennials I m young. I m only 26, so I m not really thinking about retirement too much. Retiring early is important to me. My goal is to pay off my car, pay off all of my debts, and probably never work again. I hope to retire by 40. I save a lot and we do have two rental properties. Also, just because I retire, doesn t mean my husband will and he has a really decent job to where even if I quit now, he would be able to support both of us without trouble and he also has retirement savings, as well. Woman, age 26, married with no children Employed by a non-profit company, employees EXPECTED RETIREMENT AGE PERCENTAGE OF PLAN PARTICIPANTS BY GENERATION Expected Retirement Age Boomers Gen-X ers Millennials 55 or younger 7% 15% 22% % 4% 3% 60 9% 11% 16% % 8% 5% 65 22% 30% 31% % 8% 5% 70 and older 14% 15% 6% Don t know 8% 9% 12% Areas in which Boomers are significantly different than Gen-X ers and/or Millennials Areas in which Boomers and/or Gen-X ers are significantly different than Millennials 23

26 Millennials Want More Individualized Benefits Communication and Enrollment Information In general, workers prefer to learn about their companies benefits programs in group meetings or seminars during the workday and by receiving material mailed to their homes. However, there are important differences by generation. Younger workers Millennials in particular are more tech-savvy, so plan sponsors would probably think that communicating via the Internet would be the best way to reach these employees. However, this research suggests otherwise. When it comes to receiving benefits communications via at the workplace, no differences exist across generations. Interestingly, it is Boomers who prefer online/video/cd-rom/dvd presentations more than Millennials. Boomers and Gen-X ers are more likely than Millennials to prefer benefits communications outside the workplace, including both mail and . In fact, home mailings are the most preferred method of benefits communication among Gen-X ers. Apparently they are more inclined to discuss their benefits options at home with their spouse or financial dependents. Millennials want more individualized attention. Roughly half of Millennials prefer group meetings during the workday and/or received at work, but 42% also indicate a preference for one-on-one meetings during the workday. Very few (16%) employees currently receive benefits information through one-on-one meetings. This represents quite a gap a potentially costly one for plan sponsors to close. Plan sponsors should begin to think of creative ways to provide Millennials with the more personalized communication and decision support they desire. This research highlights the fact that plan sponsors can no longer afford to take a one-size-fits-all approach to benefits communications. 24

27 PREFERRED METHOD OF BENEFITS COMMUNICATION BY GENERATION PERCENTAGE OF PLAN PARTICIPANTS SELECTING EACH ITEM Communication Method Overall Boomers Gen-X ers Millennials Group meetings, seminars during the work day 54% 58% 52% 47% Mail received at home 50% 53% 53% 35% received at the workplace 46% 46% 45% 47% Individual, one-on-one meetings during the work day 35% 34% 34% 42% Mail received at the workplace 29% 29% 30% 26% An online presentation (Internet or Intranet) of benefits information 26% 29% 26% 20% received at home 23% 27% 21% 14% A video, CD-ROM, or DVD presentation of benefits information 17% 21% 15% 12% A call(s) from your company or the benefits provider reminding you about enrollment deadlines and/or proactively asking about any questions you may have 14% 13% 14% 12% Individual, one-on-one meetings during nonwork hours 7% 7% 7% 9% Group meetings or seminars during nonwork hours 6% 5% 6% 8% Areas in which Boomers are significantly different than Millennials only Areas in which Boomers are significantly different than Gen-X ers and Millennials 25

28 Voluntary Benefits Planning for Success: Identify the Right Voluntary Programs, Set Participation Goals, and Implement Effective Communication and Enrollment Strategies Employee Satisfaction and Retention Are More Important Objectives than Cost Reduction to Plan Sponsors Offering Voluntary Benefits Voluntary benefits, or optional programs that are made available at the workplace and 100% paid for by employees, became popular among plan sponsors in the mid-1990s as a way to offset benefits cutbacks and increased cost-sharing largely due to double-digit inflation on their medical plan expenses. Companies wanted to expand the products and services offered to their employees but at minimal cost, and maintain the competitiveness of their overall benefits package. Today, many plan sponsors offer voluntary benefits and their primary objectives continue to be to attract and retain talent and maintain a competitive benefits package, rather than to shift costs to employees and reduce expenses. Roughly two in five companies offering voluntary benefits strongly agree that these programs have had a positive impact on employee satisfaction with their benefits program overall. Nearly half (46%) agree that offering voluntary benefits has helped to lower overall benefits costs to some extent, while 22% strongly agree that any costs savings have resulted. Large companies (about two-thirds of those with 10,000+ employees) are more likely to agree that they have seen cost savings from offering voluntary benefits. Owners and presidents are more likely than those in accounting/finance to agree that voluntary benefits have resulted in savings for their companies. Employee survey results seem to support employer views regarding their objectives for offering voluntary benefits. Workers who perceive advantages and see value in voluntary benefits tend to have a more favorable opinion about their companies benefits programs overall. For voluntary benefits programs to have the intended effect on employee satisfaction and retention, plan sponsors need a strategy. A critical first step is to assess which products are of greatest interest to a particular group to ensure they are the right fit for their work force. Based on analysis of employee demographic data and survey feedback, participation targets can be established and a communication and enrollment strategy can be developed to increase chances for success. Currently, most plan sponsors seem to lack some or all pieces of an effective voluntary benefits strategy. 26

29 PLAN SPONSOR ATTITUDES TOWARD VOLUNTARY BENEFITS PERCENTAGE OF PLAN PARTICIPANTS BY GENERATION 38% 22% Offering voluntary benefits has had a positive impact on employees satisfaction with benefits Offering voluntary benefits has helped to lower overall benefits costs Survey base: Employers offering voluntary benefits PLAN PARTICIPANT PERCEIVED VALUE OF OVERALL BENEFITS PERCENTAGE RATING 7 OR 6 ON A 7-POINT VALUE SCALE 57% 44% Those who see advantages to voluntary benefits Those who see no advantages to voluntary benefits 27

30 Plan Sponsor Use of Voluntary Benefits Has Been Steady over the Past Few Years but Continues to Vary by Company Size and Industry Many plan sponsors offer multiple voluntary benefits to meet the various needs of their workers. The larger the company, the more voluntary benefits they are likely to offer. The incidences of companies offering voluntary benefits and the specific benefits they offer have changed little in the past few years. Life and disability insurance continue to be among the most prevalent voluntary benefits offered by plan sponsors, while long-term care (LTC) insurance is again among the fastest growing employee-paid benefits. Large plan sponsors (5,000+ employees) are more likely than small firms (50 99 employees) to offer voluntary life, disability, or LTC insurance. The financial impact of longer life expectancy combined with soaring nursing care costs has grabbed the attention of many employers. Today, more than one in four plan sponsors surveyed (28%) offer LTC insurance as a voluntary benefit, up from 16% a few years ago. This trend suggests that more employers are now implementing LTC plans following years of cautious optimism about the future of these plans. Offering specialized benefits such as voluntary LTC insurance which often has participation of less than 20% is part of a benefits strategy intended to address the particular needs of various demographic and life-stage segments of a work force. PERCENTAGE OF PLAN SPONSORS OFFERING VOLUNTARY BENEFITS 2008 VS Life 35% 39% Disability 32% 35% LTC 28% 16% Group Universal Life N/A Group Variable Universal Life N/A 16% 9% Survey base: All employers

31 Offering multiple voluntary benefits, including LTC, is important to many plan sponsors who want to maintain a competitive benefits package and attract and retain talent. Some industries are at the forefront of this trend offering a much broader array of voluntary benefits that includes group universal life (GUL), group variable universal life (GVUL), as well as LTC insurance. Plan sponsors in Public Administration, Education, Financial Services, and Health Care are the most likely to offer voluntary LTC insurance to their employees. In fact, most of the recent growth in employers offering LTC plans is centered in the Public Administration sector. The Financial Services and Education sectors are more likely than others to offer GUL, while companies in Health Care and Public Administration are more likely to offer GVUL plans. Many plan sponsors are seeking ways to help keep their employees satisfied and motivated despite requiring further cost-sharing on their medical plans and making other benefits cutbacks. More employers expect to offer voluntary benefits in the next few years as a way to fill the gap between the level of benefits provided in the past versus what they are able to afford today. Therefore, finding the right mix of voluntary benefits to meet the needs of their work force and developing the most effective and efficient strategies to implement these programs will be key to their success. 29

32 PERCENTAGE OF PLAN SPONSORS OFFERING LTC INSURANCE IN 2008 BY INDUSTRY Percentage of Companies Industry Offering LTC Public Administration 51% Education 38% Finance/Insurance 38% Health Care 33% Retail Trade 31% Information 30% Professional Services 30% Arts/Entertainment/Recreation 30% Other Services 29% Manufacturing 24% Construction 22% Real Estate 21% Wholesale Trade 18% Accommodation Services 17% Transportation/Warehousing 16% Survey base: All employers Industries that are most likely to offer LTC insurance 30

33 Most Plan Sponsors Do Not Have Participation Targets for Any of Their Voluntary Benefits, Making It a Challenge to Measure the Success of These Programs Actual participation rates have increased only slightly over the past few years. Consistent with 2006 survey results, voluntary life and disability insurance plans tend to have the highest participation about one in four employees participate in these programs. How well do these participation levels match plan sponsor goals or expectations? Notably, the vast majority of plan sponsors (82%) say they don t have goals or target participation rates for any of their voluntary plans. That makes it difficult to gauge the success of these programs and to identify and track efforts to improve future plan performance. Depending on the benefit and the demographic composition of the employee group, optimal participation targets may be set quite low because the benefit is being offered to meet the specific needs of a narrow segment within the population. However, without any participation goals, it s impossible to judge whether enrollment and communications strategies have been effective. Companies with employees outside the U.S. are more likely to have target participation rates. They are also more likely to have higher actual participation in most of their voluntary plans, including life, disability, LTC, and GUL. 31

34 AVERAGE ACTUAL PARTICIPATION RATES (MEDIAN VALUE) Life 26% 24% Disability 23% 18% Group Universal Life N/A 19% LTC 14% 9% Group Variable Universal Life N/A 9% Survey base: Employers offering each benefit PERCENTAGE OF PLAN SPONSORS WITH TARGET PARTICIPATION GOALS Disability 9% Life 8% LTC 4% GUL 3% GVUL 2% None 82% Survey base: Employers offering voluntary benefits 32

35 Opportunity Exists for Plan Sponsors to More Effectively Communicate the Advantages of the Most Important Voluntary Benefits to Their Employees, and to Better Set Plan Participant Expectations Perceptions about the value of voluntary benefits vary greatly between plan sponsors and their employees. Employers are much more likely to understand the advantages and, in general, place much greater importance on nearly all features of voluntary programs than plan participants. This is particularly true with respect to perceived costs and the range of benefits offered. Cost is a perceived advantage of voluntary benefits, yet only 39% of employees surveyed mention it as a top advantage. A minority feels strongly that voluntary benefits cost less than purchasing the same products or services outside the workplace. In comparison, though, 73% of plan sponsors cite employee cost as an important advantage to voluntary benefits a perceptual gap of 34 percentage points between plan sponsors and employees. About two-thirds of employers (65%) believe having access to a wider range of benefits is an important advantage of voluntary programs second highest next to cost. Access to more products and services is less important to employees, however, with just 33% rating this as a top advantage another large perceptual gap of 32 percentage points. Plan sponsor and employee perceptions are more aligned around convenience. For employees, convenience is the most important advantage of voluntary benefits; two in five plan participants feel strongly about the ease of paying for voluntary benefits through payroll deduction. Plan sponsors agree that convenience is an advantage (though not the most important one), with over half of employers rating convenience as an important objective a relatively smaller perceptual gap of 10 percentage points. Small and mid-size employers (<2,500 employees) are more likely to cite lower costs as an advantage of voluntary benefits and more likely to cite voluntary benefits as helping a company maintain the competitiveness of its benefits package. Large employers (5,000+ employees) are more likely than others to rate the convenience of payroll deduction as the top advantage of voluntary benefits. Younger companies (<50 years in business) are more likely to see advantages in voluntary benefits. 33

36 TOP ADVANTAGES OF VOLUNTARY BENEFITS PERCENTAGE OF PLAN PARTICIPANTS VS. PLAN SPONSORS Advantage Plan Participants Plan Sponsors* Difference Voluntary benefits through the workplace are more convenient because you pay for them through payroll deduction 42% 52% 10 Voluntary benefits often cost less than if you purchase the same benefits outside the workplace 39% 73% 34 Voluntary benefits offered by your company give you access to a wider range of useful benefits than you might otherwise have available 33% 65% 32 You can enroll in voluntary benefits without going through a medical exam or providing other evidence of insurability 28% 30% 2 Your employer has done the research and shopping for you, and endorses the options that you have available 20% 16% -4 Service is often better because of the relationship and contract that your employer has with the benefits provider 15% 21% 6 There are no advantages 6% 2% -4 I don't know enough to say 27% N/A N/A *Among those offering voluntary benefits Note: Multiple responses accepted Greatest differences 34

37 Many Plan Participants Lack General Knowledge about or Are Simply Unaware of Voluntary Benefits Overall, two-thirds of all employees say there are advantages to voluntary benefits, but that leaves one-third who do not see advantages or do not know enough to have an opinion. Women and employees over age 50 tend to see greater advantages in voluntary benefits compared to others. These findings suggest that the greater access to the products and services made available through voluntary benefits are fulfilling a particular need among the female and older work force. Conducting employee needs assessments and improving the effectiveness of communication and enrollment efforts will help plan sponsors improve employee awareness, appreciation, and perhaps even participation in their voluntary benefits programs. TOP ADVANTAGES OF VOLUNTARY BENEFITS PERCENTAGE OF PLAN PARTICIPANTS BY AGE GROUP All Plan Advantage Participants < Voluntary benefits through the workplace are more convenient because you pay for them through payroll deduction 42% 35% 39% 40% 46% 56% Voluntary benefits often cost less than if you purchase the same benefits outside the workplace 39% 35% 37% 34% 47% 50% Voluntary benefits offered by your company give you access to a wider range of useful benefits than you might otherwise have available 33% 36% 32% 34% 34% 30% You can enroll in voluntary benefits without going through a medical exam or providing other evidence of insurability 28% 18% 25% 32% 28% 43% Your employer has done the research and shopping for you, and endorses the options that you have available 20% 23% 19% 17% 20% 22% Service is often better because of the relationship and contract that your employer has with the benefits provider 15% 11% 16% 14% 18% 19% There are no advantages 6% 5% 7% 7% 6% 3% I don't know enough to say 27% 33% 30% 27% 22% 17% Note: Multiple responses accepted Significant differences 35

38 Home Mailings and Other Communications Outside the Workplace May Be More Effective at Reaching Younger Workers with Information about Voluntary Benefits As reported in other Prudential research and in the media, many workers feel inundated with the amount of information and choices available during their companies open enrollment periods. When voluntary benefits are offered alongside employer-paid and contributory benefits, the process is even more overwhelming. Many workers express interest in being able to share information and consult with family and friends outside the workplace about their benefits choices. Plan sponsors use many different methods to communicate with their employees about voluntary benefits, but expect to increase the use of home mailings and messages sent to employees personal addresses, which are under-utilized relative to employee preferences. The vast majority of plan sponsors (80%) use group meetings held during the workday to provide employees with information about their voluntary benefits options. Another two in five plan sponsors (43%) send information to their employees work addresses, which is the second most frequently used communication approach. These methods are consistent with employee preferences, which are group meetings or seminars held during the workday (54%) and s sent to work addresses (46%). Employees would also prefer that their employers use some of these communication strategies more often: Online presentations or webinars 14% of employers use vs. 26% of employees prefer Printed materials mailed home 35% of employers use vs. 50% of employees prefer messages sent to personal addresses 8% of employers use vs. 23% of employees prefer Calls at home from benefits department or benefits provider 3% of employers use vs. 14% of employees prefer 36

39 Greater use of the Internet, home mailings, and webinars would be a more effective way to provide information to workers who prefer to do research on their own time. Workers who are interested in receiving printed materials at their homes and via personal addresses tend to: Be under age 40 Have less than a bachelor s degree Be among those who currently do not value voluntary benefits or know too little about them to have an opinion COMMUNICATION AND ENROLLMENT STRATEGIES PLAN SPONSOR USE VS. PLAN PARTICIPANT PREFERENCES Communication and Enrollment Strategy Employers Use* Employees Prefer Difference Group meetings, seminars during the work day 80% 54% -26 received at the workplace 43% 46% 3 Individual, one-on-one meetings during the work day 40% 35% -5 Mail received at home 35% 50% 15 Mail received at the workplace 35% 29% -6 A toll-free phone number for asking questions during the enrollment period 27% 12% -15 An online presentation (Internet or Intranet) of benefits information 14% 26% 12 Group meetings, seminars during nonwork hours 12% 6% -6 A video, CD-ROM, or DVD presentation of benefits information 10% 17% 7 received at home 8% 23% 15 Individual, one-on-one meetings during nonwork hours 6% 7% 1 A call(s) from your company or the benefits provider reminding you about enrollment deadlines and/or proactively asking about any questions you may have 3% 14% 11 Other 2% 0% -2 None 1% 3% 2 *Survey base: Employers offering voluntary benefits Note: Multiple responses accepted Employee preference is substantially greater than employer usage 37

40 Benefits Web Technology The Future Is Now: The Use of Web Tools Has Expanded Substantially, but Employers Struggle to See Cost Savings Web Capabilities Available to Benefits Administrators Have Proliferated in the Past Few Years; Some Expectations about Usage by 2010 Have Already Been Surpassed Plan administrators are increasingly using web technology. In Prudential s Study of Employee Benefits: 2006 and Beyond, employers were asked to identify the web tools used by their benefits staff and the tools they expected to use within five years, or by Access to all web functionality evaluated in 2006 has increased during the past few years. The largest increase is related to billing functionality ( changing and reviewing billing information ) at 67%, up from 44% in Usage of web tools for eligibility processing and accessing claims forms also increased substantially. Current usage of web tools has already exceeded plan sponsor expectations from several years ago in five areas: Access to claims forms 70% use in 2008 vs. 61% expected to use by 2010 Access, review, and amend billing information 67% use in 2008 vs. 60% expected to use by 2010 Process employee eligibility information 64% use in 2008 vs. 59% expected to use by 2010 Check claim status 60% use in 2008 vs. 58% expected to use by 2010 Access updates on eligibility processing 60% use in 2008 vs. 59% expected to use by 2010 Small businesses and even some mid-size firms feel that their size may prohibit their access to certain benefits web technology. While this is true for select functionality offered by some carriers or third-party administrators, this finding suggests an opportunity for the industry to better assist smaller firms in understanding the web tools available to them. As in 2006, larger plan sponsors continue to make broader use of benefits web technology when compared to smaller firms. However, over the next five years, smaller businesses expect to deploy benefits web technology at a more rapid pace. 38

41 USAGE OF ONLINE TOOLS FOR BENEFITS PLAN ADMINISTRATORS USAGE IN 2006 VS. USAGE IN 2008 VS. PLANNED TO USE BY 2010 (AS OF 2006) Online Task Change Access claims forms 52% 70% 61% +18 Access, review, and amend billing information 44% 67% 60% +23 Process employee eligibility information 45% 64% 59% +19 Handle enrollment (enroll, terminate, or make changes to benefits) 51% 63% 64% +12 Review, process monthly deferrals for 401(k) or other direct contribution plans 57% 62% 63% +5 Check claim status 48% 60% 58% +12 Access updates on eligibility processing 43% 60% 59% +17 Access claims reports 54% 55% 61% +1 Pay bills 40% 50% 56% +10 Submit claims 35% 49% 56% +14 Integrate payroll processing 41% 43% 55% +2 Manage beneficiary information N/A 48% N/A N/A Manage, track employee absences (e.g., paid time off, disability leave, family medical leave, workers compensation) N/A 44% N/A N/A Check status of insurability (proof of good health) N/A 22% N/A N/A None N/A 5% N/A N/A Functionality where growth exceeds anticipated 2010 usage 39

42 Plan Sponsors Expect Continued Growth in Their Use of Web Tools for Benefits Administrators At least half of plan sponsors report that their benefits administrators currently have access to 9 of 14 types of online functionality discussed in the study. However, at least 75% expect to have access to 12 of the 14 tools by 2013, and the only remaining two tools ( integrated payroll processing and checking status of evidence of insurability ) are still expected to be used by at least 6 in 10 plan sponsors. This indicates continued growth in the use of web tools for plan administrators over the next five years. Large companies (5,000+ employees) are the most likely to use all forms of web functionality covered in the study, while small firms (50 99 employees) remain the least likely to use any benefits web tools. Wholesale Trade, Accommodation Services, and Public Administration sectors are the least likely to use any web functionality for benefits plan administrators. Usage of each type of functionality for plan administrators is expected to be at least 12% higher in 2013 than in By 2013, usage of web functionality for plan administrators is expected to increase the most in the following areas: Check status of evidence of insurability (+39 points) Manage and track employee absences (+31 points) Pay bills (+29 points) Submit claims (+29 points) Manage beneficiary information (+29 points) Integrate payroll processing (+28 points) 40

43 USAGE OF ONLINE TOOLS FOR BENEFITS PLAN ADMINISTRATORS USAGE IN 2008 VS. PLAN TO USE BY 2013 Online Task Change Access claims forms 70% 82% +12 Access, review, and amend billing information 67% 84% +17 Process employee eligibility information 64% 83% +19 Handle enrollment (enroll, terminate, or make changes to employee benefits) 63% 84% +21 Review and process monthly deferrals for 401(k) or other defined contribution plans 62% 82% +20 Check claim status 60% 79% +19 Access updates on eligibility processing 60% 79% +19 Access claims reports 55% 76% +21 Pay bills 50% 79% +29 Submit claims 49% 78% +29 Manage beneficiary information 48% 77% +29 Manage and track employee absences (e.g., paid time off, disability leave, family medical leave, workers compensation) 44% 75% +31 Integrate payroll processing 43% 71% +28 Check status of insurability (proof of good health) 22% 61% +39 None 5% 3% -2 Functionality of high current usage Functionality of high future growth 41

44 The Availability of Web Tools for Plan Participants Has Grown as Well, but at a Slower Rate Than Employer Functionality In Prudential s Study of Employee Benefits: 2006 and Beyond, employers were asked about the web tools currently available to their employees and the tools they expected to make available in five years (2010). Consistent with the 2006 findings, the three types of functionality currently available to most plan participants are: Obtain/download forms (76%) Manage 401(k) accounts (69%) Access educational information (63%) Availability of most participant web tools remains somewhat low. Only two tasks downloading forms and accessing educational information have increased substantially in terms of availability since Employee access to all other benefits web tools has remained relatively the same. As with functionality for plan administrators, expectations are high for future use of web tools for plan participants. Increases of more than 40 percentage points between what is currently available and what is expected are reported for the following: Enroll in benefits Submit claims Access paid time off information Submit and check status of evidence of insurability By 2013, more than three-fifths of all plan sponsors anticipate that their employees will have access to all of the web tools covered in this study. In general, mid-size and larger companies (1,000+ employees) are more likely to make web tools available to their employees, while small firms (<100 employees) are least likely to offer web tools to their employees. Public sectors, such as Education and Public Administration, are more likely to deploy web tools for their employees to download forms and obtain educational information. 42 Plan sponsors in Financial/Insurance and Public Administration are more likely to give employees access to online financial planning tools and calculators, while Financial/Insurance firms tend be leaders in online enrollment for employees.

45 AVAILABILITY OF WEB TOOLS FOR PLAN PARTICIPANTS USAGE IN 2006 VS. USAGE IN 2008 VS. PLAN TO USE IN 2013 Online Task 2006 Actual 2008 Actual 2013 Expected Change Obtain/download forms 63% 76% 86% +13 Manage their 401(k) or other direct contribution plan accounts 70% 69% 84% -1 Obtain educational information about the company s insurance and retirement plans 54% 63% 81% +9 Check claims status 50% 51% 79% +1 Use financial planning information and tools/calculators 50% 51% 77% +1 Update personal or dependent information 43% 45% 79% +2 Update beneficiary designations 41% 41% 79% 0 Verify benefits eligibility 39% 39% 73% 0 Enroll in benefits plans 34% 36% 78% +2 Submit claims 35% 35% 76% 0 Access paid time off information/balances 22% 25% 67% +3 Check status of insurability N/A 21% 65% N/A Submit evidence of insurability (proof of good health) N/A 16% 62% N/A None N/A 7% 4% N/A Note: Ranked by 2008 percentages Functionality of high future use 43

46 Web Technology Is Expected to Play an Even Larger Role in Shaping Employee Benefits Strategy in the Next Five Years While most plan sponsors take partial to full advantage of the web tools currently available to them, they have high and to date, largely unmet expectations regarding the performance of these tools, particularly in achieving cost savings and administrative efficiencies. Use of benefits web technology implied the promise of improved efficiencies, but many plan sponsors are disappointed with the performance of web tools in the areas of information quality and timeliness. Therefore, plan sponsors need more support in identifying and quantifying their return on their investment in web tools. Currently, more than one-quarter of plan sponsors say deployment of web technology is important or very important to their overall employee benefits strategy. The importance of benefits web technology is expected to grow considerably over the next five years. Nearly three-fifths of all plan sponsors indicate that it will be highly important to their benefits strategy by 2013, representing an increase of 30 percentage points over Plan sponsors anticipate that in five years, web technology will become one of their top benefits priorities, second only to implementing health and wellness programs. Companies more likely to leverage benefits web technology tend to be: Mid-size and large (greater than 500 employees, but particularly firms with 1,000 5,000 employees) In the Information Services and Real Estate industries (it is least important to companies in the Construction and Health Care industries) Public companies they are most likely to indicate that web technology will be of greater importance in

47 TOP EMPLOYEE BENEFITS PRIORITIES 2008 VS PERCENTAGE OF PLAN SPONSORS RATING ITEMS HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) Objective of Employee Benefits Strategy Change Attempting to control benefits costs by addressing the health of the work force by promoting wellness, prevention, and work/life balance 32% 61% +29 Applying/using Internet technology to reduce benefits costs or to increase efficiency 28% 58% +30 Increasing employee education and/or advice helping employees understand how to make the best choices 34% 56% +22 Giving more financial responsibility to employees through high-deductible health plans, health savings accounts (HSAs), etc. 21% 48% +27 Cost-sharing asking employees to bear a greater portion of the costs of benefits 23% 43% +20 Tailoring communication and enrollment to meet the needs of various employee segments 24% 39% +15 Note: Items ranked by 2013 percentages Represents the biggest change 45

48 Corporate Spending on Benefits Web Technology Is Expected to Increase in the Next Five Years In 2007, when many companies were faced with lower revenues and earnings, web technology spending continued. In fact, nearly one-third of plan sponsors (30%) say their web technology budget actually increased in the past year, while about 60% say it remained steady. Only 2% reported a decrease in spending. This trend is expected to continue in the next five years, with half of employers anticipating budget increases for web technology from now to An average increase of 15% is expected among employers. Mid-size and large companies (particularly those with 1,000 5,000 employees) are more likely to have increased their budget for benefits web technology in the past year, and are more likely to anticipate budget increases in the next five years. Plan sponsors expecting to spend the least on benefits web technology over the next five years tend to be smaller (<100 employees); private; completely U.S.-based; and in the Construction, Manufacturing, or Wholesale Trade industries. CHANGES IN WEB TECHNOLOGY BUDGET 2008 VS PERCENTAGE OF PLAN SPONSORS % Increase 56% Remain the Same 50% Increase 35% Remain the Same 12% Don t Know 2% Decrease 13% Don t Know 2% Decrease 46

49 Plan Sponsors Objectives for Deploying Web Technology Are Still Not Being Met Plan sponsors value web technology for many reasons, but cost savings and greater efficiency are the most important, followed by improved quality of information and error reduction. Almost seven in ten (69%) plan sponsors say that reducing benefits costs is an important or very important objective, up from 63% in This year s importance ratings are relatively similar to 2006 ratings for most objectives. By far, cost reduction has increased the most in importance (6 points). Consistent with our 2006 study, gaps continue to exist between the importance of objectives and the performance of the technology in meeting those objectives. The gap for cost reduction is the widest and has increased to a shortfall of 46 points. In all other areas, gaps are smaller this year than in Despite the past growth and projected expansion of benefits web technology over the next five years, plan sponsors continue to be underwhelmed with the performance of existing web tools in meeting their companies goals. Most notably, employers say that web tools are not yet generating the expected cost savings and efficiencies, which is the primary goal for many plan sponsors in using online functionality. Plan sponsors are seeking help in quantifying cost savings and demonstrating a return on investment to their senior leadership. Employers with 1,000 2,500 employees are the most likely to place high importance on cost savings from benefits web technology. Large companies (5,000+ employees) are the most likely to deploy benefits web tools to reduce errors in information submission and provide 24 x 7 access. 47

50 IMPORTANCE OF BENEFITS WEB TECHNOLOGY OBJECTIVES 2006 VS PERCENTAGE OF PLAN SPONSORS RATING ITEMS HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) Objective Change Reduce benefits administration costs 63% 69% +6 Reduce errors in submitting information 63% 65% +2 Improve the quality of information employees receive 62% 63% +1 Provide more timely and up-to-date information for employees and human resources managers 60% 63% +3 Provide more convenience 24 x 7 access for employees and human resources managers 55% 56% +1 Provide information that can be tailored for the individual employee 52% 49% -3 Enable human resources to focus more on strategic initiatives 53% 47% -6 PERFORMANCE OF BENEFITS WEB TECHNOLOGY IN MEETING OBJECTIVES PERCENTAGE RATED HIGHLY IMPORTANT (7 OR 6 ON A 7-POINT SCALE) VS. HIGH PERFORMANCE ( NEEDS COMPLETELY OR MOSTLY MET ) Objective Change Reduce benefits administration costs 69% 23% -46 Improve the quality of information employees receive 63% 40% -23 Enable human resources to focus more on strategic initiatives 47% 26% -21 Reduce errors in submitting information 65% 46% -19 Provide more timely and up-to-date information for employees and human resources 63% 44% -19 Provide information that can be tailored for the individual employee 49% 33% -16 Provide more convenience 24 x 7 access for employees and human resources 56% 44% -12 Performance ratings are substantially less than importance ratings 48

51 Greater Usage of Benefits Web Tools Generates More Positive Results Taking full advantage of the online functionality available for managing benefits programs can help plan sponsors achieve better results and realize the desired cost savings from web technology. About one-third of plan sponsors indicate that their companies use web tools to accomplish at least 10 different tasks (we refer to these employers as power users ). Another 44% of plan sponsors say they use five to nine types of online functionality ( moderate users ), while 18% use the web for just one to four tasks ( low users ). In the case of benefits web functionality, more appears to be better. Power users are more satisfied with the performance of their web tools and are more likely to feel that the technology is meeting their desired goals. Substantial gaps exist between power users and low users regarding their satisfaction with web tools meeting their objectives, particularly in the area of cost reduction. Power users seem to be realizing more cost savings and greater efficiencies from their use of online functionality than low users; 39% of power users say their needs are being mostly or completely met, compared to just 8% of low users. Power users of benefits web technology tend to: Have 5,000 or more employees and more than one office location. Have larger human resources departments. Strongly link their benefits and business strategy/financial goals. Place greater importance on costs savings/increased efficiency from web technology. Feel that their benefits communication efforts are highly effective. Believe that their employees are highly satisfied with their overall benefits program. 49

52 NUMBER OF DIFFERENT TASKS CONDUCTED ONLINE BY BENEFITS ADMINISTRATORS PERCENTAGE OF PLAN SPONSORS Power Users 10+ Tasks 34% Moderate Users 5 9 Tasks 44% None 4% Low Users 1 4 Tasks 18% PERFORMANCE OF BENEFITS WEB TECHNOLOGY BY USAGE LEVEL PERCENTAGE OF PLAN SPONSORS SAYING TECHNOLOGY COMPLETELY MEETS OR MOSTLY MEETS NEEDS Objective Power Users Low Users Difference Provide more timely and up-to-date information for employees and human resources managers 58% 16% +42 Reduce errors in submitting information 59% 18% +41 Improve the quality of information employees receive 53% 18% +35 Enable human resources function to focus more on strategic initiatives 41% 8% +33 Reduce benefits administration costs 39% 8% +31 Provide more convenience 24 x 7 access for employees and human resources managers 58% 27% +31 Provide information that can be tailored for the individual employee 43% 22% +21 Survey base: Plan sponsors rating objective as highly important 50

53 The More Tasks That Plan Participants Can Perform Online, the More Satisfied They Are with Their Benefits Achieving cost savings and other objectives from the deployment of benefits web technology also involves increasing plan participant access to and utilization of the tools available to them. Awareness is essential to achieving higher utilization. Workers who have access to a wider array of online functionality for managing their benefits programs, or perhaps, are simply more aware of the functionality, tend to be more satisfied with the value of their benefits program overall. Employees who are able to perform 5 to 12 tasks online are much more likely to say their employee benefits are highly valuable compared to those with access to fewer than five web tools. Plan sponsors already intend to expand employee access to benefits web technology, but this finding suggests the importance of effectively communicating the availability of these tools so that employees are aware of them and use them to perform a wide variety of tasks online. Expanding the breadth of functionality available online may contribute not only to greater cost savings but also to higher employee satisfaction among low users as well. SATISFACTION WITH VALUE OF EMPLOYEE BENEFITS PERCENTAGE OF PLAN PARTICIPANTS BY NUMBER OF ONLINE TASKS AVAILABLE PERCENTAGE RATING HIGHLY VALUABLE (7 OR 6 ON A 7-POINT SCALE) 66% 59% 48% 40% 9 12 Tasks 5 8 Tasks 1 4 Tasks No Tasks 51

54 Absence Management You Can t Manage What You Don t Track: Employers Must Implement a Comprehensive Absence Tracking System to Improve Productivity Currently, Most Plan Sponsors Are Tracking Basic Employee Absences to Some Degree in an Effort to Manage Workforce Productivity Companies began instituting systems to track employee absences within the past 10 to 15 years, following passage of the Family Medical Leave Act (FMLA) in A lack of internal resources, the amount of paperwork involved, and other complexities have deterred plan sponsors from taking a more systematic approach to monitoring and reporting absences. However, in recent years, insurance carriers, third-party administrators, and the development of absence management software packages have helped to facilitate the process and allay employer concerns. More than 8 in10 plan sponsors are currently tracking the most common types of absences. Nearly all are tracking vacation, workers compensation, and sick days, followed closely by family medical leave and disability absences. Over the next five years, most companies expect to track more types of absences, particularly short-term and long-term disability absences. Plan sponsors most likely to be tracking employee absences are: Large companies (5,000+ employees) Currently addressing the issue of an aging work force Working with benefits carriers and third-party administrators with a high degree of technological capability 52

55 The vast majority of plan sponsors (92%) handle absence tracking in-house as opposed to outsourcing it to a third-party administrator. Regardless of the tracking method, the goals for the process are consistent: Improve workforce productivity Increase administrative efficiency Better enforce compliance with regulations Interestingly, those using a third-party for absence tracking appear to have a more comprehensive view of their costs (i.e., indirect as well as direct costs) and to be getting information on less common absences (e.g., military leave). Large companies (5,000+ employees) with only U.S.-based employees are most likely to be working with a third-party administrator for absence tracking. EMPLOYEE ABSENCES TRACKED 2008 VS. EXPECTED IN 2013 Type of Employee Absence Change Vacation days 96% 96% 0 Workers compensation 94% 95% +1 Sick days 92% 95% +3 Family medical leave 89% 93% +4 Short-term disability 86% 92% +6 Long-term disability 83% 90% +7 Survey base: Employers who engage in absence management tracking 53

56 For Many Companies, Tracking Absences Is a Starting Point for More Comprehensive Absence Management, Return-To-Work, and Benefits Integration Efforts Among plan sponsors that provide accommodations to assist employees in returning to work, nearly three-quarters (73%) indicate that they do at least some type of absence tracking as a way of managing workforce productivity. While many companies are tracking basic absences, only about three in ten plan sponsors report doing a great deal with respect to implementing a process that will improve workforce productivity. More than one-fourth of employers indicate they currently are doing little to no tracking. Considering that absence management is generally an early stage on the continuum of benefits integration, it is not surprising that even fewer employers are actively engaged in return-to-work initiatives or integrating parts of their health care and disability benefits. Currently, just 26% are doing a great deal to provide accommodations to assist employees in returning to work following a leave of absence (38% are doing little to nothing ). Just 19% are doing a great deal in coordinating or integrating aspects of their medical, pharmacy, disability, and workers compensation plans (40% are doing little to nothing ). Plan sponsors who are the most active in absence management tend to: Offer a wider array of employee benefits that are often viewed as strategically important by senior management. Have a benefits strategy that is linked to their business strategy/financial goals. Make greater use of the Internet to reduce benefits costs and increase efficiency. Focus on improving the health of their work force to control overall benefits costs. LEVEL OF MARKET ACTIVITY IN ABSENCE MANAGEMENT AND BENEFITS INTEGRATION 2008 PERCENTAGE OF PLAN SPONSORS RESPONDING ON A 7-POINT SCALE Great Deal of Activity Moderate Activity Little or No Activity Tracking employee absences to improve workforce productivity 34% 39% 27% Providing accommodations to assist employees in returning to work following a leave of absence due to injury or illness 26% 36% 38% 54 Coordinating/integrating parts of medical, pharmacy, disability, and workers compensation plans 19% 41% 40%

57 Return-To-Work Programs and Integrated Health Care and Disability Management Will Be Increasingly Important Priorities for Plan Sponsors in the Next Five Years Currently, six in ten plan sponsors provide accommodations for employees returning to work after an injury or illness-related absence, but only 26% say that they provide a high level of return-to-work accommodations. Even fewer (19%) are actively coordinating or integrating aspects of their health care and disability plans. However, activity in these areas will greatly increase by 2013 as more companies seek to reduce benefits costs and increase earnings by addressing workforce health and productivity. Twice as many plan sponsors expect to be doing a great deal in terms of coordinating or integrating parts of their medical, pharmacy, disability, and workers compensation plans over the next five years (40% vs. 19%). By 2013, more than one-third (37%) of employers expect to doing a great deal to accommodate employees returning to work following an absence. While this represents an increase of 11% over 2008 levels, the importance of wellness and work/life balance strategies are expected to grow even more over the next five years. Plan sponsors most likely to increase efforts to provide return-to-work accommodations by 2013 are: Large (5,000+ employees) Currently addressing the issue of an aging work force Have only U.S.-based employees LEVEL OF MARKET ACTIVITY IN RETURN-TO-WORK PROGRAMS AND BENEFITS INTEGRATION 2008 VS PERCENTAGE OF PLAN SPONSORS SAYING A GREAT DEAL (7 OR 6 ON A 7-POINT SCALE) Change Providing accommodations to assist employees in returning to work following a leave of absence due to injury or illness 26% 37% +11 Coordinating/integrating parts of medical, pharmacy, disability, and workers compensation plans 19% 40%

58 Plan Sponsors Involved in Absence Management Activities Are More Strategic in Their Approach to Employee Benefits In their efforts to improve administrative efficiency, increase workforce productivity, and contain costs, employers have engaged in a variety of absence management activities, including: Accommodating return-to-work activities (for employees returning from illness and disability-related absences and other leaves of absence) Absence tracking and monitoring Linking absence management tracking and reporting systems to disability claims and medical data Measuring the direct costs of absences, such as wages and benefits claims Measuring the indirect costs of absences, such as overtime, retention of temporary workers, and training Plan sponsors that are currently active in these areas of absence management tend to view their benefits programs more strategically. Specifically, they are more likely to: Offer a wider array of employee benefits options. Offer significantly better or more generous benefits. Believe that senior management views benefits as being strategically important to the company. Have a greater linkage between benefits and business strategies today and in the next five years. Be more paternalistic in its benefits philosophy. Link their benefits strategy to business strategy and financial goals. 56

59 BENEFITS PHILOSOPHY OF PLAN SPONSORS WHO HAVE IMPLEMENTED ABSENCE MANAGEMENT VS. THOSE WHO HAVE NOT PERCENTAGE OF PLAN SPONSORS SAYING HIGHLY AGREE (7 OR 6 ON A 7-POINT SCALE) Implemented Absence Management Have Not Implemented Absence Management Our company offers its employees a wide range of benefits 51% 32% Offering significantly better or more generous benefits than others in our industry gives our company a significant advantage 56% 40% Upper management sees decisions regarding employee benefits as being strategically important for our company 65% 52% Extent to which current benefits strategy will be linked to business strategy and financial goals five years from now 46% 33% Our company is "paternalistic" in how we treat our employees 39% 27% Extent to which current benefits strategy is linked to business strategy and financial goals today 30% 19% 57

60 Absence Management Efforts Are Showing Progress but Are Still in the Early Stages for Most Companies Achieving Return-On-Investment Goals Will Require More Time as Well as More Comprehensive Tracking and Better Integrated, Technology-Driven Solutions Despite the level of tracking activity in the marketplace, few companies indicate they are linking their absence tracking and reporting systems to disability and medical claims data, or measuring the indirect costs of absences (estimated at 15% to 35% of payroll). That explains, in part, why most plan sponsors are not yet realizing the full potential of these efforts in achieving productivity gains and reducing overall benefits costs. Nonetheless, among plan sponsors active in absence tracking and return-to-work programs, half rate their efforts to date as moderately effective. Another four in ten companies engaged in absence management activities feel that those efforts have been highly effective, while three in ten say their return-to-work initiatives have been highly effective. More successful absence management programs typically possess: Solid evidence of direct and indirect costs Discipline in reporting absences by type, similarly across all locations Flexibility to accommodate a range of benefit plans, processes, and employee groups A better demonstration of return-on-investment for absence management efforts Better and more realistic expectation-setting Tracking and reporting systems that are better linked to disability and medical claims data 58

61 Companies more likely to rate their absence management efforts as highly effective are: Large (5,000+ employees) In the Construction and Transportation industries Younger companies (<20 years in business) Addressing the issue of an aging work force EFFECTIVENESS OF ABSENCE TRACKING AND RETURN-TO-WORK PROGRAMS PERCENTAGE OF PLAN SPONSORS RESPONDING ON A 7-POINT SCALE Effectiveness of Absence Tracking Effectiveness of Return-to-Work Programs 41% Highly Effective (7, 6) 50% Moderately Effective (5, 4) 31% Highly Effective (7, 6) 50% Moderately Effective (5, 4) 2% Not Sure 7% Not Very Effective (3, 2, 1) 1% Not Sure 18% Not Very Effective (3, 2, 1) Survey base: Plan sponsors engaged in absence tracking activities Survey base: Plan sponsors engaged in return-to-work activities 59

62 The Benefits Buyer Profile What Drives a Company s Benefits Decisions? Companies Have Different Philosophies and Priorities with Respect to Employee Benefits The Criteria for Making Benefits Decisions May Vary from Company to Company, but Having a Clear Understanding of the Linkage Between Benefits Strategy and Business Plans and Financial Goals Is Important for Any Company There are many ways that the benefits industry segments plan sponsors by number of employees, industry, geographic region, or sales revenue. However, when looking at how these segments link to actual benefits-buying behavior, as well as the philosophies that drive those buying decisions, the connection is often weak at best. Other more important factors determine how a company approaches its benefits programs, which have more to do with business strategies and priorities, and management philosophy in general. Plan sponsors told us which one of four different approaches to benefits decision-making best characterizes their company High-Value, On-Par, Price-Sensitive, Price-Paramount. The segments are described on the opposite page. The Price-Sensitive segment is the most prevalent; four in ten plan sponsors say their company primarily approaches benefits decisions from this perspective. About a quarter agree with the On-Par description. One in five feel their company uses an approach characterized by High-Value. The least frequently chosen category is Price-Paramount; 13% of plan sponsors say their company makes benefits decisions almost exclusively on the basis of price. In general, there are very few differences between these segments based on standard company characteristics, which indicates that these philosophies exist in all companies regardless of industry, region, or size. For example, there are very large companies that make decisions based almost exclusively on price (Price-Paramount) and small companies that strive to proactively manage costs to obtain the best value for the company and its employees (High-Value). Though company size varies slightly by these segments, the size of the human resources department is associated more strongly. The average size of the human resources team in the Price-Paramount segment is half the size of the High-Value segment. There are few differences by region. The Northeast has more companies in the Price-Paramount segment (31%) and fewer in the Price-Sensitive segment (17%), compared to other regions. 60

63 Descriptions of Benefits Buying Philosophies High-Value On-Par Price-Sensitive Price-Paramount We want to offer benefits that are the best value for our company and its employees. Rather than focus on price, we look to proactively manage total costs (e.g., by improving the health of the work force, using technology, outsourcing benefits administration functions, etc.). A strong, recognizable brand name; best-in-class products; high-quality service; and state-of-the-art technology are very important to us. Our priority is offering benefits that are on par with competitors in our industry or market. Cost is important, but it is less of a factor. We look for solid products, good service, and better-than-average technological capabilities. While we don t always offer the lowest priced employee benefits, our company is very sensitive to price. We are willing to pay slightly higher prices for products and services that are most important to attracting and retaining talent. We look for solid products, average service, and some technological capabilities. When it comes to employee benefits, our company is driven almost exclusively by cost. We look for the absolute lowest-priced products and services. The quality of service should be acceptable. Brand name and technology are not as important to us. BENEFITS DECISION-MAKING PHILOSOPHIES PERCENTAGE OF PLAN SPONSORS SELECTING EACH CATEGORY 40% Price-Sensitive 21% High-Value 26% On-Par 13% Price-Paramount 61

64 Profile of the High-Value Segment The Strategic Linkage Between Company Goals and Benefits Decision-Making and Usage Is Strong The senior management of these companies clearly links employee benefits decisions with the overall business strategy and financial goals of the company. This linkage is strong and is expected to become stronger over the next five years. Consistent with their more strategic focus, plan sponsors in this segment offer more benefits and tend to pay for more of them. Over 60% of the plan sponsors in this segment, as compared to 38% of the other segments combined, say their company offers its employees a wide range of benefits. Also, over 60% of the plan sponsors in this segment say their company pays all or most of the costs of employee benefits, compared to 37% of the others combined. Cost-sharing is not a major objective driving employee benefits decisions for these plan sponsors only one in five rate this as very important. Voice of the High-Value Segment I think we re always looking to, not necessarily find the cheapest cost, but one that s going to provide good-quality service somebody that is going to offer good benefits and stand behind them So it ultimately affects our overhead or our bottom line by sometimes taking into consideration what we think is going to be of greater benefit to the employees here and to the corporation. Benefits are a high priority to senior management. They feel like we provide excellent benefits that are superior to many of our competitors in the marketplace and that s something that s recognized by our employees. Partner, legal firm, employees 62

65 LINKING BENEFITS AND BUSINESS GOALS PERCENTAGE OF PLAN SPONSORS THAT STRONGLY AGREE (7 OR 6 ON A 7-POINT SCALE) High-Value On-Par Price-Sensitive Price-Paramount Upper management sees decisions regarding employee benefits as being strategically important for our company 81% 72% 52% 25% Offering significantly better or more generous benefits than others in our industry gives our company a significant advantage, including having positive effects on attracting and/or retaining the employees we seek 74% 55% 40% 25% Extent to which your current employee benefits strategy is linked to your business strategy and financial goals today 46% 28% 18% 9% Extent to which you think your employee benefits strategy will be linked to your business strategy and financial goals five years from now 63% 47% 33% 18% 63

66 High-Value Plan Sponsors Strive to Provide Effective Benefits Communications and Enrollment Support so that Participants Can Better Understand Their Options and Make the Best Decisions More than any other segment, High-Value plan sponsors want to help their employees make the best benefits choices by educating them. Nearly half say this is very important (compared to under one-third of other plan sponsors). Further, the importance of educating employees is expected to grow considerably over the next five years; more than two-thirds say this will be very important (compared to more than half of other plan sponsors). Companies in this segment are more likely to consider the personal characteristics and needs of individual employees to make communications as effective as possible. They are more likely to say that tailoring communications to meet the differing needs of employees is an objective driving their employee benefits strategies. In five years, 49% of these companies expect that targeting communications will be a highly important strategy. They are also among those who are most likely to feel their current communications are very effective in helping employees make the right choices, given their current needs. Perhaps as a result of their focus on employees, plan sponsors in this segment are much more likely to say their employees are satisfied with their overall benefits package. Almost half (46%) say their employees are highly satisfied (a 7 or 6 on a 7-point scale) compared to 27% of employers in the other segments. Voice of the High-Value Segment We feel it is extremely important for employees to have the time and help to make good benefits decisions. Our company places a premium on informing employees when the opportunity to make changes is coming, when it s arriving, when it s almost done. Nowadays, with finances being tighter and tighter, employees who need coverage need the time to evaluate what is being offered and determine what they can afford. We want to put the right information in front of them at the right time so they can take advantage of it. Benefits Director, pharmaceuticals firm, 5,000 10,000 employees 64

67 Plan sponsors in this segment are much more likely than other employers to say the following diversity issues are very important in driving benefits decisions: Workforce education and income gaps Balancing work and personal life Single working parents Dual income couples IMPORTANCE AND EFFECTIVENESS OF EMPLOYEE COMMUNICATIONS 2008 PERCENTAGE OF PLAN SPONSORS RATING EACH ITEM 7 OR 6 ON A 7-POINT SCALE Tailoring communications to meet needs of employees 33% 22% Effectiveness of communications in helping employees make right choices given current needs 30% 20% Willingness to use personal employee information to more effectively tailor offerings to employee needs 28% 24% High-Value Segment Other Segments 65

68 Leveraging Web Technology Supports Cost-Management and Strategic Benefits Orientation High-Value plan sponsors are more likely than others to utilize web technology to support their key benefits objectives; primarily cost-containment and enabling human resources to focus on more strategic initiatives. Seven in ten plan sponsors in this segment say web technology is very important in reducing benefits administration costs and over three-quarters who rate this as important say that this objective has been somewhat to completely met. Six in ten employers in this segment (61%) more than other plan sponsors (43%) rate web technology as very important in enabling human resources to focus on more strategic initiatives. Employers in this segment have more access to web technology. Currently, they report higher percentages of availability for 13 out of 14 plan administrator functions studied. They also say their employees have more access to web technology and report higher percentages of availability for 12 out of 13 plan participant functions measured. 66

69 Voice of the High-Value Segment The web has been central to much of our benefits strategy since We use Internet portals for our plan administrators and our associates to provide 24 x 7 access to benefits information and retirement account balances, etc. We are having our associates doing more transactions online, which our group prefers over paper processes. We find that web technology has enabled us to deliver a better employee experience while cutting some costs through improved efficiency of our benefits staff. Human Resources Vice President, financial services firm, 10,000+ employees 67

70 Profile of the On-Par Segment Strategic Focus Is on Employees; Cost Is Secondary, but Still a Crucial Factor Plan sponsors all face the challenge of balancing rising benefits costs with offering a competitive benefits package to attract and retain the best talent. Those in the On-Par segment about one in four employers keep a close eye on this balance by trying not to achieve cost savings directly through benefits cutbacks. Rather, they focus more on maintaining benefits that are consistent with the marketplace to be competitive in attracting and retaining employees, and using technology and voluntary benefits to hold the line against increasing costs. Consistent with their focus on using benefits to remain competitive, these plan sponsors tend not to focus on tactics that directly reduce costs, but rather focus on their employees needs: On-Par plan sponsors are the least likely of all segments to say cost-sharing is a very important cost containment strategy (17% vs. an average of 24% for the other three segments and an average of 26% for the two price-oriented segments). Similarly, this group is least likely to use high-deductible health plans, health savings accounts, etc.; only one in five of these plan sponsors feel this is important. Like sponsors in the High-Value segment, these sponsors are more likely than the two price-oriented segments to say it is very important to control costs by addressing the health of the work force by promoting wellness, prevention, and work/life balance (38% vs. an average of 25% for the price-oriented segments) and it is more important to provide education and/or advice to employees to help them make the best choices (36% vs. 27%, on average). 68

71 While not explicitly focused on reducing costs, On-Par plan sponsors are attempting to hold the line on benefits costs more than other segments and this may be producing some blind spots especially with regard to absence management. Three in ten plan sponsors in the On-Par and Price-Paramount segments say that their benefits budget, per employee, has remained steady compared to last year. Sponsors in the On-Par segment who have decreased spending show the smallest decreases overall (7% vs. 13%, on average), and the lowest on medical insurance (7% vs. 14%, on average) and disability (6% vs. 12%, on average). On-Par plan sponsors are less likely than the High-Value segment to have an absence management program in place (23% for On-Par vs. 34% for High-Value). Among those that do track absences, they are less likely than High Value employers to feel that their absence management efforts have been very effective at improving workforce productivity (26% for On-Par vs. 41% for High-Value). The On-Par segment is also more globally focused. It contains more companies with non-u.s. based employees (19%) than other segments, and this figure is expected to grow to 25% by Further, On-Par companies with global employees are most likely to say that they have a global view that takes into account all employees worldwide when forming strategy (40% vs. 25% for the other three segments). Voice of the On-Par Segment Without a comprehensive benefits package, you can t keep good people because benefits are such an important part of a pay plan now. If your benefits are terrible, even if you re paying more, you can t pay enough for the people to go buy the better benefits on their own. We need to be able to bring on employees and so, we do try and stay competitive from that perspective. Our management team sits down and compares just about all of our benefits plans every year when we re up for renewal to make sure the plans are still a good value and are still keeping us competitive. Human Resources Vice President, financial services firm, 10,000+ employees 69

72 Voluntary Benefits Are One Way to Remain Competitive Plan sponsors in the On-Par segment realize that voluntary benefits help balance cost reduction with maintaining competitive benefits. On-Par employers are among the most likely to say that offering voluntary benefits positively impacts their employees satisfaction with the overall benefits program (42%). Almost two-thirds of the On-Par segment (64%) strongly agree that one of the top advantages of voluntary benefits is that they help maintain the competitiveness of the benefits program while adding little or no cost. Cost-savings to employees are important, too; over three-quarters (76%) of these plan sponsors agree that their company is able to provide benefits at a lower cost to employees than what they could purchase outside the workplace. On-Par companies also tend to focus on the convenience to employees. They are more likely than other firms to agree that payroll deduction, guaranteed issue, and better service than when buying retail are significant advantages of voluntary benefits. Consistent with their focus on voluntary benefits, On-Par plan sponsors emphasize effective communications and enrollment support. More than a quarter (27%) rate their companies current benefits communications as very effective in helping employees make the right choices given their current needs. Over half (51% tied for highest) strongly agree that their company gives its employees adequate time to make good decisions about benefits. The table on the opposite page shows that On-Par plan sponsors are frequently and in some cases most frequently, when compared to the other segments (shown in gold) using a wide range of communication methods. 70

73 Voice of the On-Par Segment It is extremely important to give employees adequate time to review their benefits options and make their selections. We spend so much time in terms of trying to pick the plans. We try to give them a month before everything is due and before our renewal is due. It s even more important to provide employees with helpful information and education on voluntary benefits. We want them to take advantage of these plans if they fill a void or provide a needed service. If we do a good job communicating the plan, then our chances of getting good participation are much better; otherwise, our time and effort in offering the plan is wasted. And if voluntary benefits are popular, that just gives employees another reason to stick with us because maybe somebody else does not offer it. Benefits Manager, retail company, 500 1,000 employees On-Par plan sponsors are among the lowest (21%) in using non-english language benefits communications materials for U.S.-based employees; however, they expect the need to nearly double over the next five years to 41%. COMMUNICATION METHODS USED FOR VOLUNTARY BENEFITS PERCENTAGE OF ON-PAR PLAN SPONSORS THAT SAY THE COMMUNICATION METHOD IS USED Percentage Saying Communication Method Method Used Group meetings, seminars during the work day 86% received at the workplace 52% Individual, one-on-one meetings during the work day 41% Mail received at the workplace 38% Mail received at home 37% Toll-free phone number for asking questions during enrollment 33% 71

74 Carving Out a Budget for Technology Supports the Benefits Strategy of On-Par Plan Sponsors Thirty-two percent of companies in the On-Par segment report an increase in their web technology budget, more than any other segment. The increases themselves also tend to be larger among employers in this segment; they report a 16% increase in their web technology budget, on average. And the trend is expected to continue; over half (51%) say that budgets will increase over the next five years. These increases may be driven by a sense that web technology is delivering value for plan sponsors in this segment. The table below shows that there are high levels of agreement that web functionality is meeting the objectives of On-Par plan sponsors. 72

75 SATISFACTION WITH CURRENT WEB TECHNOLOGY FUNCTIONALITY PERCENTAGE OF ON-PAR PLAN SPONSORS WHO SAY COMPANY OBJECTIVES HAVE BEEN MOSTLY MET OR COMPLETELY MET Percentage Saying Objective Objectives Met Reduce errors in submitting information 51% Provide more convenience providing 24 x 7 service access for employees and human resource managers 50% Provide information that is more timely and up-to-date for employees and human resource managers 48% Improve quality of information employees receive 45% Provide information that can be tailored for the individual employee 37% Enable human resources to focus more on strategic initiatives 31% Reduce benefits administration costs 29% 73

76 Profile of the Price-Sensitive Segment Linkage Between Benefits Strategy and Company Strategy Is Loose The Price-Sensitive segment is the largest; 40% of plan sponsors surveyed placed themselves in this category. These firms are less likely than those in the High-Value and On-Par segments to say their benefits strategies are aligned with their companies overall business and financial goals. Price-Sensitive companies are driven more by price than value, but not nearly as much as the Price-Paramount segment. Less than one in five (18%) say their employee benefits strategy is strongly linked to the company s business strategy and financial goals. While this is double the rate for the Price-Paramount segment, it is half the rate of the High-Value and On-Par segments. About half (52%) strongly agree that upper management views employee benefits as being strategically important for the company; this is less than the rate of the High-Value and On-Par segments (76%). Just 40% of these plan sponsors strongly agree that offering more generous benefits gives their company a significant competitive advantage. While this is higher than the Price-Paramount group (25%), it is much lower than the High-Value and On-Par segments (64%). It is not surprising, then, that only about one-third (35%) of these plan sponsors say they offer employees a wide range of benefits again, a rate noticeably lower than the High-Value and On-Par segments (59%). 74

77 The relatively loose linkage between benefits and business strategy, coupled with the greater role that price plays in decisions, heavily influences the benefits strategy of Price-Sensitive firms. Notably, each of the other segments has one or more objectives that are relatively dominant and help to define that segment. However, as the table below shows, this is not the case for the Price-Sensitive segment. In addition to a loose linkage between employee benefits strategy and business goals, it appears that there is no clear direction or consensus in terms of benefits objectives for this segment. OBJECTIVES DRIVING EMPLOYEE BENEFITS STRATEGY PERCENTAGE OF PLAN SPONSORS SAYING "HIGHLY IMPORTANT" (7 OR 6 ON A 7-POINT SCALE) Objective High-Value On-Par Price-Sensitive Price-Paramount Increasing employee education and/or advice helping employees understand how to make the best choices 49% 36% 29% 23% Attempting to control benefits costs by addressing the health of the work force by promoting wellness, prevention, and work/life balance 44% 38% 27% 20% Applying/using Internet technology to reduce benefits costs or to increase efficiency 36% 30% 25% 23% Cost-sharing asking employees to bear a greater portion of the costs of benefits 20% 17% 24% 33% Giving more financial responsibility to employees through high-deductible health plans, health savings accounts, etc. 20% 20% 22% 23% Tailoring communication and enrollment to meet the needs of various employee segments 33% 27% 21% 14% 75

78 Price Sensitivity Leads to Less Activity Compared to Other Segments In the past year, benefits budgets experienced the smallest increase (9%), on average, among Price-Sensitive plan sponsors. Further, employers in the Price-Sensitive segment are most likely to say spending for life and disability remained the same as last year and will remain the same over the next five years. Seventy-six percent of those in this segment report that the life insurance plan budget per employee has remained the same as last year and 55% say it will remain the same over the next five years. A similar pattern holds for disability: 68% report that the disability insurance plan budget per employee has remained the same as last year and 47% say it will remain the same over the next five years. Consistent with this flat trend for certain products, the Price-Sensitive group is least likely (11%) to say they are providing a wider array of voluntary benefits offerings. While 41% of plan sponsors in this segment strongly agree that their companies give employees adequate time to make good decisions about benefits, fewer than one in five rate their companies current benefits communications as effective in helping employees make the right choices given their needs. 76

79 Select Sensitivity to Employee Needs Seems at Odds with Pure Price-Based Decisions While this group is price sensitive, they are also interested in attracting and retaining talent. As a consequence, plan sponsors in this group tip toward spending on health care and health-care-related activities and away from pushing costs to their employees. When talking about cost management strategies, plan sponsors in this group are least likely (18% vs. 24%) to implement consumer-directed health plans. More Price-Sensitive companies (27%) say they are addressing the health of the work force by promoting wellness, etc., as opposed to giving more financial responsibility to employees through high-deductible health plans (22%). This trend is expected to widen in five years; 57% say they will address the health of the work force vs. 49% who say they will give more financial responsibility to their employees in this area. Despite this focus on employees, this segment may be missing an important opportunity to increase workforce productivity and satisfaction. Voice of the Price-Sensitive Segment Our senior leadership views benefits as an expensive offering. They realize that it is something that needs to be provided, but I would say 10 years ago, the philosophy was more paternalistic and we would provide them. We re less generous now. We re looking at it as more of a business expense and it needs to be managed closely and tough choices must be made. We re more realistic on what we think the cost-sharing should be. Employees over the years have picked up more and more of the expense, but again, we look at it from the standpoint of what is reasonable, what allows us to remain competitive. We realize that we can t push too far. There s a limit to what we can have the employees burden be, so we re conscious of that. Human Resources Manager, health care industry, employees 77

80 Missing an Opportunity to Contain Costs by Improving Workforce Productivity Price-Sensitive companies may be missing an important opportunity to address workforce productivity and employee satisfaction by providing accommodations to assist employees with returning to work following an absence. Plan sponsors in this segment report doing this less frequently (23%) than the other groups (27%). Price-Sensitive plan sponsors that are involved in return-to-work activities give low marks to the effectiveness of these programs (only 30% say they are very effective ), and the programs they have are not well-designed to manage workforce productivity (less than one-third say their programs do this to a high degree). This may suggest that plan sponsors in this segment should consider increasing the effectiveness of their absence management programs to boost workforce productivity. This kind of strategy is consistent with targeted spending to attract/retain employees and would probably save money in the long run through greater productivity. The Price-Sensitive segment is more domestically focused. While it contains about the same proportion of companies with employees outside the U.S. (14%) as compared to other segments, Price-Sensitive companies with overseas employees are most likely to say they have a domestic strategy and handle employee benefits on a country-by-country basis (80% vs. 65% for the other three segments). 78

81 Technology Is Seen as a Means of Controlling Costs and Providing Value to the Company and Its Employees Nearly three-quarters of the Price-Sensitive segment (73%) say reducing benefits administration costs is a very important reason for using web technology. These plan sponsors rate all of the web technology objectives very high in terms of importance. In all cases, they rate the technology objectives higher than the Price-Paramount segment. Also relative to the Price-Paramount segment, plan sponsors in this segment report more frequent usage of most functionality for employers and employees. IMPORTANCE OF BENEFITS WEB TECHNOLOGY OBJECTIVES PERCENTAGE OF PRICE-SENSITIVE SPONSORS SAYING "HIGHLY IMPORTANT" (7 OR 6 ON A 7-POINT SCALE) Percentage Saying Objective Highly Important Reduce errors in submitting information 64% Improve quality of information employees receive 62% Provide information that is more timely and up-to-date for employees and human resource managers 61% Provide more convenience providing 24 x 7 service access for employees and human resource managers 56% Provide information that can be tailored for the individual employee 44% Enable human resources to focus more on strategic initiatives 44% 79

82 Profile of the Price-Paramount Segment Linkage Between Benefits Strategy and Company Strategy Is Relatively Low The Price-Paramount segment contains the fewest plan sponsors just 13% placed themselves in this group. Employers in this segment clearly make the most decisions about employee benefits based almost exclusively on price. No doubt there are reasons for this, but it is clear that these companies are far less likely to consider employee benefits to be a strategic tool for attracting and retaining employees and overall business success. The chart below illustrates the very low linkage between employee benefits and business strategy. Compared to the other segments, the Price-Paramount group is two to three times less likely to make this linkage. While the linkage is expected to grow stronger over the next five years (18% say benefits strategy will be strongly linked to business strategy), it will still be at a lower level than the other segments are today (28%) and much lower than the other groups in five years (44%). LINKAGE BETWEEN BENEFITS AND BUSINESS STRATEGY FOR THE PRICE-PARAMOUNT SEGMENT PERCENTAGE OF PLAN SPONSORS WHO STRONGLY AGREE (7 OR 6 ON A 7-POINT SCALE) Upper management sees decisions about benefits as strategically important 25% 65% Offering significantly better/generous benefits gives our company a significant advantage 25% 53% Extent employee benefits strategy is linked to business strategy and financial goals 9% 28% Price-Paramount Other Segments 80

83 The Price-Paramount segment contains a somewhat higher percentage of smaller firms, in terms of number of employees, compared to the other segments. In addition, the self-reported sales for 2007 appears to be somewhat lower. This segment expects less growth in the size of their company over the next five years compared to the other segments 65% of Price-Paramount firms expect to have more full-time employees by 2013 compared to 78% for all other companies. Voice of the Price-Paramount Segment Our company views benefits as something we feel obligated to provide. We don t see it as an employee retention item. It s really nice to have, but it can be replaced reasonably by most people at maybe a little bit more cost, but we don t see people staying here for that. Benefits Manager, retail industry, 10,000+ employees 81

84 When Benefits Objectives Are Solely Influenced by Price, Employee Satisfaction Takes a Hit Unlike the other segments, the most important benefits objectives for Price-Paramount companies involve cost-sharing ( asking employees to bear a greater portion of the costs of benefits ). One in three Price-Paramount employers say cost-sharing is highly important, compared to one in five among the other segments. The second most important benefits objective for this group is giving more financial responsibility to employees through high-deductible health plans nearly a quarter (23%) rated this highly important. This finding is in contrast to the relatively low interest among this segment in attempting to control benefits costs by addressing the health of the workforce segment (20% vs. 34% for the other segments). Price-Paramount firms also expect fewer increases and more decreases in their benefits budget, per employee, over the next few years. Twice as many plan sponsors in the Price-Paramount segment foresee budget cuts (12% vs. 6%) compared to other employers. These budget cuts appear to be largely driven by medical plan cost reductions: 14% say they ve decreased their medical plan spending, per employee, compared to just 6% in the other segments. Price-Paramount behaviors regarding their most important cost-containment activities are also somewhat different than the other segments and tend to focus on more short-term cost-cutting measures, such as: Making plan design changes. This is the top cost-containment method for the Price-Paramount group, with 44% saying they use this approach a great deal. Consolidating benefits carriers 30% use this tactic a great deal. Implementing consumer-directed health plans (i.e., health plans that cost less, but have higher deductibles than most other health plans) 28% use this tactic a great deal. Plan sponsors in this segment appear to recognize that their near-exclusive focus on cost has repercussions in terms of employee satisfaction with the overall benefits program. They report the lowest levels of employee satisfaction among any of the other segments. In addition, few rate their benefits communication efforts as highly effective at helping employees make the right benefits choices (12% vs. 24% among all other companies). 82

85 EMPLOYEE SATISFACTION WITH OVERALL BENEFITS PROGRAMS AS PERCEIVED BY PLAN SPONSORS PERCENTAGE OF PLAN SPONSORS IN EACH SEGMENT RATING HIGHLY SATISFIED (7 OR 6 ON A 7-POINT SCALE) High-Value 46% On-Par 42% Price-Sensitive 24% Price-Paramount 9% Voice of the Price-Paramount Segment I don t really think our employees are satisfied with it at all. And it could be because they were spoiled before. Before, they hardly paid any of their own share and they had a lot more choices on the medical plan more individual choice of doctor, hospital, drugs, whereas now they have to pay more. They feel like they re getting less, but it s still better than not having any coverage at all. Upper management, though, is more concerned with the company s bottom line, which they have to be to keep us in business. But they re way more concerned with the company s bottom line than they are with keeping employees satisfied. The importance of communications and enrollment to upper management is absolutely zero. They give you a packet and say, You have until this date to it, and that s it. Probably getting more helpful enrollment materials that explain the options better and help employees figure out what they need would be appealing to them, but I don t think it is important at all to management. I see them cutting costs in every way they can and, especially for non-medical benefits, they say those are fringe benefits that they don t have to offer at all. Director of Benefits, manufacturing industry, employees 83

86 The Full Cost-Savings Potential of Web Technology Is Not Being Realized Given the emphasis that Price-Paramount employers place on price and cost reduction, it is somewhat puzzling that they are not doing more to leverage web technology. This segment had the lowest rating of the importance of applying and using web technology to reduce benefits costs or to increase efficiency (22%). This segment has the lowest percentage of companies that say their web technology budget has increased (25%), the second-lowest percentage of companies that say their web technology budget has remained the same (55%), and the highest percentage of companies that say their web technology budget is decreasing (4%). They are also least likely to expect an increase over the next five years. When discussing the availability of specific employer functionality, this segment reports the lowest availability on 13 of 14 functions. While the number of plan sponsors in this segment expects to have more availability in five years, relative to the other segments, they are still the lowest on all 14 functions. Similarly, when discussing the availability of specific employee functionality, this segment reports the lowest availability on all 13 functions and they are twice as likely as the other segments to say that their employees have access to none of the 13 functions (12% vs. 6%). In five years, more say their employees will have access, but this segment still lags behind the other segments on all 13 functions. 84

87 PERCENTAGE OF PLAN SPONSORS IN EACH SEGMENT BY COMPANY SIZE Company Size High-Value On-Par Price-Sensitive Price-Paramount % 24% 41% 13% % 30% 37% 14% % 23% 45% 14% 1,000 2,499 27% 29% 31% 13% 2,500 4,999 25% 31% 34% 11% 5,000 9,999 24% 25% 44% 7% 10, % 28% 38% 8% PERCENTAGE OF PLAN SPONSORS IN EACH SEGMENT BY INDUSTRY Industry High-Value On-Par Price-Sensitive Price-Paramount Construction 23% 25% 42% 10% Manufacturing 20% 18% 52% 11% Wholesale Trade 14% 27% 42% 17% Retail Trade 19% 25% 45% 10% Transportation/Warehousing 22% 29% 34% 15% Technology 14% 40% 33% 14% Finance, Insurance, Real Estate 25% 23% 40% 12% Professional Services 26% 25% 35% 14% Health Care 29% 28% 31% 12% Accommodation Services 17% 19% 51% 14% Public Administration 20% 30% 35% 16% Other 22% 29% 34% 15% 85

88 Summary of Key Findings Theme 1: Benefits Strategies for a Multigenerational Work Force Employers Must Support Baby Boomers Needs While Also Helping Younger Generations Maximize Employee Benefits Neither the aging work force, nor its multigenerational nature, are particular areas of concern for plan sponsors today, but they anticipate that both issues will be much more important in five years. Boomers have greater benefits needs and they value benefits more than younger generations. These workers desire advice and assistance from their employers and other resources. Younger generations do not see the importance or value in employee benefits that older and more experienced workers do. The youngest generation of workers, Millennials, tends to switch jobs frequently and has a positive, yet possibly unrealistic outlook on their future retirement. Plan sponsors should utilize a targeted approach to employee benefits education and communication. Theme 2: Voluntary Benefits Planning for Success Identify the Right Voluntary Programs, Set Participation Goals, and Implement Effective Communication and Enrollment Strategies Plan sponsors that offer voluntary benefits do so for employee retention and satisfaction, more than for cost savings. Some industries, such as Public Administration, are offering a wider array of voluntary products by increasing their incidence of long-term care insurance benefits. The vast majority of plan sponsors do not have participation rates for any of their voluntary benefits, making it a challenge to measure the success of the programs. Plan sponsors should expand their communication and enrollment strategies by utilizing channels outside the workplace and providing information in formats that employees can easily review on their own time. 86

89 Theme 3: Benefits Web Technology The Future Is Now The Use of Web Tools Has Expanded Substantially, but Employers Struggle to See Cost Savings Web capabilities available to benefits administrators have grown substantially; in some areas expectations previously set for 2010 have already been surpassed. The availability of web capabilities for employee use grows as well, but at a slower rate than that seen for capabilities used by administrators. Plan sponsors expect web technology to play a larger role in shaping employee benefits strategy in the next five years. They plan to spend more on technology and increase the breadth of capabilities available to both administrators and employees. While gaps exist between importance and performance in many objective areas, the greatest unmet expectation in the use of web tools is in the reduction of benefits administration costs. Providers need to help close this gap by assisting plan sponsors in realizing cost reductions. Theme 4: Absence Management You Can t Manage What You Don t Track Employers Must Implement a Comprehensive Absence Tracking System to Improve Productivity Companies involved in absence management activities tend to think more strategically about their benefits. Return-to-work accommodations for employees are expected to rise in priority among plan sponsors in five years. Currently, most companies say they track employee absences as a way of managing workforce productivity to at least some degree. But, the absence management information that is tracked focuses on absolute absences, not the direct or indirect costs of such absences. Educating plan sponsors about absence management and supporting their efforts will help them realize its full potential. 87

90 Theme 5: The Benefits Buyer Profile What Drives a Company s Benefits Decisions? Companies Have Different Philosophies and Priorities with Respect to Employee Benefits High-Value segment: This segment reports a strong strategic link between company goals and benefits decision-making and usage. They see employees as a valuable resource and provide benefits education, communication, and ample time to make decisions. On-Par segment: This segment s strategic focus is on employees, but cost plays a role. They utilize voluntary benefits to stay competitive. Price-Sensitive segment: Driven by price, this segment reports very little linkage between benefits strategy and company strategy. Their interest in attracting and retaining talent tips them away from purely cost-based decisions. Price-Paramount segment: This segment is almost exclusively focused on price. This group s top objective is cost-sharing, but they report low levels of employee satisfaction as a result. 88