Flexible benefits may offer a solution provided employers can address the issues of program costs and complexity, and ensure effective communication.
Shifting workforce demographics and changing socioeconomic factors are upending the traditional assumption that individuals in a given age group reach key life stages at the same time with the same benefit expectations.
Consider how age is no longer a predictor of when employees retire. Better access to health care and longer life expectancy are prompting some individuals to delay retirement. Moreover, in certain countries, as is the case in Singapore, a high medical inflation rate (expected to be 9.1% in 2019) and cost of living may make it necessary for some individuals to work longer. This prompted the Singapore government to raise the re-employment age from 65 to 67.
Consequently, today’s workplace features a wider range of generations working side by side than ever before. These workers, all with different needs and preferences, are looking closely at their benefits and using them to differentiate between employers.
But some employers may be overlooking the gap between what employees expect in their benefits packages and what their organizations are delivering. A recent Willis Towers Watson study showed that 61% of surveyed employers in Asia Pacific believe their benefits package improves attraction and retention. But not all employees in this region would agree. Only 45% say their benefits package meets their needs. How can employers bridge this gap?
The answer may lie in flexible benefits. Our research shows that employees are interested in a broad range of benefits and that they are willing to pay to ensure access to these programs. For example, in Singapore, almost a quarter of employees say that if they were given a flex allowance, they would pay for greater retirement security, 19% would pay for a health plan or health and wellbeing benefits, and another 21% would pay for financial wellbeing programs or more financial protection. Ten percent even said they would pay for more annual leave. It’s easy to imagine that these percentages might vary by different dimensions including age, life stage, family status and employee type.
These differences in preference can be accommodated through more choice and flexibility. We define three options for core benefits:
In addition to the above options, the employer can also offer voluntary benefits (e.g., identity theft insurance, accident insurance etc.), individual products that are completely paid for by employees through payroll deductions.
Our research shows that introducing choice and flexibility increases employee appreciation. Only 20% of employees with no choice in their benefits said that their benefits packages met their needs; this number jumped to 58% for employees with a flexible benefits fund, and 74% when voluntary benefits were added. In addition, 63% of employers indicated that introducing choice and flexibility improves employee engagement.
Employers are taking note; 48% of employers indicate that increasing choice and flexibility is an important priority over the next three years.
Costs and complexity are the biggest barriers to introducing greater choice into the benefits package.
Almost three in four (71%) employers said such programs are too costly to implement, while 56% reported they’re too complex to administer.
Tackling costs. There are two main reasons why employers tend to be wary of the increased costs of flexible benefits:
While these barriers sound formidable, they are not insurmountable Modifications in program design can help offset the increases in premiums, if not immediately then within two to three years. Employers may opt to limit opportunities for employees to change benefit levels – for example, going from the lowest to highest level of cover – to reduce anti-selection. In addition, employers may decide to introduce wellbeing benefits to encourage healthier lifestyles, helping reduce health risks, which can lead to lower insurance costs.
Technology costs may not be easily offset, but setting up a flex portable can help reduce other related costs. For example, such a portal can serve as a one-stop source of personalized benefits communications and streamline processes, all of which result in cost efficiencies.
In addition, improved automation of data feeds with insurance partners can enhance data integrity, thereby helping avoid costly errors.
Managing complexity. Many employers find the prospect of setting up and administering flexible benefits daunting. Issues range from the management complex system interfaces (especially with payroll) to the selection of the right enrollment platform.
A roadmap with well-defined objectives and goals can help employers get started and serve as a benchmark against which to measure success. Research can help guide the initial planning. This is usually done through one of two approaches: setting up a joint task force, consisting of representatives from different departments to work with HR and an external consultant, to explore the feasibility of introducing flexibility; or by conducting a preference survey or focus group discussions to truly understand which benefits different employee groups value.
It’s important to solicit early feedback and get buy-in from senior leadership. From there, a plan can be designed taking into account the needs of different employee groups and the objectives of the organization.
As you roll out your plan, be sure to use best-in-class tools and technology (e.g., a flexible benefits portal, decision support tools etc.) that will keep employees engaged and that offer the type of experience employees have come to expect in their everyday lives as consumers.
Effective communication is critical to the success of flexible benefits programs. We have seen situations where employees misunderstand these programs. For example, even though employees receive flex credits to enable them to upgrade their benefits, any additional contributions employee must make toward these benefits can be perceived negatively, as a lack of employer support for employee wellbeing. To tackle this challenge, we find that communicating the concept of flexible benefits early is crucial. Conducting a socialization or education session on flexible benefits programs can start as early as the stage at which employers are still considering or assessing the feasibility of implementing such a program.
Ongoing, targeted communication to different employee groups from the earliest stages of program development through implementation and beyond will help ensure that today’s diverse, multigenerational workforce understands and appreciates the value of flexible benefits.
