Remarkably, the organization managed to stabilize the premium, with no increase in 2008, thanks to a new health savings account and an emphasis on employee wellness.

The Preservation Society of Newport County protects 11 historic properties and landscapes in Newport, R.I. With tourism down in Newport and museum membership declining nationally, the nonprofit was faced with shrinking visitor counts and increasingly higher health care costs.

From 2000 to 2005, the organization's health care premium rose largely because of its aging population and higher-than-average claims for a group of its size. To control spending, the Preservation Society had already reduced benefits, decreased its contribution to the premium and changed carriers.

When those efforts failed to make a significant impact on the bottom line, the Preservation Society was forced to consider staff and operational budget cuts- or a new health plan previously untested in Rhode Island.

Introducing an HSA

While no employer in the state had yet offered a health savings account, the Preservation Society knew that early adopters nationally were reporting success- as much as 30% reduction in premiums and single-digit increases on renewals- and decided to implement the product.

Trudy Coxe, CEO and executive director of the Preservation Society, notes, "Our employees had been largely insulated from health care's cost drivers. By incenting them to become more involved in the selection and purchase of services, we knew HSAs would give our staff greater insight into quality and cost, putting them in the driver's seat."

Coxe recognized the need for employee communication and education. To meet this demand, the organization first introduced the product conceptually to key influencers and used the feedback to shape plan design. It then hosted several onsite meetings and small-group workshops to help employees understand how the change would impact their health care decisions and spending.

The organization also arranged for ongoing support, such as sessions on how to use the benefit Web portal, how to read health statements and explanations of benefits and reconcile these documents with bank statements, and how to use other tools and resources to help with health care and financial decisions.

In April 2006, the organization rolled out the HSA. The high-deductible health plan, offered through UnitedHealthcare, had a $2,000 deductible for individuals and a $4,000 deductible for families. Preventive care was covered at 100%, and all other services were subject to the deductible. After the deductible was met, UnitedHealth care would pay for 100% of the expenses.

With the HSA generating considerable premium savings, the Preservation Society decided to pay for 100% of the premium and fund 50% of the employees' deductibles for the first year and 37.5% in subsequent years.

"A key challenge nonprofits face is that our wages are often lower than wages in the private industry, so we need to be more competitive on benefit packages," Coxe says. "The HSA returned us to a stronger recruiting and retention position by enabling us to offer more generous coverage."

Embracing wellness

When the Preservation Society rolled out the HSA, the organization also introduced a multifaceted wellness program.

"Employees had asked for wellness programs in the past, and it seemed like a good time to launch a program that would dovetail with the HSA and the HDHP's emphasis on prevention," Coxe recalls. "I liked the idea of consumer engagement and hoped the program would encourage employees to take more accountability for their health care decisions."

The Preservation Society decided to follow the Wellness Council of America's best practices blueprint. The nonprofit and UnitedHealthcare offered a kick-off event where employees registered for the program, took biometric screenings and participated in a health assessment.

Any employee who completed all three activities earned a paid vacation day. The incentive worked; 100% of employees took part, a rate previously unseen in UnitedHealthcare's book of business and higher than the national benchmark of 30% to 40% participation.

The screenings identified key areas for improvement; 65% of employees had weight or nutritional problems, and 58% had high cholesterol.

The Preservation Society established a cross-sectional committee of employees to plan wellness activities, targeting weight, eating and exercise. It offered:

• A "walk for health" challenge, a 60-day intervention offered at work or on the employee's own time.
• A a healthy eating program modeled after the popular television series "The Biggest Loser," which resulted in a 1.2 point drop in the group's body mass index over eight weeks.
• A nutrition class, which included onsite cooking demonstrations from staff at Johnson & Wales University.
• Healthier options in its vending machines.
• A series of educational lunch-n'-learn seminars on health issues.
• Additional exercise offerings, such as onsite yoga and a stair climbing challenge.

On average, 20% of employees took part in the programs, and participant feedback revealed that employees wanted even more offerings with greater incentives.

The organization was equally pleased. After just one year, aggregate cholesterol was down 10 mg/dl, flu shot participation reached 69% of the workforce, and use of annual preventive care visits increased from 30% of employees to 74% of employees. UnitedHealthcare projected an estimated 139% return on investment in claims savings for every participant in the wellness programs.

Alberta Picozzi, a docent, observes, "When I started the wellness activities, I didn't know yogurt from yoga. But, despite being diagnosed with a hip mobility issue during the program, by the end of the sessions I had increased my flexibility considerably, lost 12 pounds and improved my overall health and fitness level, making daily activities easier."

In January 2007, the Preservation Society's premium increase at renewal was just 5%, beating the average double-digit national trend at the time.

"It was the first time we'd seen single-digit increases in years," says Coxe, who notes that, if the organization had maintained its prior coverage without switching to the HSA, rates would have increased by 19%.

In January 2008, the organization's premium rate was the same as the previous year's, a rare example of zero inflation in health care.

"The HSA has been very effective at slowing the cost trend, holding premiums flat and enabling employees to avoid over-insurance," Coxe says. "With our 2008 premium 11.3% lower than it was in 2005, we're two to three years ahead of other groups that haven't switched."

Employees are saving, too. First-year premium savings were great enough to enable most employees to redirect that money into their HSAs and close the deductible gap. Currently, 87% of employees are carrying balances in their HSA accounts that they can roll over to the next plan year. After comparing annual out-of-pocket health care costs, the HSA has put all employees in the same or stronger position financially.

How long can the organization sustain these savings? To stay ahead of trend, the Preservation Society needs to make some critical decisions. Will it continue to fund the HSA accounts and, if so, at what percentage? How can it boost wellness participation to drive further savings? Will it tie wellness to the health plan by requiring employees to contribute toward the premium based on program results or participation? As the marketplace changes and new trends emerge, the Preservation Society is sure to continue to make history.

Such innovative plans, only recently addressed by pension legislation, allow employees to stage their retirement benefits and dates along with work responsibilities. Employees get flexibility, and employers extend workforce numbers and boost knowledge transfer- the valuable sharing of knowledge and experience from senior employees to junior employees.

Potential issues include complying with tax and legal requirements that may change as companies experiment with the phased option over the next several years.

In 2005, AARP surveyed 2,167 workers ages 50 and older; 38% said they were interested in phased retirement.

Perhaps they knew someone who retired gradually from the public sector, where phased retirement has long been a popular option. Many states offer such flexibility in deferred retirement option plans (DROPs) and partial lump-sum option plans (PLOPs).

In working with the public sector, Milliman has observed that 60% of South Carolina state employees opt for the deferred retirement choice, and 50% of teachers in Arkansas do so as well. The catch is that phased retirement doesn't always benefit the employer financially. Phased retirement has only shown cost-neutrality in the case of certain public-safety careers.

Understandably, to many HR executives, phased retirement seems counterintuitive. In fact, many companies recently have encouraged long-service employees to retire earlier, rather than to continue working.

Federal law permits individuals to receive distributions from their retirement nest eggs before age 59 1/2 only if they are separated from service. In a defined contribution plan, in-service distributions prior to age 59 1/2 are subject to a 10% tax. It is only recently that Social Security recipients have been able to earn more than their benefit payment amounts after attaining their Social Security normal retirement age without having those federal benefits reduced.

From the employer's perspective, interest in phased retirement is all about the 21st century's changing workforce. Consider the challenges:

• A shrinking number of potential workers.

• A growing gap between the skills new workers bring to the job and the skills the job actually requires.

• An aging population overall.

• Companies competing for the top talent, especially in certain industries.

For long-service employees, the interest in phased retirement is all about their financial security, desired active lifestyles, and physical and emotional health.

Not only do these older workers see themselves staying active and involved longer, but also they want to remain productive and useful as they age. They're concerned about paying for health care when medical costs are high and uncertain going forward.

Because the phased retirement option is so new for the private sector, it poses substantial challenges, including plan design and costs, legal restrictions and health benefits with associated costs.

Some of the less tangible questions center on how the phased retirement approach would mesh with the company culture and whether employees physically can continue working in the same capacity.

The IRS has noted that normal retirement age could be between the ages 55 and 62, based on facts and circumstances. Other legal issues center on how a subsidized early retirement will be treated by the IRS, along with the importance of nondiscrimination testing. Phased retirement plans need to ensure that the effective availability of the program does not discriminate in favor of highly compensated employees.

For defined benefit plan sponsors considering the phased retirement option, other plan design concerns include:

• Determining the group that will be offered phased retirement. If an employer doesn't offer phased retirement to all plan participants, nondiscrimination issues will need to be reviewed.

• Determining whether phased employees would or would not receive a subsidized benefit while they are still working. Will the in-service benefit include a subsidy for early retirement?

• Determining precise benefits during in-service distribution. Questions must be answered regarding payment of death benefits, disability benefits and added benefit accruals.

• Determining the benefit at ultimate retirement. This is probably the most technically complicated issue because it must factor in so many new variables, including benefits paid and benefits earned during the phased retirement period.

• Juggling administrative complexity. Foremost here would be the need for effective communication with employees, as well as actually making the new calculations.

• Balancing intended results versus unintended consequences.

The intent of phased retirement should be to retain valued employees who would have otherwise retired, while adding value to the workforce without affecting retirement costs. The danger, however, is that employees who hadn't planned on early retirement will switch to the phased option, potentially creating greater costs and bringing no value to the overall workforce.

How do you evaluate whether phased retirement is good for your organization?

• Assess the need for phased retirement by evaluating questions such as: Is your company losing employees in key positions? Do you find it difficult to hire replacements? Have you realized that current employees are a considerable resource?

• Understand your company's current barriers to phased retirement, such as corporate culture and other options for a reduced workweek.

• Consider changes to existing retirement plans. Are there ways to enhance employees' flexibility without affecting costs? Can existing plans offer some of the same benefits and/or choices as phased retirement? These might include an in-service distribution option for defined contribution plans, elimination or suspension of benefit provisions for defined benefit plans or an in-service retirement option for defined benefit plans both after and before normal retirement age.

Organizations may welcome the newfound flexibility that phased retirement offers. Admittedly, the many details and uncertainties may scare some plan sponsors away from offering the phased option.

As the IRS provides more guidance, phased retirement could become viable for many employers and employees.

After all, baby boomers aren't going to disappear tomorrow.

The first boomers are turning age 62, and some started to collect the early-option, smaller Social Security checks in January of this year.

This is because restructuring LTD benefits is often seen as a costly, baffling ordeal that ends up benefiting neither party, though the opposite is true. Nevertheless, there are several ways that you can restructure your LTD policy to improve the coverage of your employees, while simultaneously lowering your costs and not changing carriers.

Without the ability to work, an employee's other assets- home, car and investments- disappear quickly. One survey suggests that disability is six times more likely than a spousal death to cause a bankruptcy claim and is responsible for half of all bankruptcies.

Yet far fewer companies provide an LTD benefit than they do other benefits. In fact, more than 60% of all employees have health insurance via their employer, but only 28% have LTD insurance, according to the Bureau of Labor Statistics.

Typically, LTD costs about one-quarter to one-half of 1% of payroll, and the average employer cost in 2005 was $228 per employee per year. That's not a terribly expensive benefit, particularly when compared to health insurance. But claims occur infrequently, so LTD coverage seems expensive, and smaller firms often can't afford the extra costs.

But LTD is a very popular benefit even when offered on a voluntary, employee-pay-all basis, outdrawing all other voluntary benefits, according to a 2006 survey by Aon Consulting.

That combination of popularity and infrequency suggests that offering LTD might make you a more attractive employer, able to snag the most qualified employees, reduce turnover and improve efficiency, even if only slightly.

LTD enhances productivity by helping to get the disabled employee back to work sooner.

Today's LTD policies include workplace accommodation benefits, training, counseling and other assistance to help your employee return to work. He or she comes back sooner, so you're not stuck for a longer period, paying a less efficient worker while awaiting the disabled employee's return.

Unfortunately, most employers pay more for LTD- and give their employees less- than they might, not because their broker didn't shop the policies, but because their broker didn't help them structure their plan properly.

What would the best structure be? Taxes are the key. Tax law says that, if the employer pays the premium, which most do, the premiums are deductible to the employer and nontaxable to the employee. However, any benefit received by a disabled employee is taxable.

On the other hand, if the employee pays the premium himself, the disability benefit is not taxable income. By paying the premium, the employer gets the lowest rate.

The carrier discounts the premium for several reasons, mainly because there isn't any adverse selection (where only the sick people buy the coverage), since all eligible full-time employees must be covered. The benefit is taxed, so the employee, as a result of his greatly reduced take-home pay, is anxious to come back to work, and the carrier discounts the premium even more.

Assume a $40,000-per-year employee and a premium of one-third of 1% of compensation. The premium is $132 per year, or $11 per month.

The employee is probably in the 15% income tax bracket and also pays a 7.65% FICA tax. Assume a 5% state income tax and ignore the Medicare tax, since it's small. So the employee takes home about $575 per week.

If disabled, his policy will probably pay him 60% of his predisability income, or $24,000. If his spouse works, he'll usually remain in the 15% bracket and still pay FICA and state income taxes. So his gross pay will drop to $24,000, and his take-home pay will decrease to $344 per week- a reduction of $231 or 40%.

Now, do it differently: The employer still pays the premium but taxes it to the employee as a noncash item. The employee is considered to be paying for the LTD. The employer reduces the benefit percentage to 50% of salary, instead of 60%, to reflect the tax-free nature of the benefit.

Here's the impact on the employer's premium: The plan is no longer noncontributory, i.e., employer-paid. The employee has the right to opt out of the plan. Adverse selection becomes a problem, and the premium increases by about 7%. The employer has to pay matching FICA taxes on the premium, adding 7.65%. The premium will drop by about 20% because of the reduction of benefit from 60% of salary to 50% of salary.

The net result for the employer? A cost reduction of 6% to 9%, considering all tax and premium changes.

And for the employee? When he files his annual income tax return, he will see the equivalent of a $0.65 weekly reduction in his take-home pay from the income taxes and FICA taxes on the premium. That's $34 a year.

But if he's disabled, his take-home benefit will be $384 a week- a $40 increase in benefit, which is almost 12%. You spend less; he gets more.

A pretty good deal for everyone, all accomplished by understanding and using the tax code.