LSG Benefit Insider

inside this issue:

Fighting high fuel costs: 10 ways to help employees

The $73 billion hidden problem of the health care industry

Increase in retirement plan loans, withdrawals no cause for concern

Maximize the value of benefits enrollment

June 11, 2008

Fighting high fuel costs: 10 ways to help employees

1. Shorten the work week to 4 days with extended work hours.

2. Allow telecommuting one day a week or even more frequently where the job fits. This means budgeting for laptops which still belong to the company.

3. Facilitate a "car pool central" for posting and coordinating rides or encourage employees to check with neighbors. You could even give a gas card for those who stick with this for a specified time period.

4. Bring in an Automobile Association representative and local mechanics to present tips and inspect cars for improving fuel efficiency.

5. Make sure you are having regular one-on-one meetings with employees to learn of their financial situation and their stress levels. Pick up on needs and arrange stress management sessions and financial management/budget planning at work.

6. Provide childcare at work or set up a day care opportunity close to work to lessen child care travel time and expenses. If the daycare is not too far away, you might be able to arrange a group rate fee structure or maybe have a shuttle transport parents and kids to and from work.

7. With money being eaten away by travel expenses, there is little left over for entertainment. Giving employees movie passes or restaurant certificates for excellent work will have greater meaning during these hard times.

8. Make exercise programs and gym equipment available at work to help employees save on travel costs and membership fees.

9. Work with your local tourism board to see what package deals can be arranged to assist your employees with little or no vacation plans. Maybe your company can sponsor a day outing or bus trips for employees and their families to a local tourist attraction.

10. Work with local and federal government authorities in applying for incentives for reducing transportation expenses and promoting telecommuting.

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The $73 billion hidden problem of the health care industry

Low health literacy costs the United States more than $73 billion annually, the National Academy on an Aging Society estimates.

Health literacy- being able to obtain, process and understand basic health information- is a deceptively simple concept. Being merely literate isn't enough.

"It's time to take a look at the root cause of people's ability to participate in their own self-management," says Carolyn Cocotas, director of community health innovation for Affinity Health plans.

As consumers of health care, employees need be able not only to read information, but to evaluate information for credibility and quality, evaluate risks and benefits of a particular health scenario, use mathematics to calculate dosages, interpret test results and employ research skills to locate health information.

Employees who can't do that are more common than you might think. More than 90 million people in the United States have difficulty understanding and effectively using health information, the National Institute of Medicine estimates.

"It's a hidden problem," says Janet Ohene-Frempong, president of JO Frempong & Associates and founding member of the Clear Language Group, a health literacy advocacy organization. "Most people suffer in silence."

That's a frightening scenario. Even scarier is that the American Medical Association calls health literacy "a stronger predictor of a person's health than age, income, employment status, education level and race."

Those with the lowest health literacy use emergency services and are hospitalized nearly twice as often as their more highly health-literate counterparts, the Agency for Health Care Research and Quality suggests.

"We don't want to waste money on people who are sick because they don't understand how to use their health insurance," Ohene-Frempong says.

What is being done?

"The plain-language movement is afoot," says Ohene-Frempong, even though it is in its beginning stages.

Health plans like Affinity have recently begun efforts at community outreach, partnering with local literacy organizations to help plan participants increase overall reading levels.

Plan documents are carefully scrutinized by a team of experts who analyze word length, sentence structure and language. Staffers are trained to reach out to community members via written words, face-to-face meetings, Internet contact and telephone contact.

"Our strategy is very action-oriented," Cocotas says.

"We [had previously] written the material as if we were talking to ourselves. We [had] not done a good job of preparing materials that have the patient and the patient's voice central," says Cocotas. "We are at the very beginning of what will be a very long journey."

URAC, the leading provider of health care accreditation programs, has been focused on this issue as part of its community education and support standards since 2003.

"Through our research ... it became evident that consumers are having a challenge in terms of complying with their health care regimens and what doctors and other health care providers are saying to them," says Donna Merrick, director of standards development for URAC.

Pending board approval later this summer, URAC plans to adopt health literacy as part of its core standards across all programs, beginning in 2009. "This is an enormous opportunity for employers to step up," Cocotas says.

How to 'step up'

The average health document reads on a 10th grade level, far above the 7th or 8th grade reading capability of the average American. Even America's most-read newspaper, USA Today, is written at a 5th grade level.

The challenge is to communicate health information clearly and provide employees with simple access to quality channels-of-care information.

Merrick suggests that employers ask health plans to provide staff education to those who prepare health documents for employee distribution.

Using accredited plans also can help, she suggests.

It takes a surprisingly high proficiency in the English language to make things "plain," Ohene-Frempong explains. "Not everyone can do this."

Ohene-Frempong has suggestions for employers looking to improve their own documents. Most can be done in-house, but she cautions that employers should dedicate a specific staffer to the task. First, remember that the end goal is to reach out and engage the employee. "We are not dumbing things down," she notes.

The suggestions include:

Know the power of layout and typography. Use bolded headers. Use four-to-five line chunks of text broken up with white space. Use bulleted points, vertical lists and indentation. Keep the font size large enough that those without perfect vision or perfect light can read it.
Use shorter words and sentences when possible. "We know to do that with children, but we don't know how to do that with adults," Ohene-Frempong cautions.
Remember the call to action. As an exercise, read and underline all of the calls to action (what the reader is supposed to do). Much of our writing is conditional. We avoid telling people what to do. If you want people to do something, you should tell them, Ohene-Frempong suggests. In the name of respectfulness, explain why.
If you pose a question, answer it fully.
Make implied messages specific. Don't expect people to read between the lines. There's a fine line between being tactful and being vague.
Walk in other people's shoes. Ohene-Frempong makes the comparison to losing weight.

"It's not just taking a walk around the block, just measuring a cup- it's hard. Be honest. It's a very different conversation than just do this.' Anticipate the little bumps that are going to get in the way and acknowledge [them]," she suggests.

Anticipate questions and have a ready solution. "Just like when you buy a computer or a printer, it has a troubleshooting capacity because they know it's going to break down," Ohene-Frempong explains.

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Increase in retirement plan loans, withdrawals no cause for concern

While the media has made much of employees raiding their 401(k)s to pay bills, the upward trend in loans and hardship withdrawals from retirement plans is not raising red flags among plan sponsors, providers or industry experts.

Press coverage suggesting a significant increase in loan and withdrawal rates is "grossly overstated," says Dallas Salisbury, president of the Employee Benefit Research Institute. "I've yet to talk with someone who has seen a serious uptick."

Rick Meigs, president of 401khelpcenter.com, agrees. "Anecdotally, I'm hearing low rumblings that employees are inquiring about hardship withdrawals. But when you dig into it, not many people are taking money out of plans."

Real numbers small

Several providers recently reported percentage increases in the numbers of loans and hardship withdrawals from the plans they administer (see box). However, when the data are expressed in actual numbers of participants, the changes are not that worrisome, they say.

When Fidelity first saw that hardship withdrawals from the plans it administers were up 17% from the end of 2006 to the end of 2007, "it looked pretty alarming," recalls Michael Doshier, the company's vice president of retirement services marketing. "However, when we went back, scrubbed the data and looked at the increasing number of new participants and overall industry growth, the fact that [loans and withdrawals] are trending upward wasn't as much of a concern."

"There's definitely been an increase in both loans and hardship withdrawals," says John Doyle, vice president of marketing and communications for T. Rowe Price Retirement Plan Services, "but it's not causing concern."

Loan and withdrawal numbers "aren't massive, they're just higher than normal," says David L. Wray, president of the Profit Sharing/401k Council of America. "During economic downturns, it's not unusual for some participants to move their money to more conservative investments, drop out of the plan or avail themselves of plan assets. We're having the same experience we had in previous downturns."

However, 20-year industry veteran Meigs notes, "This is the first time I've seen a blip in the number of employees making hardship requests. It's always been pretty steady at a couple of percentage points." He's quick to add, though, that the reported increases "still represents such a small number of participants that, from an overall standpoint, it does not concern me. If we were seeing 10% or 20% of people asking for withdrawals, I'd be very worried."

Contributions are key

Plan sponsors aren't worried about loan activity, even though this has gotten most of the publicity, says Wray. "What they are most concerned about is that employees who take loans and hardship withdrawals will stop contributing to the plan."

When employees stop contributing to the retirement plan, it not only adversely affects their savings, it also may impact the plan's legal standing.

"Should employers be worried? I'd say that depends on your plan," responds Doshier. "If suddenly you have fewer lower-income people in the plan, you may have to be concerned about meeting the nondiscrimination test. If your plan is already close to failing, you definitely want to run some numbers to make sure participation rates from young or lower-income workers aren't deteriorating."

The truth about consequences

To prevent employees and funds from leaving the plan, sponsors and providers are ramping up communication and education efforts. "No one's talking about changing plan designs," says Wray. "What they are talking about is communication - reminding people of the importance of contributing so they get the match."

"We're pushing employers to let us communicate [more] with employees," says John Doyle, vice president and director of marketing and communications for T. Rowe Price Retirement Plans Services.

"We're trying to make sure that participants continue to save even if they're taking out a loan. If they are inquiring about a hardship withdrawal, we're talking to them about the loan option instead. The conventional wisdom is that if you take a loan from your 401(k), you never make it up. However, our statistics show that if people pay off their loans promptly and continue to contribute, there's not a long-term impact."

With inquiries about loans and hardship withdrawals definitely up, employers want to make sure their general guidance on these subjects is solid, according to Doshier.

"What we suggest is that plan sponsors say loans have advantages and disadvantages, and you don't want to go lightly into this because it affects your ability to retire. There's an opportunity cost in terms of lost growth. The employer has to make sure to reinforce the message that loans and withdrawals are a last resort and that, if possible, employees should stay the course with contributions," he says.

Alison Salka, director of behavioral research and participant education at MassMutual, cautions that not only does borrowing from the plan reduce the benefit of tax-free compounding that is critical to building a substantial balance, but it also can affect the psychology of saving. "Once a participant borrows from their plan, it becomes easier to borrow again."

Bob Cartwright, an Austin, Texas HR policy consultant, cautions that any advice an employer gives should be specifically related to the retirement plan. "You don't want to be advising people on what to do with their money," he says.

Talking to retirement plan participants is the heart and soul of Rollover Systems Inc.'s business.

The company, which serves some 7,000 plan sponsors, helps terminated employees transfer their retirement fund balances to IRAs.

CEO Spencer Williams says that his reps are spending more time than usual dissuading folks from cashing out.

"What our retirement specialists try to do is convince them to take a partial withdrawal. We ask, Can you take a little bit out and keep the rest working for you?'" That approach has been very successful. Our clients love the fact that we do this."

Legal considerations

Attorney Lisa Van Fleet, a partner with Bryan Cave, notes that complex rules govern information plan sponsors must provide to participants taking loans.

"However, these are more related to the consequences if the employee defaults on the loan," she says. "They're not geared to letting people know that they are jeopardizing their retirement savings."

With hardship distributions, "the Pension Protection Act does require a statement about the impact of taking a distribution, but it can be just a simple statement along the lines of If you withdraw your funds, you won't have them when you retire.'"

Williams believes that employers who don't do more to educate participants about the impact of loans and withdrawals "are leaving themselves unnecessarily exposed."

"It would not surprise me if, down the road, someone brought a LaRue-type of lawsuit, saying, Hey, no one told me I was giving away $10,000 that day.'"

Long-range view

Other than making sure that employees know the ramifications of raiding their retirement nest egg, what should employers be doing to keep withdrawal levels down and contributions up? "There's not [more] plan sponsors can do, really," says Van Fleet. "You can eliminate the hardship withdrawal, but if you do, employees are less likely to participate in the plan. People want to know that the money is available for a medical hardship or to avoid losing their house."

The advice for employees and employers is: Stay the course.

"What we know is, at the same time this is happening, companies are implementing automatic enrollment" in 401(k)s, Wray asserts.

"We're putting more people into plans all the time. It's important to understand that the DC systems, even during these tough times, represent a stay with it' experience for plan participants. Even in the hardest times of 2000 and 2002, gross contributions increased and participation stayed high. I would anticipate that the same will happen now."

What providers are seeing

FIDELITY reports that from the end of 2006 to the end of 2007, the number of loans from retirement plans increased slightly less than 4% and hardship withdrawals increased 17%. Just over 1% of its participants have made hardship withdrawals.
VANGUARD saw hardship withdrawals spike 22% in December from a year earlier. Although the rate of change is high, the absolute level of withdrawals remains quite low. Even after the recent growth, only 1.5% of accounts recorded a hardship withdrawal in 2007, it states.
At T. ROWE PRICE, plan loans were up about 10% in each of the past two years (2005 to 2006 and 2006 to 2007). The upward trend has continued in 2008, with loans in January and February up 6% compared with the first two months of 2007. Total loan amounts in January and February of 2008 are about 7% higher than the first two months of 2007. Average loan amounts have remained about the same.
GREAT-WEST RETIREMENT SERVICES told USA Today that hardship withdrawals from its plans in January 2008 were up 20% over January 2007.
PRINCIPAL FINANCIAL GROUP reports there was an increase in the number of 401(k) loans and hardship withdrawals in the first quarter of 2008 versus the first quarter 2007, but says this represents a very small portion of its overall block of business.
CHARLES SCHWAB's plan participants apparently are bucking the borrowing trend. "We are not seeing much change in the amount of 401(k) loan activity among Schwab-administered plans. If anything, it has actually gone down a little," says a spokesman.

Gotta pay the bills

If the economy continues to founder, it's likely that more employees will tap into their retirement plan, given their attitudes toward paying bills versus saving.

In January, when the Employee Benefit Research Institute asked respondents to its Retirement Confidence Survey, what they think is the most pressing financial issue facing most Americans today, saving for retirement was way down the list:

Making ends meet or the cost of living (17% of workers, 19% of retirees).
Paying for health insurance or medical expenses (16% of workers, 25% of retirees).
Making mortgage payments or paying for housing (16% of workers, 10% of retirees).
Paying down debt or loans (13% of workers, 5% of retirees).
Fuel or energy costs (9% of workers and retirees).
Job uncertainty (6% of workers, 8% of retirees)
Saving or planning for retirement (5% of workers, 4% of retirees).

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Maximize the value of benefits enrollment

Whether it's your annual open enrollment period or the orientation package for new hires, presenting your organization's benefits plan is a tremendous opportunity to raise your company's perception among employees.

A good benefit plan, when communicated effectively to employees, helps an organization's bottom line by generating a high level of employee satisfaction, which in turn enhances employee output and retention of your best talent. It's especially useful if you're making do with fewer employees during an economic downturn.

Creating an educated benefits consumer at your workplace is a strategic journey, not a one-time task. Unfortunately, many companies treat it as a task-oriented event and attempt to minimize disruption by using passive open enrollment events and techniques.

Effective benefits education takes more than just communicating a plan design. Furthermore, don't consider the enrollment- the few minutes the employee actually takes to make selections- to be the sole education opportunity.

For some organizations, the benefits communication campaign only consists of a packet of various carrier marketing materials and, possibly, a group meeting, neither of which is particularly effective in getting across your message or relaying the real value of the benefits to the employee. An envelope filled with a muddle of different carrier brochures at most will be ignored and at worst will send employees a message that benefits aren't really important.

No one can expect employees to appreciate the value of something they don't understand. By enhancing employees' knowledge of their benefits, you are elevating their awareness of their value.

Think of your benefits communications as a learning exercise for your employees. Our company has developed a curriculum for expanding employee benefit knowledge. You can do the same. Developing and executing a curriculum will require an investment in time, but it's well worth the reward.

Begin the process several weeks in advance of open enrollment by providing clear, readable materials.

Univers has found that communication campaigns with a consistent theme and message have a tremendous influence on employee perception of the benefits.

You may not have the resources to hire a communications firm to create professionally designed brochures, posters, direct mail and electronic announcements. However, using something as simple as MS Word, you can put together a four-page overview of your benefits package that ties everything together. Trust me, people are more likely to read the one-paragraph synopsis of a benefit plan than to read a carrier brochure laden with fine print.

Here are some additional tips that can help:

Sequence the benefit information properly. In your communications, make sure products are presented by category (all health benefits together, all life products together, etc.) Intersperse your voluntary products with your core benefits when communicating. Many companies communicate the core plans first, then the voluntary plans. It throws the sequencing off and limits workers' ability to make good choices. For example, if you're offering a voluntary whole-life insurance plan, communicate it right after you communicate the employer-paid basic-life group plan. Employees will be better able to see how the voluntary product complements the basic coverage.

Show them the company's contribution. Too many employers assume that everyone recognizes the organization's contribution to their health plan. Unfortunately, most employees only see their personal contribution on each pay stub and don't realize that their employer is paying much more to subsidize the medical coverage. Most people don't know how much medical insurance really costs. Don't take for granted that they know what your contribution really is.

Tell them what a Section 125 plan is, and why it's a good thing. The standard process for communicating the benefits of pretax savings has been to roll out a long algorithm. This obviously does not work, unless you're an engineering company. Show employees in simple, real-world terms how much they save through pretax contributions. You probably don't have an interactive tool that automatically figures out each employee's savings. However, you can still give them a very good, ballpark example. If you have a calculator and know the five federal tax brackets, you can develop one or two examples, showing what a sample person would save.

Explain the use-it-or-lose-it rule for flexible spending accounts. Help workers quantify what they are spending out-of-pocket on health care or dependent care, but know it is not an easy task.

These are just some of the ways you can improve the benefits awareness of your workforce. By incorporating just one or two of them, you will raise employees' knowledge and appreciation.

Our experience working with employers indicates a measured progression of knowledge over many years. Our organization often surveys employees in a scientific attempt to validate their baseline knowledge of benefits before their open enrollment and than again after open enrollment. Knowledge grows and is sustainable over time, but it is important to stay the course with a consistent strategy.

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