What's Next for Employee Benefits?
At the ASPPA Annual Conference in late October, Bruce Ashton completed his term as President of ASPPA. In our last newsletter, we chronicled Bruce's accomplishments. In this newsletter, we have two objectives.
The first is to comment on his reputation for being fair-handed and thoughtful in his dealings with ASPPA's officers, directors and staff. Bruce's tenure was remarkable for the number of significant accomplishments, which was particularly impressive because those changes were made with little of the acrimony that often accompanies major changes.
The second point is that we have asked Bruce to comment on his view of the next five years-from the vantage of his recent position as ASPPA's president. How does the benefits world look with the added perspective of heading a national organization of plan providers? Bruce's thoughts are in the article that follows.
Heading a national organization of benefits professionals required an enormous time commitment. But it was also extremely rewarding, in part because I had the chance to participate first hand in the shaping of our future. While the country lacks a coherent national retirement income policy--much of what happens is ad hoc, driven by market forces or the latest scandal--I was able to observe trends that I believe will have a significant impact on the future of employee benefits.
Here are a few of my observations:
- We will see increased emphasis on individual responsibility. The expectation of employees to shoulder more of the cost as well as the decision-making for their health care and retirement will accelerate. This shift is fueled in part by the continued upward spiral of health care costs. But it is also driven by strongly held beliefs by many in government that a shift away from the government-safety-net mentality that has prevailed since the 1930's is essential.
- The issue will surface most strikingly in the debate over privatization of the Social Security system. If this change is adopted (which is by no means certain at this stage), it will put increasing pressure on the importance of employer-based retirement plans and individual savings, since the government guaranty of at least a small Social Security pension will be significantly reduced.
- The effect on the private retirement system will be marked. We are already seeing an emphasis on disclosure of costs and compensation in the 401(k) marketplace. For example, the ERISA Advisory Council, which advises the Department of Labor on policy issues, and before which I had the opportunity to testify on behalf of ASPPA earlier this year, has recommended the adoption of new rules requiring more disclosure to participants of the costs associated with their 401(k) accounts. Over the next few years, full, transparent disclosure of costs at both the plan sponsor and the participant level will become such a commonplace that the absence of information will seem odd and out of place.
- Another aspect of the effect on employer-based retirement plans will be greater focus on the inadequacy of benefits accumulation. While I do not expect to see a shift back to defined benefit pension plans-as beneficial as this would be for workers-I believe there will a number of consequences. First, without enough funds for retirement, people need to work longer. This will have an impact on the workplace. How will employers deal with a graying workforce, especially the increased health care costs associated with older workers? One possible approach may be for employers to go to greater lengths to assist their employees in investing their 401(k) accounts more effectively because in the long run, it will save them money if their employees are able to save enough to retire in their late 60s rather than their mid- to late 70s.
- In part as a consequence of the employer need to help employees accumulate more retirement savings, I believe we will see an increased focus on the responsibilities of employers to engage in qualitative as well as quantitative evaluations of their plan's investments and service providers. Employers will need to consider not just what services are being provided, the costs of the services and the investment performance of the options offered to the employees, but will also need to take into account the ethics of the plan's investment and service providers. We're already seeing this in response to the mutual fund scandals, recent insurance brokerage scandals and other regulatory steps.
In my view, the changes on the horizon are largely positive. More, and more effective, disclosure, more employer care taken in offering plans to employees, more analysis of the business ethics of providers in the marketplace will certainly increase the responsibilities of both employees and employers. But in the long run, if this helps workers retire with adequate savings and with an ability to cover their essential health cares costs, it will make for a better future for all of us.
© 2004
Reish Luftman Reicher & Cohen. All rights reserved. The ERISA Report for Plan Sponsors is published as a general informational source. Articles are general in nature and are not intended to constitute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish Luftman Reicher & Cohen does not warrant and is not responsible for errors or omissions in the content of this report.
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