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Employers mull defined contribution model for employee benefits

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A significant percentage of employers are considering converting to a defined contribution model to fund their group benefit programs, according to a recent survey by benefits consultant bswift Inc.

Fourteen percent of employers with more than 500 full time workers are considering a defined contribution financing structure for one or more of their employee benefit plans in 2014, including group health care and voluntary benefits, according to Chicago-based bswift's 2013 Wellness and Benefits Administration Benchmarking Survey.

Similarly, about 13% of firms with fewer than 500 employees are considering converting at least one of their group benefit plans to a defined contribution model for the coming plan year.

In a report published on Thursday, bswift executive director of exchange solutions Don Garlitz said he expects both segments of employers to migrate toward defined contribution plan structures at an even faster pace over the next 10 years.

“As Bill Gates said, 'We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don't let yourself be lulled into inaction,'” Mr. Garlitz said. “I think that applies here. Employers ought to prepare for a shift to defined contribution.”

Roughly two-thirds of both small and large employers that are contemplating defined contribution models are doing so exclusively for their employee health benefits, while 38% and 31%, respectively, are entertaining the notion of converting all of their benefit plans to defined contribution structures, according to the study.

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Additionally, 5% of large employers are only considering changing over their ancillary or voluntary benefit plans.

“In the past, employers have said, 'We will provide health insurance for you and/or your family,'” Mike Leavitt, founder and chairman of the Salt Lake City-based Leavitt Partners Inc., said in bswift's report.

“In the future, they will say, 'We will make it available for you to buy,'” said Mr. Leavitt, who was the secretary of the U.S. Department of Health and Human Services from 2004-2009 under former President George W. Bush.