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March 05, 2014 | Retirement Plans
If asked to choose between plan success or failure, most plan sponsors would undoubtedly respond that they want their benefit plans to be successful. But how do you determine whether your plans are succeeding or failing?
Most industry experts agree that plan failure means a poor return on your investment of benefit dollars, and plan success means objectives met. And yet, year after year, many employers and employees spend significant dollars, but at best are uncertain of their return and at worst are disappointed in their return on investment.
If costs are escalating for both employers and employees, and if neither is seeing a return on their investment in the form of improved outcomes, then it stands to reason that the plans are failing, thus threatening the long-term health and security of both the business and its employees. The risk that a company’s benefits strategy fails to result in both plan sponsors and plan participants achieving their desired outcomes can be thought of as “plan failure risk.”
A health or retirement plan requires a significant investment of company resources, and it can be a powerful tool used to align employee behavior with business objectives. Unfortunately, these resources are often committed with little thought as to what a business’s objectives actually are. In other cases, a business’s objectives may well be understood, yet too little thought is given to whether or not the benefit plan is aligned with those objectives. Thus, the first step for a plan sponsor in managing plan failure risk is to set clearly stated objectives to measure against plan performance.
Formulating a statement of benefits program objectives will allow a plan sponsor to answer basic questions regarding why they offer a benefits program, what they are able to spend on it, and what they hope to accomplish in providing those benefits. Working toward meeting those objectives will help to manage the risk of plan failure. Plan sponsors can also rely on their benefits strategy to help them achieve a number of business objectives. There will likely be many different objectives, but they can generally be grouped into a few key categories.
Employee benefits have become an important part of employee compensation packages, particularly for highly compensated employees.
As costs rise, regulations change, and the health care and retirement landscape continues to evolve, employers look for plan designs that contain costs and limit fiduciary risk.
Plans designed to increase employee financial security can help to maximize employee satisfaction and in turn help employers to improve productivity and remain competitive.
Plan sponsors invest significant resources in achieving these objectives. If a plan fails to further these objectives, then it is likely that the sponsor will have wasted their time and financial resources. Clearly defining the program’s goals and objectives will serve as a guideline to keep the plans on track and to help ensure plan success.
Plan sponsors will need to build consensus among key decision-makers about the objectives of the benefits plan. Next, a coordinated benefits team, including the health plan broker and retirement advisor, should work together to establish annual progress goals and metrics. A coordinated benefits approach will help retirement plans and health plans pursue their prioritized objective and keep the plans on track to succeed.
A benefits strategy can serve as a powerful tool to further plan sponsors’ objectives, thereby avoiding plan failure risk and its related costs. An ineffective benefits strategy can put plan sponsors at a competitive disadvantage. It can also result in wasting significant resources that were committed to constructing and administering the ineffective strategy.
With the cost of employee benefits representing such a large portion of a company’s budget, plan sponsors need to protect that investment through careful planning and efficient allocation of limited resources to ensure successful attainment of company and plan objectives and the avoidance of plan failure risk.
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