The important role of employee benefits during the pandemic and beyond

Employee benefits have played a critical role throughout the COVID-19 pandemic and continue to be an important tool for employers to attract and retain top talent. We explore the evolving significance of benefit plans from the early stages of the pandemic to 2023 and beyond.

Early pandemic – 2020

During the initial stages of the pandemic, lawmakers and employers turned to employee benefit plans to support efforts to fight COVID-19 and ease some of its financial burdens on employees. Employer-sponsored group health plans were required to pay for COVID tests and treatments. Flexible spending accounts (FSAs) and Health Savings Accounts (HSAs) could be used to pay for personal protective equipment such as hand sanitizer and face masks.

Periods to elect COBRA coverage were extended and employers could allow employees additional time to spend-down FSA funds due in part to drastic changes in the availability of elective health care measures. On the retirement side, lawmakers gave employers the ability to allow COVID-19 distributions and loans from retirement plans to give employees much-needed access to retirement funds during furloughs and financial hardships.

Employers were also faced with drastic situations and had to lay off and furlough more employees than ever before. Some employers cut wages and eliminated fringe benefits and perks. Other plan sponsors needed to suspend matching and employer contributions to retirement plans and some faced partial plan terminations as furloughs became permanent layoffs.

The great resignation – 2021

As employees and employers emerged from the survival mode of the initial stages of the pandemic, the focus turned to retaining talent as the Great Resignation began. According to a Pew Research Center survey, the majority of workers cited low pay, no opportunities for advancement and feeling disrespected as reasons for quitting. Forty-three percent of workers said that not having good benefits, such as health insurance and paid time off, was a reason for quitting their job, with roughly a quarter saying it was a major reason.

Employers were faced with worker shortages and struggles to recruit needed talent. Workers felt empowered with the numerous job opportunities and could be more selective if pay or benefits were subpar. By this time, most plan sponsors had reinstated matching and employer contributions to retirement plans and any COVID-era pay cuts, and savvy employers began to scrutinize their compensation and benefit programs to remain relevant and competitive.

Providing stand-out benefits depends largely on what is important to the employer’s unique workforce. For example, establishing a student loan repayment program and making matching contributions under a retirement plan for student loan payments support young professionals, while flexible schedules and emergency childcare support new parents. On the other hand, umbrella insurance products and brokerage accounts under retirement plans support partners and seasoned professionals. Everyone likes good health care and employers get bonus points if employee premiums are low.

The new normal – 2022

As the war for top talent continued, employers kept looking to benefits as a way to add value for employees and recruit workers. According to the US Chamber of Congress, employers can attract and retain talent by offering innovative benefits that go beyond standard pay and benefits. Employers began to consider:

• Flexible hours and remote/hybrid roles
• Eldercare and childcare benefits
• Fertility benefits
• Adoption assistance
• Home-buying assistance
• Mental wellness
• Pet insurance
• Digital safety/cybersecurity
• Education benefits

What’s next – 2023

As we approach the post-pandemic landscape, in addition to exploring innovative benefits, employers are focusing on making changes to current plans. Here are some trends we are seeing:

• Health care – Cost-saving measures for employers and employees remain a key issue for group health plans. Employers are funding health reimbursement arrangements or providing seed money or matching contributions for health savings accounts to reduce employee costs. Disease management programs and cost-containment measures for prescription drugs are much more prevalent.

• Pension plan terminations – Defined benefit plan terminations have increased leading up to 2023 and are expected to continue. Higher interest rates have made it the right time for many plan sponsors to finally terminate plans that may have been frozen for several years.

• Executive benefits – Employers are focusing on implementing and updating incentives for management and key employees. This includes equity compensation, such as stock options, incentive units and phantom interests, as well as long-term incentive plans and deferred compensation tied to profitability or other key metrics.

Related: SECURE 2.0: Implementing the mandatory 401(k) plan design changes

• Secure 2.0 – Recent retirement plan legislation offers new opportunities to tailor benefits to the needs of specific employee groups, such as the matching of student loan repayments like they were elective deferrals, adding emergency savings accounts to retirement plans and allowing small incentives (like gift cards) for employees to make elective deferrals.

And beyond

It takes courage to drive real change and create a culture that values innovative benefits. Expanding to new types of benefits requires an investment of time and resources. It can involve risk when the law is unclear or the way is uncharted. As you journey in the benefits world, it is important to have good consultants and advisors at your side to make the way easier and help you navigate the evolving legal issues.

Carolyn McAllister is a partner with the national law firm of Quarles & Brady LLP and head of the firm’s Employee Benefits practice. She counsels public and private companies, as well as tax-exempt organizations, on their employee benefit plans.

Sarah Sise is a partner with Quarles where she helps employers navigate the regulatory environment associated with employee benefits, along with the design and administration of plans and providing guidance through plan audits.