Changing dynamics create new opportunities for brokers

Workplace benefits have evolved dramatically since Caesar Augustus extended a pension to retiring legionnaires, a lump sum equal to 13 times their salaries, to prevent rebellion. The next major employer-sponsored benefits advance came when the Bank of England launched a pioneering private-sector pension plan in 1739.

From that point forward, benefits have progressed somewhat rapidly. As trade and labor unions took hold in the 1800s throughout Europe and the U.S., companies were held increasingly responsible for working conditions and workforce health and welfare on and off the job.

Changing dynamics

Employers traditionally have been in control of worker positions, salaries, and when, where, and how long they worked as financial obligations kept employees in place even when dissatisfied. American adults typically work for more than 40 years, and at one time, many were employed by the same company for their entire careers. However, the average adult now works 12 different jobs over their lifetime.

Sinc the 19th century, employers have increasingly facilitated employee health and welfare, but COVID-19 changed the employee-employer relationship far more drastically. Employees called on employers to support their livelihood, health, and dignity to degrees never before experienced. Decades of evolutionary change were effectively compressed into barely two years. Pandemic-related layoffs and furloughs found workers regulating their time and energies without employer involvement.

Attitudes toward work and employers have changed regarding the location in which they work, the flexibility of their schedules, and the benefits they need and want. Employees are now far more interested in benefits that protect their security and enhance their overall wellbeing. They are expecting and even requiring that employers provide benefits that address their physical, mental, and financial wellbeing.

Employers who fail to respond are challenged with low productivity, high turnover, and difficulty hiring. Benefit programs have to play a significant role in this response. As workers battle anxiety, stress and fatigue and assume more influence in the employee-employer dynamic, employers must develop effective and strategic responses that address employee concerns while balancing associated costs.

Lots more jobs, far fewer workers

The U.S. Chamber of Commerce reported that as of May 2023, American companies continue to face unprecedented challenges in finding enough workers to fill job openings across companies of all sizes, industries and states. Many jobs have been added post-pandemic, but many Americans who lost their jobs during the pandemic have chosen not to return to work. The Chamber estimates that, compared to February 2020, 3 million fewer Americans now participate in the labor force. The net effect is that competition for prospective employees can be intense, and often, employer-sponsored benefits are the deciding factor. However, not all benefits are valued equally among potential employees. 

Different generations, different expectations

With people living and staying active longer, the American workforce now includes five generations, each with different benefits needs and wants. Employers face a significant challenge meeting such diverse expectations while controlling costs. However, commonly available benefits options can help address a variety of expectations while saving money for the employer and employee alike.

First, let’s review the different generational cohorts and their benefit interests.

Traditionalists

Traditionalists need insurance coverages (major medical, dental, vision, life) but may also seek FSAs or HSAs for unreimbursed health care expenses to help protect retirement savings, retirement plans with employer matching, and wellness programs and perks.

Boomers 

Boomers also need insurance coverage, but other concerns include dependent care benefits for elderly parents, FSAs or HSAs, retirement plans with matching, wellness programs and perks, and student loan repayment assistance for parent loans.

Gen X

Gen Xers may seek insurance coverages with plan options, DCFSAs for children and elder care, FSAs or HSAs, retirement plans with matching, student loan repayment assistance for themselves and parent loans, tuition reimbursement, and continuing education courses.

Millennials may be attracted to insurance coverages with plan options, DCFSAs, FSAs or HSAs, retirement plans with matching, student loan repayment assistance, sabbatical programs, and community service options on company time.

Millennials

Millennials are generally attracted to insurance coverages with plan options, DCFSAs, FSAs or HSAs, retirement plans with matching, student loan repayment assistance, sabbatical programs, and community service options.

Gen Z

Gen Zers, being young and healthy, may still seek insurance coverage but with more emphasis on digital health tools and virtual services, employee assistance programs offering counseling and mental health services, student loan repayment assistance, financial wellness programs that help deal with debt, tuition reimbursement, and continuing education.

Strategic benefit options

With benefits accounting for about 31% of an employee’s total compensation package, employers must prioritize benefits programs to attract and retain employees. TPAs and brokers can achieve growth by offering strategic benefit options to help companies align as well as possible with the changing dynamics in the employer-employee relationship. The following types of benefit programs can help meet diverse employee expectations while simultaneously helping to control employer costs.

Flexible spending account (FSA)

In addition to providing a substantial tax benefit to employees, FSAs offer payroll tax savings to employers on the amount employees set aside. With employer payroll matching at 7.65%, each employee contributing the 2023 annual maximum of $3,050 saves the employer $233.33 annually in payroll taxes. Add to that the dependent care FSA with an annual maximum employee contribution of $5,000, and the employer can save up to another $382.50 annually in payroll matching per participant.

Health savings account (HSA)

HSAs support employee holistic health and wellness now and in the future. Employers benefit from payroll tax matching savings on HSA set-asides. For each employee contributing the 2023 family coverage maximum of $7,750, the employer saves $592.88 in payroll matching taxes.

ICHRA or QSEHRA

An ICHRA or QSEHRA can help employers challenged by group health plan cost increases or who have not previously sponsored a group health plan. These plans reimburse individual health coverage employees acquire on the open market (including the healthcare marketplace).

According to the HRA Council, 350% more employers offered ICHRAs in 2022 than in 2020, when the accounts first became available. QSEHRA adoption grew by 70% between 2020- 2022. On average, ICHRA and QSEHRA adoption doubled across all 50 states between 2020 and 2022.

Lifestyle spending account (LSA)

LSAs provide employers with unprecedented flexibility to offer a nearly unlimited variety of physical, mental, and financial wellbeing support, effectively addressing the needs of a widely diverse workforce. Although taxable to the employee, these post-tax accounts, with no regulation, give employers wide latitude in how the funds can be used (with the caveat of steering clear of Section 223 qualified expenses to avoid triggering ERISA).

Student loan repayment assistance (SLRA)

According to PeopleKeep’s 2022 Employee Benefits Survey Report, 26% of Gen Z employees and 27% of Millennials consider student loan repayment assistance as “very” or “extremely” important. Under the CARES Act of 2020 and Consolidated Appropriations Act of 2021, employers can offer up to $5,250 annually per employee in non-taxable student loan repayment assistance through December 2025.

Conclusion

TPAs and brokers can achieve significant growth by providing employers with simple options that help them align with the changing dynamics of attracting and retaining a productive, engaged workforce. Employees now expect companies to extend benefits that support and protect their physical, mental, and financial well-being.

Through strategic application of certain benefit programs, employers can meet the needs of a widely diverse workforce while also controlling their benefit costs. These programs include flexible spending accounts (FSAs), dependent care FSAs, health savings accounts (HSAs), individual coverage and qualified small employer health reimbursement arrangements (ICHRAs and QSEHRAs), lifestyle spending accounts (LSAs), and student loan repayment assistance (SLRA) plans.

As DataPath’s Chief Marketing Officer, Bo Armstrong focuses on identifying emerging market trends within the benefits industry and advocating for customers and their needs within DataPath.