It has been well documented and widely published that couples will need in excess of $250,000 to be properly prepared for medical expenses in retirement. Why, then, do the majority of employers continue to separate discussions about retirement planning from their education and enrollment in health benefits? We posed this question to dozens of our broker/consultant partners and received three categories of rationale. They also told us they recognize that they should stop this practice.
1) Our retirement plan adviser doesn’t handle our medical plan.
Professional specialization was the most cited reason for not combining the two discussions. To quote the play “Hamilton,” the two sides were never “in the room when it happened.” And the recent DOL fiduciary rule is not likely to improve the prospects for cross-consulting. Nevertheless, employee overall financial security is one of the hottest topic in benefits and needs to be discussed.
Brokers and consultants will improve the quality of their advice (and perhaps their business) by encouraging a collective discussion. And yes, the elephant in the room? The fact that payroll deductions and employer dollars might be diverted to a plan you aren’t paid on? While possible, it is not likely to be widespread. If anything, we have seen more “retirement” dollars get diverted to improved protection on health and disability protection than the other way around.
2) Retirement and health benefits are in two different systems.
The builders of technology to administer retirement plans have combined decision support, enrollment and investment election into a single platform. The rest of benefits administration sits in a different system. But the two different employer provided benefits are competing for the same payroll deduction dollar. Employees need the ability to integrate decision support and payroll deduction into a single platform. Investment election and management can sit in its own system after enrollment. Few systems provide this integrated capability, but it is available.
3) Most of our employees live paycheck to paycheck.
While this is true for many organizations, this logic often results in “one-size-fits-all” benefit delivery strategies that leave many under prepared for retirement. In a recent discussion with one senior executive, he voiced frustration for continuously being maxed out due to non-discrimination testing in their 401(k). His adviser explained how enrollment in a high deductible health plan, fully funding his health savings account and paying for any out of pocket expenses with after tax dollars might be the best way to augment his retirement savings. The CFO responded, “Why haven’t we been talking about this?” The simple answer, most employees aren’t likely to be able to afford it. But for the ones who can, this strategy will make more high earners love their HDHP.
There are legitimate reasons why retirement and health benefit plans have been separated in the past. But an employee’s financial security, both now and in retirement, is a central issue leading to employee engagement and reduced turnover. Now is the time to combine the conversation and insist that the benefit delivery strategy be adjusted to accommodate the two.
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