It has been well documented and widely published that couples will need in excess of $250K to be properly prepared for medical expenses in retirement. Why then, do the majority of employers continue to separate retirement planning from their education and enrollment in health benefits? They and their advisers typically offer up one of three rationales:
1. Our retirement plan adviser doesn’t handle our medical plan
Professional specialization is the most frequently cited reason for not combining retirement and health benefits planning, and the recent DOL Fiduciary Rule is not likely to improve the prospects for cross-consulting. Nevertheless, overall employee financial security is one of the hottest topics in benefits and needs to be addressed. Brokers and consultants will improve the quality of their advice by merging the discussions. Could this result in payroll deductions and employer dollars being diverted to a plan you aren’t paid on? Yes, it’s possible, but unlikely to happen in a significant way. If anything, it’s more likely that some retirement dollars could get diverted to improved 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 these different employer-provided benefits compete for the same payroll deduction dollar, and employees need integrated decision support and payroll deduction from 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 employers, this logic often results in “one size fits all” benefit delivery strategies that leave many under prepared for retirement. Employees with different levels of compensation should pursue different strategies, for instance. High earners, for example, can compensate for low 401(k) contribution limits by contributing the maximum to their health savings accounts and then leaving those funds intact by paying for any out of pocket expenses with after tax dollars.
There were legitimate reasons to separate retirement and health benefit plans in the past. But an employee’s financial security, both now and in retirement, has become a central issue with regard to employee engagement and turnover rates. Now is the time to integrate these two pivotal concerns and adjust the benefit delivery strategy to accommodate both.
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