Executives at middle market U.S. firms plan to focus in the months ahead on increasing employees’ share of health and welfare costs as a way to offset rising compensation costs.
About 65% of executives polled in a recent industry survey identified the cost of benefits most often as having the biggest impact on compensation decisions over the past year. Decision makers (37%) said they plan to increase employees’ share of health and welfare costs, according to the “Verisight and McGladrey 2011/2012 Compensation, Retirement and Benefits Trends Survey.”
The findings could present opportunities for financial planners and advisors who work with retirement plan sponsors. The study found that about 61% of companies do not feel prepared to respond to the new regulations. Also, while 87% of employers use an external or third party investment advisor, 34% of them are unsure as to what the advisor’s fiduciary responsibility means. Also, 27% work with advisors who are not fiduciaries.
Researchers on the Verisight/McGladrey study had expected financial conditions and overall financial performance to play a bigger role in compensation decisions, Verisight’s CEO Greg Tschider said in a telephone interview.
Part of the outcome stems from the fact that a lot of human resources professionals responded to the surveys, and rising healthcare costs usually have them preoccupied at yearend, Tschider said.
Verisight, a company that offers consulting and retirement plan services, and McGladrey & Pullen, an assurance, tax and consulting services firm, conducted the online study of 850 middle market organizations in September and October.
Other factors will impact compensation costs next year, according to respondents, including the challenge of retaining key employees (52%), the desire to offer incentives for employee performance (48%) and the challenge of attracting clients (43%).
Employers have already exhausted other means of cost cutting, according to the Verisight and McGladrey study. In 2011, more than one third of companies have reduced overtime in 2001, one quarter have cut staff, frozen pay or increased employees’ share of health and welfare costs.
As it turns out regulatory issues are also getting middle market executives to eye costs related to company-sponsored retirement plans. “It is interesting to think about how healthcare costs have developed as a corporate cost,” Tschider said. “Healthcare gets the attention, and the 401(k) plan, in my opinion, gets less attention.”
But that could change in 2012, when new Employee Retirement Income Security Act rules will require all 401(k) plan providers to begin providing more fee disclosures to plan sponsors and plan fiduciaries. Plan sponsors will have to begin disclosing to participants the expense ratio of underlying funds per $1,000 on a quarterly basis in May.
“Some of them are not sure what to ask,” said Verisight Senior Vice President Robert Stebbins. “But the desire to talk about fees, as you sit down with decision makers, is at a heightened level now.”
As for anticipated salary increases, the Verisight and McGladrey study found that firms expect to grant executives a 3% median and 2.4% mean base salary increase for 2012. Salaried exempt employees at the management level can expect to see a 3% median and 2.6% mean rise.
Donna Mitchell writes for Financial Planning.
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