|[July 07, 2014]
Healthcare costs, pensions are top corporate priorities
NEWARK, N.J. --(Business Wire)--
An improving economy and stable financial markets have given financial
executives confidence to explore a range of options to help their
companies better manage the costs and risks of their healthcare, pension
and other benefit programs, according to new research
released today by Prudential Financial, Inc. [NYSE:PRU] and CFO Research
The research report, "Managing
Financial Risk in Retirement and Benefits Programs," found
financial executives believe improvements in funding defined benefit
plans will make it easier to reduce or completely eliminate risks
associated with those plans.
The report also found financial executives continue to believe
controlling the cost of healthcare benefits is their top priority in
managing benefits. Companies are also looking to outsource some or all
of their benefits administration and management of Family and Medical
Leave Act tasks. Although employers are looking at private health
insurance exchanges, few are likely to switch employees out of
company-provided healthcare into the public insurance exchanges
established under the Affordable Care Act.
"Everyone is looking at how to better control benefit costs and
healthcare is still the No. 1 issue," said Jim Gemus, senior vice
president of Product for Prudential Group Insurance. "But they are
acutely aware of the need to retain employees and attract new ones. The
improving economy and recovery of the financial markets is making it a
bit easier to do this."
The survey targeted senior financial executives at companies with
defined benefit retirement plans holding $250 million or more in assets.
These are plans that pay out a specified benefit to retirees. The
survey, conducted by CFO Research in February, complements studies done
in 2009, 2010, 2012 and 2013. Most of the 182 companies included in the
surey had revenues of more than $500 million and more than half had
revenues of more than $5 billion.
The survey found 35 percent of the responding companies have already
closed their pension plans to new entrants and another 25 percent have
frozen them. These executives cited concerns about the impact of defined
benefit plans on earnings, balance sheets and their companies' ability
to invest in growth opportunities. Another concern is the possibility of
new mortality standards, with 50 percent of responding executives saying
they believe new standards are likely to affect their company's defined
benefit liabilities. In addition, 53% of finance executives report that
their companies either have transferred defined benefit liabilities to a
third party insurer or are likely to within two years, an increase of
18% compared to the 2010 survey.
"The rebound in financial markets has not only restored the value of
401(k) plans but helped improve the funding levels of defined benefit
plans as well, though market volatility and other risk factors remain a
concern," said Phil Waldeck, senior vice president, Pensions and
Structured Solutions, Prudential Retirement. "Now the focus can be
placed on further reducing the risk of defined benefit plans and
improving the offering and investment security of defined contribution
plans like 401(k)s."
Other key findings included:
More than half of the financial executives surveyed said they are
likely to offer lump sum distributions to DB plan participants over
the next two years
More than half of the respondents believe a significant portion of
their workforce will have to delay retirement because of inadequate
savings. And, 59 percent say they have seen the average retirement age
increase over the past five years and 61 percent believe it will
continue to creep up. Finance executives are showing a growing
interest in defined contribution plan options that enhance the
security and stability of workers' retirement funds. These options
include automatic enrollment and developing matching contribution
formulas that encourage higher savings rates.
More than half (53 percent) of the financial executives believe
providing downside risk protection through a guaranteed income feature
would help plan participants make better investment decisions. Half of
the respondents are likely to add a guaranteed income feature to their
defined contribution plan and another 5 percent already offer the
Nearly 50 percent of the financial executives said they are likely to
outsource some or all of their benefits administration on top of the
27 percent that already do so. In addition, 20 percent outsource their
absence management and Family and Medical Leave Act duties with
another 45 percent considering it.
Some 70 percent of the respondents believe offering voluntary benefits
is a way to increase employee satisfaction and 58 percent are likely
to expand voluntary benefit offerings.
Companies are still shifting healthcare costs to employees, with 80
percent either transitioning more cost to employees or are likely to
do so. Only 38 percent say they are willing to end employer-paid
healthcare and direct employees to public health insurance exchanges,
with 57 percent saying they wouldn't consider the idea. But, 41
percent would be willing to provide subsidies to employees for use on
private health insurance exchanges.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader, has
operations in the United States, Asia, Europe, and Latin America.
Prudential's diverse and talented employees are committed to helping
individual and institutional customers grow and protect their wealth
through a variety of products and services, including life insurance,
annuities, retirement-related services, mutual funds and investment
management. In the U.S., Prudential's iconic Rock symbol has stood for
strength, stability, expertise and innovation for more than a century.
For more information, please visit http://www.news.prudential.com/.
Prudential Retirement delivers retirement plan solutions for public, private,
and non-profit organizations. Services include state-of-the-art record
keeping, administrative services, investment management, comprehensive
employee investment education and communications, and trustee services.
With over 85 years of retirement experience, Prudential Retirement helps
meet the needs of over 4.0 million participants and annuitants.
Prudential Retirement has $327.8 billion in retirement account values as
of March 31, 2014. Retirement products and services are provided by
Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford,
CT, or its affiliates.
The Prudential Insurance Company of America, Newark, NJ and its
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