Whatever your opinion about the Affordable Care Act (ACA), there’s no denying it has dramatically changed the benefits landscape. About a year ago, the first health care exchanges opened to much fanfare and consternation. As we look at decisions for the 2015 enrollment season, it’s time to review what we have learned. One question that emerges is: Are there unintended consequences for employers (and employees) as they try to balance health care and retirement benefits planning, strategy, investment and engagement?
The ACA, with its individual mandate, shifts responsibility for health insurance to many individuals similar to the way the Employee Retirement Investment Security Act (ERISA) began a shift to individual responsibility for retirement four decades ago. This is particularly true for individuals who are not eligible for employer-sponsored health care and who are now guaranteed – but also mandated to purchase – health insurance. For many smaller employers, the question has been whether to offer health insurance themselves or to examine the possibility and repercussions of terminating an existing plan in favor of the exchanges.
The impact of these decisions is not limited to health care. LIMRA Secure Retirement Institute research finds that nearly half of defined contribution (DC) retirement plan sponsors say the ACA has affected their company’s retirement benefits strategy in 2014. Roughly the same percentage predicts that it will continue to affect strategies and planning throughout 2015. These findings are most pronounced among midsized employers, particularly those with 100 to 999 employees. While a number of employers defined as “very large” (1,000+ employees) say the ACA has affected (or will affect) their benefits strategy, these employers tend to have fully staffed benefits resources and robust, strategic benefits programs.
For many, the impact of the ACA on retirement benefits and strategies has not been positive. More than half of all affected DC plan sponsors (54 percent) say that they spent less money on their retirement benefits in 2014 and/or shifted more retirement benefit costs to their employees (55 percent). The smallest plan sponsors, with fewer than 100 employees, were most likely to say that they spent less money on retirement benefits and least likely to say that they had shifted more retirement costs to their employees.
The effect continues and persists more strongly with smaller employers. Two-thirds of all DC plan sponsors who indicated they were affected by the ACA now say they plan to spend less on retirement benefits in 2015 – this percentage jumps to 70 percent of plan sponsors in organizations with fewer than 1,000 employees. Compared with 2014, 40 percent said that they will spend less time in 2015 on retirement benefits while 60 percent said they would shift retirement benefit costs to employees.
This paradigm shift in health benefits could be as significant as the transition in retirement savings from defined benefit to defined contribution. It’s still too early to know if employers will continue to shift additional retirement costs onto employees.
Balancing health and wealth planning, strategy, and investments is a key concern at both the employer and individual levels. Employers are challenged by changing regulatory and legislative environments in their quest to offer meaningful benefits to their employees. The effects of the ACA, however well-intentioned from a coverage and access perspective, have not helped retirement benefits gain attention or funding for many employers and, by direct extension, their employees.
At the same time, employees and individuals are being asked to shoulder more responsibility for funding both their health insurance and their longer-term retirement income.
At both levels, advisors can add real value by helping employers and individuals stay focused on and balance immediate priorities and longer-term planning needs. LIMRA studies have consistently reflected the value an advisor can bring to individual financial situations. At the employer level, advisors can play a pivotal role in helping plan sponsors overcome the effects of the ACA and design and maintain retirement programs for this new benefits landscape.