Bank of America Merrill Lynch

Stretching your benefits dollars

As you review this year’s benefit expenses and budget for the years ahead, consider evaluating your programs to ensure you are getting the most out of your benefits dollars. To help get you started, we suggest assessing your programs from three different perspectives, which we believe to be critical factors to success: Optimization, Education and Integration.

Optimization
Begin with a holistic review of benefits to make the most of every opportunity for cost savings and efficiencies while adding greater value to your workforce.
How does your health care strategy fit into your complete benefits offering? Does it still meet the overall needs of your workforce, or has your workforce changed? For example, you may want to examine your employees’ age segments to determine their benefit priorities. It’s possible that your workforce has evolved beyond your original benefits design.
Is your offering “one size fits all”? It may be a good time to take a closer look under the hood and think more creatively about your program. Allocating your benefits dollars in different ways may free up some savings. For example, some participants could opt to take less life insurance and allocate more toward health care or retirement savings.
Are you getting the most for your fees? Talk to your insurance providers about their offerings to ensure your organization is taking advantage of all programs in return for your investment. There may be services or programs included in your package that your organization is not using or fully optimizing, such as wellness support or other services included or available at a low cost.
What strategies have you implemented to manage health benefit expenses? Do you offer high-deductible health plans (HDHPs) with health savings accounts (HSAs)? This year it is estimated that 80% of large employers are planning to offer HSAs, according to the National Business Group on Health.
Education
Employees can’t appreciate or make the most of what they don’t understand. A thoughtful education and communication program helps ensure employees fully understand their benefits and take advantage of both short- and long-term value.
Promote both physical and financial wellness.
Emphasize to your employees that staying healthy helps to keep their costs down and frees up more of their funds to save for their future. Help them better understand costs through greater transparency. Employees may only consider what they pay and don’t have a full appreciation for how much of the total cost the company pays.
Optimize annual enrollment to help drive financial health. Make your annual enrollment work harder by encouraging enrollment in your retirement savings plan at the same time employees sign up for their health benefits, while they are already in an enrollment and financial mindset.
Help employees think long-term about their benefit elections. While retirement might seem like a long way off for some, making the decision to start contributing to a savings plan can have a positive impact on their financial wellness later.
Demystify the HDHP. A high-deductible health plan (the name itself can be off-putting) does not mean HDHPs are just for the healthy and wealthy. HDHPs typically have lower premiums compared to traditional health plans, and employees can contribute the difference to an HSA, creating savings for qualified medical expenses today and into retirement. All HSA contributions and earnings are owned by the employee and can accumulate year-to-year since there is no “use it or lose it” feature to be concerned about, as there is with other health accounts.
Educate employees on how they can take advantage of any available employer contributions to their HSAs. Encourage employees to contribute enough into their HSA for cash on hand to cover both planned and unexpected out-of-pocket qualified medical expenses for the year.
Make sure your employees understand how to take advantage of tax breaks offered through their benefits. HSAs offer triple tax benefits:1 Money goes in tax-free and has the potential to accumulate tax-free, and withdrawals for qualified health expenses are not taxable. Employees can build “equity” in their account that earns interest year over year and help pay out-of-pocket expenses, in addition to having the ability to invest their account.
Integration
When looking at benefits from an employee perspective, it can be difficult for them to manage retirement, health care, equity and other wealth accumulation plans, while staying focused on career and life goals. Taking a unified approach to administering and communicating benefits can better support employees’ overall financial wellness goals. An integrated approach—whether it’s consolidating benefits with fewer providers and/or using holistic messaging—helps employees better appreciate the full value of their benefits and how to maximize their effectiveness.
As a plan steward, design your program with the end in mind. Your focus should be on helping employees pursue good benefit outcomes and increasing their understanding with an integrated approach to their personal and workplace savings and investments.
Explore the advantages of integrating benefits with one provider versus multiple providers. A “one-click” integrated view can help employees visualize their benefits in their entirety and better understand how their benefits work together.
Remind employees of how their benefits work together. 401(k)s and HSAs are among the two most tax-efficient opportunities available to help employees save for their retirement and health care expenses. Encourage your employees to consider maximizing their contributions to fully realize the tax-efficiency:
 
First, contribute enough to the 401(k) plan so as to fully maximize any employer contribution you provide.
Next, maximize contributions to their HSA.
Third, if possible, maximize their 401(k) plan contribution beyond the match, up to the IRS or plan limit.

Here for you

Please talk with us about these and other strategies that can help engage your workforce while stretching your benefit dollars further.

1 About Triple Tax Advantages: Participants can receive tax-free distributions from their HSA to pay or be reimbursed for qualified medical expenses they incur after they establish the HSA. If they receive distributions for other reasons, the amount withdrawn will be subject to income tax and may be subject to an additional 20% tax. Any interest or earnings on the assets in the account are tax free. Participants may be able to claim a tax deduction for contributions made to the HSA. We recommend that applicants and employers contact qualified tax or legal counsel before establishing a HSA.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.