With the cache of voluntary benefit plans apparently soaring to new strategic heights, a bird's-eye view of these programs is emerging from 50,000 feet.

In short, employee-pay-all programs have become an integral part of benefit offerings that help employers afford to meet the growing financial-protection needs of a diverse workforce, close alarming coverage gaps and promote choice during challenging times.

The bullish forecast for brokers and advisers comes courtesy of sweeping research from the nonprofit International Foundation of Employee Benefit Plans in Brookfield, Wis. The survey of 833 employee benefit professionals conducted in late August and early September was co-sponsored by EBA sister publication Employee Benefit News. "Top Trends in Voluntary Benefits: Survey Results" found that 84% of the respondents offer these plans; another 5% are considering doing so.

Beyond cost-cutting

Sally M. Natchek, IFEBP's senior director of research, describes the primary take-away of this study as an indication that voluntary benefits are a significant part of plan sponsors' strategic benefits approach - a role that's expected to grow in the years ahead.

"These benefits improve employee satisfaction, with minimal administrative costs for employers," she says, noting that 78% of responding employers believe adopting voluntary benefits results in only slight or moderate administrative cost increases.

David Albertson, editorial director for both Employee Benefit News and Employee Benefit Adviser, was encouraged by the evidence that employers view voluntary benefits as proactive sponsorship rather than as an offset to cutbacks in benefit funding in other areas.

"Initially it might have been the case that voluntary benefits were just an opportunity to ameliorate health care cost shifting through lower-cost benefit alternatives," he observes, "but now these offerings definitely appear to have come into their own."

Although the employee-pay-all aspect of financing various coverages is tempting in this economic climate, only 4% of the respondents cited supplementing or replacing employer-subsidized benefits that were reduced or eliminated as their primary motivation for offering voluntary benefits.

That factor was eclipsed by several other reasons, including providing access to a greater array of benefits and supporting employee choice and flexibility (68%), filling gaps in employer-sponsored benefits (42%) and helping employees get better prices at group rates (41%).

Perhaps most surprising among this particular set of findings was that despite these cynical times, employers reported no negative employee reactions to their voluntary benefits and 89% of the workplaces polled actually had a positive view of these programs.

John Garner, a principal with Garner Consulting in Pasadena, Calif., encourages his fellow brokers and advisers to emphasize the advantages of giving employees choice and flexibility, since access to a greater array of benefits was by far the main reason for offering voluntary benefits.

Although he's a true believer in the power of voluntary benefits, Garner's expectations for the current enrollment season are tempered with a dose of realism given that employees are more cautious in this economic environment. "New enrollments are down about 20%," he reports. "If an average of 25% of employees were buying voluntary benefits before, it is about 20% now."

Among many benefit managers, one major misconception about voluntary benefits is that these options will mean more work for benefit staffs that are already stretched thin when just the opposite is true, according to Garner. For example, some carriers offer complete open-enrollment assistance by making presentations describing core coverages as well as voluntary benefits, followed by one-on-one counseling sessions regarding both offerings.

"By presenting voluntary benefits this way, benefit advisers candemonstrate that voluntary benefits can ease the burdens of benefit managers rather than add to them," he says.

Another more strategic way to argue the case for voluntary benefits is to stress how C-suite officers will be hearing about these programs within the larger context of meeting overall business objectives. With regard to this point, Garner says "the benefit manager needs to be up to speed and proactive."

LTC on the move

The research suggests that demographic trends appear to be driving interest in long-term care insurance. Natchek describes LTC as "one of the fastest growing voluntary benefits" and predicted that the nation's aging 78 million Baby Boomers are expected to drive those sales. Given this changing landscape in the workplace, 80% of the respondents believe voluntary products with guaranteed issue provisions will become more popular and will boost participation.

But for now, LTC is something of a double-edged sword for the average consumer. "While many of the voluntary products have a relatively low premium, long-term care insurance can be a relatively expensive purchase, premium-wise," notes David Harvey, an IFEBP instructor. Aging Baby Boomers "who have had more direct experience with the cost of aging than might have been the case in the past" could be driving the demand for this product, he surmises.

Harvey describes the payroll-deducted premium as the most influential factor in driving plan participation, followed by an ability to enroll in a new benefit or enhance employer-sponsored coverage.

The most common voluntary benefit options were term life insurance (73%), vision insurance (53%), LTC insurance (51%), long-term disability insurance (50%), accident insurance (49%) and dental insurance (48%). Several niche product offerings that also should be on every producer's radar included automobile insurance (32%), homeowners or renters insurance (29%), debt counseling and financial planning (22%), identity theft coverage (22%), college savings plans (21%) and pet insurance (19%).

Non-insurance or non-traditional voluntary products are likely to hold little interest in the near term because of the economy, according to Harvey. He notes that one possible exception might be identity theft coverage.

In terms of which products and services resonate most with employees, he believes it should come as no surprise that the findings show voluntary term life insurance led the pack because it's almost always modestly priced.

"It is typically offered with a generous guaranteed issue maximum at initial enrollment or eligibility," Harvey adds, noting that it can be used to supplement employer-sponsored basic life insurance that may be just one times annual earnings or a flat, scheduled benefit. "It is an easy way for employees to purchase a coverage that most employees prefer not to address."

Since vision care isn't always part of a core benefits package, he says voluntary coverage can be perceived as a better deal than allocating money to a flexible spending account because it often features network provider discounts on eyeglass lenses, frames and contact lenses.

The advantages of offering LTD insurance on a voluntary basis are essentially twofold, according to Harvey. One is that paying for a policy with after-tax dollars allows the benefit to be received tax free. A greater income-replacement ratio than an individual whose entire LTD program is fully employer-paid or paid with pre-tax dollars.

The other involves a plan design issue. For example, an employer-sponsored core LTD benefit featuring a modest monthly maximum in the neighborhood of $1,000 to $1,500 can be supplemented with a buy-up option made available in either a monthly maximum of $5,000 to $10,000 or an integration percentage. Harvey calls it "a terrific way to provide a uniform benefit for all employees, as well as offering a tax-favored vehicle for highly compensated or key employees to guarantee an appropriate income replacement."

Careful communication

The trick for producers is to convey the value of voluntary benefits to employee populations without sounding like they're merely replacing subsidized coverage that was reduced or eliminated in response to the economy heading south.

"You have something like mirror images of the same motivation moving in tandem here," Albertson explains. "Plan sponsors are trying to maximize the value of a finite pool of money available for benefits, and in the process, trying to help employees maximize the value, the purchasing power, of finite compensation packages. Once that context is established, advisers can better communicate product features and benefits, as well as core advantages such as group pricing and payroll deduction."

Harvey believes voluntary benefits have always been a dynamic market for benefit brokers and advisers, but hastens to add that key messages may fall by the wayside with so much emphasis on managing escalating health care costs and devising alternative plan designs.

"In the process of communicating and enrolling the new plan design, what frequently gets lost in the noise is how offering a voluntary benefit program can be used to fill a void between the old and the new benefit plan designs," he says.

The key to a successful voluntary benefits enrollment invariably hinges on designing a communication campaign that conveys plan changes, additions or the implementation of a voluntary benefits program within a fairly small time frame in a clear and consistent manner, Harvey observes. In a similar vein, 69% of the respondents believe promoting financial literacy and personal responsibility or accountability themes will raise the perceived value of voluntary benefits.

"Communication should begin well in advance of any otherwise open-enrollment material that all-too-often has less than good news that is being delivered to the employee," Harvey explains. "As such, employees may need time to carefully consider what they are signing up for, and whether or not it is appropriate for them and their family."

Another recent joint survey - this one conducted by Colonial Life & Accident Insurance Company and Employee Benefit Adviser - found that 99% of the nearly 200 brokers and financial advisers polled online consider benefits education integral to their clients' enrollment and ranked benefits education first among enrollment capabilities their agencies need (98%). Ensuring that quality business is written in clients' accounts and having a consistent enrollment experience were tied for the second-place spot at 96% apiece.

Strong participation

Given that voluntary benefit programs have seen little movement in overall enrollment, Harvey doubts that minimum participation requirements are an obstacle for employers. While 66% of the respondents did not see voluntary benefit plan participation levels change during the past year, 14% reported increases and 8% reported decreases.

The most common participation rate was in the 20% to 40% range, with 23% of the respondents reporting. In contrast, 9% of the organizations noted that less than 10% of employees purchased at least one voluntary benefit and 10% said more than 80% of their employees participate in at least one such program.

Slightly more than half the companies that reported increased participation cited appreciation of broadening the range of benefits as a reason for their progress, while 43% mentioned employees shouldering more responsibility for their health and welfare.

Other reasons for greater interest in voluntary benefits included the search for ways to mange financial risk (26%), a desire for advice and guidance on financial loss (23%), protection sought against unemployment (23%) and the hope for benefits portability in the face of decreased job security (12%). Just 8% of the respondents reported decreased participation during the past year, with 83% attributing the decline to employees being unable to afford the benefit.

Voluntary benefits also can be used as a tremendous tool for small employers, offering what Harvey considers "a mechanism to provide valuable, low-cost insurance coverage for employees and dependents at a cost that may only minimally add to the employer's overhead."

Not surprisingly, an economic recovery would tend to alleviate any concerns about job security and being able to afford voluntary products - factors that Garner believes could increase enrollment in voluntary plans. Regardless of the economic climate, he says the need for supplemental benefits remains constant, noting that medical and even disability plans provided by either an employer or the state "usually fall short of keeping employees financially 'whole' throughout a catastrophic medical event."

Harvey notes that the value proposition of voluntary benefits has not changed. And as such, producers can continue to emphasize that they offer employee populations "quality insurance programs with affordable group rates, paid for on a payroll-deduction basis that often include a portability feature." With regard to this last point, 88% of the respondents say portability will continue to be an important characteristic, while half think voluntary benefits will increase if the phased-retirement concept becomes popular.

In showing voluntary benefits are part of a strategic mix alongside employer-paid benefits, the return on investment may be much harder to quantify. Natchek senses that it's "more complicated to isolate the ROI." Harvey adds that it may be challenging to quantify ROI because of the many reasons employers offer a voluntary benefits program and the fluid benefits landscape.

Taking ownership

Asked whether the "ownership society" concept promoting individual financial responsibility under President George W. Bush will have any traction in the Obama era and its effect on voluntary benefit programs, Albertson believes the issue will be recast.

"While it doesn't appear President Obama is interested in carrying over many of the themes embraced by President Bush," he says, "voluntary benefits remain very much connected to goals of the consumer-driven benefits movement. Owning and acting upon the opportunity to purchase these benefits can be a significant step toward better consumerism."

Garner observes that the ownership society "never took hold with the public," but that hasn't dampened their desire for "control over their ability to protect themselves from financial insecurity. People tend to like choice, and I believe people will continue to choose having control over their benefits."

Natchek sums it up this way: "Workers are taking more accountability for their own future, preferring to pick and choose their benefits based on their specific needs and costs." EBA

The 833 survey respondents cited among their top three reasons for offering voluntary benefits:

68% Access to more benefits/supporting employee choice and flexibility

41.8% Filing gaps in employer- sponsored benefits

41.3% Helping employees get better prices at group rates

40.3% Aid in recruitment and retention

24.8% Increase or maintain morale, loyalty and productivity

Most of the HR and benefit professionals polled among the roughly 36,000 IFEBP members across the U.S. and Canada who manage 8,400 multiemployer trust funds represent corporations (91%).

Survey respondents also included members of the International Society of Certified Employee Benefit Specialists, a nonprofit organization at IFEBP headquarters open to industry practitioners who have earned the CEBS, CMS, GBA or RPA professional designation, and subscribers to Employee Benefits News. New York-based SourceMedia publishes both EBN and Employee Benefit Adviser.

For the purposes of this survey, voluntary programs were defined as "supplementary benefits made available by an employer often at a group rate or premium discount to employees." IFEBP more than likely will conduct a follow-up survey in 2010 that will focus on voluntary benefits in the public sector, reports Sally M. Natchek, IFEBP's senior director of research.

David Harvey, an IFEBP instructor, notes that the popular Certified Employee Benefits Specialist designation has consistently included voluntary benefits in its curriculum since the program's inception. "From a strategic perspective," he says, "the CEBS program has included the role of employer-provided versus employer-sponsored in the discussion of employee recruitment, retention and motivation."