Friday, January 16, 2009

Benefits on the chopping block

As the recession deepens, companies are looking for ways to cut costs without cutting staff -- and that could mean scaling back on benefits.

Many businesses have already reduced retirement contributions, or eliminated them altogether. Saks Fifth Avenue (SKS), Motorola, FedEx and Ford (F, Fortune 500) are just a few of the companies that announced they would no longer be offering employer matches to 401(k) plans.

But the buck doesn't stop there. Now more companies are considering cutting back costly health coverage and other benefits during tough economic times.

"It's definitely a trend that we're seeing," said Laurie Bienstock, national director of strategic rewards for benefits consulting firm Watson Wyatt. "As there are continued challenges, the numbers are growing."

Benefits for employees cost employers, on average, $8.74 per hour worked, according to a report by the Bureau of Labor Statistics, a bulk of which is credited to health insurance coverage. That's $2.27 per employee, per hour, according to BLS.

To bring that expense down, 20% of businesses have already raised the employee contribution to health care premiums and another 17% plan to in the next 12 months, according to a recent survey by Watson Wyatt.

Bob Eubank, executive director of the Northeast Human Resources Association, said that companies are not looking to eliminate benefits altogether but make them more cost effective -- and that means more expensive for employees.

The average employee contribution to company-provided health insurance has already increased 117 percent since 1999, according the Kaiser Family Foundation.

When companies cut back on healthcare plans, workers will likely see less coverage, in addition to higher deductibles and heftier co-pays.

Twelve percent of the businesses surveyed said they have also reduced or eliminated other employee programs, such as tuition assistance and company subsidized dining, as a way of cutting costs and another 12% plan to do that in the coming year.

Paving the way, Procter & Gamble (PG, Fortune 500) already scaled back its charitable match, Weyerhaeuser (WY, Fortune 500) trimmed retiree healthcare benefits, Google (GOOG, Fortune 500) reduced the number of free meals for its employees and General Motors (GM, Fortune 500) suspended tuition reimbursement.

While there may not be much you can do about losing out on perks like matching charitable contributions or tuition assistance, employees may find that there are cost effective alternatives to expensive health plans that could save the employer, and themselves, some dough, experts say.

"Most companies offer multiple plans and often times people will pick a plan without much thought," said Frank Boucher, of Boucher Financial Planning Services in Reston, Va. "Now is the time to pay attention."

For example, Tim Maurer, director of financial planning at the Financial Consulate, recommends looking into a less expensive High Deductible Health Plan (HDHP) coupled with a Health Savings Account, or HSA.

High Deductible Health Plans have lower premiums than traditional health plans and higher deductibles (the minimum deductible for HDHPs is $1,150 for individuals and $2,300 for family coverage).

Meanwhile, workers can put the excess dollars that would have been going into a more expensive plan into an HSA, Maurer says, which has its own advantages.

Health Savings Accounts let you stash cash for qualified medical and health expenses, like filling prescriptions or even getting massages, on a tax-free basis.

Individual employees can contribute up to $3,000 a year (or $5,950 for families) and take a tax deduction on their contribution.

"It's better off for the company and the employee," Maurer said, it's kind of cool."

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