Towers Perrin Survey Shows Neither Employers Nor Employees Are Getting What They Need From Current Benefit Programs

Employees Are Underestimating Impact on Them and Failing to Adequately Prepare for Greater Risk and Responsibility

Employers Are Misreading Employee Reactions and Risking Damage to Employee Relations

STAMFORD, CT, March 7, 2007 — Neither U.S. companies nor employees believe that current benefit programs are fully meeting their needs, according to a new Towers Perrin survey conducted among both company executives and employees. Only 25% of the executive respondents agreed their programs are very effective at meeting cost control objectives, and fewer than half said their programs are very effective at meeting recruiting and retention objectives (42% and 46%, respectively).

Among the roughly 2,400 employee respondents chosen at random for the survey, most said their benefit programs were not very effective at meeting their needs for affordable health care and building their retirement nest eggs. While most employees agreed they were primarily responsible for financing and managing their benefits, especially retirement, they did not feel their employers were adequately helping them shoulder this responsibility. And their resulting frustration with recent changes in benefits is generating other negative feelings about their company and its leadership, with potentially adverse consequences for productivity and performance.

�Ultimately,� said Dave Guilmette, Managing Director for Towers Perrin�s Health and Welfare practice, �it may be time to revisit certain assumptions about benefit design and delivery, because this survey shows that current approaches are not working as well as they should for employers or employees. Program changes are not yielding desired savings. They are not serving to attract and keep top talent as effectively as they could. And they are not being communicated to employees in a way that helps them take on a more active role in the process.

�Some employers might be tempted to dismiss employees� views,� Guilmette continued, �because of a still surprisingly common belief that employees don’t really understand or appreciate their benefits anyway. But our survey data say otherwise. In fact, benefits serve as a powerful symbol of the organization�s commitment to employees and to management�s level of concern and interest in their well-being. When employees� faith in that symbol erodes, so do their feelings of engagement and, in turn, the level of dedication and energy they bring to their jobs.

�Of equal concern is that companies are continuing down certain paths — primarily along the lines of cost shifting — that may not be providing the best return on their investment,� Guilmette also noted. �Among our employer respondents, 82% have made changes in one or more aspects of their benefit programs in the last two years, and even more — fully 90% — plan additional review and modification in the next two years. So getting this equation right is clearly a top priority.�

Employees Understand Why Changes Are Occurring, but Feel Unprepared to Act
The survey shows that employees are surprisingly pragmatic about the changes being made to benefits — perhaps far more so than most companies think. Almost two-thirds (64%) of the employee respondents recognize that rising benefit costs are a serious business issue and require new approaches to help restore competitiveness and profitability.

Perhaps even more surprising, most employees agreed they have some or significant responsibility to create their own benefit safety net. This was particularly true in the retirement area, where 91% agreed that saving for retirement was partly or wholly their responsibility. It was less true in health care, where only 48% felt they had, or should have, some degree of responsibility for finding and purchasing affordable health benefits.

At the same time, employees don�t believe their companies are rolling out the changes in their programs with adequate support, communication and tools. As a result, they are far less confident than employers that the new programs will give them adequate protection from risk, either today or over the longer term.

�While a majority of our employee respondents expressed a willingness to share responsibility for key aspects of retirement preparation, less than half appear to recognize that recent benefit changes pose more financial risk for them in the short term,� said Steve Kerstein, managing director for Towers Perrin�s Retirement practice. �And many don�t grasp the implications this shift has for their financial situations. This lack of awareness may explain why only about half said they�re actually saving more on their own for retirement, and only 40% or so are contributing more to company plans or making more use of company tools to do their own planning.

�This picture isn�t surprising, given how complex benefit programs have become in recent years,� Kerstein continued. �But it gives rise to a real opportunity for employers — namely, to provide the support and guidance that will help employees understand the financial risks they�re assuming and, potentially, prompt the individual actions and behavior changes necessary to address those risks.�

Different Views About the Level of Change to Come

The survey surfaced another misconception on the part of employees: that the worst may be over in terms of ongoing changes to benefit programs. Over half (57%) of the employee respondents anticipate no more changes to their retirement savings plans over the next two years, while just under half (48%) thought there would be no more changes on the pension side. Yet, the data from the employer respondents were quite different, with a significant majority anticipating further changes in both health care (90%) and retirement plans (over 60%).

�With most employers planning to review and further change their benefit programs in the next two years, there is an urgent need to reconnect with employees and build a meaningful change and communication process that helps employees adapt and make better decisions. Employers that don�t manage the change process well, �noted Kerstein, �face significant downside risk on multiple fronts.

�The most tangible risk in failing to �get benefits right� and encourage the right consumerist behavior among employees is excessive cost. According to our just-released 2007 Health Care Cost Survey, a company with high benefit costs and 10,000 employees could spend $30 million a year more for health care than companies of similar size with low benefit costs.

�Then there are less tangible costs — such as diminishing employee trust in leadership and the company, decreased productivity, greater absenteeism and higher unwanted turnover,� Kerstein continued. �For instance, close to half (42%) of the employee respondents said that recent benefit changes negatively affected their trust in management. Almost a quarter (23%) felt the changes in programs might affect their intention to stay with their employer — posing a significant retention risk for companies, especially among key pools of talent. A nearly equal percentage (25%) said their motivation to do a good job had diminished.

�These findings will surprise most companies. Virtually all (96%) of the employers in our survey that modified their programs in recent years felt the impact on employee engagement was neutral or even positive,� Kerstein concluded. �The bottom line is that companies face real risks in balancing cost reduction with effective workforce management, and they need to understand what these risks are in order to address them effectively and achieve desired outcomes.�

Employers Struggling to Balance Workforce Management and Cost Objectives

Employers view the benefit issue through two lenses: cost management and workforce management. Because rising benefit costs are affecting their ability to compete globally, companies have had to shift more cost and risk to employees to maintain profitability. But at the same time, they have to provide competitive benefits to recruit and retain workers, especially in a tightening labor market for certain kinds of skills. The changes employers have made in their plans over the past two years have largely been designed to balance these objectives. Yet finding the right balance is proving to be very difficult, as evidenced by the fact that most of the executive respondents don�t feel their companies are doing very well on either front.

�Most employers don�t view their current benefit programs as very effective in achieving cost- management objectives or in supporting the kind of organizational culture they view as essential for driving business results,� noted Guilmette. �But interestingly, they are more confident about their success on the workforce side of the equation, perhaps because that�s been a somewhat higher priority.

�Unfortunately, they may be reading these tea leaves wrong. A significant percentage of employees don�t feel current programs are meeting key needs, especially their need for income and health care in retirement. The irony is that employers think they�ve done a good job meeting employee needs, even at the expense of falling short of their objectives on the cost-control front — an area critically important to them. The fact is, with the right strategic approach to benefit design, and more effective support for employees throughout the change process, more employers can achieve both objectives. Despite the differing views between employers and employees in some areas, the survey shows there�s a lot of common ground from which to build. But employers will need to do more to help employees manage the change, especially in communication, education and individualized tools that help them with immediate issues, like health care and long-term retirement needs,� Guilmette concluded.

Towers Perrin�s survey on benefit strategy — From Responsibility to Action: Making Benefit Change Work — was conducted online among 140 HR and benefit managers from companies across a broad range of industries, and 2,380 employees selected at random, representing a statistically valid sample of the full-time workforce in large U.S. organizations.

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations improve their performance through effective people, risk and financial management. Through its HR Services business, Towers Perrin provides global human resource consulting that helps organizations effectively manage their investment in people. Areas of focus include employee benefits, compensation, communication, change management, employee research and the delivery of HR services. The firm�s other businesses are Reinsurance, which provides reinsurance intermediary services, and Tillinghast, which provides management and actuarial consulting to the financial services industry. Together these businesses have offices and business partner locations in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia and New Zealand. More information about Towers Perrin is available at