More voluntary products continue to flood into the workplace. Concurrently, studies by plan providers indicate that employees lack confidence in the voluntary product choices they are making. It´s hardly a recipe for long-term success. Like any free market enterprise, the employee benefits business must deliver a product that is understood and appreciated by its end users.

Recently Dale Alexander, CFP, CLU, ChFC, president of Alexander & Company, a brokerage firm in Woodstock, Georgia, was asked how brokers could help employees make more informed voluntary benefits decisions. Alexander, who is a past recipient of the Employeee Benefit Adviser of the Year award from Employee Benefit Adviser, was speaking at an Employee Benefit News Web Seminar titled “The Hottest Voluntary Benefits for 2014.’

He answered by reminding his audience of benefits brokers that 401(k) plan providers used to operate under the belief that the more funds they offered, the better. They spent a lot of time bulking up their menu of investment choices. Eventually they began to realize that employees were overwhelmed with too much information. “Employees don´t care if they have an emerging markets fund or a growth fund,’ Alexander said. “They just want to know they´re doing the right thing.’

So 401(k) plans went in a different direction, Alexander continued. “They decided the best ??investment choice to provide would be the one that was easiest for employees to make.’ They set up automatic enrollment and offered a default of the investment choices to target date funds. “Employees enter the plan with an appropriate mix of funds for their age, which automatically adjusts as they get older.’

Alexander said voluntary plan providers might learn from that experience—that they should consider “making the best option for employees the choice that is easiest to make.’ Like retirement plan participants, he argued, employees choosing a disability policy or some other voluntary product don´t focus on the details of the product. “They just want to be confident they are choosing what´s right for them. The enrollment experience has to improve,’ he emphasized.

But how can an employee be steered toward “good choices’? Who defines what´s the right mix for an employee? How could a formula allocate funds to voluntary products the way retirement plans do with their age-adjusted stock/bond ratios? There are so many variables to an employee´s financial and medical protection needs besides age—total household income, level of debt, job security, and other family members´ health and financial needs. A retirement plan´s payout manifests at a known date. A voluntary benefit claim date is unknown.

Then there are subjective factors that enter into voluntary benefits choices. One employee can´t sleep at night without the protection of a critical illness policy, while another worker who´s the same age with the same income thinks those premium dollars should go somewhere else. Who´s right? They both are. There is no silver bullet formula for prioritizing voluntary benefits choices. But that doesn´t mean employees don´t yearn for a lot more guidance from the professionals who deliver their benefits package.

As Len Cavallaro, assistant vice president of voluntary products marketing at Reliance Standard Life Insurance Company, noted in our December issue, “Employee research has shown repeatedly a desire for common-sense advice, education and communication to help them determine an appropriate benefits strategy and investment. The same research also shows this is too often lacking.’

Dale Alexander´s co-leader at the benefits Webinar was Thom Mangan, CEO of United Benefit Advisors (UBA), an employee benefits advisory firm with some 140 member brokerage firms in the United States, Canada and the U.K. Brokers in the  Webinar audience asked Mangan and Alexander to rank voluntary employee benefits in order of importance. They did so in a general way as follows:

1) Medical; 2) Protecting income; ?3) Protecting life; and 4) Saving money. (Alexander categorized the latter as including not only regular retirement plans, but any means of accumulating long-term funds.)

Well, that´s a start. This kind of holistic thinking will be particularly important for employees who will be working through health insurance exchanges where they are allocated a dollar total from their employer for the purchase of a wide range of benefits. But employees in traditional plans also will need education from their plan providers about how to make good voluntary benefits choices.

Just getting past #1 (medical) is complicated enough. Commenting on health care products, Mangan noted that UBA recently polled more than 4,000 employers in all parts of the United States. The results, he said, confirm a trend that has been going on for some time.

“Ancillary benefits will be the most important differentiator in 2014 because of the growth of high-deductible health plans. Our surveys of health plans, year after year, show high-deductible plans, whether they are HRAs or HSAs, are the fastest growing area of health care no matter what kind of network they are in. The more you use high deductibles, the more you have to fill in the gaps.’

Health care-related risks and products, as important as they are, should not be allowed to cover up the significance of the other three risks/solutions outlined by Alexander and Mangan—disability, life insurance and retirement planning. To consider all these risks/solutions holistically, employees need better resources and evaluation tools that can respond to their individual concerns and questions.

As voluntary product use continues to grow, it will be important for all the major players in the benefits market—brokers, employers and insurers—to play a more aggressive role in helping employees understand their product choices.

The author
Thomas A. McCoy, CLU, recently retired as editor-in-chief of Rough Notes magazine.