Retirement Plan Services

Balancing Competitive Benefits in Budget Constraints for Plan Sponsors

February 12, 2024


It is crucial for companies to regularly benchmark and compare their benefits packages to their peers within the industry in order to maintain their competitive advantage and status. Offering a competitive benefits package, however, can be challenging for plan sponsors due to budgetary constraints; putting an excessive financial burden on an employer or the employee can lead to negative effects on the business, resulting in an increased difficulty when it comes to attracting and retaining employees.

Maximizing Potential with Regular Performance Checks

Financial insurance provider Unum Group's, Carl Gagnon, assistant vice president of global financial well-being and retirement programs, says Fidelity, Unum's record keeper, regularly benchmarks the company's 401(k) plan.

According to Gagnon, Unum usually carries out benchmarking in late February or early June since that's when the business begins discussing the budget for the upcoming year. Furthermore, Unum starts its yearly investment review in late April or early May. At this stage, Fidelity and the benefits committee assess whether the investments are underperforming and whether there are any other products on the market that would be beneficial to add to the lineup.

Fidelity’s head of workplace, Shams Talib, speaks on how the frequency of benchmarking depends on the organization and the plan sponsor. Talib says, “Some plan sponsors may need to review their portfolio annually to ensure their business objectives are met, while others can withstand longer review periods,” he continues, “When considering compensation, our team recommends that companies review their structure and approach annually.”

The senior director of retirement at WTW, Mark Smrecek, says most organizations go through some form of cost management exercise that involves identifying the population they are serving's primary concerns. Smrecek states that, “A lot of what we’re seeing in terms of cost management includes being able to correctly allocate in a way that makes sense not only for your population, but your prospective population, and then filling the gaps with low- or no-cost solutions, which provide that out-of-plan support that, quite frankly, employees who are struggling financially would really value.” He adds that employers have been conducting benchmarking that goes beyond their investment lineups and 401(k) plans and are now combining benchmarking for health and retirement benefits to ensure that their total rewards package aligns with the organization's needs

Innovative Financial Planning

Gagnon compares the process of budgeting and figuring out how to provide a competitive benefits package without placing an excessive financial strain on the business or the employees to splitting a pie. “The pie doesn’t get bigger, and it doesn’t necessarily get smaller,” Gagnon says. “So don’t try to add to it or subtract to it—use the pie more efficiently.”

According to Gagnon, a prime example of "making the most of the pie" can be seen in Unum's student loan repayment program, which allows workers to exchange money for student loan debt repayment for up to 40 hours of unused paid time off per year. To put it simply, Unum is making use of a benefit that they currently provide—paid time off—while giving employees flexibility over how they choose to use it. After being suspended for almost three years due to the COVID-19 pandemic, federal student loan repayments resumed in October, making the extra flexibility especially helpful at this time. Gagnon says he intends to grow the program in the future so that employees can exchange paid time off for contributions to their 529 college savings accounts.

The pandemic put a temporary stop to many innovative methods, but things are starting to change. Gagnon supports a change in accounting practices, redirecting money from customary benefits like paid time off to assist staff in repaying their student loans. The goal is to provide flexibility in the approach while optimizing resources for employers and employees.

Gagnon highlights that the company's goal is to give its workers flexibility through both this program and its newly introduced emergency savings program, which allows members to fund an emergency savings account through their 401(k) plan with up to $10,000. Contributed after-tax, these funds are available for withdrawal at any time to cover unforeseen costs without resorting to credit card debt or retirement fund exhaustion.

According to Talib, a plan sponsor should ideally reflect the investment "necessary to attract and retain the talent needed to drive business success" in their "total rewards budget," which includes both benefits and compensation. The "right" amount of budget, according to him, will depend on a number of factors:

  • What is revealed by the benchmarking data?
  • Are overall rewards costs being properly managed?
  • Is the company drawing in the right kind of employees? Does the company find it difficult to fill important positions or develop certain skills?
  • What can be inferred about the capacity to retain staff from turnover statistics? and What is the company able to afford?

Engaging Senior Leaders with Innovative Benefit Funding

Furthermore, according to Gagnon, it is critical for plan sponsors to convince upper management of their business of the benefits they wish to provide and construct innovative means of funding.

Gagnon presents results from a survey on well-being that demonstrates that stress at work ranks highest among employees' concerns, followed by three of the five financial stressors. The primary focus is on making the most of current benefits to help staff members handle money issues like debt repayment and emergency savings. According to Gagnon, he "doesn't win all the battles" when it comes to improving benefits because he is in competition with those around him who manage leave and health benefits for the same funding.

He continues by saying that Unum regularly compares its benefits packages to those of its insurance industry rivals. According to Gagnon, he looks at benchmark grids that contrast Unum with its competitors in the market, including MetLife Inc., Prudential Financial, Standard Life, and Lincoln Financial Corp., to see how they are doing in terms of retirement and financial well-being.

Although benchmarking is usually done once a year, Gagnon admits that there are times when he may decide to conduct additional benchmarking if he discovers of another company doing something unique or creative that could impact hiring.
“We don’t want to be at the top scale, we don’t want to be at the bottom—we want to be competitively in the middle,” Gagnon says. “Sometimes that can mean a more generous PTO program, more generous 401(k), more generous medical. … In the aggregate, we want to be at that very competitive level.”