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Wednesday, July 06, 2011

Motivating Employees to Choose Voluntary Benefits

Employers can increase participation in voluntary benefits by providing live assistance to explain benefit options and delivering a clear message on disability risks, according to a survey by Sun Life Financial. The majority of respondents said they spent no time reviewing their benefit options. The only exception was medical insurance, for which at least a quarter of respondents reviewed their benefits options for thirty minutes or more. Benefit participation rises when employees get live assistance to learn about benefits options, and online or print assistance to enroll.

Employees incorrectly believed that they had the same chance of needing life insurance as needing short-term disability and long-term disability insurance. Yet statistically, men are twice as likely to suffer a disability as to die during their working years, while women are three times as likely.

Employees misunderstand how different types of benefits provide different levels of financial protection, ranking dental coverage as protective as both short-term disability and long-term disability. However, a household’s financial loss from disability, or worse, from the death of a breadwinner, generally far exceeds the costs of a dental procedure.

Michael E. Shunney of Sun Life’s Employee Benefits Group advised plan administrators put all verbal and written benefits communications into plain language and use the right communications at different stages in the enrollment process; offer live assistance to help people learn about benefits, but provide the independence of online or print forms to let them enroll. Shunney added, “Finally, devise powerful ways that resonate with employees about a sobering theme — that over the course of a working life, we all stand a far greater chance of becoming disabled than of dying.” For the full report, go to

GAO Report Highlights Vital Role of Annuities

ANNUITIES

A report by the U.S. Government Accountability Office (GAO) provides a strong endorsement of annuities. For its report, GAO interviewed experts about recommended financial strategies for retirees. The financial experts typically recommend that retirees draw down their savings and convert a portion to an income annuity to cover necessary expenses or choose the annuity provided by an employer-sponsored defined benefit pension instead of a lump sum withdrawal. Experts also recommend delaying Social Security benefits until reaching at least full retirement age and, in some cases, continuing to work and save, if possible.

GAO profiled two with about $350,000 to $375,000 in net wealth. The experts recommended that these households purchase annuities with a portion of savings, drawdown of savings at an annual rate, such as 4% of the initial balance, use of lifetime income from the defined benefit plan, if applicable, and delay of Social Security.

They noted that strategies depend on individual circumstances including anticipated expenses, income level, health, and each household’s tolerance for risks, such as investment and longevity risk.

The GAO found that most retirees rely primarily on Social Security and pass up opportunities for additional lifetime retirement income. By taking Social Security benefits when they turn 62, many retirees born in 1943 pass up increases of at least 33% in their monthly inflation-adjusted Social Security benefit levels available at full retirement age of 66. Most retirees who left jobs with a defined benefit pension received or deferred lifetime benefits, but only 6% of those with a defined contribution plan chose or purchased an annuity at retirement. Those in the middle-income group who had savings typically drew down those savings gradually. Nonetheless, 9% of those 65 or older in 2009 had incomes below the poverty level (excluding any non-cash assistance). That compares to a poverty rate of 14.3% for people of all ages.

To help people make these often difficult choices, policy options include encouraging the availability of annuities in defined contribution plans and promoting financial literacy. Certain proposed policies seek to increase access to annuities in defined contribution plans, which may be able to provide them at lower cost for some people. However, some pension plan sponsors are reluctant to offer annuities for fear that their choice of annuity provider could make them vulnerable to litigation.

In addition to the current emphasis on saving for retirement, other proposed options aim to give consumers a better understanding of the risks and the choices that are available for managing income throughout retirement. Proposed options include providing additional federal publications and interactive tools, having sponsors issue notices to plan participants on the financial risks and choices they face during retirement, and providing estimates on lifetime annuity income on participants’ benefit statements.

What are the tax advantages of an annuity calculator?
What is the future value of an annuity calculator?

Healthcare Consumer Confidence Improves

Americans’ confidence in their ability to access and pay for healthcare improved for the second straight month in June, according to survey by Thomson Reuters. The Thomson Reuters Consumer Healthcare Sentiment Index rose from 98 to 99 and is up four points since hitting a low of 95 in April. In June, prospective consumer sentiment jumped to 100, which is three points higher than in May. Consumers predicted that they would be better able to pay for healthcare services and insurance and less likely to cancel or delay services.

The index also tracks whether they postponed, delayed, or cancelled healthcare services and whether they had difficulty paying for medical care or health insurance over the past three months. In June, retrospective consumer sentiment was unchanged from the previous month, remaining at 98. A full report on the June results is available here:
http://healthcare.thomsonreuters.com/Indexes/assets/CHSI_Findings_June_11.pdf