Workplace Benefits


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The Enrollment Challenge

Retirement readiness decisions are a daunting task for most employees. According to a 2012 Participant Engagement Study conducted by Lincoln Financial:

  • 41 percent of employees are only somewhat engaged or fully disengaged from any retirement plan
  •  7 percent of employees only are fully engaged and interact with their retirement plan on a regular basis.

Plan communication and education can provide people with the financial knowledge needed to better understand their employee benefits and make better enrollment decisions to achieve better outcomes.

Communication Is Key

The U.S. Employee Benefits Security Administration’s ERISA Advisory Council published a key report in 2010 on how plan communication practices and design options impact participation and contribution rates. They researched strategies for tailoring communications to different subgroups of employees through direct communication, and their effectiveness in influencing participants of diverse demographic market segments, including segments categorized by income level, household status, generation, gender, and ethnicity.

The report then provided recommendations of best practices for enrollment that are statistically proven to be effective, including education to plan sponsors on specific proven techniques and communication practices. In evaluating what communication methods are most effective in encouraging participants to save for retirement, the following considerations were made:

  • Cost: an effort was made to balance the need for comprehensive plan communications against cost.
  • Delivery: A variety of methods were explored including the use of current and emerging social media.
  • Plan Design: The study reviewed how plan designs relate to increasing participant enrollment and savings. In particular, the Council studied the use of automatic features. Automatic enrollment plans automatically choose the employees’ contribution percentage and enroll the participant in an investment vehicle. This raises participation rates to close to 90 percent. However employees enrolled at low contribution rates of 3% or less tend not to deeply consider or increase their contributions.

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9 Recommendations and Best Practices

The Council found that effective plan communication and education can provide people with the financial knowledge needed to understand their employee benefits, make better financial decisions, and achieve better outcomes.

Given that the most successful plan communications make use of many channels from print to external websites, online tools, social media, and creative marketing, the Council highlighted best practices that balance personalized, targeted content to help employees evaluate benefit offerings with cost efficiency. They highlighted specific techniques and communication practices that have been statistically proven to be effective in increasing the involvement of employees in saving for retirement. The following are 9 recommendations:

  1. Communications tailored to particular segments drive results
  2. One-on-one or small group meetings increase participation
  3. Immediate “on the spot” communication is most effective
  4. Short, simple and focused communication drives participant response
  5. Multiple “touches” with various creative formats increase participation
  6. Increased technology use is effective and cost efficient
  7. Behavioral economics and “social norming” can increase participant involvement and savings
  8. Incentives given by sponsors and “gamification” help trigger participant involvement
  9. Responsive marketing principles may assist plan sponsors in improving communications

Here is a brief synopsis of these 9 practical recommendations and some best practices:

1. Communications Tailored to Particular Segments 

tailored-skill-development-imageThe Council found that communications that target participants based on their interests, background, and/or economic status were more successful than the “one size fits all” approach.

Understanding the culture and background of the workforce being targeted is key. For instance, since Hispanics will soon constitute one-third of the US population, Council member Donna MacFarland of Lincoln Financial Group stated that in her experience education materials typically are translated from English to Spanish, whereas she recommended that sponsors design the material using the reverse approach, developing  materials first in Spanish to address specific cultural needs and language differences.

Human Resource professionals also have found that allowing employees to map out an action plan rooted in realistic scenarios is an extremely effective tool. Some plan sponsors have successfully used a “three-pronged” approach to reach out to their participants by combining simple income replacement projections, behavioral finance strategies and a personalized message. For example, JP Morgan developed 36 different personas based on three age groups (younger than age 30, age 30-50 and older than 50). The firm also targeted participants based upon their regional median income (e.g., Kansas’ median income is $30,000 while in New York City it is $70,000). The basis for this approach was to enable these groups to compare themselves against their peers and take the appropriate action toward saving for retirement.

By narrowly tailoring their target audience on behalf of the plan sponsors that retained them, JP Morgan subsequently monitored whether employees opened their email communications and took action toward saving for retirement. If the individual took action, that person was considered “active,” while someone who opened the email but did not take action was considered “interested.” Based upon the action taken by the individual, the participant received specifically targeted information. This technique resulted in three to four times the response rate of participants who were not targeted.

However, some witnesses advised that there is a general concern regarding the use of targeted communications because complex data collection may provide gender or ethnic identification. Thus, there is concern over whether specific segments identified based upon race or gender could raise discrimination or deferential treatment issues. The Council heard testimony from Donna MacFarland of Lincoln Financial and Thomas Ryan of Fidelity that the use of particularly sensitive demographic information causes concern among plan sponsors. There are also practical concerns about housing information technology. Nevertheless, the overwhelming opinion received during testimony was that targeted communications work.

Branding helps targeting through the use of communications that include a unique positive image that is the group can relate to.

Here are some best practices of participant-centric communication methods:

  • Best Practice 1 – The Power of Example: Trustees of the Elevator Constructors 401(k) Plan used materials featuring the story of three employees who made different savings decisions during their careers. The narrative of the three employees was used throughout one-on-one sessions with printed materials to demonstrate how a 401(k) contribution would benefit participants in a variety of circumstances including temporary layoffs, hardships and early retirement. As a result, plan participation rates increased from 26.56 percent to 29.82 percent in 2011. The plan also experienced an 85 percent increase in plan activity from meeting attendees.
  • Best Practice 2 – Employer/Employee-Centric Content: M.A. Mortenson Company, an international construction firm, employed construction-related themes in its financial education to engage participants and foster pride in the company. Financial education was made mandatory and workshops were divided by career stage, age, and gender. The plan sponsor focused on participants’ preferences by surveying them after the workshop and making recommendations based on their feedback to yield desired results.
  • Best Practice 3 – Bilingual: Consolidated Citrus Limited Partners wanted to 1) increase attendance at plan educational meetings, 2) increase plan participation, 3) increase deferral rates and 4 encourage participants to maximize their match. Ninety percent of the workers spoke only Spanish, and the majority of their day was spent in the orange groves. An in-language campaign was initiated. The company’s Spanish speaking leaders met with small groups in the orange groves. Straightforward collateral in both Spanish and English Collateral were available on site, including announcement posters. By bringing the meetings to the employees, 95 percent of the targeted group attended the meetings. Plan participation increased from 40 percent to 75 percent and deferrals expanded from 4 percent to 8 percent.
  • Best Practice 4 – Branding: The Animation Guild 401(k) Plan was implemented for artists working at Southern California animation studios. The sponsors worked with the Guild’s representatives to obtain insights and develop a branded communication urging participants to remember to enroll. The response rate increased over eight percent from the previous year, with 135 new enrollees. Another employer cited in the research increased participation by 30 percent by keeping the message fun, simple and “cool” to target younger workers.
  • Best Practice 5 – Multicultural: The Four Seasons 401(k) Plan needed to convey an important plan change to an employer profit sharing employer matching contribution. The sponsor obtained feedback from bilingual meeting presenters in designing the campaign, and provided materials tailored to Hispanics and presentations also were created in Spanish designed to be culturally and linguistically accurate. As a result, the average deferral rate of the targeted group rose from 2.9 percent to 5 percent, and significantly increased beneficiary designations.

2. One-on-One or Small Group Meetings 

OneonOneAfter a study by Lincoln Financial found that 66% of participants prefer one-on-one guidance, Lincoln made it a component of its financial education model. They found that the need for individualized information is particularly acute for groups with low participation rates, including women and minorities.  Various studies have shown good enrollment and contribution results when employees request in-person group workshops facilitated by financial experts.

  • Best Practice for One-on-One Meetings:In 2012, MassMutual representatives spoke with 150,000 employees in face-to-face meetings. Forty-six percent of these individuals took action to improve their retirement readiness and, in one-on-one meetings, 75 percent of employees took action.
  • Best Practice for Small Group Meetings: Costs and timing may prevent plan sponsors from providing one-on-one meetings, but small group meetings and audience segmentation have also been successful. The FINRA funded Nurses Investor Education Project had small group meetings for well-educated nurses interested in taking action toward their retirement. They found that generally, the nurses’ lack of basic knowledge, or their perception that they did not know enough to attend these sessions, prevented them from attending their plan sponsor’s meetings. As a result of using small group meetings as a forum, the nurses perceptions changed and attendance at their employer’s retirement plan sessions improved.

3. Immediate “on the spot” Communication 

onthespotThe ability for participants to take action at the time they are thinking about retirement savings is more effective in increasing enrollment. For example, having computers in the room at the time employees are learning about the plan would allow them to sign up and take immediate action.

  • Best Practice: A US Army mandatory financial management course found that providing the enrollment forms for the Thrift Savings Plan during the financial management course resulted in a sizeable increase in participation, with soldiers signing up for the Plan before leaving the classroom.

4. Short, Simple, Focused Communication 

focusedBehavioral studies show that the most effective communications use simple, straightforward language specific to a participant’s personal situation.

  • Best Practice: Time constraints mean that any impediments to action should be identified and mitigated. For example, on a website, any extra step, such as the need to retrieve a PIN, may prevent employees from taking action. Solutions include sending the PIN directly to their email account or a mobile number, or mailing a postcard with the website’s uniform resource locator (URL).

5. Multiple Touches With Various Creative Formats 

profileConsistent, continuous and on-going meaningful communication can be achieved by repeatedly sending out simplified mailings. Social media can help alleviate the cost of additional touch points, and yet, few companies use social media channels for retirement information.

  • Best Practice: The Council’s Professor Madrian cites a company in which the third mailing of a simplified reply form requiring the checking of a box to enroll doubled enrollment from 22 percent to 45 percent of non-participating employees.

6. Cost Effective Technology 

advancement-of-technologyEvery demographic group is now using the Internet as a preferred source of information, via home computer or mobile devices. In addition, electronic media provides the ability to track responses, which is unavailable when the communication is sent through printed materials and regular mail. Another cost effective technological advance is Dynamic Page Publishing,  reviewed at the conclusion of this article.

A Deloitte study in 2012 that found:

  • 93 percent of Americans place Internet access as the most valued household subscription;
  • 54 percent of Americans own smartphones, and the rate is increasing 29 percent annually.
  • One of three Americans over age 50 has downloaded an application to a smartphone, and 28 percent access their bank accounts via smartphone.

Engaging Millennials: Electronic media is the most effective method of communication to engage younger generations in retirement planning, including Generation X (born between 1965 and 1979).  In order to combat inertia caused by competing financial priorities, such as student loan debt, it is important for this group to be engaged through “YouTube” videos, Facebook forums, Twitter, email and mobile delivery, including providing “one click” transactions and incorporating elements of “gamification.”   Millennials also demand simple, personalized, and action-oriented communications, and prefer human contact for complex tasks.

  • Best Practice – Email: Thomas Ryan of Fidelity Investments testified to the Council that Fidelity makes all channels of communication accessible, and finds that email communications have generated higher response rates than direct mail.
  • Best Practices for Engaging Millennials – Fidelity: Fidelity has studied the preferences of Generation Y, or “Millennials”  for using electronic communication, and found that this group tends to rely heavily on the Internet to interact with representatives from Fidelity, although they appear to be the least engaged when it comes to the frequency of contact. Millennials serviced by Fidelity have the lowest 401(k) participation rate, at 58 percent, compared to 67 percent for all other populations. Design changes made to simplify online interaction with Millennials resulted in a 40 percent increase in web utilization by this group.
  • Best Practices for Engaging Millennials – Putnam: Lori Lucas of Callan Associates discussed Putnam’s roll out of a plan primarily for Millennials that encouraged participants to bring their tablets to an nteractive meeting to log on to the benefits website. As a result, 40 percent of attendees increased their deferrals within 90 days after attending the meeting.
  • Best Practices for Engaging Millennials – MassMutual:: Offering enrollment and savings increases using iPod Touch devices in group meetings resulted in action rates of 85 – 90 percent among those attending. The use of targeted and tested mail and email campaigns resulted in $150 million in new deposits over three years and a 3.9 percent increase in action rates.

7. Behavioral Economics and “Social Norming” 

choiceThe way certain information is presented can have a resounding impact, including the way choices are presented to the participant, a method referred to as “anchoring”

Presenting options in a different order or with a higher default percentage has increased deferral rates. While communications traditionally list contribution percentages in ascending order from one to five percent, studies have shown that reversing this order so that the first option shown is five percent markedly increases enrollment in the five percent option. This method is referred to as “placement.”

 “Social Norming” reflects the fact that people tend to benchmark themselves against their peers. Statistics from the Bureau of Labor Statistics show that participants tacitly compete against peers in similar socioeconomic conditions.

8. Incentives and “Gamification” 

carrotThe use of games (gamification) is an effective tool in reaching  individuals who may not be easily engaged in retirement decisions (“non-savers”). Gamification can be used to reward people if they engage in the correct behaviors. Plan sponsors may also use incentives to provide rewards to participants with who exceed a certain benchmark contribution amount. Other techniques include raffles.

  • Best Practice 1: The NFL’s “Play 60” campaign  incorporates the use of the NFL brand to incentivize children to play a game for at least 60 minutes a day.
  • Best Practice 2: A rug manufacturer in northern Georgia had a series of meetings for people working multiple shifts, giving away lottery tickets to encourage attendance, and experienced standing room only for the meetings.

9. Six Marketing Principles Improve Communications

Communications that are uninspiring and difficult to undmarketing-300x200erstand leave employees confused, bored and unmotivated. The communicator’s “curse of knowledge” is a bias in which the communicator’s knowledgeability makes it difficult to demonstrate it from the perspective of lesser-informed people. The Council highlighted six principles of communication that plan sponsors should consider when drafting documents or presenting to their participants that will inspire action:

1. Show Empathy

empathyTo  determine the relevance of a message to an audience, it is necessary to engage them and ask questions that the content of the presentation or the communication should then be tailored to answer. For example, an energy company developed a program to help consumers understand and lower their energy bills, using this computerized question:

Can I help you with your bill?

  1. Yes, help me understand my bill.
  2. Help me save money.
  3. Both of the Above.
  4. I’m Here for Something Else.

By showing empathy to what the consumer cared about and giving information and tips to help them feel more in control, these questions presented helped raise consumer satisfaction.

2. Use Metaphors and Analogies

analogCommunications also reference a metaphor or visual picture to help the recipient relate to the message. For example, when Ridley Scott presented the screenplay for Alien to his producers he used the popular movie Jaws as a reference, and the metaphor “it’s like Jaws in space,” to frame a concept that the producers easily understood

3. Use Storytelling

icon-storytellingPeople tend to forget facts that are presented but usually remember a story. Stories are easy to absorb when people are overwhelmed with information. They also eliminate extraneous facts to capture the recipient’s interest and relate to him on an emotional level.

4. Use a Conversational Voice

conversationalUsing overly technical information, compliance or legal jargon can loose an audience. For example, it is difficult to convey the benefit of voluntary life insurance individual and spouse buy-up options in which election of coverage for a spouse can equal up to half an individual’s buy-up,  depending on the desired level of coverage. An effective way of communicating this is as follows:

“The company is going to buy life insurance for you. If you want, you can buy extra life insurance. Whatever extra life insurance you buy for yourself, you can also buy up to half that amount for your spouse. Now, depending on how much additional insurance you’d like, one or both of you may need to answer some questions about your health to see if you qualify for it.”

5. Surprise the Recipient

boxing-glove-surpriseUnexpected methods of engaging the recipient get the individual’s attention when a subject is ordinarily challenging and abstract. The use of humor, as shown below, can be considered an example.

6. Use Humor

humorUsing a little humor in the message will keep the audience engaged and make the message easier for audiences to relate to.

 

Plan Design Considerationsicon-design

Automatic Enrollment

A study by Brigitte Madrian and Dennis Shea shows that automatic enrollment increases average participation rates from 65 percent to 85 percent. It is particularly helpful for low-income workers with annual wages under $20,000, where participation increased from 27 percent to 82 percent. Average participation for employees under age 30 doubled from 41 percent to 82 percent, and the best improvements have been among the segments that had the lowest participation rates.  This was corroborated in as presented in the testimony of Lori Lucas.

Mandatory Contributions and Automatic Escalation

Defaults that are too low can  impact workers who would otherwise have contributed more. Since studies have shown higher default contribution rates have not increased opt-out rates, employers should consider recommending higher default contribution rates.

One solution is a stretch match (increasing the maximum amount of pay that can be matched and decreasing the percent matched, to keep the employer’s costs flat.

Another way to increase savings is automatic escalation in which sponsors automatically increase a worker’s contribution rate by one to two percent  of salary at each pay anniversary until a cap, such as 12 percent of pay.

Best Practice – TIAA-CREF: David Richardson of TIAA-CREF found that 403(b) plans typically have much higher contribution rates, ranging from 10 percent to 15 percent of pay compared to 5 percent to 7percent for all 401(k) plans, due to mandatory contributions from both employers and employees as a requirement of employment.  The 403(b) plans TIAA-CREF administers experience much higher annuitization rates — 40 percent compared to 4 percent for all 401(k) plans.

 Conclusions and Implications

red pencilThe Council found that continuous, simplified, personalized communication using multiple channels, connected with humor and empathy, are effective ways to communicate with plan participants to encourage participant engagement.

Benefit Program Marketers seeking to increase employee plan participation need to be more flexible, customizable and responsive than ever to introduce, present, promote and clarify the particular offerings and choices the employer has agreed to sponsor. Dynamic Publishing platforms are becoming a key tool in executing this strategy DPP is a way of designing publications in which layout templates are created which can contain different content in different publications. In cases where the same content is being used in multiple layouts, the same layout is being used for several different sets of content, or both, dynamic page publishing can offer significant advantages of efficiency over a traditional system of page-by-page design. Future articles will explore Dynamic Publishing in greater depth.

Related Blog Article:

Benefits Are More Costly – But More Important

employee-loyalty-declines

Employers are struggling with employee benefit decisions.

In addition to the challenging economic  and competitive environment, employers now face three key difficulties

:

  • healthcare reform, 
  • precipitously rising benefit costs,  and 
  • a less loyal workforce.  

The conundrum employers face is that employee loyalty has been steadily declining, while employees are demanding benefits more.  The ninth annual MetLife Study of Employee Benefits Trends, respectively, showed that employees reported:

  • a 12% decline in “strong loyalty” to employers from 2008 to 2011.

Voluntary Life Benefit Programs Help Bridge the Gap

There is renewed interest among employers in voluntary benefits as a means of  promoting loyalty and retention while curtailing benefit costs. And the eleventh annual MetLife Study of Employee Benefits Trends reports that employees are keenly interested in them as well:

  • 61 say benefits meeting their individual needs would make them more loyal.
  • 51are willing to bear more of the cost to have more benefits to choose from.

Voluntary life insurance benefits are highly valued.  A special advantages of life insurance benefit programs is the flexibility that they provide employers in structuring a plan to meet their needs:

  • Avoids complicated reporting and nondiscrimination requirements, giving employers control over whom to reward. 
  • Costs and benefits can be split among employer and employees to fit the needs of the business. 
  • Employers can control the incentives by designing their plan with or without “strings.” 

Here are 3 popular ways that employer-sponsored life insurance benefits are  offered to select key employees

1. Split-dollar – for Cost and Benefit Sharing

RestrictedAccessBenefits: The costs and benefits of a policy are shared between the employer and a select key employee.

During employment: The employer and a select key employee each pay an agreed percentage of the premium.  This could be called a “consumer-directed plan” because it allows the employer to provide an executive with a life insurance benefit with low outlay.

At death: A tax-free death benefit is paid to the employee’s beneficiary,  and a portion goes to the employer to recoup it’s contributions.

At separation from service:  the policy’s cash value may reimburse the employer for his share of the premiums and allow the employee to purchase and keep the policy.

According to National Underwriter, this  continues to be a vital and popular planning tool.

Anticipated Results: Costs and benefits can be split according to the employer’s needs. The “rollout” of the benefit to the employee upon separation of service can be used to tie the employee to the company for a long period, encouraging loyalty and retention.

2. Deferred Compensation – for Executive Retirement

quote_executivesBenefits: Non-qualified Deferred Compensation plans can create tax-leveraged financial security for key employees by allowing them to defer a portion of their income into a cash value life insurance policy. The plan can provide benefits in lieu of or as a supplement to a qualified pension plan.The employee elects to receive less current compensation and defers receipt of that amount to a future tax year.

  • The cash value can provide supplementary retirement benefits, even if the employee is already receiving the maximum benefits under the company’s qualified plan.
  • The employer gets a tax deduction when the employee receives the compensation.  
  • The employer can avoid the cost and administration of a qualified plan and the cost and complexity of covering all employees.
  • The death benefit can allow the business to recover costs.

Anticipated Results: The deferrals provide a way for employees to save for retirement. The employer can select who receives benefits, when they receive them and how much they receive, and there are fewer administrative issues than under unlike tax qualified plans –  since the Department of Labor has ruled (Advisory Opinion Letter 90-14A) that this arrangement is not subject to Labor Regulations Section 2510.3-102, which requires participant contributions to an ERISA pension or welfare plan to be held under a formal trust arrangement.

3. Executive Bonus – for Trusted Key Employees

exe_bonusBenefits: The employer provides additional monthly compensation to the employee, and receives an annual tax deduction.

The bonus pays for the premiums of a life insurance policy owned by the key executive – a valued personal asset  giving the employee access to the cash values and providing a death benefit for his/her beneficiaries.

Anticipated Results: A Section 162 Executive Bonus Plan is one of the simplest and most transparent plans. For a more personal organization, it provides transparency and trust. It’s tax deductible to the employer, and provides a fully paid, fully vested life insurance benefit for a particularly important and trusted key employee.

A Good Broker/Benefit Specialist Is Key

Given the flexibility of these plans, it is important to have a qualified benefits specialist or broker, knowledgeable in life insurance planning to:

  • help the employer select the implementation strategy that fits its specific needs and objectives.
  • provide a prototype agreement for plans that require one.
  • promote participation and appreciation for the employer’s sponsorship.

Research indicates  that 68% of employees spent little time or effort in making their benefit selections; however,  employers who provide outstanding communications are more highly effective in enrollment and are more likely to report that their employees are highly satisfied with their benefits (82% vs. 61%.)

Voluntary Life Insurance Benefits can help give employers an edge in retaining valued, qualified key employees –  who are often the engines of growth for a business or practice. Retaining superior key employees also means retaining a superior benefits broker who can help with the planning, the implementation and the communication.

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Economist  explained why you shouldn’t shop at Walmart on Friday (Black Friday.) A dumbed-down America wasn’t listening. He laid out the hard truths about American labor:

A half century ago America’s largest private-sector employer was General Motors, whose full-time workers earned an average hourly wage of around $50, in today’s dollars, including health and pension benefits. Today, America’s largest employer is Walmart, whose average employee earns $8.81 an hour. A third of Walmart’s employees work less than 28 hours per week and don’t qualify for benefits.

A Nation Sliding Backwards

One of the reasons for the decline of the middle class in America is the decline of labor unions. Membership is down from 33% of private sector workers in the 1950s to fewer than 7% today. Walmart’s employees have no union to represent them, and have been receiving a tiny portion of the corporate earnings compared to that the United Auto Workers members received in the 1950s.

Last year Walmart earned $16 billion, reporting a 9% increase in earnings ($3.6 billion) in the third quarter, but most of the profit went to Walmart’s shareholders, including the Walton family.

  • The Walton family earned more on their Walmart stock than the combined earnings of the bottom 40% of American workers.

The employee strike on Friday was a show of protest against wages as low at $8 an hour, unsafe and unsanitary working conditions, excessive hours, and sexual harassment.

A Company In Denial

Walmart fought back, filing a complaint with the National Labor Relations Board to ban the strikes. OUR Walmart, the worker organization that is coordinating the protests backed by the United Food and Commercial Workers Union, estimates that nationwide, there were more than 1,000 individual actions. But Walmart chose to put out dishonest talking points, saying that less than 500 workers absented themselves. Bill Simon, president and CEO of Walmart U.S. issued this lie:

Only 26 protests occurred at stores last night and many of them did not include any Walmart associates. We estimate that less than 50 associates participated in the protest nationwide. In fact, this year, roughly the same number of associates missed their scheduled shift as last year.”

On a conference call Friday, Dan Schlademan, director of the union’s Making Change at Walmart campaign, said that, while his organization does not yet have a precise count of the number of workers who walked off since the strikes are ongoing,  there were hundreds of workers and thousands of supporters. Many cities around the country had higher-than-expected turnouts. According to The Huffington Post’s  and 

At the Walmart in Paramount, where The Huffington Post counted 600 people at one point, organizers later said that a total of 1,500 people had shown up. Nine people were arrested for sitting in the street, which had been blocked off for the protesters. Those arrested included three Walmart employees, a father of a worker, a former worker, two clergy members and two other supporters, according to organizers.

In places where fewer strikers than expected joined the protests, one reason is that the company intimidates anyone who considers joining a labor group. Three workers who did not participate strike told The Huffington Post that they shared the concerns about low wages, lost benefits and retaliation for speaking up, but they were too afraid of losing their jobs to strike.  Jaime Durand, a Walmart human relations manager  said:

In Texas, we own our parking lots. We won’t ask them to stop what they’re doing, but we will be asking them to leave private property so we can maintain a safe area for our customers.

Why It Matters To All

What happens at Walmart has far-reaching economic consequences. Its pay scale and working conditions set the standard for competitors. Today, the median wage is 8% lower than it was in 2000.  Without a vibrant and growing middle class, the economy will continue to falter. This is especially true now that most new jobs in America are in personal services like retail, and have low pay and bad hours. According to the Bureau of Labor and Statistics:

  • The average full-time retail worker earns between $18,000 and $21,000 per year.

“But Walmart Labor Policies Keep Prices Low”

A new study by the think tank Demos reports that low salaries actually depress the economy. The report finds that even raising the salary of all full-time workers at large retailers to $25,000 per year would lift more than 700,000 people out of poverty. The cost: only a 1% price increase for customers.

But what would the wage increase cost retailers? According to the report:

  • the cost to major retailers of raising salaries would be 1% of the sector’s $2.17 trillion in total annual sales – $20.8 billion.
  • Yet the increased purchasing power of lower-wage workers would generate $4 billion to $5 billion in additional retail sales.

Whatever Happened to Smart Management Practices?

The real costs of Dickensian labor policies like those practiced at companies like Walmart and Hostess are more than our economy can afford. At Hostess, labor unions were unfairly blamed for a pending bankruptcy that was caused entirely by this kind of mismanagement. The end result is that the workers, company and consumers all lose.

The Real Story At Hostess Brands: Hostess Brands, Inc., maker of Twinkies, founded in 1930, is about to permanently shut its doors, putting 18,500 people out of work. While management has been placing the blame on the BCTGM (Bakery, Confectionery Tobacco and Grain Millars International Union), the union representing Hostess employees, the real cause was inexcusably poor management.

  • The company has had two bankruptcies since 2004 due to poor management, as witnessed by the fact that it has had no less than six CEOs since 2002.
  • A Wall Street private equity firm and two hedge funds made matters worse, burdening Hostess with $800 million of debt.

Yet, the company was never moved to employ sound business practices to improve it’s market position.

  • In the 1990s, Hostess overextended itself, doubling its production facilities and employees.
  • In the early 2000s, ignoring the advice of market analysts, it bought back numerous shares of its own stock, which caused enormous debt described as “balance sheet degradation.”
  • During the 2000s, Hostess shut down 21 production facilities and cut its total workforce from 35,000 to 18,000.

To make matters worse, rather than face the fact that they were a company in distress, and working to improve their market position and rationalize their management, the company chose to ignore its fundamentals:

  • Hostess failed to invest in upgrading technology that was growing obsolete.
  • It failed to address the fact that it continued to lose market share.
  • It continued accruing debt.
  • It generously rewarded its top executives, doubling and even tripling their annual salaries.

Hostess’ Union Pitches In To Rescue The Company

Even so, following In the wake of Hostess’ 2004 bankruptcy, the union (BCTGM) did what they could to help, giving back $110 million in concessions. They showed more business acumen than the highly paid executives. They provided the give backs in exchange for the company’s promise that it would invest in new machinery and new technology, and improve it’s market position.

Hostess Fails To Do Their Share

Hostess broke that promise, and failed to follow through on those long-term investments. Instead they continued to churn their assets and their CEOs, rewarding themselves bigger bonuses. Rather than address their failing business model, here’s how they hey attempted to keep the scheme going by doing the following:

  • Management approached the BCTGM with unrealistic demands for pay and benefit cuts of between 27-32 percent.
  • They began looking to “harvest” as much of the company’s assets as it could on the way out.

The union and workers by now understood what was going on.  Hostess management could not be counted on to run a business. By a 92% vote, the union rejected the massive cuts, knowing the company was no longer sustainable.

Lessons Learned: Labor Has A Stake

Labor has a huge stake in the operations of a company.  By excluding them from the table, American businesses have written their own epitaph. While the corporate propaganda machine would have you believe that mismanagement of the American economy is the fault of the government and regulations, this is not even close to the hard economic truth that large corporations are running their businesses as cash cows for their top executives without regard for the real long-term interests of the company, it’s employees, consumers or the economy at large.  sums it up well:

Hostess is a cautionary tale. It’s a company that was not only systematically picked clean by Wall Street vultures, it’s one whose executives lavishly compensated themselves during its death throes. For Hostess, it’s been one reckless, greedy move after another — one management fiasco after another — and yet they’ve been unwilling to blame themselves. They blame the union for this whole mess.

Given the increased power of these vulture capitalists, Americans increasingly feel powerless to do anything but express angst in unfocused displays of tea party revolt. Rather than learn the lessons of history, our anger is increasingly coopted by corporate populist fronts like the tea party. The very fact that incompetent heirs like corporate vulture Mitt Romney and George W. Bush were considered to be viable presidential candidates is indicative of the extent of the problem.

So what can we do? Stand with the workers of Walmart, as they express their grievances.

Michelle Singletary, Columnist for the Washington Post, points out that it’s time to elect a health Care plan. At the end of the year, employees have the opportunity to make changes to their workplace benefits for the next year.

Costly Mistakes in Open Enrollment

During open-enrollment season, most people fail to make a choice but just go with what they already have. Even worse, many employees make costly mistakes. A survey of 2,500 consumers conducted for Aflac finds :
  • 56% of employees estimate they waste up to $750 annually because of their errors during open enrollment, such as electing the wrong level of insurance coverage or choosing benefit options they didn’t need.
  • 61% said they are only sometimes or not at all aware of changes to their insurance policies each year.
  • 89% simply default to the same options every year.
  • Only 16% say they contribute the right amount to flexible spending accounts.

The Fear Factor

A survey by Aetna also found that workers consider it extremely difficult to choose health-care benefits. Employees surveyed said:

  • Health enrollment is the second most difficult major life decision behind saving for retirement.
  • Choosing health-care benefits is more difficult than purchasing a car, making decisions about medical tests or treatments, parenting and selecting other forms of insurance.

What’s the Problem?

The employees surveyed by Aetna said that the reasons they found these benefits decisions so difficult is that:

  • The information they are given is confusing and complicated.
  • There is conflicting data.
  • It’s hard to determine which plan is the right for them.

What Can Health Insurers Do?

Considering how vitally important this decision is, it is truly unfortunate that health care insurance providers have not been able to crack the code in distilling highly complex product information into easy-to-grasp and compelling value propositions.

One of the reasons for this is that health care industry is far behind the curve in customer-centricity. Only now in the wake of health care reform is the health insurance industry beginning to understand that they need to move toward a more consumerist individual retail model. This is vitally important because:

  • “Consumer-driven plans”– Employers are shifting more responsibility onto the individual employee in the form of  in which the employee needs to be more actively engaged in his or her health care decisions.
  • Health care exchanges under healthcare reform require individuals to compare providers online to make decisions about their coverage options.
  • More Medicare coverage options today include traditional Medicare, and plans provided through private insurers including: Medicare supplement policies, Medicare Advantage Plans, and Medicare Part D Prescription Drug coverage.

Since the choices consumers face are complex, and personally significant, Marketers now face the awesome responsibility and challenge of simplifying the decision process for the consumer. Behavioral economics studies have shown that how the enrollment choices are presented make a huge difference to consumers in empowering them to better evaluate their plan choices.

Where’s the Support?

To elect the right coverage for their needs, it is vital that people take the time to calculate their yearly medical expenses. However, Aetna found:

  • 43% of employees rarely or never track how much they spend on out-of-pocket health-care costs.

Marketers clearly need to offer more clear and intuitive enrollment materials. They also need to provide a good marketing media mix. For example, while some people are more comfortable reviewing materials on their own, others prefer 0nline guidance or telephone support. The Aflac survey found that half of employees said they would feel more informed if they sat down with an insurance consultant during enrollment. This points to a great need to improve open enrollment meetings.

Best Practices: Some of the information that Aetna provides can be viewed at www.planforyourhealth.com, including:

Aetna’s research has shown that members who use the Member Payment Estimator may save as much as $170 on out-of-pocket costs for more than 30 commonly selected health care services they can research with this tool.

To help consumers better understand how health care reform impacts them personally, Aetna created the Health Reform Connection website which provides information on the different elements of health care reform.

The Genius of Simplicity

While large health care insurers like Aetna are taking the initiative to create innovative tools to ease the enrollment decision and empower members to make more informed decisions, still the sheer volume of Aetna’s web-based materials can itself be overwhelming, and the danger of overwhelming consumers with too much information remains an issue.
The key is to provide tools and systems that are informational, consumer focused and, most importantly, effectively simplify the consumer decision process. Less is often more. Carmine Gallo in Forbes summed up how important simplicity is to Apple’s success:

Your customers demand simplicity and simplicity requires that you eliminate anything that clutters the user experience.

The key to marketing success is to simplify your customer’s buying process for your products or services, and to simplify your communication messages to one core promise for your key customers.
This infographic tells the story of how much obesity costs employers. We in the U.S. are, as a nation, obese. It’s a serious problem, and it’s taking a heavy physical, psychological and economic toll on us. Matthew Pelletier, C&S Safety Training Videos Director of Public Relations, has offered to share this great infographic:

According to the HHS (U.S. Department of Health and Human Services), and HHS Secretary Kathleen Sebelius, as a result of the Affordable Care Act, 5.6 million seniors and people with disabilities have saved $4.8 billion on prescription drugs since the law was enacted. The two main reasons are:

  • The ACA closes the Medicare “doughnut hole” under which seniors must pay for drugs entirely out of pocket.
  • Drug makers have also agreed to offer deep discounts to Medicare recipients.

The results:

  • Seniors have saved $4.8 billion on their prescriptions.
  • 5.6 million seniors have received a drug discount or rebate, including 2.3 million this year.
  • Seniors who hit the doughnut hole have saved an average of $657 this year.
  • Over 20.7 million with Medicare also received free preventive services in the first nine months of 2012
  • The health care law will save the typical person with original Medicare $5,000 from 2010 to 2022.

Significant Savings

Among the provisions in the health care law  to make Medicare prescription drug coverage more affordable are these:

  • In 2010, anyone with Medicare who hit the prescription drug donut hole received a $250 rebate.
  • In 2011, people with Medicare who hit the donut hole began receiving discounts on covered brand-name drugs and savings for generic drugs.
  • For 2013, people with Medicare in the donut hole will receive about 53% on the cost of brand name drugs and a 21% savings for the cost of generic drugs. These savings and Medicare coverage will gradually increase until 2020, when the donut hole will be closed.

Preventative Health Services

The health care law also makes it easier for people with Medicare to stay healthy through preventative health services. Before 2011, Medicare recipients had to pay part of the cost for many preventive health services, making it difficult for many of them to get the health care they needed. For example, recipients had to pay as much as $160 in cost-sharing for a colorectal cancer screening.
Since the health care law means that many preventive services are now offered free with no deductible or co-pay, the cost is no longer a barrier for seniors who want to stay healthy and treat problems early.
  • In 2011, 32.5 million people with original Medicare or Medicare Advantage received one or more preventive benefits free of charge.
  • In 2012, over 20.7 million people with original Medicare have received at least one preventive service at no cost.
  • 2.13 million of them have taken advantage of the Annual wellness Visit, an increase of 650,000 over 2011.

Resources

  • State-by-state information on savings in the donut hole is available here.
  • State-by-state info on utilization of free preventive services is available here.

A Brave New World Of Health Insurance Choices

Christopher Goldsmith of Sibson Consulting’s provocative article written for the Society for Human Resource Management (SHRM) explores how behavioral economics can help guide decision making with the complex choices consumers face in selecting better health plan options. This article summarizes that information.

The Problem: Choice and Complexity

Health care reform means more choices for consumers and a more complex decision process than before. Senior citizens will now need to make choices each and every year regarding their Medicare coverages: whether to enroll in traditional Medicare, supplement it with a Medicare supplement policy and a Part D prescription drug plan, or enroll in a comprehensive Medicare Advantage plan instead.

Health insurance marketers face the challenge of guiding consumers through a fundamentally more complex decision process in a way that helps them make more informed and better choices. The most important questions marketers face are:

  1. How to help simplify a complex decision process for the consumer.
  2. How to empower the consumer to make the best choices.
  3. How to differentiate your company in a field of similar products.

Behavioral economics—the study of how people make choices, drawing on insights from psychology and economics—can be useful in designing and communicating employee health plans.

Rational vs Emotional Decision Factors

Decisions regarding health often involve irrational, or emotional elements, where behavioral biases cloud rational judgment. For example:

• Unhealthy Habits: Despite numerous public health messages, many young adults nonetheless choose to become substance abusers or overweight.

• Not Taking Advantage of Preventative Services: Even if they understand the value of preventive health care and preventive care services offered under their plans without deductibles, co-payments or co-insurance, many still fail to take advantage of free health screenings or physical exams available to them.

• Lack of Interest in Health Care Research: When making decisions about hospitals and surgeons, few consumers research data about hospital costs, mortality, readmission and hospital-acquired infection rates.

• Failure to Plan: When enrolling in Medicare, many consumers fail to research the options available to them that would assist them in making an informed decision.

Behavioral Economics and Open Enrollment

Understanding these behavioral tendencies enables organizations to create more effective communications and incentives to make better decisions that produce better outcomes. This is particularly important during the open enrollment process, to steer employees toward cost-effective health plan options. Organizations increasingly want employees to migrate from more expensive PPOs to consumer-directed health plans (CDHP), which have lower costs in exchange for greater employee cost sharing. However, Goldsmith points to three behavioral biases that impede this goal:

• Loss-aversion bias. People tend to overvalue the prospect of losing something of value and to undervalue the prospect of gaining something of value.

• Value system bias. Deeply rooted value systems and selective filters necessitate substantial evidence to the contrary or significant influence to effect behavior changes will change.

• Status quo bias. Inertia, or the tendency not to change, is especially significant when choices are complex.

Optimizing Choice Architecture

Reframing Experiment

Health plan participants considering  the 3 choices below are likely to resist moving from a PPO to a Healthy Living Plan or CDHP because of the potential loss of their current doctor-patient relationship while undervaluing the financial gains or the prospect of improved quality of care available through a rigorous provider selection process.

Original Enrollment Presentation

Choice Architecture

There are also behavioral biases that the organization could leverage in its open enrollment materials to better position the new product offerings that could result in better results. Designing communications in ways that appeal to these biases can put a new perspective on the choice that makes it easier for consumers to consider and evaluate their options.

“Choice architecture” describes how the various options are framed, ordered and explained.  Figure 2 below illustrates how the default option, order of the options, plan names, presentation of decision-making factors, and use of color elements can be used to influence choice:

Reframed Enrollment Presentation:

Results:

Preliminary testing with various focus groups show many people who chose the PPO Plan in Figure 1 subsequently chose the Healthy Living Plan or Thrifty Consumer Plan when presented with the design used in Figure 2. The expected result of this presentation of the data is better outcomes for the employees and the organization.

Incentivizing Lifestyle Changes

Sibson Consulting’s Healthy Enterprise Survey

Encouraging Wellness Program Participation: One increasingly popular way to promote more healthful lifestyle changes is by using incentives to increase participation in the organization’s wellness programs, as shown in the chart above from Sibson Consulting’s Healthy Enterprise Survey.  Studies have shown that, compared to a control group:

  • Sustained tobacco use quit rates are 3X as high among participants receiving incentives.
  • Obese participants tend to regain their weight when they stop receiving incentive payments.

Designing Effective Incentives: Sibson’s research finds that participation in an organization’s health risk assessment activities increases as the as the incentive value increases, but incentives must be well designed to achieve desired outcomes:

• Too low incentives fail to motivate behavior change.

• Too high incentives can create a “choking” effect that impedes performance.

• Too distant incentives lead people to devalue the reward.

 Too long a qualifying period encourages procrastination, and, as the deadline nears, the perceived cost of change magnifies resulting in lower participation.

 Misguided incentives cause the reward potential to crowd out the intrinsic motivation to focus on health.

• Too many incentive elements makes the complexity is overwhelming.

Using Behavioral Economics to Effect Change

In the preceding experiment, we examined how reframing the enrollment choices aided consumers in evaluating their plan choices.  In that example, two behavioral biases were considered in designing the enrollment material:

• Clue-seeking bias. When faced with complex decisions, people look for clues, which they hope will be relevant to rational decision-making.

The revised enrollment chart provided relevant clues like “thrifty” and “elite standards” to show how the plans would actually work for the customer: Providing discrete columns for the major benefits of each plan (ie. “Your annual payroll deduction,” “Company Deposit into your Account, ” etc.) allows the consumer to quickly pick up cues about the benefits offered.

• Framing bias. Because people make decisions within a larger context, they look to their experiences and the environment to establish a frame of reference.  Therefore, how choices are presented has a substantial influence on the decisions people make.

The original chart, by placing the PPO option at the top, appears to suggest that it is a default option, or a standard-bearer. The revised chart, by placing it at the bottom as a “Legacy Plan” counters some of the intrinsic biases that impede change mentioned above (loss-aversion bias,  value system bias, and status quo bias.)

Countering Behavioral Biases

According to Sibson Consulting:

Some behavioral biases can serve as bridges to better outcomes.

Sibson offers some examples of “countering” behavioral biases that can be used to help employees make more informed and considered decisions:

Marketing Applications

Marketers need to bear in mind that the enrollment materials they design have real consequences in terms of workforce behavioral bias, choice making and engagement. Marketers can use principles from behavioral economics to help customers make more rational decisions regarding their health and their health care benefits. This begins with taking a systematic look at those outcomes you’d like to effect, and the consumer choices that would enable them. The ordering of options, highlighting of decision factors, naming of programs, structuring of incentives and selection of defaults can impact the outcome of the enrollment choices that consumers make.

 

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