Buck Bond Group

Long Live the King

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Apparently I have been a little too quiet lately. Some of my colleagues are asking about my wellbeing, so I will take a moment to remind everyone that I am still very much here and alive and well. And I have a big question.

Is cash king?

This morning on the train I got into a discussion with some employment recruiters regarding compensation. (Okay. Full disclosure. I was eavesdropping until I inserted myself in the conversation. I rarely do that but something had to be said.) One recruiter was bemoaning the fact that the government agency she worked for had much lower compensation than the private sector. Her colleagues who understand these things were pointing out that she had an amazing pension plan on her side. “Sure,” she said, “but in interviewing candidates I rarely get past the compensation, so the pension doesn’t come up.”

“What is insurance other than a tool to protect your cash?»
Lizann Reitmeier, Health Practice Leader, Canada

Things have changed

That raised my question: is cash king? Are employees really only interested in cash compensation to the exclusion of the retirement and benefit plans? Perhaps this is the next logical step in the evolution of work. In my father’s day (note I didn’t say my mother’s day, but the evolution of women in the workplace is another story) you got a job and you stayed with that employer for many, many years until you retired with a gold watch and a pension guaranteed for life. But that was before Nortel, before rightsizing, before the gig economy.

Now employees change companies and even careers multiple times through their working lives. Now companies regularly rightsize, downsize, merge and globalize. Employers are likely to hire contractors where no benefits or pensions are offered or expected. If you had a job that could end tomorrow, would you be focused on what your employer could do for you in the future?

An employee in good health would get a greater benefit from an extra 10% of pay annually than from a benefit plan he or she doesn’t use. The extra dollars could be stashed away to be used in the future, when health expenses do come up, whether the employee is still with this employer or not. (Although human nature being what it is, that extra 10% would have been spent on shoes months ago. Not human nature? Just me? Okay maybe shoes aren’t your thing, but you get the idea.)

Balancing act

While I understand the reasoning for not caring about benefits and pension while you are healthy and under age 65, allowing the healthy people to opt out of the health plan and the young to stay away from the pension plan undermines the fundamental tenets of these plans. Everyone participates to spread the risk and minimize the actual per capita cost. If every one of us claimed $30,000 annually under the employer’s health plan, it would be unsustainable. Balance is only achieved when high claimers are offset by lots of low claimers. On the retirement side, in a defined benefit plan, the contributions for all fund the benefit for those who make it to retirement and beyond. Can an employee bank on that pension that they don’t control and don’t hold in their own account?

Similarly, is the employer’s promise of Long Term Disability coverage the same as an actual personal policy or an enormous sum of money in the bank? Experience suggests there may be flaws in that promise of “a benefit to age 65” or “guaranteed annuitized income”.  Ask a Nortel retiree or a Sears employee.

HSA – on a good day

So, back to the question at hand: Is cash king? The statistics are conflicting. Employees seem to be favouring Healthcare Spending Accounts over traditional benefit plans. I understand this. Spending accounts are great on good days. Do traditional plans need an overhaul? If every day is good enough that a Healthcare Spending Account is adequate, maybe it is time for high deductible Health plans to cover catastrophic events. Plan members who don’t have high health claims would have coverage for routine expenses through a Healthcare Spending Account and plan members with high claims would probably be out-of-pocket more than they are under the traditional plans we have today, but they would have a safety net with the high deductible plan.

Part of the household budget

What about the big risks? What about Life and disability insurance? This is coverage that employers can provide to employees without evidence of good health, and that protects them and their families from long-term hardship. If we change the mandatory nature of these coverages, in the name of flexibility, insurers will change the underwriting requirements, especially for small groups.

Over the course of my career, I have paid out thousands of dollars for Long Term Disability insurance coverage and, I am happy to say, I haven’t claimed a single penny. This coverage, like car, home and life insurance should be considered part of the household budget. This is the benefit that will replace your income if you are unable to work – and is the one benefit everyone should be asking from prospective employers.

What is insurance other than a tool to protect your cash? Properly designed plans protect you from financial losses. At its core, a health plan is not designed to keep people healthy; it is designed to protect them from paying the costs associated with sickness. Employee benefits are an integral part of financial wellbeing. While cash may be king in our short-term focused world, we need to teach plan members and society in general that the value of benefit plans far outweighs the $500 of massage therapy a member can access in a year.

And to my new recruiter friends from the train I say, start with the benefits. Explain the benefit plans and the retirement plans to prospective employees before you talk about salary. Reinforce the value these bring to your employment proposition. Ensure all the cards are on the table so prospective employees understand what you have to offer and can compare apples to apples when considering other options. I guarantee you will change the conversation with recruits and increase the appreciation of your overall offering.

And recruits may realize that, since cash is king, it makes sense to protect it.