Buck Bond Group
What’s in store for employee benefits and total rewards in 2023? 12 predictions for the year ahead

What’s in store for employee benefits and total rewards in 2023? 12 predictions for the year ahead

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As 2022 fades from memory, what developments can we predict for 2023? Our specialists Ruth Hunt (Principal, Engagement Practice), David Foster (Principal, Health Practice), and David Eisenberg, CFA (Principal, Investments) gave us their take on the year ahead for employers’ benefits and rewards programs.

Building financial resilience

Employers will step-up financial support using programs and tools that offer creative solutions. Employers will offer more workplace benefits to provide additional financial support for employees facing higher bills and rising cost-of-living expenses, including financial coaching, on-demand pay, rainy day savings accounts, voluntary emergency loans, bill payment tools and services, and more. Finding ways to help with financial stressors, recognizes that employees can’t win the long game in saving for retirement without a good short game with skills and tools to live better between paychecks.

Taming healthcare costs and improving health

A more holistic focus on wellbeing will continue. Stress, burnout, and financial worries all affect a person’s sense of wellbeing and contribute to the continuing epidemic of anxiety, depression and other mental health challenges. Employers need to review, update and better integrate and promote wellness resources beyond physical health, including mental and emotional wellbeing, along with financial and social dimensions, and even others such as environmental or spiritual. While this emphasis isn’t new, the appreciation for the interconnected nature of these dimensions will continue to grow.

Employers continue to absorb healthcare premiums and other costs. For the last two years, some employers have opted to absorb premium increases in efforts to alleviate financial stress for their employees. But this isn’t sustainable long term, so more employers will consider other plan design tactics to promote affordability such as tiered deductibles and out-of-pocket maximums, pay-banded premium contributions, or salary-tiered Health Savings Account contributions. Providing a choice of health plan options (e.g., copay plans or hybrid copay plans) that are more affordable and predictable at point of service is another consideration.

Virtual primary care will continue to take off as the next generation of telehealth. The pandemic drove a significant rise in the use of virtual care. The trend will continue – for cost and convenience reasons for employees and their families, the explosion in marketplace offerings, and employers’ eagerness to capitalize on less costly sites of care. What’s newer about telehealth will be the ongoing use as a primary source of care, addressing health care access challenges in geographic areas with lesser choice (such as rural) and countering the prior decline in preventive visits.

Cancer could be a top driver of healthcare costs. The Business Group on Health’s annual health benefits survey of large employers for 2022 indicated that many large employers expect a higher prevalence of late-stage cancers in their employee populations due to delayed preventative screenings. Effective care management programs can help patients access the most appropriate level of care and coordinate services, to help reduce unnecessary complications and costs.

Engaging workers

Companies may need to manage through significant change as they right-size their organization in line with current market conditions. Economists predict a recession and related impacts that could slow hiring in some industries, with possible workforce reductions. This uncertainty also could affect employee retention if there are concerns about an organization’s stability. Employers can’t be complacent, even if the risk of the “quiet quitting” phenomenon appears to lessen. With continued high stakes to ensure keeping top talent, employers will need to be agile in reassuring employees, while remaining transparent. Initiatives that support employees as a top asset may evolve but will continue to be an area of focus – including initiatives on how to best position total rewards; a sustained emphasis on diversity, equity and inclusion; and reinforcing purpose and fulfillment as reasons to come to work.

Listening to employees will be key. Engaging employees, particularly in this era of hybrid work and continued disconnection, will be more important than ever. Annual engagement surveys will be supplemented – or even replaced – by ongoing pulse surveys and focus group feedback to help reveal disengagement risks while demonstrating empathy for work-life pressures. A recent survey by Microsoft reported that only 43% of employees say their company selects feedback at least once a year, and even among those, 75% of employees and 80% of managers think it’s not often enough. The bottom line: Employers and managers can’t act on problems if they don’t understand the employee experience and identify priorities that need addressing in order to stay ahead of burnout and attrition.

Managing retirement savings plans

Plan sponsors will take steps to strengthen and enhance retirement plans. With the Secure Act 2.0 now signed into law, plan sponsors will accelerate the adoption of defined contribution plan features such as matching plan contributions to student loan payments, adopting auto-enroll, auto-escalate, and auto-reenroll policies, and integrating life income options into plan design.  These can be combined to improve the potential for defined contribution plans to provide sufficient and predictable income in retirement.

Employers continue to reduce expenses in defined contribution plans. While costs in other areas of business continue to increase, thoughtful plan sponsors are finding ways to reduce participant expenses in defined contribution plans without sacrificing the value of the plan benefit.

The pace of defined benefit plan terminations increases. For many plan sponsors, the rapid increases in interest rates have improved funded status and reduced the potential cost of terminating the plan and transferring the risk. This may make it attractive to terminate the plan, transfer the risk, and focus total rewards efforts on further improving the attractiveness of the defined contribution plan. This later effort is further encouraged by the passage of Secure Act 2.0.

Pension plan sponsors accelerate their adoption of specialized Outsourced Chief Investment Officer (OCIO) services. While this has been the trend in place for years, it will accelerate in 2023 as plan sponsors focus their management time on core strategic initiatives and embrace the reduction in operating risk and resources, as well as the potential for lower costs and improved outcomes, from using an OCIO. This will be the case for both defined benefit and defined contribution plans.

Pension plan sponsors begin to implement income distribution options in their defined contribution plans. While DC plan designs have traditionally focused on accumulating wealth for retirement, they have fallen short of providing flexible options for income distribution in retirement. With the encouragement of Secure Act 2.0, the desire to improve total rewards, and the goal of participants being able to retire with financial stability, innovative plan sponsors will begin to incorporate distribution options into their DC plan offering.

Ready to go?

With the ultimate goal of securing the talent needed to drive organizational growth, engaging and providing for the needs of today’s dynamic workforce, the world’s most forward-thinking organizations are working to protect the physical and financial wellbeing of their employees and members. These are the trends we see for 2023, trends which will help improve how people work and live.