SMALL BUSINESS BENEFITS
Address Growing
Flight Risk With
Benefits-Based
Strategies
Decline in Worker Loyalty Threatens
Small Business Stability
MetLife, a leading provider of employee benefits to
more than 48,000 small businesses in the United States,
has tracked and analyzed the impact of employee benefits
on small businesses for nine years through its Annual
Study of Employee Benefits Trends. As the economy
shows mixed signs of recovery from the financial crisis
and small businesses are expected to be at the forefront
of potential growth, MetLife is committed to providing
benefit solutions designed, priced and administered
to fit the specialized needs of small business employers.
Address Growing Flight Risk With Benefits-Based Strategies is an addendum
to the 9th Annual MetLife Study of Employee Benefit Trends. It has been
developed to help small business employers and brokers navigate through
these challenging times — and to equip them with practical benefits
strategies and tools to help attract, motivate and retain their workforce while
recognizing the need to closely manage costs.
High Museum of Art, Atlanta, Georgia
The High Museum of Art is considered by many to be the leading art museum
in the southeastern United States. Located in midtown Atlanta’s arts and
business district, “The High” boasts more than 12,000 works of art in its
permanent collection. In our graphic rendering of The High’s unique and
inspiring architectural splendors, we have highlighted both the particular and
the more general, revealing the importance of both insight and perspective.
In volatile and challenging times for America’s small businesses, the use of
benefits-based strategies to help achieve business objectives is as much art
as it is the science of finance. It requires an appreciation of plan specifics as
well as knowledge of general benefits trends. Talented, creative brokers can
help ambitious, imaginative small business owners to artfully confront the
challenges of the current economy with inspiration from the study of both
past practices and new approaches. The clear objective for small businesses
is a winning benefits strategy — one that helps employers manage to the
bottom line and realize business objectives, while aiding employees in their
pursuit of financial security and peace of mind on the job and at home.
section 01
Executive Summary — Key Findings
2
section 02
Background and Introduction
4
section 03
Assumptions Can Be Dangerous:
Research Reveals Loyalty
Gap and Flight Risk
6
section 04
Cost-Effective, Carefully
Designed Benefits
Programs Inspire Loyalty
9
section 05
Reform Moves Forward,
Creates Greater Urgency for Small
Business Decision-Making
14
section 06
Conclusion
16
section 07
Methodology
17
section 08
Endnotes
17
2
Address Growing Flight Risk With Benefits-Based Strategies
section 01
Executive Summary — Key Findings
Work force loyalty is an abiding concern for all employers who rely on the productivity, commitment
and hard-won experience of their employees. For the small business employer (2-499 employees),
however, work force loyalty takes on a special urgency because key employee contributors often play
a variety of different business roles, adding essential value in a number of different ways. There is no
cushion or safety margin in the small business environment that provides protection against the
negative impact of a top performer’s defection.
Steady, Three-Year Decline for Loyalty of Small Business Work Force
According to MetLife’s small business proprietary research, the percentage of small business
employees who feel a strong sense of loyalty to their employer has dropped to 44% — representing
a steady decline over the last three years. Of course the potential negative implications of this low
loyalty rating for small business employers are manifold — increasing absenteeism, lower productivity
and, an increased risk of voluntary termination.
To complicate matters, small business employers seem to have misjudged the loyalty of their workers.
In fact, there is a widening gap between employers’ assessments of loyalty and actual worker loyalty.
These findings and others are detailed in this white paper, with our key findings and other researchbased observations summarized below.
1. Although tentative and volatile, the economic outlook for small businesses shows some signs of
improvement. Credit access has improved. Capital expenditures are growing. And hiring
represents a clear strength among all indicators of growth. Nevertheless, at approximately
mid-year 2011, small business owners remain wary of the economic outlook.
2. The key findings from MetLife’s 9th Annual Study of Employee Benefit Trends — A Blueprint
for the New Benefits Economy hold true in the small business community. There is an erosion
of employee loyalty and a potential retention issue.
3. There is a widening gap in loyalty between small business employers and their employees.
In November, 2008, 55% of small business employers considered their employees very loyal.
And, indeed, 62% of these employees called themselves very loyal. Loyalty, in fact, was actually
better than the employers had suspected. But three years later, approximately the same
percentage of employers, 54%, considered their employees very loyal, while only 44%
of these employees identified themselves as very loyal.
4. A little more than one-third of small business employees (34%) said they hoped to be working
for a different employer some time in 2011.
5. A benefits program is an appropriate, smart response to employee flight risk because the
research shows a clear correlation between benefits satisfaction and job satisfaction. An
unmistakably high percentage (72%) of small business employees who are very satisfied with
their benefits feel a very strong sense of loyalty to their employer.
Address Growing Flight Risk With Benefits-Based Strategies
6. Attractive and powerful benefits programs can still be cost-effective. When faced with a choice
of either paying for benefits or losing them entirely, employees indicated that they would choose
to pay for them. Even if small business employees have to pay the full cost for these benefits,
■■
48% feel it is important to have life insurance, and
■■
55% feel it is important to have dental insurance,
■■
43% feel it is important to have disability insurance.
However, about one-third of small businesses do not currently offer these benefits — 68%
of businesses with fewer than 500 employees currently offer dental benefits, 65% offer life
insurance, and 63% offer disability — percentages that have remained relatively flat over the last
several years. The volatile economy has created increased interest among employees with regard
to the financial protection afforded by workplace benefits. During the past 12 months, 36% of
small business employees place an even greater value on their workplace benefits.
7. Health care reform is on the mind of small business employers, but the legislation has often been
shrouded in uncertainty with a suspicion of impermanence, giving rise to a wait-and-see approach.
Forty percent of small business employers report they are unsure of their response to the new
legislation. Over half, 57%, say they are going to rely more on their broker to help them sort it out.
8. MetLife suggests that small business employers and their brokers consider several action steps in
order to make their benefits program a more powerful and cost-effective tool to help attract,
motivate and retain key contributors.
insights to action
• Evaluate voluntary benefits for your program.
• Leverage unique advantages of small business.
• Look for administrative ease and simplicity.
• Communicate benefits program effectively.
• Consider supplemental benefits in light of productivity.
• Investigate whether a wellness program would help the business.
• valuate the federal government’s program of tax credits for health insurance.
E
• Meet with your broker to develop a strategy.
3
4
Address Growing Flight Risk With Benefits-Based Strategies
section 02
Background and Introduction
The U.S. Small Business Administration (SBA) defines small businesses as those enterprises with fewer
than 500 employees. For the purposes of its research and this white paper, MetLife defines a small
business as a firm with two to 499 employees.
Little Giants: Small Businesses Make Enormous Contribution to Nation’s
Economic Well-Being
It is difficult to overstate the role of small businesses in contributing to job growth and business
expansion in the United States. Small businesses, in fact, help to power the nation’s economic
engine and determine its overall economic health. According to the SBA’s Office of Advocacy, small
businesses pay 44% of the total U.S. private payroll1 and have created more than 65% of net new
jobs over the past 17 years2 — approximately 9.8 million jobs. Small businesses employ approximately
50% of all private U.S. workers and represent 99.7% of all employer firms.3
Increasingly, when economists endeavor to present a long-range forecast of the nation’s economic
performance, they turn to small businesses for a temperature check, making this sector of the
economy a leading indicator.
Full Optimism Not Yet Restored from Recessionary Lows
The National Federation of Independent Businesses (NFIB), an organization that calls itself “the voice
of small business®” publishes an Index of Small Business Optimism4 that represents a comparative
,
analysis and reality check of how small business owners view current business conditions. The Index
has remained frozen at recession-level readings since December 2007. It seems safe to say that small
business owners will believe in full recovery only when they experience it firsthand, such has been the
anguish and loss associated with the financial crisis.
Outlook Improves for Credit Availability and Capital Expenditures
While the overall outlook for small businesses remains uncertain, some economic indicators show
signs of improvement and provide reason to believe that a slow but steady recovery may be under
way. Greenwich Associates, a consulting and research firm specializing in financial services and
founded in 1972, reported in April 2011 that “
…the share of small businesses reporting success
in landing bank loans is returning to historic averages. 5
”
The availability of credit has been an enormous obstacle to some small business owners who looked
to invest in growth or reinvest in their business but were frustrated by tighter credit restrictions and a
simple shortage of credit. Conning Research and Consulting identified this phenomenon as a serious
impediment to growth before the credit crunch began to ease. “Small business growth is partly
hampered because of inadequate access to convenient and affordable credit as personal assets
have shrunk and as small bank lending has decreased. 6
”
Greenwich Associates also found that approximately one-third of small businesses surveyed intended
to increase capital expenditures, while 35% intend to either remove a salary freeze that is currently
in force or institute salary increases for their employees. While not a comprehensive and ringing
endorsement of small business growth, Greenwich’s report suggested that its findings “
…represent
7
an important signal of recovery …”
Address Growing Flight Risk With Benefits-Based Strategies
5
Hiring Plans Called ‘Bright Spot’
A growth in loan activity and capital expenditures demonstrates tentative signs of renewed life.
Interpreting findings from March 2011 published in its Small Business Economic Trends, the NFIB
reported that “Hiring and future plans to hire built on February’s gains and remain the bright
spot in an otherwise discouraging report. 8
”
Of the small businesses that Greenwich Associates surveyed, 36% said they intended to hire in the
short-term.9 This finding represents a favorable turnaround from the 47% of small businesses
intending to lay off employees in the first quarter of 2008, as reported by Greenwich.
A likely increase in hiring plans among small employers was supported by an early-May 2011 report
mentioned in the Wall Street Journal that small business owners “
…plan to boost their workforce
within the year.”10
Early signs of growing confidence in the more generalized labor force, not just employees of small
businesses, were seen as early as February 2011 when the U.S. Bureau of Labor Statistics (BLS)
released a report showing that more workers had voluntarily left their job than had been laid off for
1
the fourth consecutive month. 1 This represented a clear indication that workers who were previously
inclined to stay at their place of employment — even when dissatisfied with their job — now felt more
comfortable seeking employment elsewhere. The sense of having to “settle for less” for fear of not
being able to find another job seemed to be dissipating. A complementary report issued by the BLS
in May 2011 showed that job openings were at or above three million, marking the first time that
this figure had been achieved for two consecutive months since November 2008.
Addressing Freedom of Movement in moderately Improved Economic Climate
The American economy continues to follow a volatile, unpredictable course. Yet under even a
moderately improved economic climate of job growth and mobility, the focus for small business
employers will eventually shift from a recessionary theme of “doing more with less” to a recovery
and growth theme in which key considerations like attraction, motivation and retention of top
talent become paramount.
This paper is intended to suggest a practical course of action for small business owners who seek
to protect their business against the risk of losing key contributors. The paper will examine research
findings from MetLife that shed light on employers’ perceptions of loyalty as compared to actual
employee loyalty among small businesses. A product of proprietary research conducted under
MetLife’s 9th Annual Study of Employee Benefits Trends, the findings reveal a widening gap between
the loyalty assumptions small business employers have made and actual small business employee
loyalty.
To help address these loyalty misapprehensions, the paper will examine ways in which a cost-conscious,
cost-effective benefits program can be modified to meet the needs and expectations of key contributors
in a challenging small business environment. Small business owners, principals and human resources
professionals can work with their brokers to develop a flight risk avoidance plan, leveraging benefits
as a strategic retention tool to help prevent the loss of key employees.
In an improved
economic climate
of job growth and
mobility, the focus
for small business
employers will
eventually shift from
a recessionary theme
of “doing more with
less” to a recovery
and growth theme.
6
Address Growing Flight Risk With Benefits-Based Strategies
section 03
Assumptions Can Be Dangerous:
Research Reveals Loyalty Gap and Flight Risk
The inescapable fact
is that small business
employees wear
many different hats
and work in a culture
where employees
perform a variety
of indispensable
functions.
The question of loyalty is especially important when it comes to operating in the small business
environment. Here, employers with fewer associates can least afford reductions in “bench strength.”
The inescapable fact is that small business employees wear many different hats and work in a culture
where employees perform a variety of indispensable functions. In the smaller business real-world
environment, the employee who authors the company’s five-year strategic plan may well be the same
employee who is handling weekly payroll and also driving to the local office-supply store to purchase
replacement ink cartridges for the printer.
The High Cost of Losing High-Flying Performers
Of course there is considerable debate about the precise cost of replacing key talent. Some experts
claim the cost is in the range of 150% to 200% of the employee’s annual salary.12 Others estimate
replacement costs at up to 500%.13 Right Management, a talent and career management consulting
firm, figures the cost at approximately 300%, which includes recruiting, severance, lost productivity
and opportunity costs. There is also the cost of training a replacement along with the cost of
potential customer dissatisfaction until the replacement is brought up to speed. And all of these
costs are almost certainly understated in the case of a valued employee for a small business where
the associated inconveniences and expenses are likely to be amplified.
The bottom line: small business owners can ill-afford to lose experienced, effective contributors.
The disruptive impact of such a loss could be devastating. But in order to manage this risk effectively,
small business employers need to take a clear-headed look at the potential flight risks in their
employee population.
Numbers Speak Volumes about Gap between Perceived and Actual Loyalty
MetLife’s 9th Annual Study of Employee Benefit Trends found that 54% of surveyed small business
employers believed their employees have a “very strong sense of loyalty” to the company.14 Unfortunately,
their employees were not of the same opinion.
The bottom line:
small business
owners can ill-afford
to lose experienced,
effective contributors.
The disruptive
impact of such a loss
could be devastating.
Less than half of employees (44%), said they felt a very strong sense of loyalty to their employers.
More tellingly, a little more than one-third of small business employees surveyed (34%) said they
hoped to be working for a different employer sometime in 2011.
The gap between perceived and actual loyalty was even wider at small businesses employing between
two and nine employees. Here, 61% of employers believed workplace satisfaction was high, with
only 39% of employees in agreement.
SMALL BUSINESS EMPLOYEE LOYALTY DECLINES STEADILY, REACHES THREE-YEAR LOW
Viewed from a wider perspective, the research on loyalty is even more revealing. Small business
employee loyalty has declined steadily over the last three years, falling from 62% to 44%. This trend
represents a disturbing development for small business owners, making them increasingly vulnerable
to large-scale worker disaffection. Yet, as revealed in the research on employer perceptions previously
discussed, the trend tells only part of the story. Small business employers, to date, seem unaware of
declining loyalty. Instead, their assessment of worker loyalty remains largely unchanged over the same
period in which the decline has taken place. The prevailing belief among small business employers
7
Address Growing Flight Risk With Benefits-Based Strategies
that worker loyalty is unchanged serves to amplify declining worker loyalty, making it akin to an
emergency for which small business management is unprepared. The first remedy to a work force
problem is awareness. A lack of awareness invites added difficulties and challenges.
Not Just a Snapshot, But a Clear Small Business Trend
More than a snapshot of employee discontent, the research suggests an important implication of
declining employee loyalty. There is a widening gap between employer perceptions of loyalty and
actual employee loyalty over the last few years. For example, in November 2008, 55% of small
business employers thought their employees had a strong sense of loyalty to the company. And
indeed, 62% of employees agreed with this assessment.15 Of course, this reading on employee
loyalty represents the effects of the devastating financial crisis on employment outlook. Over the
past two years, employee loyalty has declined to 44%, while employer perceptions of employee
loyalty have remained flat at 54%. The ongoing research demonstrates that while employer
assessments of loyalty have remained relatively constant, actual employee loyalty has declined.16
More than a snapshot
of employee
discontent, the
research suggests
a developing trend:
there is a widening
gap between
employer perceptions
of loyalty and actual
employee loyalty over
the last few years.
Fig. 1
Declining Employee Loyalty Creates Widening Gap in Perception
Small business employees who feel a very strong sense of loyalty to their employer
Small business employers who say employees have a very strong sense of loyalty to the company
70%
62%
55%
53%
54%
50%
44%
30%
2008
2009
2010
8
Address Growing Flight Risk With Benefits-Based Strategies
Disenchantment Widespread and Pronounced Among
Small Business Employees
MetLife research reveals significant disenchantment within small business employee populations.
Only 33% of employees believe their employer “has a very strong sense of loyalty to me. Similarly,
”
17
less than half (44%) are very satisfied with the “job I have now.
”
The disconnect between employer and employee is even more pronounced in the 50-99 employee
category. Here, employee perception of employer loyalty drops to 19%. Yet, 58% of employers
in this same segment of the small business community believe the company has shown very strong
loyalty to employees. Loyalties are even more strikingly misperceived in the two to nine segment,
where 37% of employees think their employer is very loyal, while 70% of employers consider
themselves very loyal — nearly a 2 to 1 difference.
Fig. 2
Low Levels of Small Business Employee Loyalty and Satisfaction
A movement of rising
expectations seems
to be taking place
among employees.
50%
44%
34%
33%
Employees ready
to change employers
Employees believe
employers have a very strong
sense of loyalty to me
0%
Employees very
satisfied with the
job I have now
Volatile Match: Inclination to Move Meets Opportunity
Despite the confidence of employers in the loyalty of their staff, employees appear to be more
inclined to search out new job opportunities. And this inclination, when coupled with potential
long-term improvements in the job market, spells potential trouble for small business employers.
The reasons behind the shift in loyalty are open to debate. Of course reasons will vary from employee
to employee, but it seems likely that employees have grown impatient with necessary spending
constraints during a prolonged recessionary period. Hiring freezes have led to increased workloads
for seasoned employees. The suspension of pay raises and bonuses has meant that outstanding
performance under challenging circumstances could not be immediately rewarded. And a restriction
on capital expenditures has led to a less satisfying work environment in which necessary and
customary improvements could not be made. During a recessionary period these are, of course,
necessary tactics for small businesses confronted with increased competition, tightened loan
requirements and declining demand.
It is still imperative for small business owners to watch expenses and capital outlays with great
caution. But it seems clear that belt-tightening has taken its toll on employees.
As a result, a movement of rising expectations seems to be taking place among employees. Better
times are anticipated and employees want to be sure they don’t miss out.
9
Address Growing Flight Risk With Benefits-Based Strategies
section 04
Cost-Effective, Carefully Designed Benefits
Programs Inspire Loyalty
A benefits program is an appropriate, smart response to employee flight risk because the research
shows a clear correlation between benefits satisfaction and job satisfaction. According to MetLife
research, of the small business employees who said they are very satisfied with their benefits, 71%
are very satisfied with their job. This represents a strong, positive correlation between a small business
benefits program and levels of job satisfaction among employees.18
According to Research, loyalty Connected to Benefits
Approximately 50% of small business employees who are not satisfied with their benefits hope
to be working for a different employer in 2011.19 Yet small business employees who are satisfied
with their benefits are less likely to leave their employer. An unmistakably high percentage (72%)
of small business employees who are very satisfied with their benefits feel a strong sense of loyalty
to their employer.20
Simply stated, employees who are satisfied with their benefits are more likely to feel loyal to
the employer who provided them. While not surprising, this is an insight that is often overlooked
by employers who underestimate the power of benefits to produce desired characteristics in
their workforce.
Although the growing gap between small business employers and their employees is certainly cause
for concern, employers are not without tools for addressing loyalty issues. A well-designed benefits
program that embraces voluntary benefits can provide a cost-effective answer. When faced with a
choice of either paying for some benefits or losing them entirely, many employees indicated that they
would choose to pay for them.21
MetLife’s research found that even if they have to pay for the full cost of some benefits, a significant
percentage of small business employees feel life, disability and dental insurance through the workplace
are important.22
Fig. 3
The Appeal of Voluntary Benefits
Small business employees would assign importance to these benefits even if they have to pay 100%.
60%
55%
53%
48%
0%
Important to have life
insurance at the workplace
Important to have dental
insurance at the workplace
Even if I have to pay 100% of the cost.
Important to have disability
insurance at the workplace
When faced
with a choice
of either paying
for some benefits
or losing them
entirely, many
employees indicated
that they would
choose to pay
for them.19
Employers do not
need to spend a
small fortune in
taking steps to
address loyalty. With
an effective employee
benefits program, it
is not necessarily a
question of spending
more, but of spending
more wisely.
10
Address Growing Flight Risk With Benefits-Based Strategies
Insight to action: Evaluate Voluntary Benefits for Your Program
Among businesses employing 100-499 employees (a wide swath of the smaller business
community), 58% of employees say that non-medical benefits such as dental, disability,
life and vision insurance, etc., are a very important consideration in contributing to loyalty.23
Forty-one percent of their employers assign the same value to these benefits.24 Clearly,
small business employers are underestimating the importance of these benefits in helping
to determine employee loyalty.25
By offering these non-medical benefits on a voluntary basis, small business employers can work
towards achieving better workforce loyalty without negatively impacting bottom-line costs. Do
small business employers assume their employees would be unhappy with a program of voluntary or
supplemental benefits that require employee payments? Or are small business employers even aware
that voluntary benefits are available to them? In fact, an array of voluntary benefits can be attractive
to both the small business employer hoping to design a cost-effective program and their employees
—
looking for meaningful financial protection products.
Fig. 4
What Helps Determine Loyalty?: A Disconnect
Employees who strongly
agree all other benefits
(dental, disability, life
and vision) contribute
to a sense of loyalty
Employees who are
satisfied with their
benefits are more
likely to feel loyal
to the employer
who provided them.
While not surprising,
this is an insight that
is often overlooked
by employers who
underestimate the
power of benefits
to produce desired
characteristics in
their workforce.
58%
Employers who
strongly agree
41%
0%
60%
Insight to action: Leverage Unique Advantage of Small Business
Small business owners enjoy a unique advantage when it comes to the task of designing a valued
benefits program: because they have fewer employees and often a much flatter organizational
structure, they tend to have a clearer understanding of the needs of their employee population
and are thus able to better identify benefits that will work to the advantage of their employees.
With more easily obtained insights into what their employees need and want from a benefits
program, small business employers can be strategically selective in choosing available options
when working with their broker and carrier. As a result, they can offer benefits that their
employees will not only appreciate, but are more likely to use.
Insight to action: Look for Administrative Ease and Simplicity
Small business employers frequently function as their own human resources department and
benefits administrator. This means they are unable to delegate benefits-related tasks which can
be time-consuming and burdensome. At the same time, they simply cannot afford to divert their
attention from core business concerns. It is therefore imperative that small business employers
look for a benefits carrier and broker who can help them streamline many of the administrative
functions associated with their plan.
11
Address Growing Flight Risk With Benefits-Based Strategies
Web-based reporting, employer web-portals, and simplified enrollment can lift many of the
burdens of plan administration from their shoulders. Employers should make it a priority to
leverage these advantages in order to maximize the value of their program and avoid losing
their business focus.
Insight to action: Communicate Your Benefits Program Effectively
When it comes to employees recognizing the value of a benefits program, perception is reality.
If employees are unaware of a life insurance benefit, for example, it might as well not exist. Why
then would an employer want to pay the premium for a poorly communicated, under-utilized
benefit? Working with their broker and carrier, small business employers should make every
effort to ensure that employees understand the company’s benefits offering, that they know
how to use the benefits, and that the benefits address their needs.
An ongoing theme of MetLife research is the agreement among employers and employees
that benefits communications are generally ineffective. The most recent small business
research shows that communications programs are found lacking. When asked if their benefits
communications effectively educate employees, only 1 in 3 small business employers (32%)
were in strong agreement.26 Similarly, a mere 27% of small business employees considered
the benefits communications at their workplace to be very effective.27
Fig. 5
A Failure to Communicate
Employers — strongly
agree their communications
are effective
32%
Employees — strongly
agree their communications
are effective
27%
0%
40%
By working with their brokers and carriers on the relevance, helpfulness, accuracy and overall
effectiveness of their communications, small business employers will ensure that they are getting
full value for the investment they have made in workplace benefits.
Aside from a better understanding and utilization of benefits, improved benefits communications
can also increase loyalty among employees. Among small business employees who strongly agree
that their employer improved communications over the past year, almost 60% feel strongly that their
employer is loyal to them. This compares very favorably with the 27% loyalty rating of small business
employees who did not strongly agree that their employer improved communications over the past
year. Employees appear to interpret an interest in communications as an interest in their well-being.
It is therefore
imperative that small
business employers
look for a benefits
carrier and broker
who will help them
to streamline many
of the administrative
functions associated
with their plan.
12
Address Growing Flight Risk With Benefits-Based Strategies
Insight to action: Consider Benefits in Light of Productivity
An employee benefits program can be much more than an appealing, powerful ingredient
of a total compensation package. Benefits can be a highly effective tool in helping to promote
desirable habits and characteristics in a workplace population.
Financial Concerns Preoccupy, Distract Employees
Benefits can be
a highly effective
tool in helping
to promote
desirable habits
and characteristics
in a workplace
population.
While 52% of small business employers agreed that “employee financial stress contributes to
employee absences at our company, 28 only 16% of employers, a rather distinct minority, strongly
”
believed that a broad-based financial and/or retirement education program delivers much value in
addressing employee productivity.29
It is therefore not surprising that 77% of small business employers report that they do not plan to
offer financial/retirement planning seminars within the next 18 months.30 Yet 75% of small business
employees who report taking time off to deal with, or spend more time at work thinking about
personal financial issues than they think they should, said they would be interested in receiving
advice and guidance through their employer.
The reluctance of small business employers to take on added benefits is understandable — especially
during a challenging business climate. But there are clearly some productivity implications for an
employer’s decision not to address the financial worries of employees. And many financial advice
and guidance programs and tools can be implemented with minimal cost and effort.
The problem should not be underestimated. Small business employees report a consistent, fairly
high level of concern with financial and health matters. Having enough money to pay bills during
a period of sudden income loss was reported as a source of serious concern for 63% of small
business employees.31 And 51% of employees expressed strong worries about having enough
money to cover the cost of health insurance, e.g., premiums and/or out-of-pocket expenses.
The research suggests, and employers acknowledge, that financial concerns are impacting
productivity. Broad-based financial and retirement education programs that familiarize employees
with life and disability insurance and retirement savings vehicles, including annuities, can have a
positive impact on the financial planning of employees. Presumably this will improve their outlook,
peace of mind and ultimately their productivity.
Small Business Boomers Report Being Unprepared FOR Retirement Rigors
Aside from the productivity implications of employees distracted by financial concerns, the research
also reveals that Baby Boomers (born 1946-1964) in the employ of small businesses are dealing with
significant challenges in their attempts to achieve a secure retirement. These challenges represent
potential workforce management issues for small business employers as they look to make an
effective and timely transition from older to younger workers.
Attitudes and opinions among small business Baby Boomers reveal considerable distress in a variety
of retirement-related topics, including: progress of retirement savings, concern with outliving money
and the necessity of working full- or part-time in retirement.
13
Address Growing Flight Risk With Benefits-Based Strategies
Few Baby Boomers, 16%, said that they were on track to achieve or have already achieved the right
retirement outcome. Retirement angst in the small business community is even more apparent among
Baby Boomers when the subject turns to worries about outliving retirement funds. Nearly two-thirds,
62%, of Baby Boomers are very concerned about out-living their savings. Finally, 59% of small
business Boomers are very concerned about having to work either full- or part-time in retirement.
During a period of increased global competition, uncertain economic growth, and additional
obligations associated with health care reform, it seems unreasonable to expect small business
employers to assume increased expense and liability in the form of a new retirement plan obligation.
Nevertheless, the research reveals an obvious problem for both small business employees and their
employers. In light of the research, it makes sense for employers and their brokers to investigate
new small business retirement plan product solutions and plan-related innovations.
Solutions that can help contribute to saving for retirement, protect people from prematurely tapping
into savings, and promote physical and financial wellness can have a profound and long-term impact
at all life stages. These solutions are needed even more urgently in the small market where most
employees are shouldering heavy responsibilities for their health and financial decisions.
Fig. 6
Addressing Financial and Productivity Concerns With Benefits
70%
63%
51%
0%
Employees very concerned
about sudden income loss
Employees very concerned
about cost of health insurance
14
Address Growing Flight Risk With Benefits-Based Strategies
section 05
Reform Moves Forward, Creates Greater Urgency
for Small Business Decision-Making
Health care reform has certainly been on the mind of small business employers, but the legislation
has often been shrouded in uncertainty and the aura of impermanence. Various legislative and
judicial challenges along the way have encouraged employers to adopt a wait-and-see approach.
Nonetheless, as more days fall off the calendar since the March 2010 enactment of The Patient
Protection and Affordable Care Act (PPACA) there will be growing urgency behind the decisions
employers are required to make.
It is vital for small
business employers
to think strategically
about the decisions
that the new
legislation requires
and carefully evaluate
the ramifications
of their health
care choices.
When asked the question, “What is your company most likely to do in response to the Health
Care Reform legislation passed by Congress in Spring, 2010?” 40% of small business employer
,
33
respondents said they were unsure. This high percentage of undecided employers probably
reflects a variety of factors: lack of familiarity with specific aspects of the legislation; the previously
mentioned wait-and-see approach; and a reliance on brokers to sort things out. (Over half of small
business employers, 57%, say they are going to rely more on their broker as a result of health care
reform legislation.34)
Fig. 7
Uncertainty Still Dominates as Time Runs Out
What will small business do as health care reform takes effect?
Unsure
40%
Unsure
40%
How many businesses will rely on more brokers?
57%
Will rely more on brokers
57%
Will rely more on brokers
0%
60%
0%
60%
But the indecision and uncertainty also reflect the serious ramifications involved. The stakes are high.
According to the Small Business Administration, costs for small business health insurance have risen
approximately 123% over the last decade.35 Only 6% of small business firms surveyed report an
intention to stop paying for health insurance in the wake of health care reform,36 some are
considering shifting more of the cost and risk to employees.
It is vital for small business employers to think strategically about the decisions that the new
legislation requires and carefully evaluate the ramifications of their health care choices.
The sections that follow identify key provisions and mandates for small business employers arising
out of the PPACA.
Address Growing Flight Risk With Benefits-Based Strategies
Encouragement: Near-Term Reform Provisions Available to Employers
Grants for Wellness Programs — Now Effective
Beginning in January of 2011, the federal government began awarding grants for “
comprehensive
workplace wellness programs” offered by small businesses. These grants have been funded for an
initial five-year period and are available to employers:
■■
■■
with fewer than 100 employees working 25 or hours or more per week, and
who did not have a workplace wellness program as of March 23, 2010 (the date of PPACA’s
enactment).
INSIGHT TO ACTION: Time for a Wellness Program?
Given the federal government’s available funding, small business owners who fit the criteria
described above should investigate the possibility of adding a workplace wellness program.
The addition of a wellness program may represent a chance to solve for a variety of productivity,
expense and related concerns that are impeding the growth of many small businesses. Nearly
three out of four employers (70%) of all sizes who offer wellness programs say they are effective
at reducing medical costs.
Tax Credit — Effective Through 2013
With its passage in March 2010, the new healthcare legislation began offering a tax credit for
businesses with up to 25 employees. This provision was effective in March 2010 and continues
through December 2013. The credit represents a subsidy of up to 35% (25% for non-profits)
of the employer-paid portion of health insurance premiums. In order to qualify, employers have
to pay at least 50% of total premium costs under their plan. There are exceptions under the law,
but, generally speaking, employers with more than 25 employees or an average company salary
over $50,000 will not qualify.
INSIGHT TO ACTION: Evaluate the Program of Tax Credits
MetLife research revealed that only 23% of small business employers had a very strong
understanding of the details of the tax credit for health insurance.37 Employers should
work with their brokers or carriers to determine if they are eligible for tax credits under
the reform legislation.
Access to Insurance Exchanges — Effective 2014
Beginning in 2014, small businesses will be able to purchase health insurance from new Small
Business Health Options (SHOP) exchanges. The idea is that these exchanges will be online marketplaces
where eligible individuals and businesses can choose among insurance carriers for health insurance
coverage. There is no requirement to purchase from these exchanges, but they will likely offer lower
premiums than those available elsewhere. The definition of small business may vary from state to
state, but will generally be interpreted as employers with 100 or fewer employees. Employers who
make use of the SHOP exchanges will have to offer plans that contain: no restrictions on pre-existing
conditions; no rescissions; and other specific underwriting standards.
15
16
Address Growing Flight Risk With Benefits-Based Strategies
Mandates Take Effect: Know What Steps are necessary
Reporting of Health Expenses on W-2s — Effective 2013
Beginning in 2013, employers with more than 250 employees will be responsible for reporting
the cost of group health benefit plan coverage on their employees’ W-2 forms. The reporting
requirements are expected to apply to the 2012 W-2 forms, which is information employers must
report to employees in January 2013. This requirement is purely informational and does not mean
that employer-provided coverage will become taxable. Employers filing fewer than 250 W-2 forms
in 2011 will not be required to report the cost of coverage on any forms furnished to employees
before January 2014.
Employer-Provided Coverage Requirements — Effective 2014
Small businesses with fewer than 50 employees are currently exempt from mandatory coverage
requirements. However, businesses with 50 or more employees will be required to provide coverage
as of 2014 or pay a fine. For some small business employers, a discussion of the requirements will
include a decision about whether to pay the penalty rather than provide health benefits.
INSIGHT TO ACTION: Meet with Your Broker, Develop a Strategy
Only 16% of small business employers think they have a very strong familiarity with health
insurance exchanges.38 Surprisingly, only 27% were very familiar with the penalty effective in
2014 for not offering mandated coverage.39 The time for decisions and action is drawing near.
Small business employers should meet with their broker to make sure they have a strategy in place.
section 06
Conclusion
While no one can be certain of the economic outlook for small businesses in six, 12 or 18 months,
a variety of economic indicators suggest some improvements in the business climate. Under current
conditions, small business employers seem notably unaware of declining loyalty among their
employee populations. Improving economic conditions and low relative levels of job satisfaction
increase the likelihood that small businesses will face the risk of losing one or more key contributors —
leading to a seriously negative impact on business. Not surprisingly, given the opportunity to find
employment elsewhere under improved conditions, a high percentage of small business employees
seem prepared to change jobs.
The research reveals that satisfaction with benefits is related to job satisfaction and loyalty. To help
address a potential brain drain or flight risk, small business employers can work with their brokers
to make sure their benefits program is meeting the needs of employees and that the benefit offerings
remain relevant and desirable.
A well-designed, cost-effective benefits program can help small business employers attract, retain,
reward and motivate key contributors. An assessment of the PPACA’s provisions and mandates is
part of a strategic benefits approach that small business owners will want to adopt, ensuring they
are getting optimal value from their benefits program.
Address Growing Flight Risk With Benefits-Based Strategies
section 07
Methodology
The 9th Annual MetLife Study of Employee Benefits Trends was conducted during the fourth quarter
of 2010 and consisted of two distinct studies fielded by GfK Custom Research North America. The
employer survey comprised 1,508 interviews with benefits decision-makers at companies with staff
sizes of at least two employees. The employee sample comprised 1,412 interviews with full-time
employees age 21 and over, at companies with a minimum of two employees. Of the interviews,
953 were conducted with decision makers at companies with fewer than 500 employees, and
631 interviews were conducted with employees who work for these smaller businesses.
section 08
Endnotes
U.S. Small Business Administration (SBA), Office of Advocacy, What is a small business?, Frequently Asked Questions, 2010.
U.S. SBA, Office of Advocacy, 2010.
3
U.S. Small Business Administration Office of Advocacy, Frequently Asked Questions, January 2011.
4
The National Federation of Independent Businesses (NFIB), Small Business Economic Trends, April 2011.
5
Greenwich Associates, Credit Conditions (Finally) Normalizing for U.S. Small Businesses, Page 1.
6
Conning Research and Consulting, Strategic Study Series, The Property-Casualty Small Business Market, 2011.
7
Greenwich Associates, Ibid., Page 1.
8
NFIB, April 2011.
9
Greenwich Associates, 2011.
10
Wall Street Journal, on-line edition, Citibank: Small Businesses Plan More Hiring For 2011, May 4, 2011.
11
U.S. SBA, Office of Advocacy, 2010.
12
The Financial Impact of the War for Talent, Pamela Holloway, About People Magazine, July 2000.
13
Workforce Magazine, Philip Harkins, as quoted by Holloway.
14
9th Annual Study of Employee Benefits Trends, A Blueprint for the New Benefits Economy, 2011, MetLife, Inc.
15
9th Annual Study of Employee Benefits Trends, 2011, MetLife, Inc.
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U.S. Small Business Administration, 2010, Small Business Health Care
36
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9th Annual Study of Employee Benefits Trends, 2011, MetLife, Inc.
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© 2011 METLIFE, INC. L01900033426(exp1212)(All States)
© 2011 Peanuts Worldwide LLC.
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