Employers are becoming concerned with a pending shortage of seasoned talent due to the impending retirement of baby boomers. The government has provided one possible solution by eliminating mandatory retirement at 65, but this has created new, interesting challenges in employee benefits.
Many employees are choosing to work past age 65, either because they need to or are reluctant to retire.
If an employee works past age 65, what benefits does she need and what benefits are available? It is standard that disability coverage ceases at age 65 and life coverage reduces by 50 per cent until age 70, at which point it terminates. Many provinces cover most drugs for residents aged 65 or over.
The Ontario Drug Benefit (ODB) program, for example, covers prescription medications through the Ontario Health Insurance Plan (OHIP) for those over age 65. An OHIP card becomes a pay-direct drug card.
However, the removal of mandatory retirement has created an HR conundrum. On the one hand, losing the knowledge and experience of baby boomers will create a brain drain. But, from the employee benefits point of view, younger workers tend to use fewer benefits and, therefore, cost less.
As workers age, their average number of drug claims in a given month increases which, in turn, raises the overall cost to the employer.
Employers need to create an employee benefits strategy to retain talent, but also to help others transition into retirement through effective plan design. This strategy also needs to take into account the differing employee benefit needs of a three-generation workforce.
But are employers obligated to provide benefits to all ages? And if so, how much, and what is fair?
Using classes as a strategy
HR can set up various classes for different cohorts of employees. For example, it is common to have a separate class for executives, for managers and for hourly workers. The coverage within these classes can be different and be dictated by the plan sponsor (see chart above).
Today, fewer than 25 per cent of employers cover retired employees, according to Sun Life data for 2013. For this reason, employers are looking at creating a retirement class in order to entice retirement-age employees to actually retire.
A notable number of people appear willing to pay out of their own pockets in order to keep employee benefits after they retire, according to the 2012 Sanofi Canada Healthcare Survey. When asked for which services they would personally purchase additional insurance, retirement benefits rank first (54 per cent), well ahead of critical illness insurance (36 per cent) and higher-cost medications that may not be covered in their employee health benefit plan (32 per cent).
“Employees are buying into the fact that they are expecting to pay for retiree benefits,” said the Sanofi survey.
So employees are willing to cost-share premiums to retain some form of coverage, but what about older employees who are still actively engaged at work? Here are a few ideas:
Using defined contribution to meet multi-generational needs: A one-size-fits-all employee benefits plan does not meet the needs of a multi-generational workforce. A 25-year-old clearly has different benefits needs than a 55–year-old. So some employers establish a defined contribution (DC) strategy to meet their different needs.
A DC plan sees the employer allocating a pot of money for the employee (often in the form of a health spending account or HSA) to cover things not covered by the employee benefit plan, but eligible as a medical expense under the Canada Revenue Agency.
HSAs can be as little as $100 per year and are administered by an insurance company or third-party administrator and are becoming very common. A typical HSA might provide $1,000 per year per employee. An HSA is also a non-taxable benefit in the hands of an employee.
A young, single employee looking to buy a pair of expensive designer glasses can use his HSA to pay for the amount not covered by the benefits plan. A 55–year-old employee can use her HSA to cover a co-pay on a routine prescription drug renewal. The benefit to the employee is maximum flexibility. The benefit to the employer is that the contribution is capped and defined — once it’s gone, it’s gone.
Flexible hours: To retain the important information and experience of a senior employee while also encouraging him to consider retirement when the time is right, reduced work hours is one possible solution. Giving an older employee one day off per week or an extended vacation helps him ease into the idea of retirement, while still retaining him as a valuable resource.
Transition health plans: Many employers are helping retirement-age (or terminated) employees to source and pay for individual post-retirement health plans. The key to this strategy is sourcing a plan that waives medical underwriting as long as the employee applies for coverage within 30 days of retirement.
This means an employee cannot be denied coverage to the transition plan, regardless of her health. The employer can help facilitate access to these products and assist the employee through the application process.
As a best practices employer, identifying and meeting the needs of young and old employees will help differentiate its recruiting, rewards and retention strategy.
Jeff Stinchcombe is a partner and senior benefits consultant at HealthSource Plus, a People Corporation company, in Toronto. He can be reached at (416) 508-5449, email@example.com or, for more information, visit www.healthsourceplus.com.
Average number of drug claims per month
Younger than 20
20 to 29
30 to 39
40 to 49
50 to 59
60 to 64
65 to 69
Source: 2012 Telus Health Book of Business
Usually reduced by 50 per cent at age 65, terminates at age 70
Carry forward to retirement class — terminate at age 70
Terminates at age 65
Not available nor needed (as there is no income to protect)
Covered by employer plan
Not needed — covered by provincial plan after age 65
Coverage for things such as physiotherapy, chiropractor, massage, acupuncture
Can be covered in retirement
Covered with caps
Can be covered — with caps
Can be covered — and is usually more expensive than when working — but is more essential because there’s more time to travel in retirement