After layoffs, employers are looking to benefits as a place to cut costs.
Perks such as cost-of-living increases, pension plans, bonuses, 401(k) contributions and tuition reimbursements, as well as healthcare insurance, now are being looked at as places to save.
“In today’s economic climate, businesses are looking for ways to scale back and control costs,” said Sarah Grimstead, Irvine district manager at Texas-based Administaff Inc., which manages benefits, payroll, health insurance and other programs for companies.
Companies don’t expect benefit cuts will be permanent. As the economy recovers, businesses will need perks to hold on to talented employees and attract new ones.
“Benefits are very important from a loyalty perspective and for attracting and retaining top talent,” said Kim Megonigal, chief executive at Irvine-based Kimco Staffing Services Inc., a staffing company.
One of the first places to see cuts was business travel and conference fees.
Nearly 85% of companies have cut business travel spending since October 2008, according to a National Business Travel Association survey of corporate travel managers.
More than 70% were expected to continue decreasing travel spending through 2009.
Companies are cutting travel and entertainment budgets, encouraging or requiring less travel, sending fewer employees to conventions, conferences and trade shows, buying airline tickets far in advance and more strictly enforcing travel policies.
“It’s actually a trend we have seen companies doing over the last couple of years,” Megonigal said. “This economy just has made them a little more decisive in the cuts needed to survive. Some of the smaller companies are doing whatever they can to just stay afloat.”
Spending for travel that doesn’t generate revenue or isn’t necessary for operations, including travel to meetings, conferences, retreats and professional development, is especially likely to be restricted at most companies, according to an American Express/CFO Research Global Business & Spending Monitor survey this year.
In addition to travel cuts, dozens of companies have pulled back on retirement contributions, according to the Center for Retirement Research at Boston College.
In general, the average 401(k) account fell 27% in 2008, falling to $50,200 from $69,200 in 2007, according to a study by Boston-based FMR LLC, parent of Fidelity Investments.
The drop in part was due to employers failing to match employee contributions, which put extra pressure on workers to make up the difference in their accounts.
The trend has held for many companies this year. Despite the drop off, many expect 401(k) matches to come back, as they have historically.
Most companies that suspended or reduced their matches during the 2001 recession reinstated their contributions after the economy rebounded.
“Many companies return benefits to previous levels after the storm passes,” Administaff’s Grimstead said.
Healthcare Coverage
Unlike business travel and retirement accounts, which usually rebound in better times, many believe that healthcare benefits will continue to shrink as costs continue to rise.
Nearly a third of companies are cutting back on employee healthcare benefits to trim costs, according to a survey of chief financial officers and senior controllers by Chicago-based Grant Thornton LLP, an accounting firm.
“We have seen businesses that are eliminating perks and scaling back on employee medical benefits,” Grimstead said.
For years companies have been battling the cost of healthcare, which remains one of the most expensive benefits.
Health plan coverage alone typically costs employers $5,000 to $15,000 per worker each year, according to Fidelity Investments.
Although less severe than in previous years, healthcare costs are expected to rise about 6% to 7% this year. That number is expected to be even higher for small businesses at nearly 15%, according to a recent New York Times report.
“This year we’re anticipating that we might see a small increase in our cost to our clients for their medical benefits,” Megonigal said.
The trend of employers passing off more costs to employees continues, he said.
“There have been quite a few clients that reduced the amount they pay per employee over the past few years,” Megonigal said. “We have seen a trend of passing on some of the increases in medical costs to the employees because companies are just getting to the point where they can’t do it anymore.”
Some companies are considering getting rid of healthcare altogether. Of course that option would depend on proposed healthcare reform currently in Congress.
Most in the industry expect that employees should get used to picking up more of the tab when it comes to medical insurance.
“They do pass a larger percentage of either employee or dependent costs for benefits on to the employee,” Grimstead said.
