Employees need to be proactive in health care, retirement

As a growing number of companies trim employee benefits to save money, employers with attractive retirement and health care packages are expected to become more competitive.

Employers have gradually shifted more health care and retirement responsibilities to employees since the 1990s, area finance and business experts say, and the continuing shift is beginning to change the way employees plan their finances and careers.

Corporate benefit programs began taking hold several years ago with labor union wage negotiations, said Stuart Youngblood, a professor of management at Texas Christian University. About 25 years ago, retirement benefits began to shift from a defined benefit package – such as yearly or monthly payments from employers to retirees – to employers providing defined contributions to employee retirement accounts.

“The risk has shifted to the employee,” Youngblood said. “The employee has to figure out how they want to treat their money, if they want to invest in stocks or bonds, and employees have to plan for their own retirement.”

But, retirement planning has become trickier for employees who expect to retire soon, especially for those who have lost retirement income in the recession and whose employers have cut 401(k) matching programs.

“Many employees, especially in the baby boomer generation, failed to recognize that the risk was being shifted to them,” Youngblood said.

Employees close to retirement who have concerns over their finances can do a number of things to find out if they’re ready to leave the workforce, said Derrick Kinney, an Ameriprise financial adviser in Fort Worth.

One suggestion Kinney offers is to have what he calls a 10 percent contingency plan.

“If my income were cut by 10 percent, what would I cut?” he said. “What this does is sort of prepare people for if something did happen. And, many people have gone through this recently with having a cut in their salary or benefits, so preparing to cut extraneous costs can be really helpful.”

Alan Goldfarb, Weaver Tidwell Wealth Management’s director of wealth strategies, said one of the biggest planning efforts a person planning for retirement should take on is to figure out how much money they will need to maintain their lifestyle.

“Very few people actually sit down and try to compute, and say, ‘If my lifestyle now is $5,000 a month, what is it going to be when I retire?’” he said. “If you never plot the numbers, how will you know? It’s going to get more and more difficult as taxes increase and as people live longer to meet your retirement goals.”

For young professionals, Goldfarb and Kinney said saving money is key because of the uncertainty of how high costs of retirement and health care will rise in the future.

“It’s really important to save as aggressively as possible,” Kinney said. “Don’t just assume how much you want to spend in retirement, but save more for how much it will cost to keep you well, so you can live longer and have a more enjoyable retirement. The pressure is really on the younger generation in many respects just because they’re likely to really have no pension, and they may be paying a larger share of their health benefits. It’s really going to require a higher level of planning.”

For both young professionals and those close to retirement, pressure will continue to build on individual investors to make better financial decisions with fewer resources, Kinney said.

“Many people, I think, really have underestimated what the true cost of what their employer benefits meant to them,” he said. “They may have taken it for granted, and now people are realizing they have to save more and stretch the dollars they have to have the coverage they want.”

As companies continue to cut benefits, Youngblood said he expects employers offering benefit packages to be seen as more desirable by young professionals, which will in turn create a competitive edge against companies with slim or non-existent benefit packages. 

 “I think there’s no question that, other things equal, employers that do provide health care benefits and some kind of retirement plan are going to be more attractive,” Youngblood said. “I would argue very strongly that, yes, it gives them a competitive advantage. The problem of course is everybody’s costs are going up, and the easiest way to cut your staffing costs is to trim your retirement or health care benefits, or shift the costs to employees.”

But, he said, investing in employees has become more important as the American workforce has transitioned from agricultural- to manufacturing- to service-oriented. Looking across industries, some of the most successful companies in the United States have become successful by investing in their employees, Youngblood said, adding that keeping employees satisfied and committed to their careers is key to building a strong company.

“People are important. If you treat your people well, they will treat your customers well, and that’s how you succeed,” Youngblood said. “In a service society or a knowledge society, it’s all about relationships and the way people treat one another. And, I think it’s just common sense if employers treat their employees badly, why would their employees want to treat their customers nicely? We ought to treat employees well, and the way to do that is offer them benefits that are valued, and that will not only attract them but make them reconsider going to another employer.”