Will COVID-19 Change Voluntary Benefits?

What’s one thing that has surprised you the most about the questions coming in from group insurance customers about this pandemic?

Well, it’s been a positive surprise. Some of our larger customers have called in and immediately asked if they could adjust their self-insured policies to cover paid sick leave and quarantine leave. They want to step up and be supportive. Smaller employers, too, want to understand what their obligations are and how to help in light of these stimulus packages out of Congress.

Employers overall understand the need for financial wellness. And now it’s even more than a social contract [between employers and employees]; it’s about the employer role as an institution. The Edelman Trust Barometer survey found that employers are the most trusted institutions, and that becomes even more apparent during times of stress. People trust them more than not-for-profits, more than financial services as a general category, and more than the government. The employee looks to their employer for information because they know their employer watches out for them and has the existing infrastructure to help, especially large employers.

Prudential released a survey in February (before the virus started to rapidly spread across the United States) in which 54% of adults said they were not financially prepared to manage a contagious disease outbreak that requires quarantines and limits their ability to work for several weeks. Since then, how have you started to work with employers differently to navigate leave and disability policies?

There hasn’t been a shift in how employers are changing their benefits offerings, but there has been huge interest in the three federal bills that have been passed as well as state specific regulations that would impact an employer’s ability to offer benefits. They want to be able to navigate those compliance issues while also asking questions about the next enrollment season. They’re starting to ask about voluntary benefits, about critical illness, hospital indemnity. They’re wondering how many people are taking up the optional life insurance offering.

There has also been an enormous, heightened interest in enrolling in disability and life plans. If COVID-19 turns into a seasonal virus, people are going to want to insure that risk moving forward.

What challenges should employers be aware of as they try to help employees take advantage of 401(k) hardship withdrawals yet also assess their options before tapping into long-term savings?

The CARES Act did two big things [for retirement plans]: one was the overall $2 trillion economic stimulus, and the other was the relaxed hardship withdrawal policy for 401(k)s. That’s a helpful solution for Americans who are experiencing economic stress right now.

But it [taking a hardship withdrawal] should be a last resort. If people have to tap into their 401(k) accounts, they have to sell assets when they’re at their lowest value, which isn’t financially beneficial in the long run.

It’s better to try other options first, like tapping into other savings accounts or rethinking your budget. Where employers can play a role is in educating employees about the available options and why they would make sense from a financial perspective. It’s back to the trust idea.

What do you think will change the most about how employers offer paid family leave and/or disability policies in light of the coronavirus outbreak?

Employers are going to raise the profile of paid leave and disability policies. Whether they’re required to offer paid leave in certain states or they decide to offer a leave policy, there’s going to be a dramatic increase in visibility of these programs. Employers want employees to know these options exist.

How do you think this pandemic will change how employees approach the management of their 401(k)s?

First, employers have to decide if they’re offering a savings plan or a retirement plan. If it’s a savings plan, they might not make any changes to the way they offer it, because the risk is on the individual. With a retirement plan, employers will need to add customized tools and support to help that account generate that retirement income.

And we’ve seen more and more employees interested in guaranteed retirement solutions, which enables them to turn a portion of the savings in their 401(k) plan into a stream of income that is protected in times of market volatility. Making guaranteed retirement solutions in 401(k)s more accessible by removing the safe harbor for employers was a key provision in the SECURE Act, which was passed in 2019.

We’ve developed an emergency savings solution within the 401(k) plan, which enables employees to make after-tax retirement contributions via their paychecks that they can later tap in the event of an emergency, while preserving the before-tax retirement savings in their plan. That kind of plan design change allows employers to leverage an existing infrastructure—the 401(k) plan—as a vehicle to help their employees build emergency savings.

Do you think that this pandemic has produced the need for a new voluntary product?

Yes, there’s a whole industrywide effort to expand capabilities of short-term disability policies for care giving, self-care and parental leave. I think in light of all of this, there will be expanded speed and interest from regulators to stand behind these types of policies.

This pandemic has greatly heightened employee and employer interest in financial wellness solutions in part because employers view themselves as responsible for providing a full suite of benefits options that will support employees where they are.

Thinking about April 1 renewals and then those that occur later in the summer and fall, do you expect to see a difference in how clients approach voluntary benefit offerings based on the timing of their open enrollments? Or is time and the chance for reflection not indicative of how they’ll choose to offer these types of benefits?

Just like 9/11, people are not going to forget about this pandemic. There’s a possibility that this will result in a fundamental change in society and therefore in the social contract between employers and employees in the modern age. So I don’t believe time will be a driving factor here. To the extent that employers are going to want to mitigate risk, they’ll do that through the suite of voluntary benefits solutions that they offer to employees.