Benefits consultant says controlling costs is tricky

One on one

December 02, 1991

One on One is a weekly feature offering excerpts of interviews conducted by The Evening Sun with newsworthy business leaders. William M. Stanton is president and chief executive officer of the Corroon & Black Consulting Group, Herget Division, an employee-benefits consulting firm.

L Q.How has the benefits field changed over the last 10 years?

A.I think to answer that question we've really got to look at the activities that have occurred that cross a variety of organizations. We've moved from a relatively simplistic environment in the employee benefits area to a very complex program that involves considerations or various groups, such as the federal government, attorneys, accountants, benefit consultants, plan sponsors and plan providers. The cost when we look back to 1961 was in the neighborhood of 8 percent for benefits on health and welfare and pension programs. Today that cost is more than doubled, depending on what figures you look at, in the neighborhood of 17 to 18 percent of compensation. We have highly sophisticated and complex programs that didn't exist merely 10 years ago. We have the emergence of the federal government as an active partner in the benefits program. I look at the decade of the 80's as sort of the decade of government intervention. When you look back at the variety of bills that have been enacted, it's obvious that the federal government is taking a very active participation in the benefits area. We have things today such as FASB [Financial Accounting Standards Board] 106, which is an accounting principle that requires full disclosure of the liability of retiring medical benefits, an enormous impact on benefits, benefit costs, benefit design. So plan sponsors a decade or two ago who were primarily concerned with meeting the needs of their own work force now need to be concerned with all of the various represented groups involved in the benefits area, which as I mentioned earlier, involved the accountants, the attorneys, the federal government, their employees, their plan sponsors. And we've moved from fairly inexpensive to fairly complex and expensive programs that are becoming the most rapidly increasing portion of their fixed costs.

Q. How has the continuing recession affected employers' benefit programs? Are they cutting back? What's happening?

A. I think the recession has impacted us in a variety of ways. From the employers' standpoint, we are certainly in an environment where we don't have the luxury of continuing improvements in benefit plans. The economic pressures are causing the plan sponsors to much more closely manage their benefit programs and extract any inefficiencies in terms of cost out of those program. On the reverse side of that equation, the providers of benefits are also being more carefully scrutinized as to excess costs that exist in their programs. And this translates into changes in medical plans, terminations of defined benefit plans and reintroduction of defined contribution plans which avoid or respond to some of the regulatory aspects inherent in the defined benefits area. I think what the recession has caused is an awareness by all parties that the benefit programs must be more responsive, that they must be more cost efficient, and that we've got to do a better job of managing the escalation of those costs than we've done in the past. It's interesting you've brought up the change from defined benefit plans to defined contribution plans. Defined benefits plans are are pensions that pay a set amount, and it is up to the employer to pick the right investments. This compares to a defined contribution plan, where the employee makes the decision on where to contribute a set amount from the employer, and there is no guarantee that he will be getting a set amount when he retires. Also, as you well know, there's been change in the ways that you get medical benefits and in determining what you will get.

Q. There seems to be a shift from a very paternalistic benefit system where the employer took care of everything and now where the employee is more on his own. Is that good or bad?

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