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Rising benefit costs challenge employers to balance attractive programs with affordability

By Workplace Staff
| www.cos-mag.com

Benefit costs have increased by almost 10 per cent in the past year, and may not be sustainable in the long term at that pace of growth, according to the findings of The Conference Board of Canada’s inaugural employer-sponsored survey of benefit programs.

“Last year was a challenging one for employers. Now that the economy has emerged from the recession, employers are looking to find the right balance between containing costs and ensuring that benefit programs are competitive in attracting and retaining key talent,” says Karla Thorpe, associate director, compensation and industrial relations.

The report, Benefits Benchmarking 2009: Balancing Competitiveness and Cost, is based on the Conference Board’s inaugural survey of employer-sponsored benefits, which included responses from 255 Canadian organizations.

Although the economy has started to grow again, a number of structural issues are fundamentally altering the landscape in which employer-sponsored benefits are offered, such as: an aging population, which is increasing utilization rates for benefits; new and expensive drugs that are now on the market; and an ongoing shift of costs from public health care to employers.

Most organizations (78 per cent) say they have well-developed benefits strategies but only 14 per cent believe their benefit programs are very effective at meeting the objectives of their strategies. Areas where employers fall short include:  enhancing employee health, increasing the connection between benefit programs and employee engagement, and containing costs.

With costs accelerating at a year-over-year rate of 9.7 per cent, the priorities for organizations in the next 12 to 18 months are to ensure that employees understand the value of their benefits program, and to contain expenditures.

The average cost of employee benefits is 19.9 per cent of gross annual payroll. Costs are slightly higher in the public sector at 22.5 per cent of gross annual payroll, compared to average private sector costs of 18.8 per cent.

Legally-required payments-Canada Pension Plan/Quebec Pension Plan contributions, employment insurance premiums, workers’ compensation, and other expenses such as the Ontario Health Tax- make up about one-third of all spending on benefit programs.

Retiree benefits are offered by 45 per cent of respondents, and employers that do offer these programs are looking at models that include greater employee cost sharing.  The average annual cost of benefits for retirees was 1.9 per cent of gross annual payroll.

The full report, which is available from www.e-library.ca, does not cover pensions, which will be featured at the 2010 Summit on the Future of Pensions, hosted by the Conference Board on April 13 and 14 in Toronto.

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