Loss of Benefits Can Mean Loss of Talent

In an effort to reduce costs, many employers are cutting employee benefits, including health insurance, 401k matches, cost of living increases, bonuses, company cars, and tuition reimbursement. Employers may be cutting severance packages as well.  

Benefits matter to employees. A recent MetLife study (Study of Employee Benefit Trends: Findings From the National Survey of Employers and Employees) concluded that there is a "perception gap" between employers and employees on the role of benefits, especially health and retirement benefits, in building loyalty. Employees also value the availability of voluntary benefits, such as long term or elder care.

Employers looking at cutting benefits should consider the following:

- Reducing benefits can have a negative impact on employee morale and loyalty.

- Benefits must be offered in a non-discriminatory manner. Employers should make sure that the elimination of any type of benefit does not have a disparate impact on any protected group.

- Benefits must be offered consistent with plan documents or an employee may have a contractual claim for the benefits and possibly even uncovered expenses (such as medical expenses).

- Employers may also be contractually bound to offer benefits pursuant to individual agreements, such as employment or severance agreements.

- Employers should make sure their employee handbooks do not create a contractual obligation to pay benefits by including the appropriate disclaimers in the handbook.

- Eliminating benefits could hurt an employer's ability to attract and retain talent. There is a wealth of talent available, and this market may be a good opportunity for businesses to attract stronger candidates. A good benefits package could be a draw.

- Finally, unions may be more attractive to employees who experience a loss or reduction in benefits.

A choice between layoffs and cutting benefits for existing employees may be a decision between the lesser of two evils. If an employer is unwilling to lose talent through a reduction in force, it should make sure it does not inadvertently cause the same result by cutting benefits that are so important to employees.