Portability of Benefits
Portability of Benefits
The portability of benefits is a concept that is rapidly gathering support in the U.S. workforce. It refers to the idea that common job benefits—such as health insurance and pension plans—can be set up in such a way that they can travel with a worker as he or she moves from one job to the next. In many cases, these benefits would be paid for by the employee, which makes them attractive to employers. The portability factor would give the employee security that was never available in the past, which is attractive to the employee.
The current structure of employee benefits is not portable. In most employment sectors, each company offers a unique benefit plan that is established and administered by the company's human resources department. Most of the benefits are paid for by the company, and employees often have little, if any, choice about what benefits they receive and from whom they receive them. This is true mostly for pension and health plans, both of which are affected by numerous government regulations that make portability difficult. There are literally hundreds of pension and health plans for employers to choose from. Any given 100 employers in one geographic area may utilize 100 different plan providers, making portability practically impossible under such circumstances.
Portable benefits are gaining popularity in all segments of the business community, but two job sectors are leading the way—temporary work agencies and private, independent contractors. For temp agencies, portable benefits are an attractive way to offer a comprehensive benefit package for temporary employees. For temp workers, the thought of getting benefits that were previously unattainable is an extremely attractive proposition, even if they have to pay for part or all of the benefits. For independent contractors—specialized workers such as advertising designers or accountants who are hired to complete specific, time-bound, and/or goaloriented projects—portable benefits would be a perfect tool to improve their financial security as they move from one project to the next.
Several steps could be taken that would make portable benefits more likely. If numerous employers in the same geographic region banded together to offer the same benefits, it would make it easier for workers to change jobs and keep the level of seniority and money that they had accrued in their previous jobs. Also, if a government agency was established to oversee and encourage portable benefits, companies would have greater incentive to participate. Finally, the establishment of a national health care system would greatly facilitate the development of a far more portable employment benefit system. This final option is, however, very unlikely in the near term. Instead, the trend appears to be towards the privatization of benefits, making them employee-funded and managed.
The most likely alternative, and one that is already happening at temp agencies and among independent contractors, is that employees would purchase their benefits themselves. They would pay for their own health insurance and make regular contributions to a pension plan that would travel with them from job to job. The government could offer tax credits that would provide workers with an incentive to participate in portable plans, which could help offset the cost. Tax savings would also help offset what workers might lose by participating in a portable plan instead of a more traditional plan, such as the higher rate of accrual and greater earnings that occur when large numbers of employees pool their resources together. The economies of scale of the large, traditional plans make them economically feasible for most employees to join. Without the reduced price gained by such economies, however, many employees could not afford to purchase benefits in the current work environment.
Even state governments are jumping on the portable benefits bandwagon. In the state of Michigan, for example, Governor John Engler spearheaded a move in 1997 to transition the state's pension plan for state workers from a traditional plan—which was organized, managed, and paid for by the state—to a portable plan that allowed workers to select from a number of private investment options and invest their own pension dollars. No matter what state job they took, the pension benefits traveled with the workers, gaining money at each stop along the way. "We have a defined contribution plan that empowers our employees to make critical investment decisions concerning their future," Engler told Institutional Investor. "They're also not tied to the state civil service, [as they were with] the old defined benefits, and that fits much more logically with the lifestyles we have today. This is a fully portable benefits plan that goes with them. And the rate of investment [return] over the long term is going to be far better for them than their state DB."
To many employment experts, the move to portable benefits is a positive one, and it is the wave of the future. As Frank Doyle, chairman of the Committee of Economic Development, said in HR Magazine, "Corporate America found it couldn't deliver on those guarantees [of lifetime employment] in a highly competitive world economy. Companies that had job guarantees had to withdraw them. The substitute for this old form of job security—and frankly a much better alternative—is the security of having portable benefits and strong employability skills. If we can achieve those things, then we will have established the requisite security for maintaining a productive workforce into the next century."
see also Employee Benefits
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updated by Magee, ECDI