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HR Trends and Challenges

Benefits for a changing workforce

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HR Trends and Challenges research

Important trends in the demographic, economic and social landscape of the U.S. are driving change in the workplace — from how businesses recruit and incent workers to how they fund benefits.

Unum, in conjunction with LIMRA International, has gathered existing data assessing current trends as they apply to employee benefits.

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Overview

• Rising healthcare costs

– Impact on employers

– Drivers of healthcare cost increases

– Consumer-driven healthcare plans

– Managing employee health

• Aging population

– Predicted workforce shortage

– Keeping aging employees in the workforce

– Shift in retirement benefits

– Need for long term care insurance

• Diversity in the workforce

– Multi-generational employees

– Changing composition of the U.S. household

– Ethnic diversity

– Voluntary benefits

– Work-life balance

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The impact of rising healthcare costs on the U.S. workforce

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Employers’ greatest challenge

For four consecutive years, the top U.S. companies have identified healthcare costs at the top of the list of pressures facing business.

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Healthcare premium increases

Insurance premiums

rose 87% between

2000 and 2006 — more

than four times the

growth in wages.1

1 Kaiser Family Foundation, “Healthcare costs: A primer,” August 2006.

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Drivers for increased healthcare utilization

Aging population

By 2030, 20% of the population will be 65 or older.1

Advances in medical treatment

Chronic diseases are more likely to disable an individual than to cause death before the age of 65. 2

Health risk factors

Smoking, obesity, lack of exercise and diabetes increase healthcare costs by 400%. 3

1 Mercer/Marsh, Trends in Health, Productivity and Absence Management Programs: Highlights of the 2006 Mercer/Marsh Survey, September 26, 2006, p. 5.2 Carion, Mary Beth, “Actions Speak Louder than Trends,” Health Insurance Underwriter, February, 2006, p. 64.3 Mitchell, Kenneth, “Productive Aging: The New Life Stage,” World at Work Journal, First Quarter, 2006, p. 66.

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Impact of healthcare costs on employees

Healthcare premiums

have been rising five

times faster than

workers' earnings

since 20001, and the

percent of workers

participating in their

employers’ plans has

been dropping.2

1 Kaiser Family Foundation/HRET, Employer Health Benefits: 2005 Annual Survey, 2005, p.5. 2 FRBSF Economic Letter, “Health Insurance Costs and Declining Coverage,” #2006-25, September 29, 2006, p. 2.

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Helping employees manage their health

According to a 2007

survey, three-quarters

of employers who had

successfully lowered

healthcare costs offer

their employees

health-risk appraisals

and a nurse line.1

1 Watson Wyatt, “12th Annual National Business Group on Health/Watson Wyatt Survey Report,” 2007.

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The impact of an aging U.S. workforce

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The aging workforce

1 Merrill Lynch, “Preparing Your Business for the ‘New Retirement’,” 2006. [cited May 23, 2007]; available from http://askmerrill.ml.com/publish/marketing_centers/articles/bfs_article_BFS072/

In the next ten years, the 55-and-older age group is expected to grow at an annual rate of nearly four times that of the overall labor market.1

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Workforce projections

Approximately 60% of HR executives see signs of a talent shortage already. Nearly 10% more expect it before 2010.1

Labor projections through 20122

170

160

150

140

130

120

110

20

02

20

04

20

06

20

08

20

10

20

12

144.9

144.0

165.3

162.3

(in

mil

lion

s)

Available workers

Labor needed

1 Horrigan, Michael W. “Employment projections to 2012: concepts and context,” Monthly Labor Review, February 2004.2 Watson Wyatt Worldwide, “Communication Plays Critical Role in Improving Retention Power of Health Benefits,” press release, February 23, 2005.

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Preparing for an older workforce

In the event of a labor shortage, incenting older workers to stay in the workforce will be critical.

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Health issues and the older workforce

Once older individuals suffer an injury or illness, they typically recover more slowly than their younger counterparts.1

1 Mitchell, Ken. Health and productivity in the aging American work force: realities and opportunities, Spring 2005.

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Diversity in the workforce

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A multi-generational workforce

Traditionalists(ages 60 to 78)

• Value hard work

• Dedicated

• Team-players

Baby Boomers (ages 41 to 59)

• Optimistic

• Driven

• Enjoy challenge

GenXers (ages 28 to 40)

• Value flexibility

• Autonomous

• Technologically savvy

Gen Y/Nexters(under age 28)

• Confident

• Achievement-oriented

• Like collaboration

Source: Ceridian Connection, Generational Competence:TM A New Approach to Human Capital Management, Ceridian, July, 2005. [cited May 23, 2007]; available from http://www.ceridian.com/myceridian/connection/article/archive/0,3263,13072,58763,00.html

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The changing household

Since 1970:

• The percentage of people who are married with children has dropped from 40% to 23%.1

• The number of non-family households has risen from 19% to 32%.2

• The incidence of unmarried cohabitation has increased ten-fold — reaching 5.1 million opposite-sex couples.3

1-2 U.S. Census Bureau, “Families and Living Arrangements in 2003,” pg. 2, Figure 1. [cited April 16, 2007]; available from http://www.census.gov/population/pop-profile/dynamic/FamiliesLA.pdf

3 Group Life Insurance: Factors Affecting Industry Prospects, LIMRA International, 2006, p. 14.

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Ethnic diversity

The overall annual growth rate of the U.S. workforce over the next decade is projected to be 1%.

The annual growth rate in the U.S. workforce over the next decade is expected to be 2.9% for Hispanics, and 2.8% for Asians.

Source: United States Department of Labor, News Bureau of Labor Statistics, “Foreign-born Workers: Labor Force Characteristics in 2005,” April 14, 2006. [cited April 16, 2007]; available from http://www.bls.gov/news.release/forbrn.toc.htm

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A product portfolio for thechanging workforce

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The shift in retirement benefits

Today there are approximately 48,000 insured defined-benefit plans compared to 170,000 plans 20 years ago.1

1 U.S. Dept of Labor Employee Benefits Security Administration, Private Pension Plan Bulletin Historical Tables, March 2007, Table E1.

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Consumer-driven healthcare plan

Employers’ thoughts on CDHC

Employers moving or looking to move to a full-replacement CDHC

Employers planning to offer CDHC as a short-term option before moving to CDHC on a full-replacement basis

2%

Employers who had CDHC plans but reverted back to HMO/PPO plans

Employers not considering32%

31%

12%

13%

10%

Employers looking at it (not yet offering)

66% of employers are considering CDHC

Employers planning to offer CDHC on a slice basis going forward

“2006 NAHU: ChapterHouse Benefit Buying Trends Study,” ChapterHouse, 2006.

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Current voluntary benefits offerings

Today, more than

half of U.S.

employers with ten

or more employees

offer voluntary

worksite benefits.1

1 LIMRA, The Voluntary Benefits Report Card: The Employer’s Perspective, preliminary findings released March 15, 2007.

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Growth in voluntary benefits

Sales of group products have declined in the past five years, while sales of voluntary products have increased.

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The need for income and asset protection

Americans currently have a negative personal savings rate1 for the first time since the Great Depression.

1 U.S. Department of Commerce, Bureau of Economic Analysis, January 2006.

TotalAge 18-34

Age 35-44

Age45-54

Age 55+

Yes 26% 29% 23% 20% 28%

No 41% 30% 46% 56% 39%

Not sure 33% 41% 31% 24% 33%

Poll: Will you have saved enough money to pay for your long-term care if the need arises?

Wall Street Journal Online/Harris Interactive, “Preparing and Paying for the Cost of Care as We Age,” Personal Finance Poll of U.S. Adults, February, 2006.

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Consumer knowledge of benefits

Comprehensive employee education is critical to employees’ effective use of programs, services, and benefits.

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The future of employee benefits

Healthcare costs continue to rise

Employers shift benefits costs onto employees

Aging workforce and looming labor shortage

Diversity steadily increases in the workforce

Americans continue to spend more than they earn

Employers must satisfy employees’ broad and diverse needs for effective coverage while managing the costs and complexity of benefits administration.

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For broker information only.

MK-1152 (09-07)