When Cut You Must: Making 'Smart' Cuts to Benefits

As budgets contract and the pressure for cost savings grows, leading organizations make principled cuts to benefits—balancing near-term necessity and long-term talent goals.

The global press for liquidity and low, predictable costs has impacted all of HR.  Since October 2008, more than three-quarters of benefits executives have watched their budgets shrink. With benefits costs still a third of total compensation for the average organization, benefits faces further cuts.  Nearly half of benefits executives report that additional first-half budget cuts are either likely or possible.

With cuts ahead as well as behind, already lean organizations struggle with where to cut next.  The downturn—and the disappearance of jobs and retirement accounts—continues to shift employees' perceptions of their benefits.  This only further complicates cuts.

However, 'smart' cuts to the benefits budget can yield significant savings.  For example, Roundtable analysis has revealed that the average organization can see annual savings of up to $16.8 million by reducing 401k contributions—and renegotiation of wellness contracts can deliver up to $80,000 annually with savings realized in as few as 30 days. 

Some organizations already have begun to realize savings through cuts to benefits budgets.  More than fifty of these tactics are presented on our website.  Each tactic description includes potential dollars saved and days-to-savings. 

Four principles characterize the cuts made by leading organizations:

• Maintain Focus—Look to your organization’s objectives to align cuts with long-term goals
  e.g. If wellness is key, scale back incentives rather than dismantling programs.
• Preserve the Overall Value—Balance cuts to valued benefits with corresponding emphasis on low cost or no cost benefits of equal or greater value.
  e.g. If cutting your 401k match, expand or promote access to flexible work arrangements.
• Safeguard Value for Workforce Segments—Calibrate cuts with critical segments—segments vital to success in the upturn—in mind.
  e.g. If you’re an organization propelled by R&D, avoid cuts to benefits of disproportionate value to your researchers.
• Leverage Internal Resources—'Insource' to reduce consultant/vendor spend and maintain workforce strength during the downturn.
  e.g. Look to corporate first for assistance with benefits communications, data analysis, etc.

The Benefits Roundtable advises clients to cut benefits budgets with these principles in mind.  You’ll find detailed guidance on making 'smart' cuts to benefits—and 50+ targeted tactics—on the Managing Benefits through Economic Uncertainty Decision Support Center on our website.