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View Points August 29, 2014
Staying Flexible: American Football and the Future of Employee Benefits
For four decades, the Employee Retirement Income Security Act of 1974 (ERISA) has provided a durable federal framework for employers that sponsor health and retirement benefit plans for workers.
After considering what has and has not worked well over ERISA’s 40 years, the American Benefits Council—a public policy organization representing plan sponsors and providers of benefit services—has looked forward. Soon the council will unveil “A 2020 Vision: Flexibility and the Future of Employee Benefits,” a long-term strategic plan that describes how greater flexibility will be necessary for the future health and financial well-being of employees and their families.
Even in an increasingly global and competitive economy, the council remains confident that with the right public policies in place, employer-sponsored plans will continue to be ideally positioned to provide an efficient path to health and financial well-being. Through group purchasing power, fiduciary protections and the ease of payroll deduction, employer plans commonly offer numerous advantages for individuals.
But, the continued success of the employer-sponsored system depends on greater flexibility for companies to pursue a range of benefit approaches along the continuum of plan sponsorship, from “traditional sponsor” to “facilitator” of retirement and health benefits. To meet this vision, the council has identified five goals and 46 specific policy recommendations to help reach those goals.
ERISA’s 40th anniversary coincides with the start of the professional football season, and the sport provides an apt metaphor for examining how the health and retirement benefits game is changing.
Fourteen years before ERISA’s enactment, Tom Landry began coaching the National Football League’s Dallas Cowboys. He quickly gained a reputation as an innovator with development of the “4-3 Defense,” now considered the default defensive alignment. Landry also devised the “Flex Defense”, a variation on the 4-3 in which defensive linemen were able to vary their attack depending on the action of the offense. This notion—that defensive players need not be fixed statues, reacting belatedly to unpredictable offenses—challenged orthodoxy and breathed new life into the sport.
The global economy is similarly unforgiving of entities that simply stay in one place, and—like defensive linemen—U.S. companies do not have the luxury of waiting until the time is right to adapt. While most of the central elements of ERISA remain unchanged, the fundamental nature of the employer-employee relationship has evolved significantly over the past forty years. Because no plan can fulfill all the needs of every family, employees must assume certain responsibilities: retirement planning, health care spending and physical fitness, for example. And because one size cannot possibly fit all, plan sponsors need the freedom to tailor programs to their own workforce—and often to provide variation within their workforce. The need to recruit, retain and motivate talent will continue to serve the companies’ core business imperatives.
Therefore, some employers may choose to assume a more traditional, even paternalistic, plan sponsor role, while others may choose to facilitate workers’ ability to take more direct ownership of their benefits. Therefore, ERISA and other governing laws must allow for a variety of approaches to employee benefits all along this spectrum.
ERISA’s federal standard is what makes broad-based sponsorship possible. In this way, ERISA is much like a football field: identical for all teams, constrained by clear borders, but designed with interior guidelines for organization and efficiency. Only on a level playing field can a wide variety of strategic and innovative approaches be fully explored.
Landry’s Cowboys, along with the similarly built Pittsburgh Steelers and Miami Dolphins, came to dominate the NFL in the 1970s with a brutish efficiency predicated on stout defense and a conservative power running game. It wasn’t until the early 1980’s that offenses began evolving in response to new realities of the game.
Legendary San Francisco 49ers head coach Bill Walsh perfected the “West Coast Offense,” which de-emphasized traditional running plays in favor of precise passing routes that stretched the field horizontally rather than vertically. Lumbering defenders, unaccustomed to moving laterally rather than forward, were more easily neutralized. Walsh brought three championships to San Francisco with this system as the Cowboys and Steelers temporarily faded into mediocrity. Once derided as “finesse” football, sophisticated offenses eventually became the new status quo—continuing to this day—and made the sport a lot easier to watch. In this way, the league evolved not only to meet its own needs, but the desires of its consumers as well.
The NFL’s offensive revolution was contemporaneous with a similar revolution in employee benefits policy. The adoption of traditional defined benefit pension plans peaked in the early 1980s—though it was never universal—and then relinquished ground to defined contribution plans as the predominant employer-sponsored retirement savings vehicle.
What will be the next big shift? The Patient Protection and Affordable Care Act (PPACA) established a completely new playing field for employer-sponsored health coverage. Coupled with a growing bi-partisan interest in comprehensive tax reform—and attendant scrutiny of the tax incentives that constitute the foundation of employee benefit plans—the health care reform law could fundamentally alter the value proposition of plan sponsorship.
Football is now the nation’s most popular sport, but is nevertheless beset by existential threats on multiple fronts: depressed actual game attendance, off-field embarrassments, and the epidemic of concussive head trauma. Despite extraordinary on-field innovations and financial success, the business of football itself will need to evolve to meet changing American values.
The future of employee benefits faces parallel challenges and opportunities. Given the tenuous financial status of federal entitlement programs, the employer-sponsored system is as vitally important as ever for American’s health and financial well-being.
Foresight is not 20-20, but just like flexibility and innovations revolutionized football, a clear vision of where the employee benefits system must go—and flexible and innovative public policies to clear the path to getting there—is essential to developing the game plan that will remain viable for future generations of American workers.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.