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Small Business Employee Benefits and HR Blog

The Ideal Companies for "Pure" Defined Contribution Solutions

Companies of all shapes and sizes are adopting "pure" defined contribution solutions. From our experience setting up employers with defined contribution solutions since 2006, however, we've learned there are three ideal company types for "pure" defined contribution health benefits.ideal_customer_defined_contribution

Whether you're a health insurance professional or CPA helping a client evaluate defined contribution solutions, or an employer yourself, here are three profiles of customers likely to be the happiest with defined contribution. 

1. Small Businesses (< 50 Employees) Without Health Benefits

Small businesses without health benefits, who want to start offering health benefits for recruiting and retention, are the best prospects for a defined contribution solution.

Why? They have likely shopped for group health insurance and either been priced out, or cannot meet minimum participation requirements. Defined contribution helps them solve these challenges and allows them to offer health benefits.

These additional characteristics make businesses in this market even stronger defined contribution prospects:

  • They want to offer health benefits (they want to contribute toward employees’ health care)

  • They’re worried about losing employees because they don’t offer health benefits

  • They fear losing new hires because they don’t offer health benefits

  • They’re looking to grow the business and increase or maintain staff size

  • Group health insurance is too expensive, or they don’t qualify

  • They have an automated payroll system in place (payroll software, or through a payroll vendor)

Defined contribution is also an ideal solution for small businesses (<50 employees) because they are not subject to the ACA employer mandate, set to begin in 2015.

2. Small Businesses (< 50 Employees) With Health Benefits

Small businesses with health benefits can also be ideal defined contribution prospects if they are struggling with the cost of group health insurance.

Why? Defined contribution addresses this challenge by allowing the employer to fully control the cost of the health benefits and predict the cost year after year. The employer can contribute any amount (no minimum or maximum contribution amounts), and there are no annual renewal fees or increases. 

These additional characteristics make businesses in this market even stronger defined contribution prospects:

  • Group health insurance is becoming too expensive, or they cannot afford their renewal

  • They can no longer meet minimum participation requirements

  • They have employees in multiple states

  • They’re looking to grow the business and increase or maintain staff size

  • Group health insurance is too expensive, or they don’t qualify

  • They have an automated payroll system in place (payroll software, or through a payroll vendor)

Defined contribution is also an ideal solution for small businesses (<50 employees) because they are not subject to the ACA employer mandate, set to begin in 2015.

3. Medium Businesses (50-99 Employees) With Health Benefits

Medium businesses with health benefits are also ideal prospects for defined contribution if they are struggling with the cost of group health insurance.

Why? Defined contribution addresses these challenges because the business can set and control the cost of the health benefits. The business can contribute any amount (no minimum or maximum contribution amounts), and there are no annual renewal rate increases, and no annual renewal fees.

These additional characteristics make businesses in this market even stronger defined contribution prospects:

  • Group health insurance is too expensive

  • They’ve experienced reduced employee happiness due to reduced benefits

  • Group health insurance is too time consuming to administer

A consideration for businesses with 50+ employees is that the ACA “play or pay” mandate will apply to them. In other words, they will need to conduct a financial analysis to compare: 

  • The cost of ACA-qualified group health insurance

  • Penalties alone for not offering group health insurance

  • Penalties + Defined Contribution Allowances

For more on these options see: Affordable Care Act -- Play or Pay?

What type of companies have you seen benefit the most from "pure" defined contribution solutions? Leave a comment or question below.

Successfully Selling Defined Contribution to Small Businesses