FEATURE | SPRING 2010 EFFECT

Personal Profiles in Health Care and Retirement

by Sara Gilbert Frederick

Benefits—particularly health care coverage and retirement savings options—weigh heavily on the minds of business owners across the country. They worry about raising rates and offering competitive plans. But they also worry about their own bottom lines, and how much they can cut before benefits suffer. Those worries trickle down to their employees, who depend on those benefits to take care of their families and prepare for their futures.

Such are the challenges facing businesses both large and small and workers from top to bottom in the current economy. How those challenges present themselves vary from individual to individual and depend on a great number of variables. But almost everyone has been thinking about how health care issues and retirement planning are impacting them, their businesses, and their contemporaries.

Lisa Pineiro lives in the sunny Southeast. Her oldest child just turned 16. Richard Frenette lives among the mountains of the West. His children are grown and on their own. Pineiro and Frenette think about retirement and health care issues all the time. So does David Reeder, a retired dentist who recently returned to work. And so does Kelsey Mead, a young mother working in an entry-level banking position. Although their perspectives are different, they tell the shared story of how our nation’s workforce is wrestling with a common problem.

Benefits versus pay cuts—Lisa Pineiro, age 35

Lisa Pineiro had braced herself for bad news when she met with her health insurance consultant late last fall. Pineiro covers half of the premiums for the full-time employees at her two Durham, North Carolina, businesses—Technical Services Inc., an electrical training and recruiting firm, and RTP, a business that specializes in providing electrical work for data centers and hospitals. She was once again expecting to hear that renewal rates would be increasing by double digits.

“For some amazing reason, the premiums were only increasing by 2 percent,” Pineiro says. “I can handle that. I was prepared for more like 18 percent, at which point I wouldn’t have been able to cover 50 percent of the premiums anymore.”

Already Pineiro pays more than $5,000 a month to subsidize the Blue Cross Blue Shield plan she offers to her employees. She expects to be able to absorb the 2 percent increase this year and would like to find a way to absorb future increases as well. Pineiro feels that the construction industry in the Southeast is not known for providing exceptional benefits for employees, and she is committed to changing that perception. “We all feel our employees and our community depend on us to keep these jobs going,” Pineiro says. “Part of having a job is knowing that when you are sick, you are able to go to the doctor and get the help you need, and still be able to buy groceries.”

Pineiro knows exactly what that means. In October of 2009, the mother of four had to have surgery that would keep her out of the office for several weeks. Although Pineiro’s husband and business partner confiscated her Blackberry and forbid her to call the office, she was itching to get back to work before even a week was up. She was grateful, however, that financially, she had the option to stay home, and that the insurance she pays dearly for was covering much of the cost. “We will definitely reach our $4,000 family deductible,” she says. “I had this surgery, and my daughter had to have a procedure on her ankle, so we’re good this year.”

But the high costs of health care have forced Pineiro to make substantial sacrifices. Last August, she chose to cut her own salary by 60 percent and asked two other members of her management team to take smaller cuts, specifically to avoid reducing health care coverage to her employees during the economic downturn.

She’s also had to delay introducing a retirement plan to her employees, because she can’t afford even the minimum-required employer contribution. “All of the paperwork is done, and has been done for two years now,” Pineiro says. “My goal is to be able to contribute dollar for dollar up to 2 percent, but I just can’t afford that right now because of what I pay for health care.”

She does manage to contribute to her own personal retirement plan—a SEP, or simple employee pension plan. She knows it’s not yet large enough to make life easy post-retirement. “It is looking ever so sad right now,” she admits with a laugh. “I took a hit just like everybody else.” But although she’d like to have more saved for the future, her bigger focus is making sure her businesses will be able to continue after she retires.

“I need to start thinking about succession planning; about how I’m going to position myself to move out of the business and move somebody else in,” she says. “I’m going to have to set up an account, a trust, for whoever comes in after me. I haven’t been able to head in that direction yet, because I’ve got nothing extra to do it with. I’m working toward it.”

But when she puts her priorities in order, she is adamant that providing health care coverage remains top on the list. Even in the midst of what she terms a “terrible” year, when every decision feels like it’s almost life or death, Pineiro is committed to taking care of her employees. “What I’m concentrating on at the end of the day is being able to provide the best quality of life for my guys that I can,” Pineiro says. “I will continue to provide insurance and will stick with what I have right now—going to less coverage would have killed me.”

Back to work—David Reeder, age 69

When David Reeder retired in 1997 after 33 years of running a successful dental practice in Marshall, Minnesota, he had a lot to look forward to. He was only 57, and he and his wife felt confident that they had saved enough money to enjoy their lake home in northern Minnesota, their condo near their kids in Minneapolis, and their travel itinerary filled with destinations around the globe.

Twelve years later, Reeder went back to work. “I had done most of the things I wanted to do in retirement,” Reeder says. “I thought that perhaps I could be of assistance to some folks; that I could help out some people who need help. It wasn’t a financial decision on my part.”

Now he spends two or three days a week working for Appletree, a nonprofit dental clinic that serves low-income and uninsured patients in locations throughout Minnesota. He is paid for his time—he describes it as a small daily stipend—but he says he is driven more by a desire to help people than by a need to refill his wallet.

But he can’t deny that having even a small boost in income has been helpful lately. He and his wife pay for private insurance to supplement both Medicare and the veteran’s benefits he receives for his time in the military. “It’s not inexpensive,” he admits. Neither are the homes they maintain; in fact, when he watched his retirement savings take a hit at the end of 2008, he decided that he would likely have to sell their lake home. “The economic situation in the past year has put a dent in the assets we have,” he says. “I think we’re going to end up with just one house in the Twin Cities. The lake place will be part of the assets we can use to live on.”

Reeder appreciates that his new source of income has allowed him a bit more financial freedom in an otherwise tight time. He was able to buy a fishing boat, for example, that had previously been off limits. “I had sold off a larger boat we had, but I wanted a fishing boat,” he says. “I wouldn’t have been able to buy that if I wasn’t working right now.”

The new boat, he realizes, is a luxury. Reeder knows he planned well and that he and his wife should be able to live comfortably throughout retirement. He is confident their health care needs will be taken care of even as they age. His bigger worry now is for the patients he serves through Appletree.

“Most of them simply can’t afford good dental care,” he says. “They show up on our doorsteps in a lot of pain. All we can do is to make them comfortable and to restore some function. For families like these, when they’re suffering financially, dental care is not a priority.”

Most are either uninsured or have taken advantage of one of the state-run programs available to them. Reeder and the other dentists can provide care to them without worrying about their own bottom lines, which he admits was always a concern when he was operating his own practice. And now, he also doesn’t have to be the one submitting the paperwork to insurance providers and waiting to get paid.

“That’s one of the nice things about this job—I’m merely there to do the services,” he says. “It’s a nice relief to go home at night and not have to worry about who is going to be paying the bills.”

Preparing for retirement—Richard Frenette, age 57

Last November, Richard Frenette celebrated his 57th birthday—which meant suddenly, he was only eight years away from his target retirement age of 65. But as Frenette, the executive director of the Utah State Fair in Salt Lake City, pondered what the r-word meant to him, it was health care that worried him most.

“When I retire, I’ll have to find my own plan,” Frenette says. “So right now, that’s been on my mind. I’ve been doing a lot of thinking about the coverage I’ll be able to get, and how I’ll be able to pay for it.”

But he has a more immediate concern: How will he be able to continue paying for the lion’s share of his employees’ health care premiums as rates continue to rise?

Since Frenette took the job running the Utah State Fair almost 10 years ago, employees of the quasi state agency have gone from paying 1.5 percent of the costs to 5 percent. As he prepared for the annual renewal meeting, he worried about how much more the organization could absorb. “The employee contributions may have to go up again,” he says. “I’d hate to see that happen. But already, the business is paying $13,000 a year per family for health insurance.”

Frenette and his staff acknowledge that they have a great deal on health care, especially when compared with most private companies. He also knows their employee retirement plans are exceptional.

For starters, the state contributes 14 percent of each full-time employee’s annual income to a defined pension plan, which means each employee will have a guaranteed amount of benefits for the duration of their retirement. Unlike an IRA or 401(k), defined plans aren’t dependent on the stock market for growth and therefore, aren’t as volatile or risky as other plans. “For me, personally, that’s been very important,” Frenette says. “The economy has had an effect on my extra investments but not on my defined plan. I think that’s one thing about working for a public agency; the pay may be less, but the retirement benefits are better.”

On top of that plan, however, is a 401(k) plan for all full-time employees that contributes 1.5 percent of each salary, regardless of how much the employee contributes. “That’s something we do for them, whether or not they contribute,” Frenette explains. “The staff does appreciate that. I work with my senior managers on the benefits packages, and across the board they are willing to reduce their own business budgets before they will cut the 401(k) contributions. That’s the last thing they want to take away.”

Frenette and his managers appreciate the retirement benefits as much as anyone else, but he also knows that offering such benefits puts him in a better place when it comes to keeping employees. “That’s something the board and I discuss,” he says. “We get a lot of turnaround in this operation, and we know we need to offer great benefits in order to keep our people around long term.”

Although Frenette feels fairly well prepared financially for his own retirement, he knows he should have started saving sooner. He was in his late 30s before he began making regular contributions to a retirement plan. “I should have started in my 20s,” he says now. His penance? Advising his own children, as well as his younger employees, to take advantage of every opportunity they’re given. “I try to educate my people about the importance of saving for retirement,” he says. “I tell them that we can help start this for them, but that they need to take part in it too.”

Two years ago, Frenette met with a financial advisor to discuss his own position once his 65th birthday arrives. Going over the numbers together helped him feel more prepared for retirement. “We feel fairly confident that we can live a comfortable life and pay our bills,” Frenette says. “Unless, of course, health care starts to cost too much. So I guess we’re just hoping we’re able to stay healthy.”

Thinking about the future—Kelsey Mead, age 25

As the holidays approached last year, Kelsey Mead was looking forward to the new year. Not because she had important resolutions to make or a big party to attend. The 25-year-old personal banker at United Prairie Bank in Mankato, Minnesota, was waiting for January 1, 2010, because she would finally be eligible to contribute to her employer-run 401(k) plan.

“I’m one who likes to plan for the future,” says Mead, who has been working at United Prairie Bank since last August. “I think a lot about retirement already. My husband and I agree that we’re willing to scrape by now, so we can have more to live on then.”

But even though her intention is to contribute as much as she possibly can—at least enough to take advantage of her employer’s match—Mead knows she has to be realistic about her retirement goals. Her biggest priority right now has to be making sure that she can feed, clothe, and provide quality care for her four-year-old daughter. “I need to make sure our immediate needs are met,” she says. “I have to pay for daycare, food, rent, all of that stuff.”

The one thing she doesn’t have to worry about right now is health care coverage for her family. Both she and her husband are insured through their employers, and both of their employers help with the premiums—a benefit that she says was “huge” when considering the job. She feels comfortable with the coverage she has, especially because everyone has been healthy so far. But she knows what it’s like to not have insurance, and to worry about who’s going to pay the bills.

Mead’s daughter Lily was born while she was a senior in college. She was only working part-time and wasn’t eligible for benefits from her employer. She was no longer considered a dependent under her parent’s insurance, and because she and her husband were both still in school, they couldn’t afford to take out individual policies. She wasn’t aware of any coverage offered through the university she was attending, but she knew she needed a plan that would cover her during her pregnancy and after her child was born. So they applied for MinnesotaCare, a publicly funded health care program offered to state residents without access to affordable insurance.

Instead of getting a bill for thousands of dollars from the hospital for her labor and delivery or paying for every well-baby check, Mead only had to make a manageable co-pay for each visit. That helped her young family stay out of debt and allowed Mead and her husband to start their careers on the right track. “We’re very grateful for MinnesotaCare,” she says. “It’s so important that it’s there for people who need it.”

In her first job after college, Mead worked for an insurance agency in St. Paul, where she got a firsthand education about both financial needs and financial products. As the agents worked to plan for their clients’ needs and goals, she gained insights about what it takes to be prepared for the future, she says.

The biggest insight is that it’s never too early to get started saving. She doesn’t want to scramble to make ends meet when she reaches retirement age—even though that may not be for another 40 years.

Although the public conversations and coverage of health care and retirement issues often seem dominated by dollar figures and doomsday predictions, both business owners and their brightest employees are keeping the future in mind as they struggle to make these important decisions today.

Mead’s good intentions—to plan ahead, be prepared, and enjoy a long, healthy life—at one end of the spectrum are mirrored by the efforts of employers to provide benefits to their employees. “Every decision I make about this directly impacts my bottom line,” Pineiro admits. “There might be other companies, bigger companies, that can do more than I can for their employees. But the truth is that I value my employees. I’m trying to give them the quality of life and the care they deserve.”