Defined Contribution Health Plans as HR Retention Strategy

Written by: PeopleKeep Team
Originally published on August 15, 2012. Last updated July 26, 2022.

Calculating HR Retention Statistics

When it comes to employee retention strategies, it is recommended that HR departments utilize proven theories and strategies, rather than guesswork. It is also important to have measurable statistics, such as Employee Retention Rates and Turnover Cost, to track the effectiveness of an HR department's efforts.

How to Calculate HR Employee Retention Rates

Sample Inputs

Sample Calculation

Period of Time: Fourth Quarter
Total Employees at Beginning of Q4: 24
Total Employees Terminated in Q4: 4

24 – 4 = 20
20 / 24 = .83
.83 x 100 = 83%

There are many reasons HR departments put so much time and effort into retention. Employee turnover can cost businesses time and money, disrupts workflow, and leaves a significant knowledge gap, depending on the employee.

Recruiting and training a new employee can cost an employer the equivalent of 6 to 9 months' salary. That's between $20,000 and $60,000 for employees making $35,000 to $100,000, which is a chunk of change some employers may not realize they're losing. What if the employer could spend $300 to $500 per month in employee health benefits to prevent that turnover?

Defined Contribution Health Plans & Retention

Since circa World War II, health benefits have been a key part of an employee's compensation package. While this holds true today, health benefits are shifting. As we reported last month, businesses are dropping traditional health coverage. However, that doesn't mean they're giving up health benefits altogether. It's no longer blanket group health plans and annual renewals. Instead, employer health benefits now include consumer-directed approaches, defined contribution plans, and private health exchanges.

Rather than paying to provide a specific group health plan (a "defined benefit"), employers can fix their costs on a monthly basis by establishing a defined contribution health plan, giving employers and employees full control over healthcare costs.

Under the traditional approach to health benefits, the company selects and funds the same insurance plan for all employees in a one-size-fits-all approach. In contrast, the defined contribution model allows employees to choose the individual plan that works best for their family's needs, via an insurance company or a public or private health exchange.

Then, using a defined contribution health plan, the employer gives each employee a fixed dollar amount (a "defined contribution") that the employees can use to reimburse themselves for personal health insurance costs or other medical expenses such as doctor visits and prescription drugs.  

Download our employee retention eBook to learn how to keep your most valued employees without breaking your budget.

Originally published on August 15, 2012. Last updated July 26, 2022.


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