Posted tagged ‘Amy Gurchensky’

HRO Confidence Remains Steady for 2012

May 10, 2012

Every quarter, my colleague Amy Gurchensky surveys HRO vendors for the NelsonHall HR Outsourcing Confidence Index (HROCI), which is then available for our clients and the participating service providers. In normal times, the HROCI does not change drastically from quarter to quarter; it more shows changes in trends over time. In uncertain times, however, it is a timely way to see changes in market perceptions even before disruptions occur in contract values, volumes, and revenues.

It is of some comfort that the HROCI is in a steady state of small changes from quarter to quarter. That is not a sign of upcoming exuberant growth, but it is a predictor that we will continue to see solid continuous HRO growth throughout 2012.

The most recent HROCI shows a vendor confidence level of 153, where 100 represents unchanged confidence and higher scores indicate increased confidence. While 153 is down a bit from 164 in 1Q 2011, it is in line with 3Q and 4Q 2011 at 151 and 147 respectively. Vendor confidence is often based on how current business is going, along with the pipeline. In HRO, growth from existing clients is just as important as new business. Ever since deals got smaller in scale and scope, there has been increased focus on retaining and growing existing accounts, and we see positive vendor confidence here as well.

Looking at some of the HR lines of service, payroll is once again in the leading position for growth, followed by RPO, multi-process HRO (MPHRO), benefit administration, and learning. MPHRO is expected to perform well in 2012, primarily driven by the need of organizations to standardize HR services across regions and geographies. Vendors such as ADP and NorthgateArinso that previously offered primarily payroll and employee administration services have been very active in acquiring or partnering to extend capabilities to a wider range of platform-based MPHRO functions. In addition, Logica is becoming increasingly successful in this space in Europe.

There is a slight tempering of growth expectations that can be seen in the data, although pipelines still seem solid. I think this is the same kind of hedge-your-bets thinking that is in the larger economy and what we are seeing from HRO buyers. Everyone still has a healthy sense of caution in case things suddenly go sideways.

Luckily, more and more HRO buyers and clients are willing to move ahead and get on with doing business, even if a bit cautiously. Other buyers still suffer from frozen decision-making and unwillingness to make long-term investments. Buyers with clear direction for what they want to achieve through HRO are the most likely to be deal ready – as along as prices are right and there is not too much upfront investment. The earlier service providers can assess readiness, the faster they will be able to fill pipelines with well-qualified prospects.

Linda Merritt, HRO Research Analyst, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

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A Deeper Look – HRO and Health Care Exchanges

May 3, 2012

HRO is an ever changing set of services, processes, technologies, and client needs. My HRO colleague Amy Gurchensky recently covered one of the emerging service areas in benefits: health care exchanges. I wanted to know more about active employee exchanges and arranged for educational briefings with Aon Hewitt and Mercer since both are already in this market.

Both of the HRO service providers have found similar reactions from insurers to the exchanges. As with any new concept, some carriers are more progressive and recognize changing market needs. Other carriers are more cautious and methodical and want to know more about how the new models work, how to underwrite the risk, client implications, etc.

Even though health care exchanges offer preconfigured selections with price advantages for employers, exchanges are still group programs and the employer is still the plan sponsor for active pre-65 participants. Aon Hewitt’s corporate exchange offering includes services to help clients meet their obligations as plan sponsors.

Exchanges are a bundled service. Along with structured plans from participating carriers, traditional benefits administration services are also included. Both Mercer and Aon Hewitt have great depth in providing end-to-end participant services, handling escalations, and advocacy. For example, Mercer’s exchange offering includes clinical case management support as well as program oversight and audits. Aon Hewitt includes both tier one and tier two call center support and advocacy services for participants with issues or claims that are more complex and require a greater level of case management and carrier interaction.

Both companies are major league benefits administrators, and I wondered how the exchanges may impact revenues as clients move to an exchange-style service. Mercer sees the revenue impact as neutral initially and additive overall; Aon Hewitt views the exchange markets as an important natural extension of its traditional benefit administration services.

Today, health care exchanges are a very small part of benefits HRO, but there is significant growth potential. Mercer will be testing service models in rolling its Mercer Benefits Choice Exchange (MBCE) for employers with less than 1,000 employees, so expect to see the changes and evolutions that are common with emerging services. It will not be surprising if more HRO vendors launch exchanges, and even a couple large carriers may decide to offer exchange services directly as the market develops.

The future of health care private exchanges is not dependent on whether or not the current U.S. health care reform is amended or survives. Research indicates that up to 90% of employers offering health care coverage intend to continue to offer coverage in 2014.  Employers will continue to need options that help them offer competitive benefits at controllable costs, and innovative HRO service providers will continue to develop new services and options to meet those changing market needs.

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

HRO – A Healthy Option for Health and Welfare Administration

January 26, 2012

Health and welfare (H&W) benefits administration is a well-accepted foundation partner of the HRO services family. It is also the fastest growing part of benefits administration according to the last NelsonHall Targeting Benefits Administration market analysis. Amy Gurchensky, my NelsonHall HRO colleague, is underway with her research for the benefits 2012 report. (H&W HRO service providers, if you are not yet scheduled for your interview, please contact Amy. See contact information below.)

In the meantime, there are elements of H&W that we can explore now. Carol Harnett, HR Executive Online, has written several columns recently on H&W with the linking theme of flexibility and lifestyle. Her first article asks, “Should we give employees what they want?” In that piece, Harnett says that many employees are interested in a wider range of lifestyle benefits. Pet insurance, child care or elderly care subsidies, commuter benefits, and even onsite massages have value to one or another employee group. Access to products and services with special discounted pricing is valuable, if relevant and better than what is commonly available. There is even a new company, BetterWorks, which will help you find what they call “hyper-local” discounts for your employees.

From the employer perspective, consider the nature of the business as relevance will vary with the characteristics of the work and workforce. Occupational health and safety is a big H&W issue for manufacturing. Employees with long tenures will have a wider range of stage of life needs compared to a retail workforce that is largely young, part time with high turnover.

Many H&W programs can meet the needs of both parties, if packaged, serviced, and communicated well. I see a new level of packaging benefit programs together in the area of EAP and wellness, which together will help employees and employers manage productivity and healthcare costs. Ceridian recently launched its redesigned LifeWorks.com portal that combines EAP, work-life, and wellness.

HRO H&W service providers can be advisors to clients reassessing and revamping H&W offerings. In addition to strategic consulting services, vendors can also offer practical operational advice. Buyers, ask your providers what they see new and different. Ask what else they offer and if they have experience with new point solution vendors, or have preferred suppliers that may be helpful in your decisions making. Run new options by them to evaluate operational costs and issues and assess total cost. For example, consider when to provide payroll deduction services or stored value cards to access benefits compared to letting employees pay directly from both a tactical and operational cost perspective.

Every so often we need to reassess the point and purpose of employer benefits. Beyond any regulatory mandated benefits, organizations need to find a dynamic balance between what employees and their families want and what employers need to support retention, productivity, and manageable cost. In H&W, one size may not fit all, and yesterday’s programs may not meet today’s needs.

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

A Look at Automatic Enrollment in the U.S. to Predict the Success in the U.K. and Potential Opportunities for HRO Service Providers

December 8, 2011

There is currently a global crisis of people failing to save enough funds for their retirement. This reality is faced by those nearing retirement, and it’s affecting millions more. Reasons for this range from a lack of an employer plan to it being too confusing to simply just not getting around to it. In an effort to manage the crisis, legislation has been enacted to facilitate the ease of saving.

 

In the U.K., the primary answer lies in the automatic enrollment (AE) requirement of the Pensions Act of 2008. The AE requirement compels employers to automatically enroll their employees into qualifying pension schemes and to contribute to the pension as well. AE will commence in October 2012 and will be rolled out in stages based on employer size until September 2016 with large organizations (i.e., those with more than 120,000 employees) starting first.

 

Trying to predict the success that AE will have in the U.K. is difficult, but perhaps the Pension Protection Act of 2006 (PPA) in the U.S. can provide some guidance.

 

Recently, Fidelity highlighted the positive impact that the PPA has had on participation rates among other things. Fidelity’s plans that offer AE have increased to 21%, up from 2% in 2006. Furthermore, the AE feature is a part of 63% of plans with more than 50,000 participants, and Fidelity has seen participation increasing as a result of AE.

 

The average participation rate for plans without AE is 55%; but with AE, the participation rate is 82%. More interesting is the effect that AE is having on younger employees, who are typically not too concerned with saving for retirement. For employees between ages 20 and 24 years old, the participation rate for plans with AE is 76% and only 20% for plans without AE.

 

While the PPA in the U.S. does not require AE by all employers, it is proving to be an effective way to encourage participation to actively save for retirement, and it can also provide further opportunities for HRO service providers.

 

In the U.K., for example, Capita has already won business related to the AE requirement of the Pensions Act of 2008. It was awarded a 7 year £105m contract by the U.K. Pension Regulator to support direct communications and transactional processes with employers for AE that began in October 2011. Capita’s responsibilities include:

  • Communicating campaign messages to employers
  • Communicating AE duty dates to employers
  • Ensuring employers register with the regulator
  • Operating a customer contact center
  • Some enforcement activities such as administering compliance notices and penalties for non-compliance.

 

Shortly after Capita’s contract award, Xafinity became the first pension administration provider to launch an AE offering that:

  • Identifies who to automatically enroll and when to enroll them
  • Sets a course of action for all stakeholders
  • Runs financial analysis on different scenarios and take-up rates based on employee data, and selects a strategy that supports corporate objectives
  • Provides AE administrative services including member communications; employee identification; auto-enrolling, opting out, and re-enrolling employees; and reporting.

 

Expect to see more HRO service providers based in the U.K. and others doing business there to launch an AE offering. Some may be late to the game though since the first staging date is less than a year away and compliance can take ~18 months to achieve. It is an area with lots of potential and service providers like Capita and Xafinity are well-poised to gain the first-mover advantage.

 

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

 

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

 

The Yellow Brick Road to Financial Growth in Benefits Outsourcing

March 10, 2011

There are a variety of ways to grow HRO service provider income. Well-traveled roads include winning new clients or expanding services with existing clients. Another avenue is to cross-leverage consulting and outsourcing to build revenues for other service lines. Now, a new path has emerged and it looks like a yellow brick road to generating revenues: provide advisory services directly to defined contribution (DC) plan participants and not just to the plan sponsors.

According to The Financial Engines National 401(k) Evaluation report, approximately three out of four participants are not on track to comfortably retire by age 65 (i.e., they can’t replace 70% of their pre-retirement income with their 401(k) and social security). In addition, 34% do not have diversified portfolios and/or have inappropriate risk levels and 39% of participants do not contribute enough to even receive the full employer match. With DC plans replacing traditional pension plans for many employees, effective participation has taken on increased importance.

Participant DC service options were greatly expanded by the Department of Labor’s regulations, starting with the Pension Plan Act of 2006. Now, DC plans can offer automatic enrollment into qualified default investment alternatives, automatic saving escalations, and investment advisory services. Great, but the regulations are complex and are still being clarified and there are fiduciary responsibilities that must be addressed to provide a safe harbor to the plan sponsors and appropriate protections for the advisors. For BAO providers who have the expertise and fear not to tread on a road still under a bit of construction, this is a growth opportunity.

Amy Gurchensky, one of my NelsonHall HRO colleagues, just added tracking service coverage of Aon Hewitt’s new integrated advisory offering for its DC plan participants through its subsidiary, Aon Hewitt Financial Advisors. Aon Hewitt continues to expand its wealth management and retirement financial services for employers and participants. In 2010, before the merger with Aon Consulting, Hewitt had acquired the investment advisory firm EnnisKnupp.

Aon Hewitt selected Financial Engines to be the sub-advisor and provider of the advisory platform. As Amy notes in her analysis, Financial Engines also provides services for ACS, a Xerox Company, Fidelity, Mercer and others like ING and J.P. Morgan. It is important then that Aon Hewitt is wrapping the standard third party offering in with its own materials so it will be able to extend a new service bundle that creates differentiation.

The bulk of retirement investment consulting revenues will continue to come from services to the plan sponsors, but adding a new road to growth in ancillary services is valuable and this one looks particularly golden. Given the millions of participants with the major BAO players, participant investment services will be a valuable win-win for the employers, participants, and service providers.

Linda Merritt, Research Director, HRO, NelsonHall