Posted tagged ‘DC administration’

A Closer Look at Benefits Administration in H1 2012: Part 2

August 23, 2012

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

Part 1 of my mid-year benefits administration update covered several of the largest service providers, typically engaged in TBO services. Part 2 takes a closer look at TRO providers and updates from H&W vendors.

Fidelity Investments: Although it is a private corporation, from time to time Fidelity announces some of its success. H1 2012 was the company’s strongest half sales period in the last five years. It added 838 new DC administration clients, which will add ~522k participants to the ~15.7m it is currently serving. Fidelity has made substantial investments to strengthen its offering that will likely continue to fuel its success.

T. Rowe Price: While not as large as Fidelity, T. Rowe’s Administrative segment continues to report a steady growth rate of 3%. It prides itself on a long tenure rate with its clients and has plans to keep its offering competitive by introducing technological enhancements such as the T. Rowe Price Personal App for individuals and participants in employer-sponsored retirement plans.

JLT: Across the pond, JLT’s Employee Benefits segment, which includes revenues from consulting, outsourcing, and systems / technology, had a 5% growth rate in H1 2012. BenPal, its online integrated platform, is helping the company expand its benefits business internationally, which is likely to continue to have a positive effect on its bottom line.

Benefits providers in the U.K., the second largest benefits administration market behind the U.S. according to the 2012 Targeting Benefits Administration market analysis report, should also enjoy better than average growth due to new opportunities as a result of the automatic enrollment requirement of the Pensions Act of 2008 as well as opportunities in the public sector as budget concerns open doors to outsourcing assistance.

WageWorks: Newly public WageWorks provides a look into the high-technology SaaS H&W specialty services market of consumer-directed accounts including health (i.e., HRA, FSA, and HSA), commuter, and other employee spending accounts. Total revenues increased 29% y-o-y for Q2; its healthcare segment was up 21%. This year, it added US Airways as a client, expanded its contract with GE, and signed a channel partner agreement with Aflac that will add ~5k FSA clients and ~100k participants. It also entered into a reseller agreement with Aflac, which will continue to boost revenues beyond 2012.

Empyrean Benefit Solutions: Another private company touting its success in the H&W market is Empyrean, which has been offering services since 2007. It has set a record with year-to-date new client wins in H1 2012, adding 10 large market clients. The company is expecting 2012 revenues to increase 40% y-o-y.

Service providers who are slightly behind growth targets for 2012 or those who just want to perform better are prepping to make sure 2013 is a success. For some, this means focusing on health insurance exchanges or launching health and wellness offerings, and for others, it’s about enhancing existing offering with technology improvements and educational initiatives.

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HRO Carrying On Despite Slow, Decelerating Economy

July 25, 2012

Amy L. Gurchensky, HRO Research Analyst, NelsonHall

For those of you who are not aware, NelsonHall assesses the confidence in the HRO market on a quarterly basis. The report involves surveying HRO suppliers from all disciplines to get a pulse on the market.

 From time to time, my colleagues and I will blog about these results. I thought I would take a step back and re-examine HRO supplier confidence levels since the report began.

 As the name suggests, the supplier confidence level measures how confident HRO suppliers are in the future market with a level of 100 representing no change in confidence.

Since the report began, the index has constantly shown a healthy level, despite some fluctuations in between. The following chart graphs HRO service provider confidence levels since its inception.

HRO Supplier Confidence Chart

2011 shows a major turning point in HRO vendor optimism, revealing a downward trend line that coincides with the Employment Situation report produced by the Bureau of Labor Statistics.

There is no need to panic though. It appears that supplier expectations are now more accurately aligned to pipeline activity, which showed a slight weakening in Q1 2012. Again, the most important thing to remember is that the indices are still at a healthy level.

Despite the headwinds from the economic recovery, business for HRO has carried on as evidenced in the following contract activity:

  • ADP: awarded a multi-country payroll contract by HP covering ~130,000 employees in 40 countries across Asia Pacific (excluding India), Europe, and the Americas (excluding the U.S.)
  • Fidelity: awarded a DC administration contract by the University of Washington for ~31,000 employees; it is now the sole recordkeeping provider for the university
  • Talent2: awarded a three year RPO contract by Bankwest in Australia providing full RPO services from job requisition through onboarding including employment branding, establishing an innovation program for sourcing, and more
  • IBM: awarded a learning services contract by a government entity in South Africa including content development and delivery of learning
  • Aon Hewitt: renews and expands its multi-process HR outsourcing contract with BMO Financial Group for payroll, workforce administration, H&W administration, recruitment services, and compensation administration covering 46,000 employees in the U.S. and Canada for eight years.

There will likely be continued challenges from clients such as stalled decision-making or demands for lower pricing, and some service lines will fare better than others in this slow economy that is decelerating.

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PPACA: Pandemonium Today, Panic Later, Prosperity for HRO

June 29, 2012

By Amy L. Gurchensky, HRO Research Analyst, NelsonHall

It was pandemonium after the United States Supreme Court announced its ruling upholding the Patient Protection and Affordable Care Act (PPACA). The outstanding decision left so many in a holding pattern pending the constitutionality of the act.

Now that the decision is more firmly settled for the time being (primarily pending the November presidential election), U.S. states and organizations will have to take more definitive steps in securing exchanges and evaluating whether to offer health insurance plans or pay the tax penalty.

In fact, the state of Florida, via Florida Health Choices, set the wheels in motion earlier this week ahead of the ruling when it awarded a $68m contract to Xerox to administer a health insurance exchange for nine years. Services include:

  • A web portal and online plan selection tool
  • Eligibility determination and enrollment management services
  • Customer contact center services.

Other states that have delayed taking action are still expected to meet the law’s timelines. The same is true for employers that have yet to make employee healthcare decisions that take the PPACA requirements into consideration. Watch for a spate of webinars by benefits service providers to remind all of us of the changes still to come in 2014 through 2018.

Regardless of today’s decision, HRO and particularly benefits administration service providers have been sitting in a sweet spot.  Vendor interviews for NelsonHall’s recently published “Targeting Benefits Administration” market analysis revealed that business has been going on as usual with many employers turning to benefits administration vendors to implement services that are focused on controlling the cost of rising health care such as:

  • Dependent eligibility audits to remove ineligible dependents from plans
  • Wellness programs
  • Improving absence management
  • Switching to high-deductible health plans with associated health savings accounts.

The published report explores the current state of benefits administration as well as the future market and its growth over the next five years by geography and service line including:

  • H&W administration
  • Reimbursement administration
  • Leave of absence administration
  • COBRA administration
  • Flexible benefits administration
  • DC administration
  • DB administration.

The analysis also looks beyond legislative implications in the U.S. and new offerings that have emerged such as health insurance exchanges to explore the automatic enrollment requirement in the U.K.

The greater unresolved issue at hand, however, is how to control the rising cost of health care that is already arguably unsustainable as evidenced by the more than 30m Americans currently without insurance.

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The Changing Shape of DB and DC Administration

February 3, 2012

Practically all large market organizations have already outsourced defined benefit (DB) and defined contribution (DC) administration. Therefore, DB and DC administration contract activity is more about competitive wins.  When reading these contract award announcements, the first question I ask myself is, why did the client change service providers?

Some clients have a preference in the type of vendor used due to the large-scale financial worth of these portfolios. Some client executives prefer the independence of a non-financial administrator like Aon Hewitt, ACS/Xerox, or Mercer, while others prefer the industry closeness of a financial-type provider like Fidelity, T. Rowe Price, or Vanguard.

Other reasons for changing vendors include client dissatisfaction with the existing service or wanting to obtain a lower price or perhaps both.  Another cause revolves around vendor consolidation for both total retirement outsourcing (TRO) and total benefits outsourcing (TBO), which also includes health and welfare (H&W) administration. Consolidation is driven by a desire to reduce the number of vendors to a select few. Mergers and acquisitions also add to consolidation as integration occurs.

Last year produced a string of TRO and TBO contract awards due to consolidation, including the following:

  • HP in North America: Fidelity became the exclusive TRO provider for HP, which had ~162,000 participants from EDS being served by other providers
  • Office Depot: Fidelity was awarded this new TBO contract from three different providers that had administered the 401(k), H&W, and stock plans.

With an estimated $11bn market at stake, both financial and non-financial administrators need to remain competitive in the TRO and even TBO space. As a result, benefits administrators are offering additional service features such as automatic enrollment and automatic contribution escalation for client-employers, and resources to educate participants so that they become more accountable for their retirement savings.

This strategy is reinforced by Aon Hewitt’s recent survey of 500 large market U.S. employers representing more than 12m employees. The survey found that just 4% of employers are very confident that their employees will retire with enough savings, down from 30% last year. Examples of services and solutions recently launched to create a competitive edge include:

  • Aon Hewitt’s DC advisory offering: providing online personalized advice and professional management with Financial Engines serving as a sub-advisor
  • ADP’s strategic advisory services group: helping clients maximize the value of in-depth benefits data and analysis
  • Mercer’s RetireTALK: an interactive website with hypothetical scenarios, designed to motivate and educate users on retirement planning
  • Fidelity’s myPlan tool: offering online retirement advice based on answers to a few questions.

The Aon Hewitt survey also found that only 10% of employers are very confident that their employees are taking accountability for their own retirement success.  The remaining issue then is how to encourage employees to utilize these services and solutions that are already available to them and which service provider will best help both the employer and employees achieve their goals.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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