Posted tagged ‘Fidelity’

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

Where the Action is At in HRO

March 8, 2011

As a follow-up to my colleague Linda Merritt’s blog last week titled “HRO is Settling in for a Good 2011,” I thought I’d write about where the most action is at thus far. If you were thinking recruitment, good guess, but it is actually benefits administration leading the way in the number of announced contracts in 2011.

In addition to Mercer being awarded a pensions administration contract by Loomis UK Ltd., which Linda also wrote about Mercer in her February 23rd blog, a number of providers have announced important contract awards, including:

Fidelity Investments, after two big five-year contract awards in Q4 2010 by AT&T and Office Depot, in January Fidelity was awarded a five-year contract renewal for total retirement outsourcing (TRO) services by BP America, Inc., a subsidiary of BP. Fidelity will continue to provide administration and recordkeeping for BP America’s 95,000 DB and 48,000 DC and nonqualified deferred compensation plans for U.S. employees. Later in the same month, Fidelity was awarded another five-year contract renewal for TRO services by HP in North America. Under this deal, Fidelity will service all of HP’s retirement plan participants, adding 162,500 participants from EDS who were previously serviced by other providers. In total, Fidelity will serve more than 135,000 DC participants and more than 192,000 DB participants for HP.

Aon Hewitt, in February announced it had gone live with eight new benefits administration clients since the beginning of the year. Across these clients, Aon Hewitt has implemented 12 services including DB, DC, and H&W and has added more than 325,000 participants and retirees to its base of 22 million participants.

Capita, in February was appointed as a preferred supplier for the administration of the Teachers’ Pension Scheme (TPS) by the U.K. Department of Education. This is a seven-year, £80m contract renewal that starts in October 2011 and includes an additional three-year option. A week later, on a smaller scale, Capita won a three-year occupational health services contract by Technip. Capita will provide its Wellness Assessment Surveillance Portal, which gives centralized visibility of health surveillance records to Technip’s 3,000 personnel in Aberdeen and offshore locations.

So will benefits administration continue to be hot this year? I believe it will, though it might be hard-pressed to exceed RPO for the full year in terms of number of contract awards.  As evidenced in the examples above, there are huge volumes of benefit plan participants that are serviced and in today’s economy, clients cannot afford internal resources to manage these programs, nor do they have the expertise and most up-to-date technology. Handling benefits administration is vitally important to employees and retirees, whether it’s the ease of an annual online enrollment or the knowledge of a service center professional in answering DB and DC questions. And it’s not just large companies that need this expertise.  As I wrote in my February 25th blog, mid-market HRO is rapidly growing as well.

A final thought about what will continue to drive contract awards in benefits administration is that buyers are increasingly looking to consolidate their outsourcing services under one provider, as evidenced by Fidelity’s contract with Office Depot. This is a trend I believe will continue and from an employee and retiree perspective is a good thing. I was fortunate enough to leave my long-term employer four years ago with H&W benefits, DB & DC plans, and voluntary benefits, of which all four were provided by four different vendors. Sounds like I should play the number four!

Gary Bragar, Lead HRO Analyst, NelsonHall

Q4 2010 HRO Ends on an Up Note

January 5, 2011

While we wait to see 2010’s full year HRO financial results, we can review activities in the fourth quarter.  HRO growth is occurring across most industry segments, with the public sector lagging.  The fastest growth rates are still outside of the mature economies in North America, U.K., and Europe for the global providers, although the U.S. is starting to rebound.

Benefits administration showed a nice level of new business activity, even in the mature areas.  Congratulations to Fidelity for the competitive wins of AT&T for both defined contributions and defined benefits and Office Depot for broad benefits administration services.  There were also notable benefits wins by Mercer, Aon Hewitt, Ceridian and Xafinity.  Meanwhile, we are still waiting for a major jump start in learning and multi-process HRO contracts.

The volume of new business and growth with existing clients will continue to rise in 2011, but the pricing environment will not likely ease much in 2011 as buyers remain price sensitive.  Maintaining efficiency will be critical in order to win with both clients and investors.  For example, The Right Thing recently introduced dedicated Solution Teams to manage the transition from sales and implementation into operations. Managing implementation was a costly problem for service providers and customers in multi-process HRO for years, so it is good to see the lessons learned extending to other areas of HRO.

Preparing for further growth also continues in partnerships, mergers, and acquisitions.  Aon Hewitt is expanding its benefits capabilities in Scotland via a pension services partnership with Babcock International Group.  Towers Watson is jumping back into the benefits fray with a partnership with Wage Works and the acquisition of Aliquant, a mid-range benefits service provider.

Fourth quarter good news stories continued with revenues up in most areas of HRO.  Several HR service providers reported a 4% to 6% increase in revenues including ADP Employer Services up 6%, Aon Consulting up 4%, and Mercer up 6%. RPO and staffing companies continued recovering at a rapid pace, leading the way out of the downturn just as they led the way into it.  Revenues for Manpower were up 19% and The Right Thing’s revenues were up 30%.  GP Strategies, Kelly, and Kenexa all had increased revenues in the mid-20% range.

Operating margins are remaining consistent as the HRO industry adds back employees indicating they will be able to manage growth while keeping an eye on hard-won profitability.  Investments in technology and global service delivery capabilities will now be bearing fruit and should also support margin growth.

Happy New Year – may 2011 be a great year for us all in the HRO community in every way!

Linda Merritt, Research Director, HRO, NelsonHall

HRO is Never Static or Still

October 12, 2010

During every stage of the economic lifecycle, HRO service providers are doing something to either anticipate or react to changes in the marketplace and client needs while simultaneously striving to achieve strategic goals. This week I wrap-up NelsonHall’s review of 3Q 2010 HRO activity with a look at what’s new in offerings, partnerships and acquisitions.

One way to quickly expand a service line or fill-in gaps is to partner with a provider that is already offering the service or operating in the target geography. Last quarter was most active for RPO. Those announcing new RPO-related partnerships included Alexander Mann Solutions (AMS), Kelly Services, Kenexa, Pinstripe and The RightThing. Notably, two of the partnerships were to continue to expand RPO services internationally in the Asia Pacific region, with AMS adding reach into India and Kelly in Vietnam.

A more committed path to rounding out or adding new services is to buy it. Making small to large acquisitions is another constant in the world of HRO as players define and redefine their portfolios. In addition to the close of the three game changing major acquisitions in the benefits community (ADP/Workscape, ACS/ExcellerateHRO, and Aon/Hewitt), other folks were also making deals. For example, Mercer acquired IPA and ORC, and Xafinity bought PwC’s pension consulting and administration business in the U.K. Further, Randstad continued its acquisitive ways, this time outside of Europe, with its planned acquisition of FujiStaff in Japan.

Health and welfare (H&W) outsourcing used to be limited to the U.S., and that will remain the major market. But no matter how health insurance and care is funded, H&W concerns are growing globally. In the U.S., Fidelity is partnering with RedBrick Health to offer its clients wellness services, and in the U.K., Capita is acquiring FirstAssist Services to add to its health service offerings.

Finally, if you cannot find what you want in the marketplace, you can build or expand it yourself. Ceridian wants to truly offer a new line of BPO services and has announced it is ready to consult, build and manage the health insurance exchanges that some states will need in a couple of years as part of the U.S. health care reform program. 

Most announcements of “new offerings” are incremental additions. For example, Hewitt is adding Micromedex medical reference information to its advocacy service offering. You can also simply package what you have and call it new. Aditro has done that with a standardized set of payroll services that include preset services levels and implementation process to make a lower cost bundled option.

Yet another variation blends supply chain partnerships with building it yourself to make a new service offering. Take a SaaS HR service from Oracle or Sap and wrap in value added enhancements and services additions and, voila, you have a new HRO service platform. Mercer introduced its Human Capital Direct that uses PeopleClick Authoria’s talent management suite as the core, surrounded by Mercer’s consulting, tools and methodologies such as decision support, competency models and analytics.

In HRO, somebody is always doing something. What have you done lately?

Linda Merritt, Research Director, HRO, NelsonHall

Health and Welfare Services are a Nice Slice of the HRO Pie

August 11, 2010

Wellness programs have been around for years, but employers needing to manage ever increasing health care costs are looking for a stronger connection to results. HRO vendors and programs that can show proof of progressive results over time and an impact on health care costs will strengthen client relationships and do well in a still tight market.

Fidelity is adding RedBrick Health’s wellness programs as an optional service offering in its employee benefits and outsourcing program. RedBrick Health is a 2006 start-up specializing in wellness, disease and chronic care management programs that often include employer-funded financial rewards tied to participation in activities and programs. Fidelity selected RedBrick for the uniqueness of its interactive programs, technology, analytics and results that include rates of participation as high as 40-60 percent, compared to industry averages of five-10 percent. And it tracks health assessment biometrics that show improvements of six-30 percent in areas such as blood pressure, cholesterol and weight, which can lower the total cost of health care.

“Nice to have” HR programs are now expected to show value to employees and employers based on outcomes. HR and its HR service providers are under greater pressure than ever to show impact. Some HR services are “need to haves,” and demonstrating lower operating expenses, improved process performance and strengthened compliance are often enough proof in the pudding. Also improving the employee experience is icing on the cake.

Optional HR benefits and services outsourcing in a down economy have a higher hurdle as the looming question is, “why offer the benefit at all?” But outsourced services in the health and welfare (H&W) area that can make the connection to lowering the cost of benefits, health care and the total cost of labor have been bright spots.

Even the larger HRO vendors are aware of this trend. Hewitt has been expanding its H&W offerings with absence management, and it recently acquired HR Advance to add to its dependent verification capabilities. Others, like Fidelity, are selecting specialty partners to build out H&W services.

Where H&W services are transactional, like flex spend accounts, look for innovation in technology and processing efficiency. Other services – such as absence management – need to blend in consultative and deeper subject matter expertise, and the bench strength of the care center personnel is very important. In all cases, the quality of the employee communication and experience is critical, even if cost savings is the driver. If employees are not aware of the program, or do not understand the benefits of participating in it, outcomes will not be maximized. And you need awareness and participation to get to impact and capture a healthy slice of the H&W pie.  

Linda Merritt, Research Director, HRO, NelsonHall

Benefits Admin Outsourcing Providers Can be Boon to Employees’ Future and Companies’ Ongoing Pocketbooks

June 24, 2010

Employees with company-offered retirement savings plans are today facing a triple whammy – defined benefits offerings (such as traditional pension plans) are on the wane, especially for new hires; stock market volatility is severely impacting the value of 401(k) portfolios; and lack of understanding and investment planning advice is driving inactivity or poor contribution decisions.

And employers offering defined contribution plans are facing challenges of their own. Financial risk, market volatility and regulatory changes make it extremely difficult for companies to design retirement programs to align with their business goals and optimize results.

But benefits administration outsourcing providers – such as Fidelity, Hewitt and Mercer – which offer advisory services to their clients and make professional investment information more easily accessible to their clients’ employees can help all parties’ pocketbooks. Services beyond administration of benefits programs offered by some of the providers in today’s marketplace include: insight into how automatic enrollment can lower plan administration costs and save businesses time in the enrollment process; input into how the contribution limits for business owners and key employees can rise with more employees participating in the 401(k) plan; data on volume discounts; plan design; actuarial services; global risk services; investment consulting; legal consulting; administration and communication services; and employee-focused online information portals.

While all of the above are advantageous, auto enrollment in 401(k) plans, allowed by the Pension Provision Act of 2006,  is a biggie in driving participation – which is good for employers and employees alike – per recent Hewitt and Paychex studies. Based on a survey 160 U.S. employers, Hewitt found 59 percent of respondents already offer automatic enrollment to new employees, and an additional 12 percent are likely to implement it in 2010. Its survey also found that 74 percent of employees contributed to their 401(k) last year. And research published just last week by Paychex found that a whopping 92 percent of employees in small companies participated in their companies’ 401(k) plans when auto enrolled, as compared to 72 percent without auto enrollment.

On a broader scope, NelsonHall research found per its last benefits administration report that top benefits administration outsourcing drivers included, “Process improvements to improve participant experiences, e.g., faster and more flexible enrollment, more pension modeling tools and improved communication services. All drive an increase in the quality of service to benefit participants”.

To put the importance of defined contribution plans and making contributions to them based on professional investment information into laser clear focus, all we need do is look at the growing reality of the social security shortfall. The annual statement I received last week contained an * next to my benefit which said, “Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at anytime. The law governing benefit amount may change because as of 2037, the payroll taxes collected will be enough to pay only about 76% of scheduled benefits.” Sobering? You betcha. So employers: help your employees out with retirement contribution plans…doing so will also help you in innumerable ways. And employees: don’t wait. Obtain the information you need to make the right investment decisions and begin participating today!

Gary Bragar, Senior HR Outsourcing Analyst, NelsonHall

Who’s On First and What’s on Second in HRO? A Quick Look at the Xerox/ACS Marriage

September 29, 2009

The times and the players are a changing in the world of BPO and especially multi-process HRO (MPHRO). Much like the classic baseball comedy bit by Abbott and Costello, it’s hard to figure out who is on which base and who is leaving the field.

This week’s big BPO news is Xerox’s acquisition of ACS in a cash and stock transaction approved unanimously by the ACS board. The transaction is expected to close in Q1 2010, and it includes the ACS human capital management (HCM) and HRO service lines.

There are major plans for synergies, in terms of both internal cost reductions and go to market opportunities. Xerox is expecting significant new revenue growth through integration of its intellectual property with ACS’ services to create new solutions. Xerox also plans to leverage its global brand and client base to help scale ACS’ business in Europe, Asia and South America.

Yesterday’s announcement stated ACS will continue to operate as an independent organization, and that for an interim period, ACS will be called ACS, a Xerox Company. Hmmm…sounds a lot like the transitional ”EDS, an HP Company.” Initial branding aside, can the separation hold for long given the already announced intention to integrate and leverge capabilities and services across Xerox and ACS? Time will tell if they follow the EDS example of initial separation to establish stabilization and detailed plans, followed by full integration and disappearance of the ACS name.  

By NelsonHall estimates, the HCM business line will constitute almost 5 percent of the revenue of the combined $22 billion business. ACS is a major HRO player that has the bases covered anyway you look at it:

•  4th largest global Benefits Administration provider with almost 8 million participants

•  5th largest in terms of global MPHRO

•  7th largest in terms of global Learning revenue

With the acquisition of ACS, Xerox definitely joins the ranks of big league BPO players, and Xerox expects this deal to be a “game changer” to expand its business well beyond its roots in document management. But the HRO big league has been a pretty tough game for the early MPHRO entrants. Some have already left the MPHRO playing field, including Fidelity and ExcellerateHRO, which has been absorbed into HP. 

So there is room on the field, but not a lot of time to figure out the rules for the next generation of HRO. All the players, old and new, single and multi-process, are looking to bring their “A game” as we emerge from the recession. Strategies have changed, technologies have advanced, investments made, delivery capabilities fine-tuned and partnerships strengthened.

I hope ACS and Xerox stay in the game. We need enough strong teams to make a competitive league of providers that can play at all levels, from small, mid and large market to single country and multi-national HRO.

Let’s play ball!

Linda Merritt, Research Director, HRO, NelsonHall