Flexible Benefits and HRO Add Choice for Employees and Options for Employers

Mercer’s What’s Working Survey found that one-third of European participants are seriously considering leaving their organization. This had me immediately questioning why. Does it have something to do with the employee’s benefits package? Probably not in the U.K. since 36% of respondents stated that their benefits package was the primary reason for staying at their organization.

In fact, 30% of survey participants in the U.K. said that their employer’s benefit package was the key reason for joining the company in the first place, up 5% since 2005. Across Europe including France, Germany, Netherlands, Spain, and Italy, the average percent of employees that are content with their benefits package is 50%, representing a general decline over the last five years.

The survey shows what employees value varies by country, culture, and age. While surveyed European employees have many common interests, there is variation by country. Employees in France and Italy were the most dissatisfied over many of the employee value proposition elements studied including base pay, benefits, and development opportunities. In most cases, score varied. For example, employees in the Netherlands were less likely to intend to leave and were satisfied with their benefits, but were dissatisfied with employer assistance in retirement plans and base pay.

With pressure on all aspects of workforce costs, including benefits, what is an employer to do?  One option is to add a flexible benefits program to increase employee desired choice while still controlling costs. Program designs include one or both of the following:

• Employer paid benefit “credits” that employees can use to select the choices most important to them
• Employee paid benefits available through the employer, payable with payroll deductions and usually at better prices than available in the general market.

While flexible benefits schemes have been slow to take off, the continued adoption rate will have a positive effect on flexible benefits service providers since internal HR departments tend to lack the skills necessary to administer these benefit choices successfully. According to Mercer’s European Survey on Employee Choice in Benefits, flexible benefits programs generally meet employer objectives (63%) and are well-received by employees (71%).

Using HRO to administer the programs reduces administrative cost and complexity for employers.  The number of European organizations outsourcing their flexible benefit plan has increased. Specifically, Mercer’s survey found the following:

• 36% of employers outsourced their entire flexible benefits program, up from 28% in 2009
• 33% use a combination of in-sourcing and outsourcing for their flex program, up from 23%
• 16% manage the flex offering in-house, down from 35%.

NelsonHall’s upcoming Targeting Benefits Administration market analysis report will indicate that growth opportunities for flexible benefits are very good as organizations look for an alternative to salary increases and bonuses while meeting the needs of increasingly diverse workforces.

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.

Recruit and Retain Employees with a Creative Benefits Package

Kudos to the Affinity Federal Credit Union.  In the Spring 2011 issue of the Affinity Connections magazine, there was an article titled “Recruit and Retain Employees with a Creative Benefits Package.”  We often write about recruitment and benefits in our blogs and this article makes the simple yet important tie-in that you need an effective benefits strategy for attracting and retaining talent.  I couldn’t agree more!

It’s not just about the money, but about benefits that include:

• Health, disability, and life insurance
• Tax saving ways to pay for health expenses and child care
• Retirement plans
• Opportunities to continue education
• Flexible working hours, etc.

The article points to a 2010 study done by MetLife on employee benefits trends.  It states employers greatly underestimate the loyalty factor of retirement benefits, non-medical benefits (i.e., dental, disability, vision, life, etc.), and work-life balance programs.  I would also add in retirement savings plans since there are fewer pension plans and great doubts about what will be there for social security, particularly for the younger generations.

The major benefits, which are also the most expensive, are retirement plans, health insurance, and paid leave.  But, employers need to be creative and think out of the box at more cost-effective options.

The study states that 61% of employers and 56% of employees say that work-life balance programs are effective at improving productivity at work.  Examples of such programs include flex working hours and access to financial planning resources, such as Aon Hewitt’s integrated advisory offering to its DC plan participants through its subsidiary Aon Hewitt Financial Advisors.  Other ideas include:

• Flexible working hours
• Flexible spending accounts
• Employee assistance programs (EAP)
• Matching donations
• Educational opportunities including on or offsite employee training & seminars, tuition reimbursement, and paid time off to attend classes.

As the economy recovers, turnover will increase.  As the talent marketplace becomes more competitive again, it is important to see that offered benefits are utilized.  A benefits outsourcer or HRO provider can help with data mining to analyze benefit utilization patterns across key positions and geographies.  Also, total rewards statements help employees see the full impact of their benefits.  Modern benefits communication and decision support tools help participants know about and make optimum choices.

Outsourcing vendors, not just benefits providers, but also RPO providers who are helping their clients with talent management including attraction and retention strategies, should be engaging with their clients to ensure that they have a better benefits package than their competitors!  How do you stack up?

Gary Bragar, Lead HRO Analyst, NelsonHall

The Yellow Brick Road to Financial Growth in Benefits Outsourcing

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

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

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