1st Quarter 2011
To prosper in the coming years, companies will need to reassess current strategies and approaches related to talent management, total rewards and health benefits in light of the market-driven equilibrium emerging from U.S. health reform. This new equilibrium will be shaped by demographic and employment dynamics, U.S. tax policy, continued globalization and new challenges and opportunities in the health care system. Each company’s assessment of the most beneficial balance will reflect its unique business dynamics, industry challenges, geography and size. While in some ways companies’ approaches will build on the lessons learned and successes over the past few decades, they will also leverage the new opportunities presented in a postreform world.
What is the perspective of today’s employers when facing the decision of whether to retain status as a grandfathered plan under the Patient Protection and Affordable Care Act (PPACA)? This article reviews the mandated benefit and underwriting changes for grandfathered employer group health insurance plans. It then describes the challenges employers face in maintaining grandfathered status and the potential advantages and disadvantages to doing so. Finally, the author demonstrates how the employers’ perspective is one where the absence of government information and guidance on complex-related issues prevents employers from making fully informed decisions. In effect, employers are being forced to choose whether to maintain grandfathered status without the benefit of knowing what the final rules are.
The Patient Protection and Affordable Care Act (PPACA) has made health care reform a reality. Although many of PPACA’s details are still unclear to many employers, and most of the act’s major reforms will take effect over the next several years, companies have reason to begin preparing for change and enough information to begin a communications effort with employees. The authors describe a number of immediate actions that employers should take to make the most of their own understanding of PPACA as it develops, as well as help their employee benefits leaders make the most informed decisions about when and how to communicate with employees about the law and its impact on their group health plan coverage.
Account-based health plans (ABHPs), which combine plans with relatively high deductibles with health reimbursement arrangements (HRAs) or health saving accounts (HSAs), gained popularity in recent years. Because there is growing evidence these plans are indeed engaging consumers and moderating cost increases, employers will need ABHP design options as they strive to bring costs under control in coming years. Some observers, however, are now concerned that benefits standards introduced by federal health care reform will undermine these plans, and many in the business community anticipate new health benefits mandates will drive up employers’ total health care costs. The authors show that although the Patient Protection and Affordable Care Act of 2010 (PPACA) includes numerous provisions that will likely increase costs for employers, the law also accommodates, and may even foster, HSAs and HRAs.
The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 impacts everyone who uses or pays for the health care system. Among the new law’s effects will be changes in older workers’ health care choices as they transition from full-time employees to part-time work or other jobs and, ultimately, to retirement, and the retiree health benefit choices facing their employers.This article reviews the major issues surrounding these changes, including those affecting retiree health benefits, benefits for Medicare-eligible retirees, and health care options for older Americans not yet eligible for Medicare. The authors conclude that although employers will be reacting in 2010 and 2011 with regard to some issues surrounding FASB ASC 715-60 and the early retiree reinsurance program, employers should consider waiting to make major changes until regulations are issued and the health plans for active employees have been fully vetted.
Understanding the implications of the new health care reform legislation, including those provisions that do not take effect for several years, will be critical in developing a successful strategic plan under the new environment of health care reform and avoiding unintended consequences of decisions made without the benefit of long-term thinking.Although this article is not a comprehensive assessment of the challenges and opportunities that exist under health care reform, nor a layout of all of the issues, it looks at some of the key areas in order to demonstrate why employers need to identify critical pathways and the associated risks and benefits of each decision. Key health care reform areas include insurance market reforms, grandfather rules, provisions that have the potential to influence the underlying cost of health care, the individual mandate, the employer mandate (including the free-choice voucher program) and the excise tax on high-cost plans.
The Patient Protection and Affordable Care Act includes provisions to make the individual health insurance marketplace one where all Americans, including those with preexisting health conditions, can obtain affordable coverage. At the same time, the act has failed to address, in any significant way, many of the underlying flaws in the current U.S. health care system that have caused costs to spiral out of control. The combination of persistent U.S. health care cost increases and a viable individual health insurance marketplace will cause a sea change in employer-sponsored health care offerings that is similar to that seen among employer sponsored retirement benefit plans: movement away from defined benefit approaches and toward defined contribution designs. Although the authors show parallels between the evolution of employers’ health care and retirement offerings, they explain why certain key developments will need to occur before defined contribution approaches become as prevalent in employer-sponsored health care plans are they are in today’s employer-sponsored retirement plans.
2nd Quarter 2011
The quality of call center customer service has been falling over the last decade, and many bene¬fits practitioners, along with their plan participants, have become resigned to the resultant frustration of repeated, fruitless calls for help and informa¬tion. Receiving poor service can cause employees to undervalue their benefits, leading to retention issues. This article explains what factors affect call center service quality and provides employers with criteria they can use to chart their call center’s per¬formance, identify strong and weak results, and get customer service back on track. Although finding a high-quality call center that will partner with an employer in an open exchange of needs and work¬flow without cost-prohibitive change orders may not be easy, it’s worth the effort.
The decision of whether to use a single provider for all benefit plan administration or to use what’s commonly called a best-in-class approach—with separate providers for health care, pension and de¬fined contribution administration—creates much discussion and debate. This article discusses each benefit area’s administration developments and the corresponding advantages of choosing a best-in-class versus single provider approach. The au¬thors offer guidelines and tips employers can use in order to take advantage of the benefits offered by both approaches. They argue that the best selec¬tion is a single service provider that can deliver su¬perior results in each benefit area independently, but that can layer in additional value by bringing together benefits in a way that improves results for plan participants and sponsors alike.
Recent trends make now a good time for midsized companies to consider extending benefit administration outsourcing to defined benefit and health and welfare plans. As the outsourcing market has matured, several factors are serving to shift the balance of the cost comparison between outsourc¬ing and internal administration. At the same time, complexity and rising service expectations have increased cost pressures for internal administra¬tion. These trends, along with the risks and limited flexibility that come with internal administration, may tilt the balance in favor of further outsourcing. And the best part is that once an organization has transitioned to outsourcing, the plan sponsor can refocus on the strategic decisions that have greater impact on the organization and its employees.
Multinational organizations that seek to take ad¬vantage of a global benefits administration model must be sure they have the right touchstones in place to navigate a world of complexity. Many is¬sues along the way may be weighted differently, depending on the profile of each organization. This article focuses on two basic factors that fa¬cilitate the ultimate success of managing a global benefits program: benefits governance and bene¬fits administration. It describes lessons that orga¬nizations committed to moving toward a global benefits management model should take note of when aligning with a global outsourcing partner that can deliver ongoing, continuously improving efficiency and effectiveness.
Benefits communication, as we’ve known it over the past 30 years, is obsolete. To be effective, bene¬fits communication must be more motivational and focused on helping people move to action, quickly. After comparing the benefits communication is¬sues and approaches of the 1980s with those facing employers today, this article shows how four mar¬keting principles offer new ways to think about and approach current benefits challenges. Although the principles are easy to implement, they require ben¬efits professionals and employers to let go of habits and approaches they have used for 30 years and take a path better suited to today’s benefits com¬munication goals and challenges.
The primary objective of an employment-based retirement plan is to provide a secure and ade¬quate income for workers throughout retirement. In the defined contribution (DC) framework, as¬set accumulation is a means to the end, but not the end. Drawing retirement income from savings and paying for health care expenses in retirement are the two issues that concern individuals the most as they approach retirement. This article ex¬amines the attitudes of near-retirees regarding these risks and their plans for managing them. The author discusses how DC plan design can have a major impact on how individuals convert their retirement savings to retirement income; differences in survey responses between those who have consulted a financial advisor or other financial professional and those who have not; and the role of trust in implementing advice.
Basing pay on well-built long-term financial goals is one of the best paths for restructuring incen¬tives. But this approach would seem to impose difficult trade-offs in terms of losing both the re¬tention effects of restricted share grants and the upside leverage and shareholder alignment of op¬tions. A closer look, however, provides a different perspective. As an instrument of prudent business governance, a well-designed performance-based long-term incentive (LTI) policy can be remarkably flexible and adaptive in supporting a range of objectives, including competitiveness, reten¬tion, accountability, leverage, alignment with value creation, line of sight and cost optimization. This article uses a series of LTI scenarios to illustrate how companies can pursue the best features of all approaches.
3rd Quarter 2011
In today’s economy, employers have to meet the needs of a diverse workforce and grant their employees the job protection that comes with certain leaves. But they also realize that there can be a significant productivity impact if absences and leaves are not appropriately and consistently managed. Total absence management is often associated with family medical leave, an employer’s disability insurance program and work schedules. However, it is also important that employers think about a holistic approach to health and financial wellness, as these issues can keep employees out of work as well. Taking a comprehensive approach to total absence management should involve not only capturing and managing absences but also mitigating them in the first place, returning disabled workers to their jobs safely and effectively, and helping increase productivity.
The total cost of employee absence for many employers is high, and the correlation between employee health and disability is clear. This article reviews several challenges employers face in managing employee health and absence in a well-integrated manner. Although such an undertaking is not easy, the additional cost national health care reform may bring makes the interrelationship between employer profitability and employee absence, health and disability more crucial than ever for employers to recognize and manage.
Employers must get more aggressive in their health and productivity strategies. A comprehensive strategy includes data analytics across health and lost-time programs, absence policies that meet today’s needs for both employer and employee, health and wellness programs targeting modifiable health behaviors, and absence program administration that is aligned to operational goals. This article targets key aspects of a comprehensive long-term health and productivity strategic vision. An organization can use these aspects independently to address immediate tactical issues while it develops its broader strategy. The target areas include a view from the perspective of data management, absence program design and management, employee health and wellness, and behavioral health.
Sometimes called total income replacement solutions or personal pension plans, guaranteed lifetime income options (GLIOs) look like an attractive choice for those who experienced sudden drops in the value of target-date funds during the last few years. However, GLIOs are not a good fit for everyone. Plan sponsors must assess this new type of investment vehicle in light of their fiduciary duties, the likelihood of evolving regulations and potential future market impacts. This article highlights some of the critical issues and questions that companies must consider as they evaluate GLIOs for their own retirement plans and conduct due diligence about specific products.
Concern about the future of retirement security is fueled by the growing number of Americans who will reach traditional retirement ages in the environment that has emerged over the last decade, one that includes major changes in the retirement system as well as in investment markets. Of particular concern is the growing emergence of defined contribution (DC) plans as the primary source of employer-sponsored retirement income. To help employees obtain retirement security in this new environment, DC plan sponsors must understand the gaps that exist in current plans, how employees normally behave and the external influences that drive employee behavior. With this knowledge, sponsors can structure solutions or work with other parties that can bring these solutions forward.
The health care reform law contains only two direct changes to health savings accounts (HSAs): eliminating the ability to use the HSA for over-the- counter drugs and increasing the early withdrawal penalty from 10% to 20%. The indirect changes, however, could drastically curtail the growth of HSAs or even result in the end of HSAs.The actual impact is uncertain at this time because much of the detail of the law is left to regulatory interpretation. This article identifies and analyzes seven areas in the new law that could indirectly impact HSAs.
4th Quarter 2011
At the 2010 conference of the European Network for Research on Supplementary Pensions, experts explored how and why the image of the ideal pension system differs across countries. The article provides an overview of that conference and the resulting conference volume. Lessons of special relevance for the United States are that a number of countries have achieved higher coverage rates than ours, but generally because of either government mandates or widespread collective bargaining, and several countries have reduced the risk in DC plans through the use of minimum-rate-of-return guarantees.
Today’s multinational companies understand the need for a healthier workforce. Whether in developed markets such as the United States and the United Kingdom, or in emerging economies such as China and India, health trends pointing to a rising incidence of chronic disease and lifestyle related health issues are requiring a strategic response from employers. A study MetLife undertook in coordination with the Sloan Center on Aging & Work at Boston College involved a detailed examination at four large multinational companies to understand how health trends vary by country and the specific programs the organizations implemented to support a healthier workforce. This article highlights some of the best practices the study found for an integrated health and wellness program.
Flexible benefits, or “flex,” is a strategic human resources solution that can give companies a truly competitive edge in winning the global war for talent and containing costs. Several companies in Asia plan to implement flex in the next few years, and a number of emerging best practices in flexible benefits design are being developed. This article discusses the many advantages of flex, flex best practices emerging across Asia, and important considerations for employers when designing flexible benefits. Finally, the author shows how one global company in Singapore found flex to be an effective differentiator for attracting and retaining talent as well as helping manage employee health care costs.
As companies continue to expand into different countries and grow their head counts in locations where operations already exist, the number of unidentified plans and the liability associated with them continue to grow. Even in existing locations where companies are operating business as usual, hidden liabilities likely exist and go unmeasured. This article reviews several key drivers to the growing pool of overlooked overseas plans and liabilities, and it explains what steps employers can take to ensure good corporate governance and help avoid unpleasant surprises in the future.
Despite their differences, the defined contribution (DC) systems of the United States (the world’s largest, in terms of total assets) and of Australia (relatively the world’s largest, in terms of assets to gross domestic product) have much to learn from one another. Major lessons that Australia can teach the U.S. are to better diversify investment strategies, contribute more, take advantage of the scale more contributions offer and watch the pitfalls that come with greater coverage. Conversely, Australians can learn from the American innovation of spreading investment risk over time in harmony with account size. Both systems can improve the efficacy of benefit distribution in retirement, as the prevailing lumpsum habit exposes DC participants to spending risk.
The Dutch occupational pension system is the best-funded in the world. It has virtually complete coverage, and its defined benefit liabilities are typically more than 100% funded. To get to this stage has required cooperation across employers and a regulatory regime that creates unique target-funded ratios that vary with the amount of investment risk taken. In response, sponsors provide benefits that are gradually increased every year rather than promised at a high level from the start. This article explains how the Dutch system works, and how it differs from the U.S. occupational pension system.
The design and governance of pension funds is an important topic of academic research and public policy and has significant implications for the welfare of participants. The authors of this article synthesize the findings of a yearlong research project based on in-depth interviews with the sponsors and managers of leading schemes from around the world. They argue that whereas defined contribution (DC) plans were once believed to be simple solutions to burdensome defined benefit (DB) liabilities, there is nothing simple about a well-designed DC pension plan. In essence, the complexities associated with DB liabilities have been exchanged for complexities in the design and management of DC institutions.