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September/October 2014

Global Benefits Trends: Moving Beyond the Traditional Package


 

The pace of change is increasing. Following the economic crisis of the late 2000s, corporations continue to switch their focus from cost cutting to cost efficiency, with increased benchmarking to ensure that their benefits are competitive.

At the same time, they want to enhance the employee experience by offering voluntary benefits and improving communication. Employers are also selective about the risks they are prepared to take on behalf of their employee benefits and are starting to pay more attention to financial wellness and retirement income adequacy.

As strategic HR functions become increasingly centralized, there is a growing need for external expert advice and reliable local market data to maximize the company’s return on benefit expenditures and to comply with complex legal and tax requirements. It’s a trend that will continue through 2014 and beyond, especially in light of the still-rising costs of medical and other benefits.

BALANCING APPEAL WITH BUDGETS

With talent shortages and an aging workforce on the horizon, employers are striving to develop cost-effective, yet attractive, benefit plans. Presenting benefits as part of a total rewards package can help employees better understand the value of their benefits and support the company’s engagement and retention efforts.

To that end, more employers are launching some form of communication program to promote their benefit packages and offer a broader definition of what benefits represent beyond traditional offerings. Many large corporations are enhancing the employee experience by ensuring that the range and flexibility of benefits are appropriate. For example, companies are showing significantly increased interest in affinity benefits (that is, voluntary benefits offered to individuals on attractive group terms). And in the US, the changes wrought by health care reform legislation have sparked a new innovation: the private exchange model (see sidebar, “Q&A: The Transformational Basics of the US Private Exchange Model”).

The interrelated goals of attracting, retaining, and engaging skilled talent drive the necessity to maintain benefit competitiveness by conducting benchmarking comparisons in locations where the company operates. Staying abreast of market trends allows employers to prepare for the future and encourage valuable employees to develop career paths within the company. But gathering data alone is insufficient; employers need to learn how to leverage this information within the context of their benefit programs.

While traditional reviews of benefit plans usually involve a comparison of coverage, costs, premiums, and other relevant factors, managers continue to look for action-oriented reviews focused on optimal plan designs, financing methods, and delivery options.

Those employers that have implemented wellness programs are also now paying more attention to financial wellness — for example, by joining the growing number of companies that are shifting from defined benefit to defined contribution plans. In addition, they are taking a closer look at the components of such plans and the required oversight.

EXPERIMENTING WITH ALTERNATIVE ASSIGNMENTS

Gradually moving away from traditional mobility assignments, multinational organizations are considering lower-cost relocations — for example, placing the employee on local pay and benefits instead of providing a more costly expatriate package. When implementing these alternative assignment types, HR administrators require knowledge of local statutory and employer-provided benefits.

This need is on the rise as companies experiment with various assignment formats to balance the desires of cost-conscious management with the need to relocate employees and their families. While most variations cover the employee through local — cost-efficient — benefit systems, it is common to retain the employee in certain home-country benefit plans, such as retirement, to comply with the law.

With a global economy that continues to grow sluggishly, many companies have restructured their HR departments to eliminate some benefit specialties. Others have pooled these resources and tasked them with overseeing a series of locations or regions.

With fewer benefit specialists on hand, employers increasingly are turning to outside experts for help and guidance to wind their way through the maze of country-specific legislation and other requirements.

PLANNING WORKFORCE STRATEGY

Along with the skills shortage and demographic changes, multinational employers must address increasingly complicated rules, regulations, and common practices that can have a substantial impact on their operations. Organizations that envision a particular market for their products and services can benefit from data on the age distribution of their workforce and whether employees are approaching the statutory retirement age — or perhaps considering early retirement, where permissible.

Maintaining the skills and knowledge base of valued long-term employees in light of changing demographics is a key factor in workforce planning. From an external perspective, increasing life expectancies continue to exert pressure on public pension systems. Consequently, in an increasing number of countries, governments are gradually raising statutory retirement ages — thereby indirectly assisting employers to keep talented individuals on their payrolls a little longer. For example, Australia announced that by 2035, the retirement age for those born after 1965 will be 70. Other countries have made changes in recent years, and indications point to this trend persisting in the future.

BLENDING COMPANIES

Global merger and acquisition (M&A) activity in recent years has pointed out the need to review, integrate, and redesign company benefit offerings. These kinds of corporate transactions can severely impact employee engagement, retention, and even productivity. By understanding retention drivers and engagement motivators in a particular country, employers can develop a retention program that works while improving the way in which they provide insured and uninsured benefits when multiple countries are involved.

An M&A due diligence process involves determining and mitigating risks and liabilities that may be byproducts of the proposed transaction. For example:

  • Defined benefit plans, retiree medical benefits, change-in-control clauses, severance requirements, and executive long-term incentives are typical issues.
  • Companies must comply with the demands of unions and/or works councils, pension trustees and regulators, and evolving government regulations.
  • Increasingly diverse (nationality-wise) senior management and company boards challenge companies to design reasonable and tax-effective multi-country retirement programs.


Q&A: THE TRANSFORMATIONAL BASICS OF THE US PRIVATE EXCHANGE MODEL

The private exchange model has unleashed a wave of transformational change, enabling US employers to fundamentally rethink how to provide benefits to their workforces. Private exchanges have already taken off with meaningful adoption in 2014, and Mercer believes this will accelerate exponentially. Eric Grossman, senior partner and Active Mercer MarketplaceSM business leader, outlines the basics of private benefit exchanges for employers and employees.

Q: WHAT CONCERNS ARE LEADING COMPANIES TO TURN TO PRIVATE EXCHANGES TO MANAGE THEIR HEALTH AND BENEFITS PROGRAMS?

ERIC GROSSMAN: Plan management, administration, and compliance all present significant challenges for resource-stretched HR and benefits professionals, and new compliance requirements under the Affordable Care Act exacerbate the situation. In addition, employees have come to expect more individual choice, but this can be challenging for employers to offer within their current programs.

Q: HOW DO PRIVATE EXCHANGES ADDRESS THESE CONCERNS?

E.G.: A well-designed private exchange should demonstrate a sustained ability to bend the cost trend. One of the most important ways to achieve this is by helping consumers to “right size” their medical coverage. We have also identified opportunities to take cost out of the system through competition, medical network optimization to drive the most favorable financial terms, and collective purchasing. Another important factor is enabling new market entrants that can deliver cost-effective, high-quality medical care.

A private exchange also helps facilitate a move to a defined contribution approach to benefits. This enables an employer to de-link its benefits spend from underlying medical cost increases, resulting in greater cost predictability and savings.

And finally, a private exchange can alleviate administrative complexity by standardizing plan design, coverage procurement, and renewal processing, as well as handling a broad array of compliance requirements. The best part is that all of these advantages can be achieved while providing greater choice and flexibility to employees.

Q: HIGHER-DEDUCTIBLE PLANS CAN BE SCARY FOR CONSUMERS. HOW DOES THE EXCHANGE FRAMEWORK HELP PEOPLE OVERCOME BARRIERS IN RIGHT-SIZING THEIR COVERAGE?

E.G.: A significant percentage of people today are over-insured for medical benefits, so it is important to provide both tools and personal support to help employees purchase coverage that is appropriate for their needs and budgets. We have seen a significant shift of employees who are right-sizing their coverage by moving to higher-deductible plans, which offer not only lower-cost coverage but also slower growth in premiums.

One reason employees don’t right-size coverage today is because they don’t have an option to do so. Their employers give them only one or two choices that are in a very narrow range. So just offering the option to right-size is the first step.

Q: HOW DO YOU SEE PRIVATE EXCHANGES EVOLVING ALONGSIDE THE PUBLIC EXCHANGES? HOW DO YOU THINK THEY WILL INTERACT?

E.G.: Private exchanges will be a conduit to the public exchanges for some segment of the population. Let’s say only half of the employees are eligible for employer-sponsored medical coverage and the other half are working part time, below the 30-hour threshold set by the Affordable Care Act. The employer is not likely to offer company-sponsored medical coverage for that part-time population but would welcome the opportunity to support those employees as they access the public exchanges.

Many employers will also give their part-time employees the ability to purchase other types of coverage — such as life insurance, dental, or an accident policy — that could supplement health care coverage from the public exchanges. We have designed Mercer Marketplace to support those not eligible for employer-sponsored medical coverage in finding the individual medical coverage that best meets their needs, typically through a public exchange.

Learn more about private health exchanges and Mercer MarketplaceSM

EASING PLAN ADMINISTRATION WITH OUTSIDE HELP

Smaller companies that lack internal expertise on complex benefit matters need support in handling daily administrative tasks. This growing need is changing the traditional consultant role from conceptual/design projects to more in-depth and hands-on detailed activity. With increased requests for outsourcing or “off the shelf” products, customization of benefit programs continues to decline for smaller companies.

An outsourcing (or partial co-sourcing) arrangement, whereby third-party experts handle administration, allows HR to focus on broader strategic decisions. Other factors also drive the need for vendor assistance. For example:

  • The increasing popularity of flexible programs in more mature markets — enabling employers to save money on unused benefits — requires a robust system to provide employees with choices.
  • The introduction of complex legislation — for example, in the US, where health insurance exchanges have emerged — can easily overwhelm small to midsize companies.
  • With more organizations pushing self-service responsibility into employees’ hands, technical expertise is a necessity to develop user-friendly benefit vehicles, such as mobile applications.
  • Tighter benefit regulatory requirements around the world are forcing companies to review their compliance procedures and ability to stay abreast of ongoing changes.


Although larger companies may have the advantage 
of internal experts in the workforce, they still require the data to ensure competitiveness, compliance, and cost efficiency.

As 2014 draws to a close, employers will continue to face more complexity, more regulation, more change, and the need for reliable global data. Paying close attention to benefit trends, staying on top of legal and regulatory changes, and ensuring that the scope, design, and operation of the governance processes are all key steps toward ensuring that companies maximize their potential when managing the workforce of the future.

 

Learn more about global benefits trends and strategies for multinational companies and how one of Mercer’s flagship publications, Worldwide Benefit & Employment Guidelines (WBEG), can support global HR efforts.

 

CONTACTS

J.P. Provost (New York)
Senior Partner, International
Consulting Group
+1 212 345 8998
E-mail
Graham Pearce (Munich, Germany)
Partner, International Consulting Group
+49 89 242 68 497
E-mail
Eric Grossman (Norwalk, CT)
Senior Partner, Health & Benefits
+1 203 229 6105
E-mail


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