Employers are outsourcing more of the functions of their corporate benefit departments than ever before, recent research shows. Benefit brokers should be prepared to work in an increasingly complicated environment.
The administration of employee assistance programs, flexible spending accounts, COBRA, retirement benefits, and pharmacy benefits are among the top areas for which corporations are seeking third-party support, according to a recent survey by the International Foundation of Employee Benefit Plans. More than one-third of companies saw the amount of benefits administration work they outsourced increase in the past two years for reasons of professional expertise, technological advantage, reduced costs, or lowered risk.
That squares with what Perry Braun, executive director of the Benefit Advisors Network (BAN), knows about the current state of the industry. In fact, Braun thinks the 40% figure may be a little on the low side. More than any other factor, he says, the driving force behind the uptick in outsourcing is a complicated environment in which cost and liability issues drive the bulk of decision-making.
“Complexity of any one thing drives us all to achieve a simplistic way of handling complexity,” Braun says. Employers are tasked with achieving greater efficiencies and greater control over the information required by regulatory agencies, and that circumstance is only likely to become truer in the future, he adds.
“If I can reduce my infrastructure and administration expense by taking people out of the process and inserting technology, I’m going to do that,” Braun says.
“If I wanted to insource those activities, there’s an expense to do it and a risk if I screw it up,” he adds. “If I outsource, there’s liability coverage. “
In a departure from traditional pen-and-paper interactions, many third-party benefit administrators are able to offer web-based benefit enrollment and plan comparison information via technology that is scalable to smaller markets, not just enterprise-class corporations. What that means for brokers is a deeper opportunity to approach employers on the topics of resolving risk mitigation, managing expenses, and addressing questions of how these factors can affect employees and their families.
“What does the human resource department become is a great question for employees today and in the future,” says Braun. “Where you are today, human resources is more of a strategic role rather than a tactical role. They’re contracting out to satisfy the tactical elements of the plan, and they have to align what they’re doing with the financial and cultural goals of the company.”
At the end of the day, he says, in part, “HR people are measured in how satisfied employees are in their pay [and] their benefits. They are the fulcrum of taking that behavior into management.”
In general, Braun says, employees can expect to encounter increasingly self-service models of benefits management like those that have already taken hold in the development of 401(k) programs. Benefit holders directly interact not with staff from their employers, but with fund managers and administrative managers; employers essentially sponsor the plans and ensure that their contributing funds are deposited in accordance with the frameworks of plan agreements. These are trends that are only likely to increase, Braun believes, as employers come to regard participating in benefits outsourcing as an essential competitive advantage.
“I think employers generally ask the same question,” he says: “What’s the other guy doing that I’m not? What are the emerging tactics that I should be considering?
“Every business is in the business of trying to remain competitive, and part of that is having a competitive price or cost position in the marketplace,” Braun says. “Employers always have their eyes on how to have a relevant structure to compete with labor.”
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