study: to manage benefits administration internally or outsource?

To Manage Benefits Administration Internally or Outsource? That IS the QuestionThat IS the Question

John A. Haslinger, VP Benefits Outsourcing Consulting

May 17, 2012

Goals Of Study

Determine what employers are:

Thinking about – the various trade-offs inherent in insourcing and outsourcing b fit d i i t tibenefits administration

Actually doing – that is, what functions are outsourced today and which are insourced

Planning on doing – that is, in light of the changing technological and regulatory landscape, are employers planning on insourcing or outsourcing more functionality

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Note: Survey statistics within this presentation all refer to the ADP HR/Benefits Pulse Survey on Benefits Administration, 2012

Historic Perspective

The Choices

Manage Internally (Insource) – handle all requirements internally

Co-Source – handle some requirements internally and outsource some services

Outsource – rely on one or more vendors to handle all requirements other than strategic design

Major Reasons To Insource Major Reasons To Outsource

strategic design

j

Employer desire to maintain control

Need to provide custom experience

j

Improve service at lower cost

Access to knowledge and expertise

Significant legacy investments in ERP Access to advanced technology

Compliance Assistance

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Most Common Benefits Tasks

Most employers of all sizes continue to handle at least some elements of most benefits administration internallyadministration internally

Over 98% of employers insource at least some benefits administration

Large employers are more likely to Large employers are more likely to outsource benefits administration then are midsized

– On balance, large companies outsource an average of 7 benefits tasks compared to only 5 for midsized employers

The exceptions are services that are highly technical and have significant compliance requirements COBRACOBRA 401(k) FSA

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Key Reasons For Insourcing

Employers of all sizes indicate that insourcing

Improves their ability to stay Improves their ability to stay involved with their employees

Provides better access to data

Differences based on employer size

41% of midsized employers(compared to 21% of large employers) administer benefits in-house because they believe it is easier to do so

48% of large employers(compared to 29% of midsized employers) administer benefits in-y )house because they want to maintain control over the process

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Key Reasons For Outsourcing

Looking at all employers, the key reason employers outsource benefits administration is to help pensure compliance

Employers of all sizes also agree on the next top 4 reasons for outsourcing Access to knowledge/expertise Reduced administrative burden

(Note: for large employers this ties i h h l i li )

( g p ywith helping to ensure compliance)

Complexity of Health Care Reform (another compliance concern)

Lack of internal staff

There are significant differences based on employer size related to Difficulty of handling internally Desire to focus strategically Cost efficiency

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Impact Of ACA On Benefits Administration

Most employers anticipate that Health Care Reform will make benefits administration more complex – although thi t h i d i 2011

March 2012 April 2011

Midsized Large Midsized Largethis percentage has improved since 2011 52% 54% 66% 70%

Most employers anticipate that Health Care Reform will increase the time needed

March 2012 April 2011Care Reform will increase the time needed for benefits administration – but once again, time seems to have helped to improve expectations

Midsized Large Midsized Large

57% 64% 72% 75%

Most large employers (and close to half of midsized employers) report that Health Care Reform will increase their likelihood

March 2012 April 2011

Midsized Large Midsized Largeof outsourcing benefits administration –and these numbers have increased since 2011

Thi ld b k f t i th

45% 54% 30% 39%

Source: ADP HR/Benefits Pulse Survey on Benefits Administration

This could be a key factor in the improvements noted in the first two items above

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Employees May Qualify For Federal Subsidies At Fairly High Income Levels

Part-Time Eligibility Employees Who Work 30 Hrs or More Per Wk - 130 hrs of work in a calendar month

– Large Employers Must Make Coverage AvailableFailure will result in a penalty for each employee if any ONE employee receives a subsidy– Failure will result in a penalty for each employee if any ONE employee receives a subsidy (federal tax credit) towards the purchase of coverage through an exchange

– Seasonal employees can possibly be excluded by using the look-back/stability period safe harborIncome Levels For 400% Of FPL (Indexed For Inflation)

No. Persons In FamilyFederal Poverty Level: 2012

48 Contiguous States 48 Contiguous States/DC1 $11,170 $44,6802 $15 130 $60 5202 $15,130 $60,5203 $19,090 $76,3604 $23,050 $92,2005 $27,010 $108,0406 $30,970 $123,880

Employers will need an integrated solution addressing Benefits-TLM-Payroll

$ , $ ,7 $34,930 $139,7208 $38,890 $155,560

Source: Federal Register 4035, January 26, 2012, http://aspe.hhs.gov/poverty/12poverty.shtml

p y g g y

Median Household Income In The U.S. was $49,445 In 2010U.S. Census Bureau – http://www.census.gov/prod/2011pubs/p60-239.pdfU.S. Census Bureau – http://www.census.gov/newsroom/releases/archives/income_wealth/cb11-157.html

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ADP’s Dynamic Workforce ModelHCM Integration Is Increasingly Critical To Compliance

Service Systems

Compliance Practices

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Shared Responsibility Requirements Driving Demand For HCM Integration

On average, survey respondents indicated that part-time employees comprise 18% of labor force for midsized employers

ApplicantMgt W-2

PayrollAdmin &

Call CenterHours

Worked Gross To Net

p y 20% of labor force for large employers

Portal

TimeBenefitsEnrollmentMaterials

Decision SupportT l

Time

EarningsTaxFilingsHR/PR

Timeate a s

EligibilityDetermination

Open & AutoEnrollment

Tools

BenefitsAdmin &

Call Center

Collection

Time AuditTools

MobileTechScheduling

Licenses

CarrierFiles

Disperse-ments

LicensesCertificates

ACAPenalty

Estimation

COBRADirect

Bill

It is no longer just a benefits event.

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What if a part-time employee works more 130 hours in a month?

ADP Integrated Solution:Shared Responsibility Requirement Under ACA

Automate beyond core payroll and benefits to achieve results in order to provide a seamlessly integrated solution Workforce management Workforce management

– Notices sent to managers as employees approach 30 hours in any week

– Ability of managers to see scheduled hours for all employees in order to manage hours

An Integrated Solution

p y gassigned in conjunction with liability for health care costs

Database of record– Payroll tracks actual hours worked

P ll d t t d t i t b fit

Benefits Payroll

EmployerMandates

– Payroll sends automated trigger to benefit administration system when employee exceeds 130 hours per month

Benefits administration Employee eligibility calculation is triggered

Time, Labor &Absence Mgt

S l A t t d W kflcalculation is triggered– Appropriate look-back and coverage period

rules are applied– Employee is notified of eligibility – avoiding

penaltyR ti d ili ti

Seamless Automated Workflow

1111

Reporting and reconciliation– Federal and state reporting– Reconciliation with penalty assessments

Actions Taken As A Result Of ACA

54%

23%

38%

Leverage

Add FSA Large employers are taking action in

response to ACA more quickly than are midsized employers

35%

42%

19%

23%

Expand Wellness

LeverageTechnology

The majority of the changes are focused on two areas

Wellness

40%23%

25%Increase

Add HRA

Wellness

Consumerism (green check marks)

31%

25%

26%Increase Co-Pay

Deductible However, two other trends have begun to emerge

The need to better leverage t h l

33%

29%

32%

30%

OutsourceAdministration

Add HDHP

Midsized

Large

technology

A move to outsource benefits administration

33%Administration Large

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Key Advantages Of Outsourcing

Those key administrative functions include Access to Access to

knowledge/expertise

Better compliance

Enables focus on strategic issues

Reduced administrative burden

More cost effective More cost effective

However, the importance of integration acrossintegration across multiple benefit areas ranks low

Among other things,

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this may reflect a lack of understanding of new requirements under ACA

Value Of Outsourced Providers

Employers overwhelmingly, report th t t i ithat outsourcing is valuable for specific benefits administration taskstasks

In particular, internal administrative burden h b d dhas been reduced as reported by

80% of midsized employers

91% of large employers

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Would Employers Recommend Their Current Outsourcing Provider

10%14%

Extremely Likely

MidsizedLarge Most employers report that

they would recommend their current outsourcing provider

29%19%

Very Likely

current outsourcing provider

Companies reporting they are Likely, Very Likely, or Extremely Likely to

23%26%

Likely

Extremely Likely to recommend their current vendor


12%15%Somewhat

Likely


62% of large employers

A smaller group (but one

26%25%

Not Likelythat is consistent across all employer sizes) would not make this recommendation

Source: ADP HR/Benefits Pulse Survey on Benefits Administration 25% of midsized employers

26% of large employers15


External Advice When Outsourcing

Both midsized and large companies report that they rely on external

d i h h iadvisors when choosing an outsourcing vendor to provide services 86% of midsized 86% of midsized

companies

82% of large companies

There is a difference in advisors linked to company size Midsized companies

are more likely to rely on brokers

Large companies areLarge companies are more likely to rely on consultants

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Criteria Used To Identify Outsourcer

Cost is the key factor in evaluating outsourcers

Benefits expertise follows as a Benefits expertise follows as a close second

No other factor accounts for more than 50% - although several are ranked relatively high

Services and capabilities

Solution capabilities

Compliance

There is a significant disconnect between the reasons identifiedbetween the reasons identified to outsource and the criteria used to select an outsourcer

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The Present: Employers Are Highly Satisfied With Outsourcing

88% of midsized companies report that

Has Current Benefits Administrator Met Senior Management’s Expectations

Satisfaction levels are very high among employers of all sizes

their outsourcer has met or exceeded expectations

91% of large

Has Current Benefits Administrator Met Senior Management s Expectations

91% of large companies report that their outsourcer has met or exceeded expectationsexpectations

Midsized (50-999 EEs) Large (1,000+ EEs)

Exceeded expectations Did not meet expectationsMet expectations Don’t know


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The Future: Employers Continue To Evaluate Alternatives Satisfaction with an outsourcer does NOT, however, mean that employers

have stopped evaluating the market

Employers of all sizes would p yrecommend their current providers

– 59% of midsized companies 59% 36% 5%Midsized (50-999 EEs)

Likelihood to Recommend Current Provider

– 61% of large companies

Employers report that they are currently evaluating the market and are likely to

61% 27% 12%Large (1000+ EEs)

market and are likely to switch providers

– 31% of midsized companies are likely to switch providers in th t 24 th

Likely (7-10) Neutral (5-6) Not Likely (0-4)


the next 24 months

– 47% of large companies are likely to switch providers in the next 24 months

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The Future:Experience With Outsourcing Leads To More

However, satisfaction DOES seem to have some correlation with the decision to outsourcewith the decision to outsource additional functionality within the next 24 months

28% of midsized employers 28% of midsized employers are planning on outsourcing more tasks

42% of large employers are g p yplanning on outsourcing more tasks


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Questions

The ADP logo and ADP are registered trademarks of ADP, Inc. In the Business of Your Success is a service mark of ADP, Inc.This material is subject to change and is provided for informational purposes only and nothing contained herein should be taken as legal opinion,

legal advice or a comprehensive compliance reviewlegal advice, or a comprehensive compliance review. Copyright © 2012 ADP, Inc.

study: to manage benefits administration internally or outsource?

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insourcing employers

benefits tasks

pensure compliance employers

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key reason employers

large companies

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outsourcing access