This is Part 3 in our series on pension and benefits plan management for mid-size and smaller plan sponsors.
Read Part 2: Risks and solutions for mid-size plans
Those organizations with fewer plan members face a few roadblocks when it comes to offering the flexibility that many of their employees seek in their group benefits plans.
One of the biggest trends Geoff Blunden, chief financial officer with the 300-employee multidisciplinary consulting firm Urban Systems in Kamloops, B.C., says he’s seen on the benefits side over the last 10 years is a desire for flexibility and individualization. At the same time, he says companies have to strike a balance between customization and administrative efficiency.
“In some areas, we offer a high degree of customization [and] flexibility. [In] other areas, we say, ‘You know, we could offer more flexibility, but the cost benefit doesn’t appear to be there between adding value through the flexibility and adding costs through the administration,’” he explains.
Bruce McLeod, vice-president of HR with Bioniche Life Sciences in Belleville, Ont., says a flexible benefits plan can be attractive to prospective employees, but such an arrangement is not feasible for many mid-size employers.
“In a mid-size company, you may not have large enough employee numbers to create a mirror of the age demographic in the population at large,” he explains, noting that at 225 employees, Bioniche isn’t large enough to roll out a flex plan.
“This can mean that the more skewed the demographic, [the more] it will affect premiums either up or down, depending on the direction of the skew.”
Tim Hadlow, vice-president and Toronto practice leader, health and benefits, with Aon Hewitt, says flexibility is more readily available to employers in the 400- or 500-plus life range. In fact, there are many more opportunities for plan administration—whether via insurance carriers or consulting firms—that may not have been available five years ago. For many mid-size plan sponsors, he continues, this might include a modular plan with different packages of benefits or slightly fewer options than large employers offer.
“We certainly don’t see a lot of flexible benefits plans when you get into the smaller numbers, as you do need some volume of employees to make it viable,” he explains.
As with the co-investment opportunities being explored by some smaller pension plans, some small and mid-size benefits plan sponsors have seen new opportunities come from grouping with other companies.
B.C.-based Prospera Credit Union, for example, offers a flexible benefits plan that it says is highly valued by its 430 employees. Through the B.C. Credit Union Employees Benefits plan—co-ordinated by the central financial facility and trade association for the B.C. and Ontario credit union systems, Central 1 Credit Union—Prospera has been able to join forces with 44 other credit unions across the province. Representing 7,000 employees, the group can leverage the buying power and tap into benefits programs normally available only to much larger organizations. The size of employers participating in the multi-employer plan ranges from 1,800 employees to as few as two employees.
The main benefits of being part of the multi-employer plan are economies of scale in terms of the cost of benefits, particularly on the health and welfare side, as well as a reduction in consulting costs and in the requirements for in-house expertise, says Heather Johnson, senior vice-president, HR, with Prospera Credit Union.
Farouk Ratansi, director, benefits and retirement solutions, with Central 1 Credit Union, says that along with offering a traditional benefits plan, his organization developed a standard “full cafeteria” flexible benefits plan design that allows employers to determine the total amount of flex credits they provide to their employees, decide where excess flex credits can be directed and set different benefits levels.
Employers also have the ability to set different amounts of flex credits for various classes of employees, such as an executive group or a part-time group, says Ratansi.
Of the employers that participate in Central 1’s multi-employer plan, it is the mid-size to larger organizations that have chosen to offer flex benefits. “The smaller groups are still remaining in the traditional benefits plan, which may be due to the higher administrative costs associated with offering flex benefits,” he says.
When it comes down to it, says Hadlow, mid-size plan sponsors are facing similar challenges to their large counterparts. Employers want a plan in place to attract and retain employees while also managing costs; employees want good coverage and flexibility at a low cost to them. The difference for mid-size plan sponsors often involves the level of risk they are willing to take on and the cost containment considerations, when there is more volatility with smaller employee groups.
“It’s still about trying to find the right balance between employer and employee needs, coming up with a plan design and funding approach that works for both,” explains Hadlow.
Helen Burnett-Nichols is a freelance writer in Hamilton, Ont. helen@burnettnichols.com
Get a PDF of our series on mid-size plan management.