Tight Squeeze

Hard Lessons
In this unprecedented economic environment, employers face significant HR issues. Defined benefit (DB) plan sponsors are particularly challenged, as the rapidly falling markets led to many plans becoming underfunded. “They’ve been hammered by volatility, hammered by the markets, hammered by changes in long bond yields,” says Ian Markham, director of pension innovation with Watson Wyatt Worldwide. “So they are very much into the frame of mind of trying to mitigate their risks and develop plans for how to get out of the hole.”

Defined contribution (DC) plans were also hit hard—and while employers may not bear the investment risk, they still have to deal with the fallout when employee balances plummet. Mardi Walker, senior vice-president, people, with Maple Leaf Sports & Entertainment Ltd., says most of her DC plan members aren’t panicking, but some who are close to retirement are concerned about the impact of the markets on their retirement savings. “The challenge there is keeping people educated and helping them make good investment decisions.”

Not surprisingly, risk management has become a major issue. “On the pension side, we’ve had a lot of extra work in this economic time,” says Zahid Salman, executive vice-president with Morneau Sobeco. “Clients have been coming to us saying, ‘How can we better manage the risk associated with our pension programs, given how investments have performed?’”

Greg Malone, a principal with Eckler Ltd., says this focus on isolating risk means that more clients are making changes to their plans, but in a calculated way. “There’s a lot of stepping up of due diligence efforts: examining benefits costs with more frequency, examining the design of programs and [making] minor tweaks or wholesale changes to plan design. Whatever looks to best serve a sponsor and its employee population in the long term.”

On the group benefits side, cost containment is the main priority. Walker says her No. 1 challenge is controlling costs while trying to maintain the same benefit level. But while this may be an easy time to slash benefits, it seems most employers aren’t willing to sacrifice their talent management and employee engagement objectives to save a few dollars.

Sarah Beech, managing principal, consulting, with Hewitt Associates, says one upside to this downturn is that employers are looking more closely at the rewards they’re offering and making longer-term strategic decisions. “They’re looking for more overall plan management costs as opposed to direct takeaway costs,” she explains. “So it’s really working with the insurers and other providers to see, How can plans be run more efficiently? How can we ensure that they’re getting the best rate for the size of the organization?”

Joy Sloane, a partner with Morneau Sobeco, agrees that clients have been more receptive to making strategic changes to their benefits plans. “There’s nothing like an economic downturn to motivate people to consider things that, a year ago, they would have just dismissed—which I think is the opportunity. There’s a lot more creativity that they’re looking at: solutions they may not have entertained a couple of years ago.”

Consulting Cutbacks?
When employers are focused on controlling costs, consulting expenses could be one of the first areas cut from company budgets.

Consultants admit that many clients have delayed implementing new projects or pulled back from certain discretionary expenses. “By early in the new year, pretty much everybody was holding off on some assignments with a clear message of, ‘Can you help us reduce costs?’” affirms Kevin Sorhaitz, principal and consulting actuary with Buck Consultants. And this has been a challenge both across the consulting industry and beyond it.

However, while some consulting areas are suffering, others are seeing more activity. “Like many others, we have seen a decrease in the number of opportunities that are available in more discretionary areas of our consulting practice,” remarks Kevin Aselstine, managing principal with Towers Perrin. “By the same token…we’ve seen more care taken to trying to identify, from a longer-range business planning perspective, what are the pivotal roles inside an organization and what do we need to do to continue to drive our longer-term growth and profitability agenda, notwithstanding a short-term focus on expense reduction?”