People Are Talking

Health Care Costs vs. the CPI

Last week, the Bureau of Labor Statistics released data on Consumer Price Index (CPI) changes over the past 20 years. Since September 1986, CPI has increased by 84%. But, over the same period, the
cost of health care has risen by an average of 191%. In fact, health-related services comprise four of the five highest cost categories.

The Top Five drivers of U.S. inflation since 1986 are as follows:

College tuition: 289.5%
Hospital services: 280.4%
Prescription drugs: 177.6%
Medical care: 173.5%
Doctor services: 137.3%

Clearly, with an increase in the use (and cost) of technology, the prevalence of specialty medications, and an aging population, it’s unlikely that health care costs will start trending downward. The implications for employers are staggering.

As the data show, traditional cost-management strategies are not the answer -- and never really have been effective. It therefore makes no sense to assume that tweaks in benefit design, and continued cost shifting, can reverse the upward cost trend. For this reason, many employers are starting to embrace non-traditional approaches that have proven successful at reducing health care risk (and ultimate cost). (Click here for more information.)

One thing is certain: If employers don't shift benefit direction, they'll end up exactly where they've been heading.

11.08.06

Presentation in Florida: How To Reduce the Cost of Health Care

The Florida Bankers Association holds its annual "Education Expo"
on December 13 and 14 at the Grand Lakes Resort in Orlando, Florida. The conference covers seven key "Tracks" (including such bank functions as compliance, lending, and security; and topics of more general interest, like marketing, human resources, and benefits).

This year, Corey Sherman, one of our Managing Partners, has been asked to lead a session. The presentation, on Wednesday, December 13 at 12:15 p.m., is called "How to Reduce the Cost of Medical Benefits: What the Health Industry Doesn't Want You to Know." Over the course of 90 minutes, Corey will cover such questions as:

Which key HR and benefit factors are really driving the cost of health care today?
What are the six myths insurers want you to continue believing – and the six "fundamentals" they hope you never learn?
What's the objective truth about so-called leading-edge approaches, like consumer-driven health care, HRAs, and HSAs? And who benefits most when employers switch plans?

As a consultant to both employers and insurers, Corey will give attendees an "insider's" perspective on what's going on in health care, and show how HR and benefit managers can turn the tables on the insurance industry. Armed with these strategies, an employer will be able to not just manage, but actually reduce the cost of employee health care.

The Florida Bankers Education Expo typically delivers good value to attendees – and goes beyond matters affecting only the banking industry. Any HR or benefits manager can benefit from this year's meeting, which includes sessions on HR audits, mergers and acquisitions, branding, reengineering, and "The Seven Laws of Leadership." There will also be two panel discussions on legal and benefit issues.

For information about the conference, go to http://www.floridabankers.com/education/banker_education_expo.cfm
You can also click here to download the conference brochure.

10.25.06 [printer friendly]

Back to School: Benefit Board ABCs

Recent years have seen a series of increasingly burdensome financial, accounting, and regulatory requirements for plan sponsors. In the corporate world, benefit departments are staffed with subject-matter experts, who keep up with compliance issues and best practices, and work with outside consultants to guide the employer on plan design and funding.

For public employers, things work much differently.

Benefit plans for state, municipal, and local governments are usually run by independent boards. Though the elective body allocates budgets, they don’t oversee the plans. Responsibility for designing, managing, and maintaining benefits is vested in small groups of people from a cross-section of life.

Some benefit boards are relatively small (five members); others are large (as many as 30). They’re typically made up of members of the administration, private citizens (appointed by a governor or mayor), public employees or retirees (elected by a department or union), or officials serving under a mandate. State and local statutes define member terms.

Still, regardless of how public plans select boards, their programs operate at a significant disadvantage. That’s because, unlike companies, public-sector plans are run largely by people with little,
if any, technical benefit knowledge.

Board to Distraction
Like any other diverse group, benefit board members have mixed backgrounds, experience, and levels of expertise. Most of the time, they have some level of interest in benefits. And, since board service is voluntary (i.e., non-compensated), members are largely sincere, committed, and public-minded.

But they are rarely expert in the plans under their jurisdiction.
An incoming board member may know very little about how benefit plans work, how the board’s programs compare to benchmarked norms, or even how to assess plan financials appropriately. Nearly always, new members are unfamiliar with their specific requirements and expectations in their roles as plan fiduciaries.

Then there are questions of “fit.” By their very nature, boards attract all kinds of people. In one case, a union rep had been elected based on his promise to enact pension “reform” – without regard to the fact his proposed changes were impermissible under federal, local, and IRS regulations. In another, a first-term official had lobbied for a slot because he wanted a higher “profile” with public employees (who
are typically high voter-turnout groups). Unfortunately, he didn’t realize that some decisions a board inevitably has to make would prove to be unpopular with these same constituents.

The worst case of all was a prominent local broker, who had been appointed to bring the board his industry expertise. He wound up indicted, though, and eventually convicted, for exerting improper influence, soliciting bribes, and accepting kickbacks.

Still, despite the quirks of individual members, boards are capable
of accomplishing great things for plan sponsors and participants.
The best boards – those armed with proper training and information
– can be far more effective plan stewards than their private-sector counterparts. In fact, some analysts consider the independent board system the ideal way to manage employee programs.

Here’s why.

Getting Plans On Board
Under a benefit board, debate over conflicting plan priorities occurs not in closed offices, but in open meetings. Plan experience data
and financials are not guarded secrets, but matters of public record. As members of the benefit board, management and employee representatives receive the same information, get the same responses to their questions, and have the same opportunities to raise issues and concerns.

Most important, boards are governed by strict, and enforceable, fiduciary guidelines. Whether members are appointed by management or elected by participants, all of them are charged with making sound design and financial decisions. And these decisions must be made in the interest of not one “side” or the other – but
for the plan as a whole.

Thanks to this “level playing field,” public plans are often capable of addressing benefit problems far more effectively than corporations. Boards can achieve amazing things – but only when their members know their responsibilities, understand the plans under their jurisdiction, and have the perspective to act as fiduciaries.

Educating Boards
Board members, like any trustee, need experience in benefits, insight into public-sector HR concerns, and fiduciary training. Clearly, though, few people have all of these qualifications.

For this reason, targeted board education programs have become essential. Many boards are seeking such training on their own. But,
in an increasing number of jurisdictions, board education is becoming mandatory, for both first-time and incumbent members.

Board training programs are usually conducted in special-called meetings, or held during a scheduled board “retreat.” The curriculum is typically made up of eight components – usually (though not necessarily) in the following order:

Benefit Overview – a summary of the plans under board jurisdiction; program history (how the plans began and the needs they intended to address); major design changes over the years; current state of benefits.
Legislative Context – the legal basis of both the benefit program and its board; key legislative requirements and constraints.
Benefit Basics – plain-English explanations of how the plans work (e.g., participant demographics, plan design, benefit benchmarks, plan risk assessment and management, funding arrangements, financing and accounting issues, benefit administration, communication, enrollment, and employee education); identification of plan vendors and other support resources; assessment of current programs (adequacy, competitiveness, value relative to cost and market norms); “SWOT” analysis (strengths, weaknesses, opportunities, threats).
Rules & Roles – an overview of board history (e.g., how
and why it was created, significant changes in composition
or jurisdiction); board and office infrastructure; scope of
board authority; normal duties, collectively and as individual members; responsibilities of, and relationships with, executive director, staff, participants, dependents, legislative bodies, administration, and others.
Protocols – functioning as a plan trustee; internal and external communication.
Fiduciary Responsibilities – expense and liability issues; guidelines for making decisions with financial implications; expectations for plan fiduciaries; potential program and member liabilities.
Ethics – standards for member conduct (public and private).
Governance – membership terms; board and committee leadership; meeting schedules, agendas, and organizational procedures; group deliberative and decision-making processes; raising and resolution of objections and appeals (by participants, dependents, board members and vendors); expectations for board conduct and discourse; member accountability and discipline.

Board Thinking
The benefits of such training are substantial – and they aren’t limited to just board members.

Office staff is often invited to participate in the sessions. Many
boards are also asking their governing entities to start similar education programs – for Personnel, Legal, and Finance departments; legislative or council committees; and representatives of the mayor’s or governor’s office. And even the private sector is getting on-board. In industries as diverse as manufacturing and telecommunications,
HR and benefit staffs have begun comparable training programs.

Board education helps members grasp the content and context
of benefit programs, learn how their board is designed to work,
and understand the high ethical and fiduciary standards expected
of them. With this knowledge, members can better meet their responsibilities to protect the interests of governing bodies, elected officials, employees, retirees, and the tax-paying public. A board that has been trained in this was is better equipped to ensure that plans under its watch are sound, both for near term and far into the future.

A Powerful Argument
As the saying goes, knowledge is power. And since board members already have the power, board training increases their knowledge,
so they can use this power affirmatively.

In the end, board education leads to better benefit plans and more efficient plan administration. And the training, when expanded to other groups, can help the board work more effectively with legislative bodies – building consensus on key priorities, and
resulting in more effective, win/win solutions.

It’s a compelling proposition – for the benefit of all concerned.

For more information on how we can help you institute an effective education for your board, or training for a governmental or legislative entity, please contact us at info@strategicplanningassociates.com

10.04.06 [printer friendly]

Reducing the Cost of Employee Absenteeism

Before you “operate” on your sick-leave program, you may want
to give your company a thorough “examination.”

Abuse of time off wastes billions of dollars each year in lost productivity, poor quality, damaged customer relations, and
increased benefit costs. Still, absenteeism is not, in itself, the
problem. It’s usually just a symptom of other organizational ills.

That’s why “getting tough” on disability can generate, at best,
only short-term relief. For sustainable savings, an employer needs
to determine the root causes. Factors driving disability are specific
to each employer, and can include hiring practices, training, work environment, safety, labor relations, unmanaged expectations, and supervisory practices. Though the underlying causes vary, they all share one thing in common:

They can’t be fixed simply by changing the disability plan.

Without Reservations
One of our clients, a major hotel chain, had a particular location with extremely high absenteeism. The company suspected something environmental; after all, at another property, just a few miles away, attendance was excellent. Could a physical or chemical substance
be causing employees to get sick? Or was something else going on?

First, the company’s environmental consultant examined the physical location, and found nothing unusual. Then, Strategic Planning Associates was brought in to explore the work environment and
other HR issues.

After a few days of management interviews and employee focus groups, it became clear what was really wrong.

“How would you feel about switching managers?” we asked.

“What are you talking about?” the client replied. “Our problem is absenteeism, not management. We hired you to redesign our disability program.”

But modifying benefits wouldn’t solve the problem. So, we suggested that the company swap managers with the other location nearby. And, when they did, our surprising diagnosis proved to be right.

Within weeks, the “good” hotel began experiencing huge increases in sick time and disability costs. But, at the other property, attendance improved, absenteeism declined dramatically, and the facility became healthier than ever – a “medical miracle.”

Clearly, the problem wasn't hotel attendance policies or disability benefits. The issue was a bad manager, and, organizationally,
some holes in how performance was measured and rewarded.

Covering the Waterfront
As the hotel learned, absenteeism is often entirely unrelated to, and unaffected by, attendance policies or sick-leave programs. In fact, its real breeding ground may be somewhere entirely different, as shown in the following client examples:

At a large city government, police and fire disability rates
were 300% of benchmarked norms. The problem was a
poorly designed pension plan, with unusually steep penalties for early retirement. Officers and firefighters found a creative way “out”: they could “retire” early with a work-related (and
tax-free) disability. As the Police Chief noted, “Any officer working toward a City pension would be eligible, in my
opinion, for psychological disability benefits.”
At a diversified manufacturing company, management went
to great length to communicate production quotas. measure work output, and reward for productivity. But there was no corresponding emphasis on safety. Whenever production started to lag, and workers got pushed to do “whatever it takes” to increase productivity, guess what was the first
thing to slip. Safety. As with so many other things, what doesn’t get measured often just doesn’t get done.
At a heavily unionized company, supervisors didn’t feel
they had the authority to discipline poor performers.
So, they used the disability plan to “weed out” problem employees, which seemed to please everyone involved, especially union leadership. By collecting dues from both
the worker out sick and his replacement, the union got paid twice for a single job slot.

Potential for Substantial – and Sustainable – Savings
The only way to reduce direct and indirect sick-leave costs is to
attack the systemic, behavioral, and cultural elements that correlate to absenteeism. But, since the specific factors are unique to each employer, there’s no single solution that works in all cases. To
get things right requires extensive investigation, creativity, and
a commitment to changing the “culture of entitlement.”

Most employers lack the resources, or patience, to get beyond the symptoms – and address the real causes of problems. But those
that make the effort can reap great rewards.

For one client, we were able to reduce incidence of injury by over
30% – and severity, as measured by lost work days, by over 40%. For another, improved attendance produced over $5 million in savings. These results are not unusual. Employers who actively manage processes affecting the work environment, and abuse of sick time, can achieve payroll savings of 4% to 6% – and indirect savings of more than twice that amount.

To learn more about how to keep your people actively at work,
and reduce your disability benefit costs, contact us at info@strategicplanningassociates.com

09.01.06 [printer friendly]

Pension Protection Act: Implications for Hybrid Plans

Background
In the mid-1980s, many employers were grumbling about the administrative burdens the government had placed on defined benefit (DB) pension plans. At the same time, for a variety of reasons, defined contribution (DC) plans, which give participants the ability to invest their retirement funds, seemed to be an increasingly attractive alternative to DB.

In an attempt to get key DC features (such as individual accounts) within a DB environment, employers began adopting so-called “hybrids,” such as cash balance and pension equity plans. In many instances, employers designed the conversions to preserve overall employee benefits. In a number of cases, though, hybrid plans were intentionally used to reduce accruals (especially early retirement subsidies), associated plan liabilities, and plan sponsor pension expense.

Legal Challenges
Over time, employees, the media, and the general public became aware of the “take-away” effect of many of these plan conversions. The Wall Street Journal even featured a front-page story on actuaries, “caught on tape” at a national meeting, touting cash balance as a creative way to slash employee pension benefits.

It’s no wonder that, before long, a number of class-action lawsuits were filed on behalf of plan participants, claiming, among other things, that hybrids violated age-discrimination protections. IBM’s plan, for example, was deemed discriminatory in a series of rulings – which had been consistently upheld until the recent reversal by the Seventh Circuit Court of Appeals. Other cases are still pending. PNC (currently in the Third Circuit Court) and Southern California Edison (Ninth) are among the more well-known class-action suits yet to be decided. Some practitioners believe these rulings may not necessarily concur with those of the Seventh Circuit Court.

Implications of the Pension Protection Act
In August 2006, President Bush signed the Pension Protection Act (PPA) into law. It declares that hybrid plans that go into effect after June 28, 2005 will be considered compliant with regulations if designed consistent with PPA provisions. But, and this is a key concern for many employers, the same protections are not extended to conversions made before June 29, 2005. If your hybrid plan took effect prior to that date, the status of your program, and all benefits accrued by participants, are not covered under the PPA. These plans are still subject to interpretation in court – and are therefore still vulnerable, both legally and financially.

Certainly, with the enactment of the PPA, converting to a cash balance or pension equity plan is a more viable option for employers. With the PPA-provided “safe harbor” for new plans, hybrids might now be viewed as a tailor-made solution to new pension funding pressures (also created by the Act). And there’s no question that, in certain business situations, hybrid plans work extremely well. In the original IBM case, for instance, the employer had been facing daunting, and seemingly intractable, financial pressures. For IBM, converting to cash balance was the most palatable way to “convert” pension dollars into other types of compensation – so the company could attract and retain people who fit its new business model. Had IBM not been able to redirect spending in this way, it’s doubtful the company would have been able to survive, let alone achieve its remarkable turnaround.

Still, in most instances, employers will find that hybrids, by their nature, are a “mixed bag.” That’s because DB and DC plans are inherently very different, and incompatible, approaches, completely opposite in the ways they accrue and deliver retirement benefits – and provide protection to participants. By jamming the “round peg” of DC into the “square hole” of DB, hybrids can’t help but produce something that’s pared-down.

Ultimately, hybrids saddle employers with the “worst of both [benefit] worlds.” Plan sponsors still have to meet the complicated, and costly, administrative and financial management obligations of a DB plan – without being able to offer the substantial upside investment potential of DC.

What To Do About Your Retirement Plan
Whatever your circumstances, Strategic Planning Associates has the processes, resources, and tools to address your retirement plan issues or concerns. Using our proven multidisciplinary approach, we can help you analyze your data; align program priorities with overall organizational objectives; and, through extensive management interviews, employee focus groups, and surveys, build consensus on design – and momentum for change.

If your business situation calls for a hybrid approach, we can convert your pension to a cash balance or pension equity plan customized and framed to achieve your organization’s objectives. As appropriate, we can also offer you alternative strategies that may be even more effective. Either way, you’ll implement a program with provisions and features designed to meet your specific needs.

If you converted to a hybrid plan before June 29, 2005, you’ll find that our services can be particularly valuable to you. That’s because Strategic Planning Associates is the only firm in the industry with a suite of "exit" strategies – to secure, and even enhance, your pension benefits, while substantially reducing your vulnerability and risk.

For more information on how we can help you fine-tune your organization’s approach to retirement benefits contact us at info@strategicplanningassociates.com

TOPICS

Health Care Costs vs. the CPI

Presentation in Florida: How To Reduce the Cost
of Health Care

Back to School:
Benefit Board ABCs

Reducing the Cost of Employee Absenteeism

Pension Protection Act: Implications
for Hybrid Plans