Planning Benefits Strategically

OUTCOMES OF STRATEGIC BENEFITS PLANNING

Strategic benefits planning is not an end product but a process that improves decision making and results in specific initiatives and outcomes. Outcomes of successfully completed strategic benefits planning initiatives include the following. (See Figure 20.6 .):

· Documentation of existing programs. Strategic benefits planning likely will force documentation of all existing benefits programs. This can enable the organization to conduct a full compliance review or audit of company-sponsored benefits programs. More specifically, it allows for careful reviews of summary plan documents (SPDs), Form 5500s, summary annual reports (SARs), and other forms of employee communication, and it also provides a vehicle to ensure that plan features and financing comply with current regulations.

· A tool to evaluate the balance among different plans. Strategic benefits planning provides an opportunity to assess objectively if the organization’s benefits resource allocation (e.g., dollars) is appropriate and/or aligned with the organization’s intent.

· For example, it evaluates whether benefits programs align with work-force demographics as well as recruitment, retention, and retirement goals.

· A framework to redesign existing benefits programs. At minimum, strategic benefits planning will identify contradictions among existing plan designs. More frequently, organizations use a strategic review to evaluate how well existing programs fit the desired business goals and/or to assess the availability of a better program or set of programs. For example, the process might result in the decision to shift from a defined health care benefit, in which the employer provides and subsidizes one or more health plans, to a consumer-directed health plan (CDHP), in which the employer provides a defined payment linked to one plan option, and the employee selects a health plan, either paying any incremental premium difference or receiving credit for a lower-priced option (Bureau of National Affairs 2001). In theory, a CDHP model of health benefits encourages greater employee accountability, offers more flexibility in plan design options, and gives employees greater choice (Employee Benefit Research Institute 2003). It may also reduce cost growth (Fowles 2004; Nichols 2002). Another decision might be to increase the number of 401(k) plan investment choices in an organization where there is a significant percentage of financially sophisticated employees. In contrast, an organization with comparatively less sophisticated employees would not be likely to reduce the number of investment options; however, it might consider introducing financial education initiatives.

· The impetus to design and implement new benefits initiatives. Frequently, strategic benefits programs allow an organization to identify new benefits programs that add value from an employee’s and manager’s perspective. While some programs may have some relatively significant costs, many innovative programs such as long-term care and auto insurance are usually cost-neutral to the employer (e.g., employee-pay-all programs and programs paid for with flex dollars).

· A decision to change benefits administrationn. Despite the increased visibility of out sourcing and its popularity, the wholesale movement of benefits administration to a third party may not always be in the employer’s best interest. Strategic benefits planning allows an organization to define those benefits programs that should remain in-house and those that should be outsourced based on its unique corporate culture, business goals, organization structure, and staff capabilities. Similarly, the outcome may be a reorganization that results in an internally managed benefits service center. Strategic planning clearly sets the stage to evaluate the effectiveness of information systems that are used for benefits planning and management.

· A review of plan financing vehicles. In conjunction with the review of plan design and administration, strategic benefits planning forces an organization to revisit its benefits financing options. The strategic review allows management to evaluate various funding and financing options for each plan. Depending on the plan, these options may include individual and aggregate stop-loss levels, or they may include fully, partially, or self-insured health plans.

· Articulation of the relationship between benefits and other human resources functions. Stra tegic planning can enable management to identify redundancies and/or gaps among benefits and compensation programs as well as the relationships of benefits to other HR programs. This analysis also can shed light on where benefits are best housed—as part of human resources, finance, or risk management.

· Education of management and employees. Effective strategic benefits planning forces decision making based on an understanding of business and benefits realities. It provides an opportunity to educate all management levels from line managers to senior executives. In addition, it can create an environment within which benefits and human resources managers can educate employees/ management about the value, cost, and investment that organizations make in benefits programs.

FIGURE 20.6 Outcomes of strategic benefits planning.

EVALUATION

Strategic benefits planning initiatives represent a corporate investment in human assets. In addition to helping organizations take the proverbial step back and examine their policies, well-executed initiatives result in redesigned benefits plans and packages that may help companies achieve business goals through their employees. (See Figure 20.7 .) Success, however, requires both evaluation and the ability to relate the planning process to broader organization and business requirements.

The Role of Evaluation

Historically, qualitative (e.g., anecdotal) reports have been used to demonstrate the success of many human resources efforts. While rigorous qualitative techniques (e.g., focus group and structured interviews) provide opportunities to assess outcomes, there is a growing corporate emphasis on quantitative measures or metrics. The challenge of benefits professionals is to develop meaningful measures.

Quantitative measures require an assessment of the impact of program changes or benefits redesigns on benefits-specific concerns such as cost, efficiency, operations, employee satisfaction, and corporate culture. These concerns reflect HR goals as well as overall business objectives. Other outcomes that can be defined both qualitatively and quantitatively include reducing management exposure or potential liabilities.

For qualitative and quantitative measures, it is crucial to set appropriate time frames and expectations for when success is to be achieved.

For example, changes in a health care benefits plan may result in desired migrations within one re-enrollment period. Meaningful cost savings due to a transition from a preferred provider organization (PPO) to a point-of-service (POS) plan may be seen within one year. In contrast, assessing the return on investment (ROI) derived from the implementation of a full flexible benefits package, which is part of a corporate cultural shift, may only be realized in four to six years.

FIGURE 20.7 Ground rules for strategic benefits planning.

BEYOND THE STRATEGIC PLAN

In rightsized organizations, the ever-increasing complexities of benefits combined with ongoing operational staff requirements can create unintended myopia. In other words, employee benefits are seen as a cost center, not as a means to provide value-added business services.

To make the transition, organizations need to benefit from the opportunities that are available to them. These opportunities can be defined both narrowly and broadly.

At the narrowest end, demonstrating and communicating how benefits contribute to a total rewards package represents a significant change for many organizations.

Similarly, identifying how the benefits package supports an organization’s investment in human capital provides a fairly narrow approach.

At the other end of the spectrum, the expanding emphasis on improved management techniques represents opportunities where the strategic benefits plan can make a difference. For example, the benefits function and package can be reviewed and/or reconfigured to support many current approaches, such as the learning organization, redefined employer/employee relationship, change management, and quality improvement/reengineering. In essence, benefits departments with a strategic plan have the opportunity to be more active players in the dynamic and changing business environment.

REFERENCES

Bureau of National Affairs. 2001. “Employee Benefits Defined Contribution Health Plans Face Many Obstacles, Panelists Say.” Health Care Policy Report, 9(9): 359.

Employee Benefit Research Institute. 2003. Consumer-Driven Health Benefits: A Continuing Evolution? Washington, DC: Employee Benefits Research Institute.

Fowles, Jinnet Briggs. 2004. Early Experience with Employee Choice of Consumer Directed Health Plans and Satisfaction with Enrollment. Health Services Research (August).

Nichols, L. M. 2002. “Can Defined Contribution Health Insurance Reduce Cost Growth?” EBRI Issue Brief 246: 1–15.