Words From the Wise

For this year’s annual consultants roundtable, Benefits Canada surveyed a selection of plan sponsors across the country about their biggest human resources, pension and benefits issues. Then we rounded up some of the industry’s top consultants and asked them to respond to the challenge.

Defined Benefit Funding and Solvency Issues

The consultants see regulation as a key part of why plan sponsors have trouble with defined benefit funding and solvency.

David Burke: What is critical in the environment we have today is to understand the risks and try to come up with an approach that makes sense. When talking more long term, the system is broken. We’ve got a system today that doesn’t reward the risk taker, and that’s going to drive sponsors to underfund or minimally fund, which will drive up volatility.

Kevin Aselstine: I see some plan sponsors define risk more broadly, who don’t think the conversion to defined contribution (DC)is the only solution. Part of the challenge is we have to broaden the definition of what is the risk associated with both DC and defined benefit(DB)plans in the first place. Arm the chief financial officer and senior management with a more complete analysis of the risks associated with any plan. At least then they will have all the information to make decisions.

Randal Phillips: There is a real challenge to the Canadian regulators to try to restore some balance in pension regulation so plan sponsors can feel good about those plans and make strategic decisions about the kinds of pensions they have. But very clearly, there’s a need for change; otherwise, the current system will not survive.

Burke: The Government looks like it is starting to listen. The Ontario Expert Commission on Pensions was set up to look at the pension system. But it can’t just be a one-dimensional solution. It needs to include labour groups as well as employers. Otherwise, it just can’t work. There’s also got to be some sort of acknowledgement of the risks and rewards and who bears responsibility for them.

Leadership

The consultants unanimously believe now is the time for the senior executives of organizations to take human resources more seriously. How well this is achieved will be crucial to the long-term success of employers.

Todd McLean: I think chief executive officers(CEOs)don’t acknowledge and align their HR strategies with their business objectives. In fairness, it’s difficult for CEOs to be too forward-looking. All you really need to do is look at the average lifecycle of a CEO to see how far out the focus stretches.

Kevin Aselstine: For CEO s, I think it has now become more important that the company’s strategy is aligned with the business objectives. I see a lot of our clients still struggling with getting proper recognition of HR at the C-suite table. But I think it’s critical. There has to be a transfer of that knowledge from the C-suite to those who have to develop the tactical plans to implement an HR strategy that’s going to work for that particular business.

Sarah Beech: The organizations that have done a great job are ones in which the leadership is aligned with the employee population. There has to be alignment between the leadership and employees, otherwise employees will become disengaged and may leave the organization.

John Sanders: Whether a CEO works well with the HR department or not, somebody’s going to have to become responsible for that particular mission or they won’t be successful.

Plan Member Pension Education

A lot of communication simply tries to shift the responsibility from plan sponsor to plan member, and that’s not good enough, say the consultants.

Phillips: Education is such a big deal because plans are much more complex now. Some employers have axed DB plans and not converted entirely to DC. Instead, they have frozen the DB plan and put a layer of DC on top of that arrangement. That’s a much more complex undertaking for anybody to understand. That really drives the need for improved communications and more thorough education.

McLean: Plan sponsors oftentimes make the mistake of not asking members how they want to receive communications. I’m suggesting a very personalized approach to communications with individualized statements and one-on-one time with the supervisor. Whatever it is, employers might have to do all of it. There is no single solution for communicating.

Phillips: For example, those members who are in a money market fund three years after joining the plan. An employer needs to be pushing a message out to them that’s different than somebody with a different habit. Technology now enables that to be done.

Sanders: There ought to be a bigger advisory business that’s out in the marketplace or some kind of education. You’re going to have those thirtysomethings who have entitlements in three or four types of arrangements and really have no sense of the total retirement bucket they are going to have.

Burke: I’m not convinced education will ever drive the kind of behaviours plan sponsors want. Employees don’t tend to be financially literate, don’t tend to plan very well and don’t tend to make very good investment decisions. I’m not convinced education’s going to change that. The solution is going to be much more programmatically designed with auto features and auto fund choices instead of trying to help people make better decisions.

Benefits Cost Containment

Even though healthcare costs are continually on the rise, plan sponsors can control costs by changing their thinking and approach to benefits and by having employees more involved in the system.

David Krieger: Instead of rising costs, a better categorization of it would be changing costs. Employers that don’t have long- and short-term strategies for risk and financial management are struggling the most with cost containment.

Phillips: The trouble is that costs are going up faster than labour costs and faster than people’s compensation is going up. So it becomes a bigger and bigger part of the corporate budget and more visible to people in the C-suite. There’s going to be a need to change the current model of DB types of group insurance plans to DC types of arrangements in which the employer’s commitment is expressed differently than the current plans. This is going to lead, inevitably, to much greater complexity.

Ashim Khemani: If you’re going to offer benefits programs, then there is a certain level of costs. Perhaps one of the avenues for consideration is financing them through a more competitive individual insurance marketplace, which is not competitive in Canada today.

Sanders: Existing arrangements probably won’t serve employers well. There’s got to be a tolerance level for cost increases. For employers to completely abandon benefits plans seems to be too far a step. The concept of a shared responsibility of costs between employers and employees as well as different options, such as individual insurance markets, savings accounts toward healthcare, and drug choices, could be an option. Ultimately, there’s got to be a lot of education.

Beech: I think a change is needed around shared responsibility and prevention. If we don’t start looking at changing the frame around health in general, looking at how programs are designed and developed isn’t going to help. Costs are just going to continue to increase, and we will end up in a place where they’re no longer affordable.

Aselstine: An increased focus on better consumerism and education is a big piece of the solution.

Balancing Benefits Costs and Outcomes

When it comes to finding a balance, there is no single solution. Plan sponsors have to determine the best strategy for their own organization.

Burke: It all goes back to an organization figuring out why it is offering a benefits plan in the first place and then ensuring it is aligned with the business it is in.

McLean: My view is that the trade-off for a plan sponsor achieving cost control or cost containment is to give over financial and plan responsibility to the member. In other words, we’re going to contribute at this level, but it’s up to you to pick and choose where you want to go, which is effectively flex. Something that’s self-directed or self-designed is an inherently valued benefit. You’ve just got to make sure that it provides enough so that folks can actually get what they want.

Krieger: We’re coming from a very paternalistic society in benefits and a paternalistic environment where employers pay for everything. That’s changing. I think a financial and risk strategy that educates employees around who’s paying for what, what is the organization going to pay for, what are the opportunities for employees to buy, and what products are available is needed. [It’s time] to change the paradigm from a provider to a facilitator.

Burke: There’s lots of [employee health data and claims experience] out there, and it’s more than just the carriers. Where a lot of value can be added is mining that data. If we have data, we can diagnose the issue. It’s hard to come up with a one-size-fitsall solution. On this issue it’s a whole bunch of different factors, and it’s very much organization-specific.

Recruitment and Retention

Global workforce changes, lack of skilled workers and demographics all play a role in why recruiting and retaining is so hard. Part of the solution is specific workforce planning.

Aselstine: I think a lot of employers have difficulty articulating what the right skills are for them and what the right recruitment strategy means for them. There are still a lot of employers that aren’t doing as effective a job in terms of their workforce planning related to their business and growth strategies. You hear a lot of talk in the marketplace around translating the business strategy into a coherent workforce plan, but I just don’t see a lot of organizations that are actually taking that to heart and doing something about it.

Sanders: I think the onus will be on the C-suite to actually have people with strong leadership competencies and long-term vision because human capital and retention are huge problems. It’s going to be about how does a CEO manage human capital to affect the strategy he or she wants to implement.

Krieger: The focus today seems to be one of short-term strategies as opposed to long-term, sustainable business strategies. In major publicly traded companies, the focus is on short-term quarterly results. Those decisions are often motivated or perceived to be in conflict with long-term sustainability. Therefore, the short- and long-term has to be integrated with the long-term recruitment and human resources strategies.

Khemani: The problem has to be solved incrementally on an integrated basis. It’s not solely an HR problem. It’s a broader business issue. In most cases, the solution is anchored in increasing our overall level of competitiveness—whether it is dealing with immigration and integration policies, government, educational institutions in terms of how the system produces talent. This creates a strong dependency that may appear to lie outside a company’s reach.

Burke: Some plans or programs are mis-designed for today’s workforce needs. It goes back to the alignment of the business and human capital needs. If they’re misaligned, they’re going to cause problems. I believe that many of the organizations today—especially the longer-term focused ones that have moved away from DB plans—are going to have big problems in 15 or 20 years, and it goes back to that whole issue of alignment.

Aging Workforce

An aging workforce is an increasing concern because it is connected to recruitment and retention. The consultants believe creative solutions to workforce planning will help.

Aselstine: There’s a lot of desire for a one-size-fits-all solution out there, but it just doesn’t exist. The solutions are going to be different in every business.

Beech: As a starting point, plan sponsors should recognize the problem is out there, then actually quantify what their own problem is. From there, they need to determine where they are today and where they are headed, and what the gap is. I’m not sure a lot of employees can really quantify what their own organization’s situation is.

Sanders: Employers can’t apply the programs and policies from the ’60s and ’70s to the reality of today’s aging workforce. Many employers have employees who take retirement then rejoin the next day as consultants.

Khemani: The workforce that exists for our clients’ organizations needs to be reoriented around flexible work arrangements. Having different types of relationships with employees is going to be part of the future. This is first true for leadership and management.

Beech: We haven’t created an environment where there are proper rewards or flexibility for those innovative thinkers, advisers and leaders in the business who need a different work schedule, work environment, a different frame.

McLean: Everything is sort of converging in a way thatsuggests there will be fewer employees in the future and far more freelancers and e-lancers and contractors. Technology is going to make that very possible. Could we see a mass outsourcing of the workforce?

Burke: It’s an interesting question. I personally don’t see it. The organizations that I see and that I work with, they’re very focused on keeping their high performers.

Sanders: A serious, deep dive into workforce planning is what’s needed, and the CEO has to be the chief architect. HR has to understand the nature of the challenge before he or she can draft the programs and implement a solution.

McLean: On another note, the government can provide the right incentives for businesses to pursue and to create programs in which people can save tax effectively for retirement healthcare needs as we see those plans disappearing in the corporate sector.

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