Guiding Light
August 01, 2008 | Alyssa Hodder


Client Concerns

But whatever challenges consulting firms may face, the ultimate focus should be on their clients’ problems. After all, helping employers with their business issues is the consultants’ shared goal.

Not surprisingly, cost control tops the list of employer concerns. In an environment of poor market performance and continued government off-loading of healthcare costs to the private sector, organizations are feeling the pressure to tighten their belts. “The challenge that we face, certainly, is, how do you provide a greater range of benefits or appropriate pensions for your workforce in ways that provide the flexibility but that do not dramatically increase costs?” says Hildyard. She adds that plan sponsors face the ongoing challenge of balancing member expectations for benefits with reasonable cost expectations for the employer—a balance that’s becoming increasingly difficult to find. And there’s no relief in sight: many of these cost pressures are expected to continue. “The economic environment we’re heading into is a tough one,” says Beech, “and the extended spend on pension and benefits and compensation is very large.”

Plan sponsors, therefore, want long-term strategies to help them manage costs and limit risk. In particular, they’re looking for ways to more reliably predict pension and benefits expenses, especially when it comes to DB pension plans and funding levels. Having weathered the “perfect storm” of low interest rates and depressed markets earlier this decade, they’re not keen to go through that experience again. “We had the perfect storm in the early 2000s…prior to that time, that was perhaps an unrealistic scenario. Now, that’s viewed as certainly a very plausible scenario,” says Pitcher. “The unrealistic became the reality.”

The emphasis on cost control also puts pressure on the consulting industry to keep fees down. “We are in an industry where, when the economy is going down, we can help out; we can add value,” says Jacques Théorêt, worldwide partner and leader with Mercer Canada. “But at the same time, there is pressure on reducing expenses. So it’s a bit of a confrontation of the two.” And for what they do spend on pension and benefits consulting, clients expect accountability, a demonstrable return on investment and added value for every dollar spent. Gone are the days of inflated invoices—consulting firms will need to take a hard look at their own organizations to see how they can work more effectively at a lower cost. “It’s about helping clients [with] controlling the cost of their programs, but it’s also about us, as an industry, working on our efficiency,” says Théorêt.

Dealing with the upcoming demographic shift and predicted labour shortage is another major concern for employers. “I think one of the biggest challenges that we’re certainly seeing on the part of our clients is the aging population and the cohort of baby boomers who are very rapidly going to be retiring from firms,” says MacAdam. “Employers are grappling with resource constraints, and they have high-performing talent that they don’t want to see exiting their organization.” Developing and implementing suitable strategies for attraction and retention is critical. And pension and benefits plans will play an important role in these strategies in the future. “It’s always the same thing—it’s [how to] attract and retain the best talent,” says Jean Guay, senior vice-president, group life and health, with Standard Life. “So they need to make sure that their benefits are up to date and are competitive with the market.”

Engaging employees to ensure that they understand and appreciate the value of their benefits is one important aspect. Bradley says that getting information out to Extreme Fitness employees—and getting them to see the importance of contributions and what they can do for them—is her greatest challenge. “Our industry has a lot of young people who aren’t really keen on paying attention when you talk about anything like pension or benefits,” she remarks. Lis says the solution to the engagement problem is getting the HR basics right, particularly employee communications. As a starting point, she recommends doing research such as employee surveys or focus groups to better understand employees’ wants and needs—but only if employers are prepared to act on the feedback they receive. “Are you doing enough to communicate to plan members? Are the plan members interested in that communication? Are they responding appropriately to it? That continuum of challenge doesn’t go away,” affirms Khemani.

Employers are also beginning to turn their attention to what happens when employees do retire: the decumulation or payout stage. DC plan sponsors, in particular, are increasingly concerned about benefits adequacy and retirement income security for their plan members. They struggle with the ongoing challenge of helping employees save for retirement without shouldering the entire financial and risk burden themselves. According to the results of a recent Watson Wyatt Worldwide survey of employers on pension risk, says Burke, “the number one threat to the sustainability of DC plans [is] insufficient savings to retire.” However, the industry is responding with solutions such as auto features and target date funds, and it’s likely that we’ll see more such developments in the future. “As people move from the wealth accumulation phase into the disbursement phase, you will see an increased emphasis on more products and services for them,” says MacAdam. “And that trend’s going to continue.”

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