Featured Stories:
Howe: Voluntary Benefits: Bucking the trend
Towers Watson to acquire Extebd Health
Voluntary bounces back in 2011
American Dream: Helping participants act like entrepreneurs
Colonial Life launches new group term product
Hagan: New DOL regs impact plan sponsors
Kemnitz: 5 tips for a successful executive benefits sale
Aging in America: The Boomer impact on Medicare
Towers Watson to Acquire Extend Health
in Move to Expand Retiree Benefit Services
Transaction brings together Towers Watson's benefits expertise and experience
with Extend Health's largest private Medicare exchange
NEW YORK & SAN MATEO, Calif. - Towers Watson (NYSE, NASDAQ: TW), a global professional services company, announced today that it has signed an agreement to acquire Extend Health, Inc., which operates the largest private Medicare exchange in the United States. We believe that this combination of two market leaders will provide innovative, best-in-class health care solutions that combine specialized retiree medical transition consulting with the choice and cost advantages of individual Medicare plans purchased on a private exchange. The two organizations announced a strategic alliance last August.
"This is an important time for retiree health benefits. Both companies have a strong track record of helping employers develop strategies and create programs for employee and retiree benefits"
The purchase price is $435 million, less net debt and certain transaction costs. We anticipate the acquisition will be dilutive to Adjusted EPS by 2% or less in year one, and then slightly accretive in year two.
Following closing, Extend Health will operate as a new business segment within Towers Watson, joining its three existing segments of Benefits, Talent and Rewards, and Risk and Financial Services. The new Exchange Solutions segment will be led by Bryce Williams, the Co-Founder and CEO of Extend Health, and will begin with more than 300 employees and an exchange that currently works with public and private sector clients, including more than 30 Fortune 500 employers and more than 200,000 retirees.
"We are delighted that Extend Health is joining Towers Watson to provide a new way of delivering benefit packages to leading organizations," said John Haley, CEO of Towers Watson. "This agreement brings together two forward-thinking organizations with a commitment to providing market-leading solutions to our clients. The combination of Towers Watson benefits expertise and resources, and Extend Health's proven infrastructure and scalable exchange platform, positions us well to meet the needs of employers and retirees now and in the future."
Recent Towers Watson research1 found that 54% of employers with more than 1,000 employees are somewhat to very likely to reconsider their current employer-sponsored plan strategy for post-65 retirees by 2015. The Extend Health solution includes proprietary exchange and decision support technology. Its solution allows retirees the opportunity to select from thousands of private Medicare plans from more than 75 national and regional insurance companies, and employers to provide access to individual coverage, typically with a defined contribution subsidy. More employers have used Extend Health than any other company to transition their retirees to a private Medicare exchange.
"This is an important time for retiree health benefits. Both companies have a strong track record of helping employers develop strategies and create programs for employee and retiree benefits," said Bryce Williams, CEO of Extend Health. "Our complementary strengths and strategies will allow us to hit the ground running, offering clients access to a proven, powerful and scalable exchange solution today, and to improve the landscape of employee benefits going forward."
The transaction is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and is expected to close in less than 60 days.
BofA Merrill Lynch is acting as financial advisor and Cadwalader, Wickersham & Taft LLP as legal advisor to Towers Watson. Morgan Stanley is acting as financial advisor and Wilson Sonsini Goodrich & Rosati as legal advisor to Extend Health.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at towerswatson.com.
About Extend Health
Extend Health, Inc., founded in 2004, operates the largest private Medicare exchange in the country. For more information, visit Extend Health on the web at extendhealth.com.
Voluntary industry bounces back in 2011
Though 2012 was the only year that saw a decline
AVON, Conn - Voluntary sales for 2011 were up from 2010 by 4.5 percent, according to Eastbridge's annual U.S. Worksite Sales Report. Total 2011 voluntary sales (U.S.) are estimated at $5.478 billion, up from $5.243 billion in 2010 and from $5.397 in 2009, signifying that the industry was able to weather the recession and regain its traditional upwards track.
"Since we first started this annual study 15 years ago, the industry has always had increasing sales except for the decline in 2010, which is clearly attributable to the down economy over the past several years"
"We are extremely pleased to see the industry results for 2011," says Gil Lowerre, Eastbridge president. As in past years, about 80 percent of the industry's sales came from the top 15 companies in the industry and these companies did well in 2011. "Five of these companies had double-digit increases and only three companies had decreases. The average sales increase among the top 15 companies was 5 percent," adds Lowerre. In 2010, the top 15 had an average sales decrease of 2.6 percent.
"Since we first started this annual study 15 years ago, the industry has always had increasing sales except for the decline in 2010, which is clearly attributable to the down economy over the past several years," adds Bonnie Brazzell, vice president of Eastbridge. "The good news is that the voluntary industry rebounded very quickly in just one year," say Brazzell.
Inforce premium was also up this year, nearly 6 percent. Based on tracked premium and estimates of the total market, the 2011 inforce worksite premium is estimated between $19.9 and $26.1 billion.
The annual U.S. Worksite Sales Report estimates sales for the entire voluntary industry with detailed data on the performance of over 60 carriers, both group and individual, and represents the largest number of carriers included in any sales report for the industry.
Parties interested in participating in next year's study should email Eastbridge at info@eastbridge.com. All participants receive a free copy of the complete findings, including company-specific results.
Eastbridge Consulting Group, Inc. is a marketing advisory firm serving insurance and financial services organizations in the United States and Canada.
The 401(k) Today
The American Dream
Helping Participants Act like Entrepreneurs
By Charlie Epstein, CLU, ChFC, AIF
Mr. Epstein is the founder of The 401k Coach Program, which offers training for financial professionals. He is the author of the book, Paychecks for Life, which offers nine Principles for participants to turn their 401(k) plans into a secure retirement income. He is a member of the Legg Mason Retirement Advisory Council.
James Truslow Adams coined the term 'American Dream' in 1931. While often associated with home ownership, the American Dream also refers to the opportunities many find in the United States. Plan participants, although working for employers, have the opportunity to start their own Paycheck Manufacturing Companies (PCM Cos.) with their 401(k)s. The first step in helping participants to act like the bosses of their PCM Cos. is to describe entrepreneurship and explain what entrepreneurs do.
Entrepreneurs organize, manage and assume the risks of a business. They take land, labor and capital and combine them in such a way that more value is created than the cost of those resources. An entrepreneur is one whose final product is worth more than the sum of its individual parts.
To me, an entrepreneur is a person who can figure out what products and services are needed and find the right people to make their vision become a reality. They also make more profit than they spend. An entrepreneur is a person who recognizes opportunities and seizes them.
Let's look at an example of a typical entrepreneur: A bakery owner buys inexpensive ingredients, including flour, butter and spices. The person uses their knowledge and ingenuity to combine these simple components to create a wedding cake worth thousands of dollars. In this way, the baker makes a lot of profit through his or her resourcefulness.
Participants may be employees and work for employers. Their bosses use the employees' skills in order to create more value than the money they are paying for labor. Some entrepreneurs create such successful companies and utilize the productivity of their employees so well that they are able to sell their enterprise and retire wealthy. In order for participants to achieve their desirement or successful retirement years, they need to do the same thing: fully and efficiently utilize their resources to create their Paycheck Manufacturing Companies.
For your plan sponsor participants, the first step in acting like entrepreneurs is hiring capable individuals. Their contribution dollars are the best employees imaginable. They work all day, every day and never complain. They don't require health benefits, and participants won't have to pay taxes on them just yet. Unfortunately, many participants only hire, or contribute, the bare minimum of essential employees. This is not enough! The government allows up to 16,500 employees to be hired each year, and if the participant is over age 50, he or she can hire as many as 22,000 hard-working, never-complaining employees per year. I know many business owners who wish they could hire just a handful of employees that act this way.
For some participants, it is difficult to contribute this much to their 401(k)s, but it is essential if they would like a profitable desirement. By helping participants act like entrepreneurs of their own Paycheck Manufacturing Companies, you can show them the true value of their 401(k)s.
Colonial Life Launches New Group Term Life Product
New group term plan offers brokers affordable coverage for their clients' employees.
COLUMBIA, S.C. - Brokers now have another life insurance product to offer their clients. With life insurance ownership at an all-time low in the U.S., Colonial Life & Accident Insurance Company's new group term life product offers affordable coverage for their clients' employees.
Product offers important benefits to workers
Colonial Life's new group term life plan offers the following benefits and features:
- No health questions. Employees, spouses and dependents can obtain coverage on a guaranteed issue basis.
- Help with terminal illness expenses. Insureds can use an accelerated death benefit to help offset the expenses associated with a terminal illness. A covered person diagnosed with a terminal illness can receive up to 75 percent of the death benefit of the policy, up to a maximum of $150,000.
- Confidential employee assistance. Employees can access a 24-hour confidential service for help with personal or work-related challenges. This service includes face-to-face sessions with mental health professionals and attorneys, and well as referrals for state-specific legal information and services. Employees can receive assistance with preparing wills at no additional cost.
- Financial and legal support for terminally ill insureds. A covered person diagnosed with a terminal illness can receive financial, legal and grief support and referrals for up to 12 months.
- Additional coverage for accidental death or dismemberment. Employees, spouses and dependent children can add this optional coverage to the group term life policy.
- Access to permanent coverage. Coverage under most policies can be converted to whole life coverage if employees leave their jobs.
"Forty-one percent of adults in our country today own no life insurance," says Jeffrey Koll, FSA, MAAA, assistant vice president for life and disability product development at Colonial Life. "And 43 percent of people don’t have enough life insurance. Brokers can offer this new group term life product to their clients so employees can protect their families more affordably."
The product offers brokers competitive compensation and the ability to quote accounts of 10 to 499 lives without home office approval. And because the group term life product is situs state issue, it offers consistency to brokers with clients that have operations in multiple states.
New group term life product offers valuable benefits to clients
Colonial Life's new group term life plan offers the following benefits to employers:
- Expanded benefits program at no additional cost. Employers can offer this new benefit without impacting their bottom line since employees pay 100 percent of the premium.
- Coverage for all employees. Guaranteed issue coverage means all employees actively at work are eligible regardless of their health.
- Plan design options to accommodate large and small employers. Small businesses will find the product simple to administer, and larger employers can customize additional options to fit the needs of their employees.
- Additional coverage at a more affordable cost. Benefits for accidental death and dismemberment coverage are packaged together for more
- Support for employees through employee assistance program. The employee assistance program provides support for personal and professional problems that can affect company productivity.
- Available to employers with multi-state locations. The product allows employers with workers in multiple states to offer the same benefit to their entire workforce.
Coverage may vary by state and may not be available in all states.
About Colonial Life
Colonial Life & Accident Insurance Company is a market leader in providing insurance benefits for employees and their families through the workplace, along with individual benefits education, advanced yet simple-to-use enrollment technology and quality personal service. Colonial Life offers disability, life and supplemental accident and health insurance policies in 49 states and the District of Columbia. Similar policies, if approved, are underwritten in New York by a Colonial Life affiliate, The Paul Revere Life Insurance Company, Worcester, Mass. Colonial Life is based in Columbia, S.C., and is a subsidiary of Unum Group, one of the world's leading providers of employee benefits.
Visit www.ColonialLife.com.
Voluntary Benefits: Bucking the Trend
The choices made when times are tough can often come back to haunt you
By Barbara Howe
Ms. Howe is Vice President, Voluntary Benefits for UnitedHealthcare. She can be reached at barb.howe@uhc.com
According to LIMRA, the trade group for insurance and financial services companies, more than 57 percent of U.S. employers now offer voluntary benefits to their employees, and the market for voluntary benefits has remained steady for the past four years despite the down economy.
Now, there's optimism that voluntary benefits are poised for growth. Eastbridge Consulting Group's 2011 year-end Voluntary Confidence Index was up 7 percent from 2010, with 95 percent of respondents, including carriers, brokers and vendors, believing that voluntary sales would increase over the next 12 months. How did the voluntary benefits market buck the downward trend in the midst of tough economic times and consumer belt-tightening? There are at least three areas where voluntary benefits have shown their strength: increasing workforce diversity, medical inflation and lessons learned from past recessions.
Lessons Learned
At first glance it would seem logical for cash-strapped employers to cut back and offer leaner benefit packages. But many companies have learned that choices they make when the going gets tough can come back to haunt them when the economy improves.
In an October 2010 Deloitte survey of senior business leaders and HR executives designed to gauge post-recession talent trends, nearly two-thirds of the respondents said talent retention was one of their top two business challenges, followed by cost reduction. Savvy employers want to control and reduce costs, but they don't want to make it difficult to attract and retain talent and threaten future organizational growth.
According to LIMRA, most companies provide new voluntary benefits to enhance their ancillary offering as opposed to replacing current employer-paid coverage with employee-funded benefits.
Using voluntary insurance to bolster the benefits package doesn't cost the employer additional money, and employees appreciate the group discounts, easy access to benefits, and ability to design a benefits package that meet their personal needs.
Consumers have also learned from past recessions and understand that purchasing financial protection and other insurance products makes sense in a tough economy. Negative economic news often takes away notions of invincibility, making consumers more receptive to income-protection products such as voluntary life, disability and critical illness, even if employees pay for this protection out of their own pocket.
Brokers and other advisers who add voluntary benefits to their product and service offerings are in a great position to gain the trust of employers who want to provide valued benefits to attract and retain talent without busting their budgets.
One Size Doesn't Fit All
Demographic changes also have an impact on the labor force and ultimately the employee benefit landscape. Consider the following statistics.
- According to the latest U.S. Census figures, about one in three U.S. residents is a minority. Four states and the District of Columbia are 'majority minority,' where minority groups constitute the majority of the state's population.
- Older workers are making up a bigger portion of the workforce. There were 6.7 million people 65 and older who were in the labor force in 2010, and that percentage is expected to increase by 65 percent in less than a decade, according to the U.S. Bureau of Labor Statistics.
- Women now make up nearly 50 percent of the workforce and are more likely than men to earn a bachelor's degree, 30.7 million women in 2010 vs. 29.2 million men.
- The number of minority-owned and women-owned businesses grew faster than the national rate of all U.S. businesses, according to the U.S. Census Bureau.
The workforce increasingly mirrors these demographic shifts and is more diverse along gender, generational, racial and ethnic lines.
A diverse workforce has diverse needs; 'one size fits all' benefit packages, consequently, are becoming a thing of the past. For example, the extended family is very common in many cultures with several generations living in the same household. This extended-family network often has a different sense of financial obligation to relatives than a household focused on the nuclear family. This type of cultural nuance often affects the purchase of protection products such as life, disability and critical illness insurance.
Voluntary benefits help employers provide additional financial coverage options that can be customized for an increasingly diverse workforce and have remained popular because it isn't simply about shifting cost to employees. In fact, many employers are now offering a wide selection of benefits that they never would have offered if they weren’t available on an employee-pay-all basis.
Medical Inflation and the Rise of Consumer Driven Health Plans
Medical coverage is still the core offering in an employee benefits package. Due to a continued rise in health care costs, more and more employers are now sharing the medical premium costs with employees. This shift has been happening over many years, and employees are accustomed to paying a portion of their benefits' cost.
In addition to cost sharing, employers of all sizes are turning to consumer-driven health plans as a way to lower health premiums even further. According to AHIP, the number of people with a high-deductible plan coupled with a Health Savings Account rose by 63 percent between January 2008 and January 2010.
These high-deductible plans, especially when paired with a health savings account, engage employees in their health care decisions and expenditures and lower their monthly premium costs in exchange for a higher deductible.
A long-term hospital stay or disability, particularly early in the year before a deductible is fulfilled, may make it hard for some individuals to pay their out-of-pocket health care costs or meet routine, ongoing expenses such as rent or mortgage payments, credit card bills, or auto loans.
Critical illness plans are a great way for people to have added financial security at a relatively low cost, and these plans align perfectly with consumer-driven health plans. Critical illness insurance provides plan participants a lump-sum cash payout (upon diagnosis) that can be used as they see fit.
Many employers with high-deductible health plans have opted to use a portion of their premium savings to purchase a base amount of critical illness insurance for their employees and then allow their employees to buy-up on a voluntary basis for additional financial security in the event of a major illness.
Advisers who help benefit decision makers understand how the combination of voluntary critical illness insurance and consumer-driven health plans can help members and employers save money, improve health and expand protection are better positioned to stand out from their competitors.
More Integration
Lastly, more employers are seeking the integration of ancillary benefits with their core medical coverage by a single carrier to make it easier to coordinate their plan participants' care across all lines of coverage. For example, when critical illness and disability insurance are integrated with medical coverage, experienced nurses can help answer questions from employees about their critical illness or disability, identify resources in the community, and work closely with the employees to coordinate their health care needs and get them back to work faster.
This is a great time for agents and brokers to diversify and grow their business by giving their clients access to robust voluntary benefit packages integrated with medical. More choices and better integration of voluntary benefits can lead to happier and healthier employees, without busting the budget.
New DOL Regulations Impact Plan Sponsors
They'll be more involved, more scrupulous in 2012
By Ronald E. Hagan
Mr. Hagan is Chairman of the Fiduciary Standards Committee of Roland|Criss. He can be reached at ronhagan@rolandcriss.com
There have been many articles addressing the Department of Labor's (DOL) new 408(b)(2) and 404(a)(5) regulations, most of which have focused on the rules' impact on retirement plan vendors. Just as advisors must understand the rules' mandates for their role, they also must understand how retirement plan sponsors will be affected in order to provide helpful advice and counsel to their clients going forward. In reality, retirement plan sponsors are inheriting a sea change in their fiduciary role and responsibilities, and many will be seeking assistance to understand and appropriately implement effective practices for compliance. This paper will provide a brief background of the 408(b)(2) and 404(a)(5) rules, strategies plan sponsors may implement for compliance, as well as an overview of how plan sponsors' vendor relationships may be enhanced through these new regulatory mandates.
Origination of the Rules: Closing the 'Information Gap'
Over the past three decades, there has been an information disadvantage, what the DOL has termed an 'information gap' in the ERISA market between plan sponsors and their vendors. The DOL researched this information gap concern and produced a public report on its findings in the July 16, 2010 issue of the Federal Register, in which the DOL used pointed language to illustrate the potential danger inherent if the information gap persists between plan sponsors and their service providers.
The two new fee disclosure rules- ERISA sections 408(b)(2) and 404(a)(5)- are the DOL's reaction to these findings and its subsequent effort to minimize the information gap before additional damage is incurred on plan sponsors and, more importantly, their participants. Both rules dictate that vendors adjust how they relay information to plan sponsors and participants in order to become more transparent in communicating their services and related fees. However, the rules impose a hefty new responsibility on plan sponsors- requiring them to become more involved and scrupulous with their vendors in order for these rules to have their intended positive effect on the market.
What 408(b)(2) Mandates for Plan Sponsors
The oft-used term 'fee disclosure rule,' referencing the new 408(b)(2) regulation, is somewhat of a misnomer for plan sponsors. The title implies that the primary onus lies on vendors to disclose proper and fair fees to their plan sponsors. This is only part of the rule's dictate. The more important and impactful mandate for plan sponsors is what the rule requires of them after vendors' fees have been disclosed.
Specifically, 408(b)(2) requires the following ongoing actions of plan sponsors (also illustrated in Figure A, below):
- Verifying that they have received the appropriate disclosures from vendors;
- Testing that these disclosures are adequate under the new rule; and
- Determining that the fees provided within the disclosure are reasonable, or fair, given the vendor services rendered.
Previously, the mere receipt of vendors' reports provided plan sponsors with a sense of security regarding their fiduciary duty. Under the new regulation, however, plan sponsors are expected not only to ensure the receipt of their vendors' reports, but also to prove that they reviewed the reports, decided on the adequacy of the reports, and concluded that their vendors' fees are reasonable. Next, we will address the action that plan sponsors can and should take in order to satisfy their revised fiduciary requirements under the new DOL regulation, while minimizing risk and enacting effective stewardship principles.
The Key to An Effective Risk Management Approach: 408(b)(2) Audit
Plan sponsors have a variety of choices regarding their approach to fulfilling their duty as primary fiduciaries. They may engage an ERISA Section 3(16) Fiduciary. Such a firm accepts total responsibility for the operation of the plan, which includes such duties as the hiring of service providers, ensuring appropriate and timely filings, and handling disclosures. The 3(16) Fiduciary operates the plan, rather than the plan committee, business owner or board of directors. The 3(16), appoints a 3(38) Fiduciary to be responsible for the management of the plan's investments. The only responsibility of the business owner or board of directors is to select and monitor the 3(16) Fiduciary.
Alternatively, plan sponsors can combine their internal practices with occasional counsel from a 3(16) Fiduciary, or they can choose to undertake all of the responsibility and have annual 'spot-checks' to ensure their practices are prudent and in line with current fiduciary law.
Regardless of the avenue plan sponsors choose for fulfilling their fiduciary duty, the safest way to ensure that they earn the prohibited transaction exemption embedded in the new fee disclosure rule is to have a 3(16) Fiduciary conduct a 408(b)(2) annual audit. Specifically, such an audit examines:
- The consistency of value delivered by the plan's vendors;
- The appearance of any vendor conflicts of interest and their potential harmful effects on the plan or its participants;
- The reasonableness of the plan vendors' fees;
- The effectiveness of the plan vendors' practices; and
- Any areas that fall below the standard as set by ERISA.
Let's explore the audit benefits in more detail
Clarifying and Updating Vendor Arrangements
While most plan sponsors are familiar with ensuring the receipt of vendor disclosures, many are unfamiliar with testing the adequacy of these vendor documents under the new rule. The first benefit of the 408(b)(2) audit is the vital identification and assessment of existing vendor arrangements. For some plan sponsors who have maintained a longstanding vendor relationship, it is difficult to locate or interpret their original signed contract. Furthermore, many existing vendor arrangements are not defined in writing making compliance with the rule nearly impossible. The audit process enables plan sponsors to fully understand the terms of their vendor contracts, as well as update and revise them, where needed.
Illuminating What and How Plan Fees Are Paid
Due to the complex nature of vendor fee structures and service models within the retirement plan industry, it is often difficult to discern exactly what fees are being charged for which services, as well as from where those fees are being extracted. A particularly enlightening discovery during the 408(b)(2) audit often is related to learning the ratio of employer-paid fees vs. plan-paid fees. Although many plan sponsors assume their vendor fees are taken exclusively from the company pocket, there are many arrangements that generate vendor payment directly from plan assets, which translates to a reduced amount of investable assets for plan sponsor participants. One of the most valuable takeaways of the 408(b)(2) audit can be understanding and challenging these unbalanced or unfair plan-paid fees.
Analyzing Vendor Value
The most revolutionary offering that is available with the 408(b)(2) audit revolves around garnering a score that assesses a particular vendor's performance. The audit provides plan sponsors with an objective analysis of their vendors' fees based upon a scientific calculation of value (i.e., services delivered vs. fees rendered over the same specific time period). With this calculation, plan sponsors not only are able to view fee trends over a certain amount of time (i.e., 'we have been overpaying in a particular area of our plan for three consecutive years'), but they are equipped with the knowledge of whether their vendor's fees are 'reasonable' as defined by ERISA. This in-depth analysis virtually never has been available to the plan sponsor market prior to 408(b)(2), and is changing the way plan sponsors select and monitor their vendors.
Enhancing Positioning for a Department of Labor Audit
A tangible result of the 408(b)(2) audit is that it proves that a plan sponsor is working to adhere to a high level of fiduciary care and comply with the new regulations. The 408(b)(2) audit report stands as firm testimony to a plan sponsor's intention to adequately fulfill fiduciary responsibilities and update policies as needed when regulatory changes occur. The 408(b)(2) audit places in a distinctively advantageous position those plan sponsors that are required by ERISA to obtain an annual CPA's financial audit for their plans.
Relief from Breach of Fiduciary Duty
In a strangely seeming 'Catch 22', ERISA prohibits payments from the assets of a qualified plan to a so-called party in interest. Vendors are parties in interest if their compensation is derived from a plan's assets. Effective July 1, 2012, the only relief that plan sponsors may obtain from ERISA's heavy penalty for harboring a scenario that pays vendors from their plans' assets is to document an analysis and conclusion that the vendors' fees are reasonable. If the analysis proves otherwise, additional steps mandated by the new rule are required. A 408(b)(2) provides an unbiased view of vendors' fees, guides a plan sponsor on how to react to the findings, and activates the exemption.
Going Forward: Aligning Plan Sponsor and Vendor Intent
The 408(b)(2) rule, no doubt, impinges on both the plan sponsor and vendor communities, requiring from them much more effort and diligence than ever before. For plan sponsors, especially, the fiduciary role can be intimidating, as it typically couples potential liability and changing laws with a lack of in-depth training on fiduciary principles or vendor management skills. To the extent that vendors and plan sponsors can align their focus on stewardship principles and work together toward maximizing stakeholder value, this relationship will grow in trust and prove to be invaluable in the years ahead. Instead of viewing 408(b)(2) as an increased burden, vendors and plan sponsors may view it as an opportunity to mend a relationship that has been misaligned for many years. The information gap served not only as a definitive communication disadvantage between vendors and their plan sponsor clients, but it also decreased the likelihood of building synergy around shared intent and desired outcomes. By generating true transparency around fees and building a shared vision of success, vendors may be able to utilize 408(b)(2) as the catalyst to an enhanced relationship with plan sponsors in 2012 and beyond.
5 Tips for a Successful Executive Benefits Sale
The Self-Owned Option
By Randy Kemnitz, MS, CFP, CLU
Mr. Kemnitz is Director of Business Planning and Executive Benefits for ING U.S. Insurance Life Sales Support. For more information on ING executive benefits, contact 866-464-7355, option 1.
Benefit plans specially designed by employers for key employees and executives are often times intended to help recruit, retain and reward. These plans provide financial benefits, specifically wealth accumulation and death benefit protection. Basic benefit and retirement plans have restrictions, such as contribution limits for 401ks or low face amounts in group life insurance plans, whereas executive benefit plans cater to rising stars and C-suite employees.
A potentially simple, effective executive benefits option, Self Owned Life and Retirement (S.O.L.A.R.) insurance arrangements, may provide advantages to both businesses and key employees. To better understand this emerging trend I'd like to offer five tips to a successful executive benefits sale.
Tip #1: Avoid the temptation to sell a solution before you've diagnosed the problem
The first question I ask when an agent raises an executive benefits plan design question keys in on what the employer is hoping to accomplish. It is essential to understand the motivation behind the plan before a solution is recommended. Just as doctors must diagnose before prescribing, your diagnosis helps establish a consultative sales approach and positions you to find the right solution.
A consultative approach accounts for the 'how and why' and the back story. Take time beforehand to research the company, check out the corporate website and find out about competitors and the industry. If you walk into the first meeting with the basic information already in your back pocket, you can use your face-to-face time to gain insight and diagnose the problem, so you can offer the right solution. Ask questions and only provide specific solutions when you are sure you understand their needs.
I was leading a discussion of executive benefits earlier this year and an agent asked if I had any tips on closing a difficult sale. I asked him what the employer was trying to accomplish and he couldn't answer it. I suggested he go back and diagnose the situation before attempting to close the sale.
There isn't any single approach that will compel a client to say 'yes' to an executive benefit plan. The keys are to:
- Discover: Who are they?
- Diagnose: What do they need and want?
- Design: What do you recommend?
- Deliver: What are you going to do about it?
Tip #2: Income tax management is an important ingredient
When 401ks were introduced 30-plus years ago, the drumbeat was about the beauty of tax deferral. The theory was: Defer paying taxes until employees are in a lower tax bracket in retirement.
Very few of us today think that income tax brackets will be lower in the future. And there is growing evidence that our spending, especially for executives, will not be much lower in retirement. Industry research suggests that retirement income replacement ratios grow as current income grows. Simply put, the more you earn today, the more you may likely need in retirement.
Given this principle, tax free income can be highly appealing for executives. S.O.L.A.R. insurance arrangements may provide important tax advantages to both businesses and key employees, including immediate tax deduction to the employer in many cases if the compensation is considered reasonable. However, the premium payment made by the employer will be taxable income to the employee. These arrangements may provide tax deferred growth, tax free income and death benefits.
Employers should also consider, however, that the self owned life insurance structure comes with certain limitations. The employer has no control over the asset used to fund this type of benefit arrangement and cannot use the life insurance to provide any recovery for the cost of providing the benefit.
Tip #3: Understand the decision-making process and key players, inviting other advisors to the table
There will be times of decision-making stress in the sale. This may lead to a 'paralysis of analysis.' Often employers do not have a standard method by which to evaluate these plans. Therefore, they move beyond their normal decision-making process, or 'off the grid' for these types of plans. They have bought routine supplies or services before and know how to evaluate that type of purchase.
An executive benefit is usually far from routine. Therefore, it is important to understand how decisions are made at the organization and who will be involved in that process. Ask early in the diagnosis about the employer's process for decision making. This may provide you with insight as to the best approach and save you headaches down the road.
In addition to your client and its employees, there may be other decision making stakeholders and advisors, such as CPAs or attorneys. These other advisors are typically 'gatekeepers' for your clients and may have an important role to play in designing and implementing benefits. Sometimes these advisors are the last hurdle between selling a plan design and getting the client to put the plan in place. By making room for these advisors in the planning process, you can convert your clients’ other advisors into your biggest allies. Not only will they help you get the case implemented, they may even refer new clients to you in the future.
Tip #4: Make sure everyone understands the plan
What is the plan to communicate and enroll employees? This often-overlooked step is extremely important to the long term success of the plan. In a 2009 article on how to develop an effective benefits communication strategy, the Society for Human Resource Management (SHRM) recommends a comprehensive benefits communication plan that considers the demographics and life stages of the participants as well as the company and employee culture.
When I introduce executive benefit plans, it is not unusual for the employer to host a dinner including the spouses of key employees. Companies with a culture of 'family' may find it beneficial to include the key employees' family. Another important suggestion made by the SHRM is to make the communications plan a year-round endeavor, not just a one-time event.
Having a communications plan for enrollment and offering ongoing support ensures participation and helps everyone appreciate the benefits. A plan that is not understood ends up being ineffective. Put in the time to make sure the plan is understood and valued by key employees to ensure they attain their wealth accumulation and protection needs.
Tip #5: Commit to ongoing policy support
Installing the executive benefits program is just the beginning. Ongoing support helps to make sure the program is running like a well-oiled machine. It's important to work with a provider who offers ongoing support that is personalized, knowledgeable, and customer-centric.
One of the key advantages of a S.O.L.A.R. insurance arrangement is the availability of potential supplemental retirement income through the use of policy loans. However the use of loans carries a financial risk; if the policy were to lapse outstanding policy loans most likely will become taxable income, a risk we all would prefer to avoid.
Programs that offer ongoing support help ensure that key employees take advantage of all the benefits that a S.O.L.A.R. insurance arrangement offers, while also helping to prevent any unintended outcomes. Ongoing support may be especially valuable as employees begin planning their retirement income distributions or manage policy loans. It's also helpful for doing customized retirement income analysis, automating the distribution process and monitoring those distributions annually.
In Conclusion, these five tips provide a roadmap for a successful sale and introduction of an executive benefit program. Listen to the needs of employers, involve all decision-makers in the process, communicate the benefits to maximize participation and enrollment, and provide ongoing support. These steps position you for success in your next executive benefits sale.
Baby Boomers' Impact on Medicare
UnitedHealthcare Chief Medical Officer to present at 2012 Aging in America Conference
Aging in America Conference, March 28-April 1 in Washington, D.C.
MINNETONKA, Minn. - Rhonda Randall, D.O., chief medical officer of UnitedHealthcare Medicare & Retirement, will join a panel of esteemed experts at the 2012 Aging in America Conference to discuss baby boomers impact on Medicare.
The general session, How Boomers Will Transform Aging and How Aging Will Transform the Boomers, will be held in the ballroom of the Marriott Wardman Park on Sunday, April 1, from 9:30 to 11:15 a.m. During her remarks, Randall will address how boomers will change the way the nation thinks about aging, due in part to their size but also to characteristics unique to their generation. She will also discuss how boomers are likely to approach health care decisions as they age and how the Medicare program needs to evolve in order to better serve them.
UnitedHealthcare is sponsoring this year's Aging in America Conference, to be held March 28-April 1 in Washington, D.C. The conference is the largest gathering of professionals focused on advancing the care of older adults.
According to U.S. Census data, the population of Medicare beneficiaries will grow by 36 percent by the end of this decade as the massive baby boomer generation ages in to the nation's largest health insurance program.
"Last year, the oldest of the nation's nearly 77 million baby boomers turned 65 and became eligible for Medicare. Every day for the next decade, 10,000 boomers will follow suit, bringing tremendous growth to the program," said Randall. "As a geriatrician, I know that challenges are ahead for our country as we prepare to provide care for a rapidly growing number of older adults. UnitedHealthcare is grateful for the opportunity to participate in this year's Aging in America Conference in support of the outstanding work of the health care professionals caring for our nation's older adults."
Aging in America is the annual conference of the American Society on Aging (ASA), an association of diverse individuals bound by a common goal: to support the commitment and enhance the knowledge and skills of those who seek to improve the quality of life of older adults and their families. The membership of ASA is multidisciplinary and inclusive of professionals who are concerned with the physical, emotional, social, economic and spiritual aspects of aging. The organization's 5,000 members are practitioners, educators, administrators, policymakers, business people, researchers and students.
UnitedHealthcare is the nation's largest business dedicated to seniors' and other Medicare beneficiaries' health and well-being. The company serves more than 10 million members through its portfolio of Medicare plans and is the market leader by enrollment in each of its core product offerings: Medicare Advantage plans, Part D prescription drug plans and Medicare supplement plans.
UnitedHealthcare will showcase a variety of programs and innovations that are helping to enhance the health and well-being of America's older adults at its booth in the Aging in America exhibit hall (space 401/403). These include:
Medicare Made Clear
This award-winning education campaign is designed to simplify the experience of enrolling in Medicare. Through an interactive website, MedicareMadeClear.com, a library of printed materials and other tools, the campaign aims to empower Medicare beneficiaries to make informed, personalized decisions about their health care coverage.
Health Savings Checkup
This online tool from OptumHealth, a UnitedHealth Group company, helps people plan for retirement. After an individual answers basic questions about retirement goals, health and finances, the tool estimates his or her potential health care costs in retirement. It also provides a personal action plan with guidance on ways to stay healthy, spend less and save more. The Health Savings Checkup's estimates are drawn from an analysis of claims spanning 78 health conditions from more than 16 million plan participants.
The Doctor in the Mirror
This new book, written by Reed V. Tuckson, M.D., UnitedHealth Group executive vice president and chief of medical affairs, aims to put the power of healthy aging in the hands of average Americans. It is a common-sense guide to everyday health issues that empowers older adults to take charge of their health by recognizing the doctor in the mirror, or 'Dr. You.'
Doc Scrub and Just Plain Clear Glossary
Doc Scrub is a web-based tool that transforms 'medical speak' into plain English. It calculates the reading grade level of a document and provides plain-language definitions for complex terms, pulling data from the Just Plain Clear Glossary. Unique within the industry, the glossary includes alternative language for more than 1,600 complex health insurance and health care terms.
More information about UnitedHealthcare's portfolio of Medicare plans is available at www.UHCMedicareSolutions.com.
About UnitedHealthcare
UnitedHealthcare is dedicated to helping people nationwide live healthier lives by simplifying the health care experience, meeting consumer health and wellness needs, and sustaining trusted relationships with care providers. The company offers the full spectrum of health benefit programs for individuals, employers and Medicare and Medicaid beneficiaries, and contracts directly with more than 650,000 physicians and care professionals and 5,000 hospitals nationwide. UnitedHealthcare serves more than 38 million people and is one of the businesses of UnitedHealth Group (NYSE: UNH), a diversified Fortune 50 health and well-being company.
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