Supplemental health industry for small companies: Challenges and opportunities
Small companies in the supplemental health products market need to understand the unique challenges these products present in order to compete effectively.
A mid-size telecommunications company in the Northeast was not satisfied with the level of services currently being provided by the firm handling the investments and administration of its 401(k) plan. In addition, the organization was displeased with their plan’s lengthy list of investment funds which had proven to be overwhelming to and underused by participants. While the existing provider offered an impressive array of glossy brochures and state-of the-art automated systems, at the end of the day all of these “bells and whistles” produced a hollow sound with the client because they were not accompanied by concerted consulting support.
Milliman, serving the company in a consulting only capacity, learned of this dissatisfaction from its contacts within the organization. Milliman often served as the intermediary between the organization and its provider when the two experienced communication breakdowns that negatively affected the plan’s ongoing administration, potentially jeopardizing its qualified plan status. Despite Milliman reconciling prior differences on a case-by-case basis, feedback from the client contacts revealed that while they appreciated such interim corrective measures, they were seeking a more permanent, comprehensive upgrade of their plan’s design and administration. They very clearly and adamantly expressed the view that they had originally thought they were engaging a firm that would provide them with the industry standard as far as the quality and quantity of services they were seeking; however, they eventually realized that the service model that was being provided did not meet their needs because of the provider’s overreliance on automation in lieu of the consultative, personal touch and expertise that this client sought. We thus came to the conclusion that, while we had kept trying to solve their problems within the existing model, what was desired and demanded here was a total switch to different service model. Recognizing that the situation was at a crossroads (i.e., an internal decision had already been made by the organization to move on from their current provider and seek a new firm for their benefit needs), Milliman was faced with the challenge of how to respond to the growing frustration of the company’s leaders over having to spend excess amounts of time away from their core business functions handling administrative details they had hoped their current provider would resolve. The solution became clear when the company’s decision-makers communicated to us that they were extremely satisfied with our consulting services to date and inquired as to whether we would be able to provide any additional services over and above what we were already doing for them.
Milliman then suggested a discovery meeting with the organization’s key decision-makers and human resource representative in order to (1) allow them to communicate the specific areas in which the current service provider was failing to meet their expectations and (2) discuss how Milliman could provide them with the more “hands-on” approach they were seeking. After determining that the type and quality of services Milliman was able to provide perfectly matched their needs, we scheduled a second meeting during which we introduced the Milliman consultants who would be handling the account in the event that the organization decided to switch to Milliman. During this second meeting, after hearing the litany of issues voiced by the organization, which included complaints regarding problematic plan provisions as well as the above-referenced administrative and investment fund concerns, Milliman was able to offer a three-pronged solution to address their current high level of frustration with the operation of their 401(k) plan:
(1) Plan design revisions. Milliman’s analysis of their situation revealed that several of the ongoing administrative burdens could be addressed through amending the plan. Suggested revisions included (a) removing the joint and survivor annuity requirements which had been included and continued in the plan even though by law the plan was not a type of plan that required such annuities and neither the firm nor participants had expressed any interest in using these payment options; (b) increasing the 401(k) deferral limit which had never been modified to reflect the higher limit that went into effect with a past law change; and (c) adding a $5,000 mandatory cash-out threshold. Milliman proposed amending the plan to incorporate these revisions.
(2) Implementing a more service-oriented administrative approach. There were several operational areas (e.g., loan applications, withdrawal requests, and qualified domestic relations order determinations) where the previous provider did not assume responsibility. Milliman assured the organization that if they made the switch to Milliman, they would be relieved of such tasks in the future as these services would fall within the scope of Milliman’s responsibility.
(3) The existing 401(k) plan currently offered participants a choice of 34 investment alternatives, many of which were similar in asset composition, expense ratio, and average return so as to be redundant. Analysis of the breakdown by fund indicated that many of these funds were not being used by participants. Accordingly, the current array of funds was creating more confusion than appreciation with participants. Milliman proposed to have its investment consultants analyze the existing funds and replace them with a more concise set of funds that would provide sufficient diversification opportunities for participants by covering each of the investment categories previously provided but doing so with a smaller number of funds carrying lower expense ratios. In conjunction with this smart-sizing of the plan’s investment alternatives, Milliman also proposed to have the plan offer Milliman’s InvestMap as an alternative for those participants who did not want to assume the initial task of designing a unique investment portfolio as well as the ongoing responsibility of monitoring fund allocations. By choosing InvestMap, such participants would have an age-appropriate allocation mix created for them upon their selection with such mix proportionately rebalanced as they approached retirement.
The organization was extremely excited with this proposed approach and gave Milliman the green light to prepare an official proposal to take over the full administration of their 401(k) plan and provide them with ongoing investment consulting with respect to the funds offered under the plan.
The client accepted the proposal and Milliman successfully saw them through the transition this past summer, which included (1) providing various written communications to plan participants alerting them to the upcoming change; (2) conducting numerous telephone conferences with the organization’s contacts to finalize the new investment line-up and assist in the transition to Milliman’s administrative systems; and (3) holding in-person employee meetings at three separate locations as well as at another location via Webex in order to educate employees regarding the new plan design, investment changes, and on-line access as well as foster appreciation of the improved features. Thus far, the client is extremely pleased with the plan design revisions, their new streamlined assortment of investment funds, the increased level of administrative services, and participant education being provided by Milliman.