The Modern Fund Office: 2016 Study of Public & Taft Hartley Benefit Fund Operations

Transcription

1 The Modern Fund Office: 2016 Study of Public & Taft Hartley Benefit Fund Operations

2 CONTENTS The Modern Fund Office: 2016 Study of Public & Taft Hartley Benefit Fund Operations Introduction 3 Overview of the Study 4 Staffing 6 Monitoring & Measuring 8 Board Operations & Reporting 10 IT Spend & Responsibilities 12 Systems & Satisfaction 14 Top Operational Concerns 16 Key Takeaways 17 2

3 INTRODUCTION Public sector and multiemployer benefit plans have been hit by the perfect storm of risk, compliance and regulatory overload. As a result, most fund administrators agree that it is getting more and more complicated to run the fund office and administer benefits. In response, MIDIOR initiated a study of Public and Taft Hartley benefit fund operations in 2014 and we are committed to conducting this research annually. The top operational concerns that we see in 2016 range from the regulatory implications of a shifting political landscape to the actuarial implications of a community of young retirees. Regulatory scrutiny and compliance obligations have become onerous and the membership has shifted its expectations toward real time access of data and real time responses to questions and concerns. Yet, despite this environment, fund office operations are behind the curve in adopting new technologies that can help them keep up. In an era of unfunded liabilities, it can be hard to justify the significant expense of modernizing systems and retooling business processes. Furthermore, once the technology investment is made, there are many concerns related to maximizing the return. Although an administrator for a small Taft Hartley fund may think that his/or her operational challenges are very different from those faced by a statewide public pension fund, in fact, this research shows that they are struggling with many of the same issues. We understand that every plan is unique but when you look across the responses you will notice common themes related to technology, reporting and staffing that may shed some light on the current state of the fund office in the context of the operational concerns that plague its future. We hope you are able to leverage this study as you consider how to best tune your operations in the coming year. 3

4 OVERVIEW OF THE STUDY In 2016, our research was streamlined to focus on the following six areas of fund office operations: 1. STAFFING 2. MONITORING & MEASURING 3. REPORTING 4. IT SPEND & RESPONSIBILITIES 5. SYSTEMS & SATISFACTION 6. TOP OPERATIONAL CONCERNS as board visibility into operations. Finally, given the importance of technology, we expanded our study to investigate spend on Information Technology and how responsibilities are distributed between internal staff and external resources. We also asked about administration systems and overall satisfaction with how technology and IT resources are leveraged in support of member benefits and service. As in prior years, we gathered data about areas which, based on our experience, continue to present complexity and risk. Once again we asked about the benefits that the fund provides in relation to staff members that support each area. We were also interested in the regular measures used by both the board and management to track performance and progress. Without question, it is difficult to improve what is not measured or reported on. We continued our exploration of reporting frequency and format to determine levels of fund office transparency as well In 2016, all public sector funds that participated were exclusively focused on retirement benefits and of the multiemployer funds that participated, 83% administered health benefits and 65% administered both health and retirement benefits. In order to facilitate meaningful comparisons, we leveraged supplemental data from publicly available information and conducted one-on-one interviews with a subset of participants. 4

5 PARTICIPANT PROFILE Our research focused on fund office and administrator operations associated with public and multiemployer benefit funds. Study participants were categorized by the types of benefits administered, the size of associated benefit funds and total resources as measured by full time equivalent (FTE) headcount at the fund office (reported by study participants). Participants spanned multiple industries including state and municipal government, the arts, building trades, commercial & healthcare workers and trucking. In total, 18 fund administrators participated, representing 43 different benefit funds with unique plan designs and organizational structures. Research participants included executive directors, business line leaders and operations managers. Table 1 Participants by Benefits Administered, Assets, and FTEs Fund Office Type Benefits Administered Assets in $M Size in terms of FTEs Larger Public Funds $20, Smaller Public Funds $224 2 Larger Multiemployer Funds Smaller Multiemployer Funds $3, $3, $1, $1, $1, $1, $1, $ $ $205 3 $167 4 $ $54 6 $37 27 $34 11 = Retirement Benefits (Only) = Health Benefits (Only) = Retirement + Health Benefits 5

6 STAFFING For the third year running, the overall headcount and breakdown of staffing by functional area across participants is widely varied. The 2016 data continues to support our theory that while fund size does relate to headcount, it is fund complexity in terms of the mix of benefits administered and specifically whether or not health benefits are administered that has the most significant correlation to staffing levels. One way to measure efficiency is to look at the ratio of headcount-to-assets*. Using that measure: The most efficient fund office in terms of headcount-to-assets has many participants and administers a limited number of benefits. The least efficient fund office has fewer participants and a mix of both health and retirement benefits thus, driving up the complexity factor. Based on this year s data, headcount-to-asset ratios range from 6 FTE/$1B (for large, simple funds) to 40 FTE/$1B (for medium to small, complex funds). The appropriate staffing level for a fund administrator can fall anywhere on this spectrum but should correlate to benefit plan complexity, benefit mix and operating model. The largest percentage of FTEs continues to be allocated to member-facing functions (i.e. member services and benefits administration) and ranges from as little as 30% to as much as 100% of overall headcount. However, this year s data also highlights an increase in headcount dedicated to IT which ranges from 2% in the smallest multi-employer funds to 12% in the largest public funds. Staff dedicated to management held steady, averaging 12-15% of the fund office team. Looking forward to 2017, we anticipate that overall headcount at the fund office will not change significantly. However, we do expect that the mix of jobs will be weighted towards individuals on the front lines, servicing members as well as those developing and maintaining benefits administration systems both for staff to use when servicing members and for members to use in a self-service capacity. *Please note that asset size has been sourced through Form 5500 s and other publicly available financial reports while number of FTEs is sourced through this study and reflects the data entered by study participants. 6

7 Figure 1 - Average Full Time Equivalent by Function Area Average FTE's by Department, by Fund Office Type, as a % of Total Headcount Health & Welfare Benefits 11% 5% 75% 5% 5% Retirement Benefits 4% 2% 17% 3% 4% 5% Retirement and Health & Welfare Benefits 46% 60% 34% 11% 52% 36% 12% 46% Management Administrative Support Pension Benefits Annuity Benefits Health Benefits Accounting IT All Others 7

8 MONITORING & MEASURING As the fund office modernizes, superior member service remains the ultimate goal. Achieving this goal depends on efficient operations and effective communications amongst employers, plan participants and internal staff. In each of the past three years, we asked study participants to identify the measures they use to track and report progress towards improving members experiences. In 2016, a seemingly low percentage of study participants measured member satisfaction. Our data shows that use of this measure has decreased from 44% to 41%. Similarly, use of certain other measures that relate directly or indirectly to participant satisfaction also decreased. The rate of turnover in fund office staff is a measure that only 24% of this year s participants use, but it is particularly noteworthy that only 11% of smaller multiemployer funds measure turnover rates. Multiemployer plans are notoriously complex in terms of plan rules and the benefits they administer and often feature larger headcounts than their public fund counterparts. While larger teams can decrease the dependency on key individuals (safety in numbers), it also steepens the learning curve and can extend the life expectancy of what might otherwise be straightforward business line tasks. Measuring and reporting turnover rates keeps this operational risk top of mind and inspires healthy practices such as business process definition and socialization. It can also provide insight into lagging operational metrics and depressed satisfaction ratings. Similarly, the number of funds that track member interactions fell to 41% of all study participants, a decrease from This measure provides the fund office with an important lens into appropriate staffing levels and business process inefficiencies. This will be especially important as the fund office integrates member self-service into its standard operating model. Given that it is hard to improve a process or outcome without a clear baseline, tracking and reporting relevant metrics that correlate to fund administration goals can drive the fund office to a more efficient future. In this way funds will be able to identify areas for improvement and provide the data necessary to inform both trustee and management decisions. The more robust your portfolio of metrics, the more complete picture you can paint of where you are on the spectrum of the modern fund office. The good news is that as the fund office moves into the future, data tracking and analysis is getting easier and easier. 8

9 Table 2a Fund Office Performance Metrics by Fund Office Type Does your fund measure any of the following? Performance Metric Smaller Multiemployer Funds Larger Multiemployer Funds Smaller Public Funds Larger Public Funds Employer Delinquency Rate 56% 100% Fund Office Performance vs. Operating Budget 78% 50% % Days to Process a Health Claim 56% 67% N/A N/A Days to Process a Retirement Benefits Application 33% 50% 100% 100% Participant Satisfaction 33% 50% % Number of Participant Interactions 44% 33% % Fund Office Staff Turnover 11% 33% % Table 2b Fund Office Performance Metrics All Participants Does your fund measure any of the following? Performance Metric All Participants Employer Delinquency Rate 65% Fund Office Performance vs. Operating Budget 65% Days to Process a Health Claim 53% Days to Process a Retirement Benefits Application 47% Participant Satisfaction 41% Number of Participant Interactions 41% Fund Office Staff Turnover 24% 9

10 BOARD OPERATIONS & REPORTING Over the past three years, our study has indicated that participants increasingly leverage the data they collect and the reports they create in order to maximize the effort invested. This appears to be true for all three stakeholder groups: Board of Trustees, Board Subcommittees, and Fund Office Management Teams, but especially for this latter group. The percentage of study participants who report weekly to the Fund Office Management Teams grew from 20% in 2014 to over 50% in This trend is encouraging as a more informed Fund Office Management Team, that is aligned with BOT decisions, ensures more efficient benefits administration. It is interesting to note that monthly reporting to the Board of Trustees has also grown steadily over the years. While this increased transparency is welcome, the higher frequency often demands more preparation and additional work in a condensed period of time. This is especially relevant as the number of study participants that continue to produce printed reporting packages has held steady for the past three years. However, we note an increase in the number of funds that have added electronic reporting formats (PDFs, s, dashboards or portals). Adding reporting formats, versus replacing them also adds to an already heavy workload. This burden on staff creates urgency to cutover to more progressive delivery channels as well as increases the need for investments in technology to further automate the reporting process. In short, while the effort that goes into reporting now benefits all levels of the organization, the level of effort required to create these reports remains fixed as the number of reporting formats increases and the insistence on printed packages endures. We would argue that the time and effort that goes into reporting should shift towards reconciling the data and informing the organization versus physically creating the reports. 10

11 Figure 2 - Reporting Frequency and Audience How often do you report to the following entities? Board of Trustees Subcommittees of the Board of Trustees Fund Office Management Team % 42% 39% 38% 6% 11% 6% 6% 11% 11% 19% 26% 39% 44% 5% 11% 42% 56% 56% 11% 50% 50% 26% 28% 19% 21% 5% 5% 5.6% 6.3% 17% 19% 42% 33% 31% 53% Weekly Monthly Quarterly Annually No Reporting 11

12 IT SPEND & RESPONSIBILITIES In order to establish a picture of IT operating model trends, our 2016 study explored both headcount and spending across internal and external resources. While we would have assumed that the two would correlate closely (e.g. if internal resources are many, the percentage of internal spend would be high), once again, participants responses were all over the map. It is clear that it is a combination of fund size and complexity that drives IT spending. Larger funds that administer many benefits for many lives have a larger percentage of their budget allocated to IT, but there is no particular pattern with respect to the distribution of responsibilities across internal resources and external vendors. In fact, small funds with complex plan rules that administer a full complement of benefits can have a similar spend as their larger fund counterparts on IT in proportion to lives or asset size. According to the data in this year s study, IT responsibilities correlate more closely to the nature of the tasks than they do to fund size and complexity. For example, responsibilities for Core Financial Systems and Retirement Benefit Systems are heavily weighted towards internal staff. However, when considering Health Claims Processing Systems and Eligibility Tracking Systems, the distribution patterns even out across internal staff and external vendors. In the current environment, it makes sense that fund offices are sensitive to the implications of the changing regulatory landscape for health benefits. Outsourcing activities such as claims processing and health eligibility tracking may not be the least expensive approach, but it certainly ensures predictable costs. It is also a way to reduce risk with the downside of losing some flexibility and control over the process. In addition, we observe that although a fund office may report limited IT resources in terms of FTEs, technology responsibilities are often buried inside multiple departments so those numbers on their own can be misleading. For example, business line staff may be responsible for business analysis, system requirements, and member self-service support (e.g. password resets) in addition to their benefits administration duties. These additional responsibilities intensify the burden on non-it staff during systems transitions when they are asked to contribute to functional and user acceptance testing. Note that resource constraints are often hidden here. In the modern fund office, IT is taking on a much more complex and critical role. As the fund office moves to contemporary systems and processes, many of the responsibilities that are distributed across multiple functions and hidden inside different roles, will need to be made visible in order to be assessed and improved. To ensure that sufficient spending and resources are allocated to IT initiatives, the modern fund office will need a standard way to talk about (and account for) IT functions and activities, regardless of where they live. 12

13 Table 3 - Information Technology Staffing Internal External Public Funds 90% 10% Larger Multiemployer Funds 63% 37% Smaller Multiemployer Funds 57% 43% Responsibilites Figure 3 - Responsibilities Primary 71% Responsibility for Business Systems 47% 71% 43% 36% 36% 60% 29% 29% 29% 29% 24% 24% 47% 20% 20% 43% 6% 36% 36% 29% 29% 29% 29% Back 24% Office Core 24% Health Health Retirement Business Financial Claims Eligibility Benefits 20% 20% Equipment Systems Processing Tracking Systems & Software Systems Systems 6% Internal Staff Shared between Internal Staff & External Vendors External Vendors 60% Back Office Business Equipment & Software Core Financial Systems Health Claims Processing Systems Health Eligibility Tracking Systems Retirement Benefits Systems Internal Staff Shared between Internal Staff & External Vendors External Vendors 13

14 SYSTEMS & SATISFACTION This year, participants cited eleven different systems in use in addition to those that are homegrown, with ISSI, Basys and internally built systems being the most prevalent. In terms of overall systems satisfaction, public funds were largely satisfied, rating a 4/5 or 5/5 in almost all categories while multiemployer funds were decidedly neutral. There does appear to be an opportunity for larger multiemployer funds to improve upon the systems that deliver member self service capabilities since ratings here were some of the lowest (2/5). System vendors are critical partners that impact users experiences and fund office efficiency. For example, during a major systems project, the fund administrator s relationship with the system vendor is critical to a successful outcome and should last well beyond the cutover date. When you invest in a system, you are also investing in a relationship with the selected vendor so it is imperative the administrator and the vendor help each other and play their parts cooperatively. However, nurturing a productive relationship between the internal team and the external vendor is an ongoing process that takes time and attention. And, since mismanaged expectations surrounding roles and responsibilities are often the source of unnecessary friction, the administrator and vendor should lay the groundwork for a productive relationship by reviewing the program and personalities right from the start. It is worth noting that system satisfaction appears to be correlated to a fund s ability to access their data (see chart below) which is an important consideration for system vendors as they continue to refine features and functions. Regardless, fund offices should consider the quality of the relationship with a systems vendor with as much emphasis as they do the feature suite of the software itself. Table 4 - How Satisfied are you with your Benefits Administration Systems Satisfaction Rating Scale of 1 to 5 Stars ORGANIZATION TYPE Current Benefits Administration System(s) Member Self Service System(s) Level of Internal IT Support External Systems Vendor Support Your Ability to Access/use your Data Larger Public Funds Smaller Public Funds Larger Multiemployer Funds Smaller Multiemployer Funds

15 Figure 4 - Systems & Satisfaction Comparison of Benefit Administration Systems Vitech V/3 Homegrown Ability to Access/Use Your Data Basys ISSI Health Plan Systems Standard Data Corp Facts LRS QuestSystems Technology LIMS PensionGold Byrne Satistfaction with Current Benfits Administration ** Please note that the size of the bubble is relative to the number of study participants who identified the system vendor as their own. 15

16 TOP OPERATIONAL CONCERNS This year we asked participants to identify their top three focus areas or operational concerns. Results were varied but a few common themes emerged. Rising Cost of Health Benefits While ACA has certainly increased the percentage of the U.S. population that is covered by health insurance, there have been unanticipated negative impacts for multiemployer benefit plans in particular and the future landscape is unclear. For these entities, where the majority of plan participants were already covered, ACA guidelines often require benefit plan changes (e.g. elimination of life time limits, etc.). These changes are very costly and have resulted in a status change for certain funds. Top health concerns such as the opioid epidemic and disease control combined with the rising cost of prescription drugs complicate the picture. Individuals in charge of plan design and administration are finding themselves in the position of needing to rethink health benefits and associated business models altogether. Shifting Member Service Expectations Multiple study participants expressed concerns over their members rapidly shifting expectations around communication channels, turnaround time on benefit applications and access to real time information. Newer members in particular expect to be able to access a member portal via their smart phone, receive correspondence via and interact with member services staff via electronic means (e.g. , text, instant message). As a result, fund offices need to reassess their communications platforms and member satisfaction measures to account for the change from primarily paper-based correspondence to electronic interactions. Maximizing ROI of IT & Data Investments Another concern that was voiced by multiple study participants relates to the ability of fund offices to leverage their investments in systems and technology. Combine lean IT teams with the missioncritical nature of fund office administration systems and IT and business staff have their hands full just bringing a new system online. Post go-live, going the extra mile after the hiccups are worked out is frequently out of reach due to bandwidth constraints. Too often, fund office staff find themselves going back to old business processes, despite their investment in a new system. Finding the resources and time to modify the process and change behavior is key to maximizing returns and was voiced as a concern. Similarly, ensuring HIPAA compliance and data security (in particular the security of data at rest ) has emerged as an expensive initiative that typically requires system, process and facilities changes. In an ever-evolving regulatory environment, this year s investment may not even be enough for next year s mandates and reporting requirements. Pre-Retirement Age Retirees A final concern cited by a few study participants was the rising cost of members who elect to retire before the normal retirement age specified by their plans. With members living longer, some plans are finding themselves with an increasing percentage of members who wish to retire early in order to reduce physical wear and tear. Not only does this have implications for pension and annuity plans in terms of eligibility and available benefits, it also has actuarial implications for the funds. 16

17 KEY TAKEAWAYS For our 2016 annual research, we have summarized the highlights as follows: Staffing: Staff (and organize) for where the fund office is headed and not for where it has been There is no one-size-fits-all headcount model. In order to determine optimal staffing for your fund office, consider the complexity of benefits administered and, in particular, whether or not health benefits are handled in house (versus the size of the fund). The member services model is changing. Think about your staffing plan from the perspective of how you will deliver services in the future instead of evolving based on how it has always been. Monitoring & Measuring: Achieve member satisfaction from the inside out If excellent member service is the desired outcome, you need to define and measure the internal factors that drive member satisfaction in addition to measuring overall satisfaction. Measuring fund office turnover rates, data quality, and response time will provide actionable information that can help you improve member services. Board Operations & Reporting: Expect to support all of the above as a standard reporting format Trustees increasingly demand board reports in electronic formats (PDFs, s, dashboards or portals) but printed report packages are still necessary. Standardized frequency, content and format of reports will make the process more efficient and the information more consumable for the various audiences. IT Spend & Responsibilities: Use your IT roadmap to guide your spending The number of FTEs allocated to IT does not always paint an accurate picture of IT spend. Make all IT functions and roles visible regardless of where they live (inside or outside the organization) in order to accurately account for spending on IT - standardizing language is a good first step. Tune the functions and roles to your IT roadmap annually in order to ensure the right skills are available and utilized appropriately. Systems & Satisfaction: Invest in healthy vendor relationships to yield healthy returns A positive and productive relationship between internal staff and your external system vendor(s) is a leading indicator of healthy return on your investment in technology systems. A healthy relationship is a two-way street exercising best practices for facing off with your vendors teams will reap daily benefits in terms of productivity and efficiency. We hope that this year's study offers actionable insights that will drive the discussion of how your fund office operations can operate more efficiently and effectively. For more information about MIDIOR Consulting or our annual research, or if you would like a personalized presentation of our research, call or us at research@midior.com. Learn more at 17

18 MIDIOR is a management consulting and technology services firm changing the way our clients think about products, technology and data. In our management consulting practice we work hand-in-hand with product teams to help them improve their track record in innovation, product development and product management. MIDIOR works with Taft Hartley and public fund administrators to advance their operations. We help our clients leverage technology to keep up with changing regulations, improve service to members and at the same time, reduce the cost of doing business. Our team recognizes that every plan is unique and in understanding both the systems and underlying data we bridge the gap between fund management, IT and outside vendors. Whether the goal is to improve member communications, implement new technologies, or manage a complete system overhaul, we deliver remarkable results for our clients. MIDIOR CONSULTING 22 Putnam Avenue Cambridge, MA on Twitter The Modern Fund Office ( The Product Line (blog.midior.com) Product Perspectives ( Stages of Innovation ( 18