Canadian Institute of Actuaries. L Institut canadien des actuaires General Meeting Assemblée générale 2007 Montréal, Québec

Transcription

1 Canadian Institute of Actuaries L Institut canadien des actuaires Montréal, Québec

2 What s New In Flex Bob McKay Hewitt Associates Jason Novak Great Great-West Life November 29, 2007 Slide 2

3 Topics Overview what s new in flex? Changing objectives Wide range of possible structures Converting taxable bonus to pretax credits An Insurer s Perspective Flexing retiree benefits Beyond health spending accounts Future of Flex innovative benefits Future of flex total rewards Slide 3

4 Slide 4 Overview What s New in Flex?

5 What s New Maintaining/revitalizing existing plans Retiree flex Flexible accounts health spending, personal, perquisite Range of flex structures Net pricing IT 529 Flexible Employee Benefit Programs Administration new technologies, web based enrollments Outsourcing, cosourcing, multiprocess outsourcing Online communication/link to administration Global flex Slide 5

6 Slide 6 Prevalence

7 Prevalence of Flexible Benefit Plans 41% 32% 2% 7.5% 17% 0% Slide 7 Source: Hewitt Associates

8 Prevalence of Flexible Benefit Plans by Industry Universities 5% Transportation Retail 25% 25% Aerospace 30% Metals/Mining Pharmaceuticals Automotive Food/Beverage Computer Insurance/Finance Banking Energy/Oil Personal Products 32% 39% 42% 45% 45% 56% 58% 74% 75% Prevalence Source: Hewitt Associates Slide 8

9 Slide 9 Changing Objectives

10 Advantages of Flexible Benefits; Employer Perspective 100% 89% 81% 80% 71% 50% 0% 44% 44% 34% % Meet diverse needs Increase employee understanding Contain/control cost increases Meet competitive pressures Slide 10 Note: Employers were asked to list the top three advantages; therefore, totals exceed 100%

11 Advantages of Flexible Benefits; By Region 100% 82% 86% 92% 73% 77% 62% 63% 50% 0% 52% Meeting diverse employee needs Containing benefit cost increases British Columbia Alberta Ontario Quebec Slide 11 Note: Employers were asked to list the top three advantages; therefore, totals exceed 100%

12 Slide 12 Wide Range of Possible Structures

13 Wide Range of Flex Designs Traditional Simplified Flex Full Flex Financial Security Total Compensation Little Choice Employee-paid choice Modest choice Simplified structure Extensive choice Employee directs company money Maximum Choice Full flex + savings or pension plan Full flex + renegotiation of pay/bonus redirection Slide 13

14 Simplified Flex Simple credit structure or no credits Health spending account Modular Health only Slide 14

15 Simplified Flex Modular Example Employee Module Dental Medical HSA Cost Company-Paid Employee-Paid None 75% basic 90%/50% None 75%; no vision 90% + vision $800 $400 $0 $0 $0 $ %/60% 100% $0 $20/$40 per month Slide 15

16 Full Flex Extensive choice Employee directs spending of company money e.g., core + options + credits Slide 16

17 Full Flex Example Sources of Funds Core Options Medical 4 choices Employee AD&D 1-7 x pay Company Flex Dollars Dental 4 choices Employee Life $10,000 Spousal AD&D $10K - $250K + Employee Life 1-7 x pay Long-Term Disability 50% Children s AD&D $10K - $25K Spousal Life $10K - $250K Employee Payroll Deductions Long-Term Disability 2 choices Children s Life $10K - $25K Flex Dollars HSA GRRSP Cash Slide 17

18 Slide 18 Financial Security Full flex plus Savings plan

19 Financial Security Example Full Flex + Savings Plan Employee Contributes Employee Contributes 5% Company Contributes 2.5% to RRSP or Company Contributes + 1.5% to RRSP 1% to HSA 5% Slide 19

20 Total Compensation Employees choose mix of pay and benefits Common in U.S. through salary reduction In Canada, salary reduction requires renegotiation of employment contract New CRA rulings permit bonus conversion Slide 20

21 Slide 21 Total Compensation Choice Bonus Direct Pay Benefits

22 Total Compensation Aggressive Full flexible benefits plus salary reduction 3% of salary available as flex credits Can be taken as cash or transferred to RRSP if not used in benefits Benefits based on unreduced salary Frequently associated with drastic cost reduction Could be challenged by CRA Slide 22

23 Slide 23 Converting Taxable Bonus to Pretax Credits

24 Converting Bonus to Flex Credits Key flex design challenge finding sources of credits or flex dollars (i.e., pretax dollars) More $s means more choice for employees, and tax savings CRA guidelines have imposed limits Recent Advance Tax Rulings (ATR) highlight design opportunities Slide 24

25 Before Linking pay to a flex plan required broad-based unilateral change by employer Example: Company with existing variable pay plan of 5-15% Change cash payout to 3-13% First 2% paid as flex credits Result tax effective but perceived take-away Slide 25

26 Now Bonus/variable pay can be linked to a flex plan taxeffectively Individuals make irrevocable elections in advance Elections directed to flex credits and/or Health Spending Account Not automatically included in income Slide 26

27 Example Employee participates in flex plan and variable pay plan Both based on calendar year Flex plan enrolls in November for following year Variable pay received in February for prior year Employee allocates portion of variable pay to flex plan during November flex enrollment Allocation not considered income considered as employer contribution to flex plan Slide 27

28 Design Guidelines Amount of variable pay unknown at time of election No minimum guaranteed amount of variable pay Election irrevocable and made in advance of flex plan year Maximum allocation defined Slide 28

29 Things to Consider ATRs are binding only on specific companies and facts Subtle wording and design provisions can influence ruling Linking variable pay and flex has administrative impact Clear communication to employees required Slide 29

30 Slide 30 An Insurer s Perspective

31 Flex An Insurer s Perspective Designing Flex Versus Building Flex Insurers usually not involved in design But can offer practical insight if asked! Risk and administration are biggest concerns. Designer s drive BMW s, Builders drive pick-ups! Slide 31

32 Risk Anti-Selection Not a concern where there s self-insurance Where the insurer has the risk: Rate / renew the plan as a whole. Restrict choices as plans get smaller. Opt-out is the biggest risk Unit administration costs become prohibitive Little credibility to look back and quantify actual antiselection. Most often anti-selection amongst options is marginal Slide 32

33 Risk Pricing for Administrative Expenses Factors to Consider: Complexity of design More policies, divisions, classes Initial and Re-enrolment efforts Added servicing requirements: Call centre Group Office Renewal / reporting demands Longer lead times Reports by option Slide 33

34 Administration Traditional services Outsourcing Web based employee enrolment tools Additional Call Centre support Communication services Employee direct distribution Payroll feeds Slide 34

35 Flex at GWL Total number of flex clients: 128 Total flex premium: $596 million Largest flex client: $71 million Smallest flex client: $84 thousand Distribution of clients by annual premium: < $.5 million 21 $.5 - $1 million 27 $1 - $2 million 26 $2 - $5 million 24 $5 - $10 million 14 $10+ million 16 Slide 35

36 Slide 36 Flexing Retiree Benefits

37 Prevalence of Retiree Healthcare Benefits 2006 Hewitt survey of 218 employers 45% provide retiree healthcare benefits Slide 37

38 Retiree Medical Plan Objectives Competitive Total Compensation 76% Reward Long Service 56% Retention 46% Transition Out of Workforce 41% 0% 20% 40% 60% 80% Source: Hewitt Postretirement Healthcare Benefits in Canada Survey 2006 Slide 38

39 Retiree Medical Threats Rising health care costs Accounting costs Large number of employees retiring in the next decade Risk of provincial/territorial downloading Source: Hewitt Postretirement Healthcare Benefits in Canada Survey 2006 Slide 39

40 Retiree Medical Cutbacks No changes 43% 63% Add/increase retiree contributions 30% 18% Reduce medical coverage 18% 16% Increase eligibility requirements 14% 12% Eliminate medical coverage 4% 4% Within Last 3 years Within Next 3 Years 0% 10% 20% 30% 40% 50% 60% 70% Percent Of Respondents Slide 40 Source: Hewitt Postretirement Healthcare Benefits in Canada Survey 2006

41 Range of Retiree Medical Plan Designs Low Employer Cost High No coverage Facilitate access to retiree-paid coverage Catastrophic coverage Stand alone HSA HSA plus catastrophic coverage Flex plan Traditional plan with cap on employer costs Traditional plan with managed care features Traditional plan Slide 41

42 Retiree Flex Considerations Design: What structure makes sense? Legal: Can employer make changes for current retirees? Financial: How much should employer subsidize plan? Now and in future? Accounting: How can OPEB cost be managed? Enrollment: Is annual enrollment appropriate? Communication: What approaches will work best? Administration: How will retirees make their elections? Employee contributions: How will they be collected? Slide 42

43 Example of Catastrophic Plan Deductible: $1,000 (single) $2,000 (family) Coinsurance: 80% to $2,500 (single)/$5,000 (family) out-of-pocket 100% thereafter Covered services: No out-of-canada Slide 43

44 Slide 44 Example of HSA Annual allocation: $75 x service: maximum $2,500

45 Retiree Medical HSA Plus Catastrophic Structure HSA plus High deductible catastrophic plan Premium paid from HSA Example HSA $2,000 Catastrophic plan $4,000 family deductible/80% coinsurance; 100% after $8,000 out-of-pocket $800 retiree premium Slide 45

46 Example of HSA Plus Catastrophic Plan Family Coverage Exceeds $8,000 out-of-pocket Over $24,000 covered expenses Plan paid Retiree paid * $2,000 HSA allocation less $800 catastrophic premium 20% copay Fully retiree paid Paid by HSA $1,200 HSA net balance* Next $20,000 covered expenses $4,000 deductible Family Coverage Slide 46

47 Slide 47 Beyond Health Spending Accounts

48 Wellness Account Funded through unspent credits or direct employer contribution Expenses include: Fitness programs Exercise equipment Smoking cessation Yoga Personal trainer Team sports Slide 48

49 Personal Account Funded through unspent credits Expenses include wellness expenses plus: Child care/elder care Financial counselling Home/auto insurance Legal counselling Accounting expenses Slide 49

50 Perquisite Accounts Personal spending account for executives Employer provides allowance Executive selects perquisites from list Taxation depends on perquisites selected Unused amounts paid out or forfeited at year-end Slide 50

51 Perquisite Accounts Example Annual allocations: Chief Executive Officer: $40,000 Senior Vice Presidents: $30,000 Vice Presidents: $17,500 Directors: $10,000 Any tax payable is withheld from the reimbursement Any balances at year end are forfeited On retirement, death or termination (except for cause), account remains open for the balance of the year Any remaining funds are forfeited Slide 51

52 Perquisite Accounts Example Eligible Expenses Automobile Business class air travel Charitable contributions Club memberships Financial counseling Health/fitness club Home security Legal counselling Retirement counselling Slide 52

53 Slide 53 Future of Flex Innovative Benefits

54 Innovative Benefits Concierge Critical illness insurance Financial planning Group legal Personal account RESPs Sabbaticals Slide 54

55 Slide 55 Future of Flex Total Rewards

56 Flex Fund Approaches OTHER PAY AND BENEFITS VARIABLE PAY FLEX FUND Advantages Works well for harmonising different terms and conditions Achieves most of the broader advantages of flex Disadvantages No market data Complete change of reward perspective! More complex communication process Considerations Recalibrate salary-related benefits to be based on Flex Fund Can maintain pensionable salary to limit DB pension exposure Develop Flex Fund ranges for pay management process Slide 56

57 Slide 57 Plan Design

58 Wealth Other options: Share plan 21% Financial advice 1.5% 50% Pension 80% 0% 20% 40% 60% 80% 100% Popularity Prevalence Slide 58

59 Protection Travel insurance Personal accident insurance Critical illness insurance Income protection insurance Life assurance - partner Life assurance - employee 10% 40% 7.5% 10% 3% 50% 90% 50% 60% 50% 73% 75% 0% 20% 40% 60% 80% 100% Popularity Prevalence Slide 59

60 Health Eyecare Health screening - partner Health screening - employee Dental insurance Healthcare cash plan Private medical insurance 22% 1.5% 50% 3% 56% 10% 82% 10% 50% 8% 81% 60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Popularity Prevalence Slide 60

61 Tax Saving Other options: Employee canteen Charitable giving 7.5% 42% Car parking Mobile phones Bicycles Childcare vouchers 5% 1% 13% 7.5% 11% 1.5% 69% 4.5% 0% 10% 20% 30% 40% 50% 60% 70% 80% Popularity Prevalence Slide 61

62 Slide 62 Personal Growth Learning and development account

63 Time Planning Other options: Sabbatical, flexitime Holiday sell Holiday buy 33% 8.5% 90% 22.5% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% Popularity Prevalence Slide 63

64 Convenience Gym membership Wine Retail and/or leisure vouchers 1.5% 5% 5% 10% 30% 40% 0% 10% 20% 30% 40% 50% Popularity Prevalence Slide 64

65 Slide 65 Questions?