With a new health care reform employer mandate on the way, expanding expertise becomes imperative
As the health care reform's employer mandate looms in 2015, retirement plan and employee benefits specialists face new pressure to provide more well-rounded services or risk getting left behind.
Beginning in January, employers with at least 50 full-time workers will have to offer these workers and their dependents the opportunity to sign up in an eligible employer sponsored plan. If a company fails to offer the coverage or if the coverage is deemed unaffordable or doesn't provide minimum value, then the employer will be subject to a penalty. Per the Affordable Care Act, employers with fewer than 50 full-time workers can use the Small Business Health Options marketplace.
Experts say that the mandate, and particularly the availability of coverage for small firms via the so-called SHOP Marketplace, will likely squash profit margins for employee benefits brokers – the experts to whom employers turn for group life, disability, dental and health benefits.
That means employee benefits brokers will turn to other potential revenue streams, say their 401(k)s.
“If there's going to be margin compression in one area of benefits, then [brokers] will look for something similar, so this is a natural migration,” said Marcia S. Wagner, managing director at The Wagner Law Group.
Currently, Ms. Wagner said she's getting calls “routinely” from people in the welfare benefits arena, asking about understanding the 401(k) business. Retirement plans have become a legal minefield, particularly for those who are inexperienced. The Labor Department has had initiatives on fee disclosure, and it's preparing a law that will define who's a fiduciary in the context of ERISA law. “It might seem similar in that it's another employee benefit, but it's a creature unto itself with very complex rules,” Ms. Wagner said.
Still, others believe that while there may not necessarily be a flood of blind squirrel benefits brokers fighting for 401(k) business, there will likely be more alliances between 401(k) specialists and welfare benefits brokers.
As retirement plans place an increasing focus on fiduciary duty, benefits brokers may step back from that arena and look to align themselves with an entity that can handle the additional work and liability tied to 401(k).
“You have two teams agreeing to work on what they do best and to leave each other's clients intact,” said Jason C. Roberts, chief executive of Pension Resource Institute. He said that his firm assisted on about 10 collaborative partnerships last year.
“The ones we worked with were either sophisticated, proactive advisers or benefit shops that were big enough to know that this was something to get ahead of,” Mr. Roberts added. There's a bona fide need to have experts cover large plans with an array of benefits, and in reality a 401(k) expert adviser probably doesn't have an insurance license and may not be able to speak to other welfare benefits, including non-qualified deferred compensation plans, Mr. Roberts said.
When formulating those pairings – say, a team of 401(k) advisers working with a team of benefits experts – the groups need to figure out how the benefits brokers will be paid for their work.
Perhaps the adviser, particularly if he collects fee compensation, could source a piece of it to the broker – provided that the broker is offering a real service to the plan and isn't merely someone who's made an introduction between the employer and the 401(k) adviser, noted Mr. Roberts. The two experts will likely show up together at meetings with employers and employees.
In other arrangements, money may not change hands between the broker and the adviser. Rather, it's a mutually beneficial relationship where two teams agree to cover their respective area of expertise and protect their specialty, Mr. Roberts said.
On a larger scale, one example of two companies joining forces to cover all aspects of employee and retirement benefits is the 2005 partnership of major insurance broker The Willis Group and retirement plan RIA SageView Advisory Group. In this strategic alliance, Willis refers any retirement business fiduciary work to SageView.
“They saw the needs of the marketplace changing from a broker to a fiduciary, and they chose to outsource to us – a partner that can meet those needs and that specialization,” said Randall Long, founder and managing principal of SageView.
“There will be collaboration: Firms with different expertise,” he added. “I think an employee benefits firm that doesn't have the retirement piece will want to align with a firm that has the expertise and critical mass, rather than doing it themselves.”
As health benefits become a bigger deal to businesses, expect to see retirement plan service providers to step up even more. The fact that high-deductible health care plans and health savings accounts are becoming popular means providers can step up as record keepers for both the 401(k) and the HSA.
“More companies want an HSA and they need a record keeper for it,” Mr. Long said. “That dovetails into whether the 401(k) provider can do record keeping for the HSA.”
