The Right Fit
A business should thoroughly understand the benefits of outsourcing and ensure that the outsourcer is the right fit for the job that needs to be done. In other words, the outsourcer should be compatible with your request (having specialists in the area of your needs). As stated by AllBusiness.com when thinking of outsourcing, “one should keep in mind that a Human Resources firm is an extension of your company culture, so try to find one that fits your image.” A Human Resource firm that mainly works with law firms and financial institutions would not be suitable fit for a young, progressive business. Therefore, it is important that firms research the company that will do their outsourcing. There are several companies that market themselves as outsourcers and finding the right fit can be a task. However, we have found AON to be an outstanding outsourcer of benefits. AON’s success as a company and with its clients is further discussed below.
AON
AON is a Risk Management Reinsurance Human Capital consulting firm, providing outsourcing services in specialized areas for many companies. AON provides services such as employee benefits outsourcing, risk management, insurance brokerage, human capital, specialty insurance consulting and management consulting. AON has a diversified workforce with 46,000 employees working in 500 offices in more than 120 countries. According to AON, “its core value is maintaining a client focus.” AON has been very successful as they are able to distinguish the specific needs of their clientele. AON has provided outsourcing services for a diverse list of clientele such as the following:-
- AT & T
- Chevron Texaco
- Disney Corporation
- FedEx Express
- Hershey Foods
- The Goodyear Tire and Rubber Company
- Nordstrom
- The New York Times Company
- Southwest Airlines
- United Parcel Service
- DuPont Company
- Kellogg
Challenges of Outsourcing of Benefits
A major challenge which can occur for a company outsourcing benefits is the management of the outsourcer. The challenges of managing an outsourcer and the resolutions outlined by AON are shown in Table 1 below.
Table 1: Challenges and Resolutions for the management of outsourcers (Source: AON Consulting Forum, 2006)
AT & T OUTSOURCES EMPLOYEE BENEFITS TO AON In 2001, AT & T was experiencing internal challenges and desperately needed to minimize costs within the company. AT & T management realized that they needed to concentrate more on core business issues. After consulting with AON the decision was made for AT & T to outsource their benefits management through AON. The advantages of outsourcing of benefits to AON are identified through AT & T’s perspective. Possible disadvantages of outsourcing employee benefits are also identified below.
Advantages
- Outsourcing has lead AT&T to reductions in corporate costs and double-digit savings which was their chief goal.
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AON has helped AT&T prevent costs from sneaking up and eroding savings by screening requests to see if the work falls within the bounds of the agreement and, therefore, will not cost extra.
- AT&T excelled at problem solving as they now had internal employees to focus more directly on meeting core organizational goals.
- AT&T outsourced a variety of transactional functions that do not affect the core of their business, such as the benefits hotline.
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AT&T executives confirmed that the agreement with AON has provided quality service and improved customer satisfaction.
AT&T does not site any problems they faced with AON having outsourced their benefits. Listed below are possible problems AT&T would have faced or would face in future if AON had failed to organize in delivering their services.
Disadvantages
- AT&T would have been disappointed if they had not structured their deals to match their expectations or failed to consider how their expectations might evolve with Aon.
- Nearly 400 AT&T’s employees are now on Aon's payroll providing HR and payroll services to their former employer and some employees may not like to switch to a new organizational culture and environment.
- The higher-level staff left behind at AT&T was expected to provide more strategic value to senior management. However, educators argue many in this position may not have the skills necessary to offer this value.
Fortunately for AT& T and AON the disadvantages listed above did not occur in their outsourcing partnership. These types of disadvantages and problems occur when companies fail to find an outsourcer that is the right fit. However, AT&T found a good fit with AON as according to HRO magazine, “Aon Consulting was one of several partners considered for the outsourcing assignment. Initially, six vendors vied for the opportunity, but Aon's global infrastructure, reputation in the consulting and administrative fields and its willingness to offer AT&T employees new career opportunities won the job.”
SOLUTIONS AND IMPLEMENTATIONSThe solutions chosen by AON and their implementation resulted in great success for AT & T. According to a study by the Gartner Group, “companies considering HR business process outsourcing should examine AT & T’s experience with AON’s Human resource outsourcing experts and build on the inherent success factors of this outsourcing relationship.” Therefore, businesses that decide to outsource benefits should adopt similar programs used by AON. The solutions provided by AON encompassed the following:-
- Benefit Plan Management
- Health affairs and Disability Plan Management
- Governmental Laws and Regulation Compliance
- Employee Stock Ownership Plan Management
Benefit Plan Management
In terms of benefit plans, AON offers both defined benefit plan management and defined contribution plan management to its clients. However, AON advised AT & T to move from the traditional defined benefit plan to adopt a defined contribution plan for its employees. Defined contribution plans encourage employees to save money for retirement. Defined contribution plans empower employees to make contributions into their retirement accounts. With defined contribution plans employers are not required to make contributions as it is the responsibility of the employee to make contributions. However, AON has advised AT & T to help encourage employees to make contributions by matching an undisclosed amount to employee contributions.
Before AON implemented the defined contribution plan they carefully studied all of AT & T’s employee groups such as salaried, hourly and highly compensated employees, to ensure that the plan met the requirements of everyone. AON makes it very clear that the communication of the plan is essential and AON customized a strategy for AT & T to properly communicate the new plan to all of its employees. AON provides professional recordkeeping for AT & T and ensures that all records are up-to-date. AT & T employees are also able to be more responsible and track their savings and investment performance against their personal financial objectives. This tracking of investment by employees is made possible through the following services which are shown below:-
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Personalized statements for employees (See Appendix B for a sample of a personalized statement of benefit cost for employees)
- Employee service centers
- Telephone inquiry systems
- Voice and online enrollment programs
- Compensation and benefit communications
All AT & T employees and retirees can access current company news and benefits information online by logging into .
Health affairs and disability plan management
AON’s new perspectives and services allowed for the improvement of AT & T’s current health and disability programs. Through a wealth of professionals such as actuaries, clinicians, pharmacists and attorneys, AON has developed customized solutions for AT & T’s healthcare programs. AT & T now offers employees health and disability benefits programs such as the following:-
- CarePlus
- COBRA
- Dental
- Flexible spending accounts
- Group Life Insurance
- Long-term Care
- Short term and long term disability
- Medical
- Medicare Part B Reimbursement
- Medicare Part D Prescription Drug Benefit
- Mental Health, Chemical Dependency and Substance Abuse
- Prescription Drugs
- Vision
AON advised AT & T to implement a Consumer Driven Healthcare (CDH) plan along with its current health insurance program. CDH’s help companies to maintain control over healthcare costs and they allow employees to make greater choices about healthcare. According to AON, Consumer Driven Healthcare plans represent a fundamental shift in the way employers will deliver healthcare in the future.” CDH plans have flexible spending accounts, health reimbursement arrangements and they have higher deductibles. Employees who are young and healthy benefit from CDH plans. Employees who are very sick also benefit from CDH plans as the high deductible may cover more than they would have to pay in doctor fees. AT & T has definitely gained from implementing the CDH as there is better control of health costs and the majority of employees prefer these plans.
Healthcare costs for employers are rising on an annual basis. According to the U.S Chamber of Commerce Employee Benefits Survey 2003, medical and medically related payments by employers constituted 15.2 % of payroll. Healthcare costs have also been high for AT & T and as a result AON advised AT & T to implement a health management program. This health management program encompasses health promotion, wellness, disease management and care management. Through the healthcare management program AT & T’s employees focus more on any health issues and prevention of stress and diseases. This has resulted in great success for AT & T not only in reduction of healthcare costs but less absenteeism of employees and increased productivity.
Governmental Laws and Regulation Compliance
AON also ensures compliance of laws and regulations in the defined contribution plan process by adhering to the IRS, Internal Revenue Code, ERISA and Department of Labor regulations. AON has a team of specialists to deal specifically with these regulations which can become very complicated for business. In terms of AT & T, AON deals with rules and regulations regarding the following:-
- Pension Plans
- 401 (k) plans
- Healthcare plans
- Executive benefits
- Benefits funding
AON consultants are extremely dedicated to ensuring that AT & T and other clientele are in full compliance of Tax and ERISA regulations. According to AON, “our consultants monitor and help formulate legislative and regulatory developments in Washington DC and regularly meet with government officials on employee benefits matters.”
Employee Stock Ownership Plan Management
AT & T offers employee stock options along with savings and security plans to all of its employees. AON was able to advise AT & T on positioning these plans with top financial advisors- Merill Lynch, Computershare and Fidelity Investments. In terms of stock options employees can monitor investments online by logging onto . Employees can get any investment questions and queries answered by knowledgeable Merill Lynch staff. Computershare is also one of the world’s leading financial services and AT & T is proud to be one of their clients. AT & T employees can log onto to assess stock information and get any queries answered. Computershare’s website is very flexible and is available to employees on a 24 hr basis, 7 days a week. Fidelity Investments deals with savings and security plans for AT & T employees. Employees can also access information by logging onto . Fidelity Investments also has an automated voice response system and service center which is available to AT & T employees 24hrs a day.
CONCLUSION
Outsourcing of benefits management can be a great advantage and wise decision for companies that may be having problems with managing their benefits function. Outsourcing of benefits provides organizations with greater efficiencies and decreased costs. Organizations may decide to outsource benefits management due to the complexity of the function but it is important that they find an outsourcer that is the right fit for their organization’s needs. AT & T made a pivotal decision in 2001 to use AON to outsource their benefits management. The professionalism and expertise of the AON team was quickly shown, as AON was able to solve AT & T’s problems by reducing costs and improving other areas. Chris Morena, the Vice President of Human Resources at AT & T states that, “the innovative collaboration between AT & T and Aon has delivered excellent service levels, satisfied customers and reduced costs. This groundbreaking partnership has fundamentally changed the way we do human resources at AT & T.”
BIBLIOGRAPHY
Bohlander, George, Snell, Scott. Managing Human Resources. Ohio: Thomson Higher Education, 2007.
Jackson, Susan E. and Schuler, Randall S. Managing Human Resources: Through Strategic Partnership. Thomson/South-Western, 2000.
Martocchio, Joseph J. Employee Benefits. New York: Mc-Graw Hill Irwin, 2006.
AllBusiness. “HR Outsourcing Basics”. 14 Nov. 2007.
AON. “Case Study: Aon”. 12 Nov. 2007.
AON. “Consumer Driven Healthcare”. 13 Nov. 2007.
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AON. “Tax and ERISA”. 13 Nov. 2007.
AT & T. “Access AT & T”. 18 Nov. 2007.
ComputerWeekly.com. “Outsourcing”. 12 Nov. 2007
Cook, Mary. “Outsourcing Benefits Administration”. 13 Nov. 2007.
HR Excel. “Benefits Administration”. 13 Nov. 2007.
HROA. “AON Human Resources Outsourcing and AT&T win HRO relationship of the year award from HRO world.” 18 Nov. 2007. .
Miller, Stephen. “Benefits Outsourcing”. 12 Nov. 2007.
The Outsourcing Institute. “Outsourcing Essentials”. 18 Nov. 2007. .
Workforce Management. “ Measuring the True Benefit of HR Outsourcing.” 15 Nov. 2007.
Graph showing reasons for outsourcing of employee benefits (Source: HR Excel, 2007)
Company Z, Benefits Program
Sample Showing a Personalized Statement of Benefit Costs (Source: Managing Human Resources)
Martocchio, Joseph J. Employee Benefits. New York: Mc-Graw Hill Irwin. pp. 313.
Jackson, Susan E. and Schuler, Randall S. Managing Human Resources: Through Strategic Partnership. Thomson-South Western. pp.100.
. Consumer Driven Healthcare.
