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A Closer Look at Benefits Administration in H1 2016: Part 1

In this, the first of three blogs on the current benefits administration outsourcing market, I take a brief look at what’s been happening in H1 2016.

Benefits administration accounted for ~40% of HRO contract activity in the first half of 2016, with a heavy emphasis on renewals and contract extensions. Approximately 90% of contracts were from private sector organizations, with a strong showing from the healthcare and manufacturing verticals.

Mid-market activity, which NelsonHall defines as organizations with between 500 and 15k employees, continued to outpace activity from the large market, but was down ~12% compared to H1 2015.

Examples of H1 contracts include:

  • Voya’s five-year renewal with the State of Colorado for DC administration, including 401(k), 457(b), and 401(a) plans for ~82k participants
  • WageWorks’ contract award by United States Office of Personnel Management for FSA administration for ~2.3m eligible employees, with ~350k participants
  • Aon Hewitt’s contract award by Starbucks for its private health insurance exchange for active employees.

For the last several years, vendors have been busy expanding and strengthening their benefits administration service portfolios through acquisitions. In fact, in each of the last three years there have been at least ten notable acquisitions, which is a stark contrast to the two that have occurred this year, including Aon Hewitt’s acquisition of Univers to strengthen its voluntary benefits offering, and Reed Group’s acquisition of Aon Hewitt’s absence management business.

Despite the slowdown in acquisition activity, providers have been hard at work, some focused on integration activities following large M&As in 2015, such as the Willis and Towers Watson merger, while others have been focused on developing their existing service offerings.

Ensuring that benefits administration service offerings adequately manage new compliance requirements will always be paramount for vendors. Beyond compliance, the underlying theme of vendor priorities has been enhancing the participant experience, which is taking place in both DC administration and Health & Welfare (H&W) services.

In part 2 of this blog series I will explore exactly what vendors have been doing to enhance the participant experience in DC administration.

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