7 October 2009

Flexible Benefits & Asia’s

Experience

Chow Yoke Fun, Asia Pacific

www.mercer.com
Presentation Points

ƒ Background to Flex

ƒ What is Flex

ƒ Flex Drivers

ƒ Design & Implementation

ƒ Flex Administration

ƒ Flex in Asia

ƒ Overview of Asia’s Flex Experience

Mercer 1
Background to Flex
Organizations in Asia are saying

“Costs under How do I deal with

my self funded “How can I use my flex another renewal
plan are out of plan to contain increase?
control. costs?”
Rate shopping
What should I every year doesn’t
do? have the same
effect as it used to.”

Should I use the downturn as a window of opportunity to start making

long-delayed, tough decisions on the cost sustainability of my plan?

But how can I do it so that I can still attract & retain talent when the
economy recovers?
Mercer 3
Creative cost management while still offering meaningful benefits

• Escalating • Pressure to cut

health costs discretionary
costs
• With salary More creative
constraints, • Demonstrate ROI
cost for expenditures
benefits matter management
more

Cost & talent Need to manage

pressures costs

Mercer 4
What are your challenges as an employer?

Ouremployees
Our employees
are
are
TalentAttraction
Talent Attraction Bettermeet
meet
Better askingfor
asking formore
more
&&Retention
Retention diverseemployee
diverse employee
needs
needs

Benefit
Benefit
Harmonization Ouremployees
Our employeesdon’t
don’t Maximizevalue
Maximize value
Harmonization appreciatetheir
their Ofbenefit
benefit
appreciate Of
benefits
benefits spend
spend

Market
Market Control
Control
Differentiator
Differentiator escalating
escalating
benefitscost
benefits cost

Mercer 5
 Total rewards strategy
Where does Flex fit in?
ƒ Diverse
employees have
ƒ How do we meet different
the needs of preferences
diverse
workforce? ƒ Each employees’
needs change as
ƒ How do we their career and
engage and life develops
create a
compelling deal ƒ Flex can deliver
for our critical benefits at more
talent? affordable price
ƒ How do we cope
with emerging
benefit trends or
acquisitions?
„ How can rising benefit costs be controlled?
„ How can we encourage cost sharing with employees?

Mercer 6
What is Flex
 Traditional vs. Flex benefits

Traditional Flex

ƒ Employer decides on benefits ƒ Employees aware of benefits

ƒ Employer absorbs cost increases ƒ Employee co-shares any increases

ƒ Employees undervalue cost of benefits ƒ Employees understand employer costs

Same benefits for Employees choose the benefits

ALL employees that meet their individual needs

Mercer 8
Flexible Benefit Continuum

Less Flexibility More Flexibility

Traditional Traditional Modular FSA & Core Plus Cash Plus Cash
Plus Traditional Options Options
Voluntary Coverage
Options

ƒ The employer ƒ Employees are ƒ The employer ƒ The employer ƒ Employees are ƒ Employees are
provides a provided with 2 utilizes a provides a provided with a provided with a
mandatory set of or more traditional core level of set amount of set amount of
benefits complete approach for coverage for cash cash
ƒ The employee packages to catastrophic all benefits ƒ The employer ƒ The employer
has no choice choose from protection e.g. life ƒ The employee facilitates has no
available other ƒ Appropriate for insurance, is provided coverage for involvement in
than opting-out in small to mid-size disability, and with credits to certain the facilitation
certain groups, or for catastrophic purchase benefits, some of benefits
circumstances new flex plans health claims protection of which may
ƒ The employee is available be compulsory
provided with a within the
ƒ The employer health spending other options
provides a account to utilize included in the
mandatory set of for other eligible plan
benefits health and dental
ƒ The employee has expenses
limited flexibility by
virtue of having the
option to purchase
additional life
insurance

Mercer 9
Core Plus Options with Flexible Spending Account (FSA)

Core Benefits Flex Dollars

Fully funded by company Spending dollars provided by company

• Life & Accident Insurance • Staff grades, marital status, length of service
• Medical Outpatient
• Hospital Insurance

Optional Benefits
Top up core or additional benefits

• Additional Life & Accident Insurance

• Dependant Medical Outpatient
• Higher Hospital coverage
Flexible Spending Account
Balance of Flex points for reimbursements
• Dependant Hospital coverage
• Dental Insurance for self & dependants

Mercer 10
 Flexible Spending Account (FSA) – Examples of approved items
Health & Fitness

Dental
Reimbursement
Chinese Herbalist/
Bonesetter / TCM

Personal Insurance
Childcare

Balance of Flex Dollars after

purchase of Optional Benefits
are credited to each
employee’s FSA Optical
Health screening
Vacation

Mercer 11
 Components of Flexible Benefits Plan
Flex Plan Design - Modular Plan

The modular plan design is a set of various packaged plans where employees chose
one that best meet their needs. A minimum package plan usually applies.
The remaining money is also put into a flexible spending account and used for various
self-insured benefits. If the total flex dollars spent exceeds the budget given by the
company, the excess is deducted from salary.
Example: An employee who picks Choice III would have a GTL sum assured of Unspent
Unspent flex flex dollars
dollars
$200,000, a GPA sum assured of $200,000 and R&B per day limits of $388. are
are usually diverted to
usually diverted to
aa flex
flex spending
spending
Choice I
account.
account. The The flex
flex
(Minimum dollars in a spending
Choice II Choice III dollars in a spending
Plan) account
account can can be
be used
used
to claim
to claim
500
500 flex
flex dollars
dollars
budget
GTL 50,000 100,000 200,000 reimbursement
reimbursement for: for:
budget for
for each
each •• Dental
employee (family Dental
employee (family •• Holiday
friendly Holiday Subsidy
Subsidy
friendly employers
employers •• Chinese
may GPA 50,000 100,000 200,000 Chinese Physician
Physician
may give more
give more to
to •• Gym Subsidy
employees Gym Subsidy
employees withwith •• Encashment
dependents) Encashment
dependents) (Converted
GHS R&B: 170 R&B: 250 R&B: 388 (Converted to to cash
cash
using a fixed
using a fixed
percentage)
percentage)
Price tags for GTL, GPA and GHS 400 500 800
(in Flex dollars p.a.)

Mercer 12
Flex Drivers
“Flex helps better meet your organisational objectives”

ƒ Flex can be designed specifically to meet your HR objectives

– Enhancements / competitive differentiation
– Harmonisation
– Address equity issues
– Communicate value of benefits
– Better meet diverse employee needs
– Cost Containment
– Facilitate benefit program changes without necessarily increasing
cost

Mercer 14
How does Flex help meet
employee needs?
Different generations have different priorities
One size does not fit all

Groups Matures/ Generation Y/

Baby Boomers Generation X
Traditionalists Millennials

Age 60+ 43 to 60 30 to 42 18 to 29
Characteristics ƒ Values ƒ Indulged ƒ Distrust institutions ƒ Balances work
security ƒ Socially- ƒ Entrepreneurial with family
ƒ Company conscious ƒ Risk takers ƒ Technology-
loyalty ƒ Works hard experts
ƒ Needs work/life
ƒ Inclusive balance ƒ Team-oriented
ƒ Socially-
conscious

Value of Work ƒ Wants ƒ Wants hard ƒ Wants company to ƒ Wants to

expertise and work to be value individual value own
experience to valued contributions contributions
be valued

Drivers in ƒ To build a life ƒ To build a ƒ To live better ƒ To live a

Work better life purposeful life

Sources: Employee Benefits of the future, Employee Benefit Plan Review, Jan 2007
The Next 20 Years: How Customer and Workforce Attitudes will Evolve, N. Howe, W. Strauss 2007
Millenials Rising – The Next Great Generation, Howe and Strauss, Vintage Books 2000

Mercer 16
“Flex helps better meet your employees’ needs”

ƒ Allows employees to select a benefits package that meet their diverse

& changing needs
ƒ Enhance employee understanding & appreciation of value of benefits

ƒ Empowers employees to make decision on their benefits program

Mercer 17
Managing rising benefits cost
through flex
How Flex manages your benefits cost
Cost containment tool through Flex

Year 1 EMPLOYEE DECISIONS Year 2

Buy back previous

benefit level Stay with core and use
FLEX DOLLARS
Flex Dollars for FSA
FLEX DOLLARS

Company
Top up some benefits
cost is
and use balance for FSA
kept
Top up own money for same
new benefits / increase
CORE BENEFITS above current level CORE BENEFITS

Trade off some benefits

for others of more value /
better meet individual needs

Mercer 19
Flex Cost Analysis – ROI and Cost Projections
Break-Even Year

600 nly
le O
m p
E xa
500

400
USD

300

200

100 Break-Even Year

0
1 2 3 4 5 6 7 8 9 10
Year

Current Cost Flex Cost

Mercer 20
Flex Design & Implementation
Flexible Benefits
Design, implementation, communication and on-going review

Communication Review &

Feasibility & design Implementation
& launch monitoring

1. Data collation and 1. Plan rules and policies
analysis
2. Liaison and negotiations
2. Objectives setting and with providers
benefits philosophy
3. Admin requirement
3. Preliminary design specifications and
providers
4. Cost impact
4. Finalize optional benefits
5. Winners/losers pricing and Flex points
allocation structure
6. Pricing of options
7. Flex points allocation 5. IT security and internal
audit requirements
8. Management approval
6. System UAT
9. Focus groups
7. Employee database
10. Union upload
1. Communication strategy
and timeline
2. Communication materials
and tools
3. HR training
4. Road show and employee
communication sessions
5. Employee enrolment and
benefits selection
6. Processing and
confirmation of enrolment
7. GO LIVE!
1. Consulting advice
2. Program monitoring
3. Changes in market
practice and legislation
4. Data analysis and report
on utilization/costs
5. Managing renewal
exercise and impact of
changes in premiums
6. Re-communication (if
required)

One-stop shop for Flex

Mercer 22
Flex Administration
Flex Administration delivery model
Flex administrator sits between employees, HR and the Benefit Vendors

Employees

Flexible
Benefits
Website
HR Representatives

Employee Data Flex Employee Service Centre for

Management Administration Enquiries & Communication
Benefit Vendors
Call Filter

?
Payroll System

BA2 Call
Admin
BA2System
Representatives Tracking
Database
HR System

Managed by Mercer

Mercer 24
Flex in Asia
 Prevalence of Flex: Asia Pacific
Japan South Korea
„ New market and flex is not common „ Large MNCs & Public sector

„ Key driver: Cost containment

„ Allowances and insurance

Malaysia
„ Large MNCs especially banking

„ Key drivers: war for talent, harmonization

„ Life and medical benefits, vacation leave and loans

India
„ Traditional benefits not meeting diverse employee

demographic
„ Banks, Tech exploring flexibility using cost to company Singapore
„ Nearly all companies currently with flex consider it
approach
successful
„ Primarily financial services and technology

Philippines / Indonesia companies, and GLCs

„ Key driver: Cost containment, talent attraction
„ Primarily pharmaceutical, telco and manufacturing companies

„ Key drivers: war for talent, harmonization, and cost control

„ Lifestyle benefits: credit cards, utility bills, laptops, mobile

phones

Australia / New Zealand

„ Salary packaging allowing employee to vary pay and benefits

„ Lifestyle benefits: credit cards, airline membership & laptops

Mercer 26
Prevalence of Flex: Greater China

China
„ Total benefits flex approach including insurance, non-insured supplemental benefits, allowance,

supplemental pension, savings plan

„ Harmonization across different locations and employer of choice are key drivers

Hong Kong
„ Large MNCs especially in financial services industry

„ Employer of choice – key driver

„ Life, medical benefits, dental and wellness

Taiwan
„ New market

„ Primarily high-tech, manufacturing and retail &

consumer industries

Mercer 27
Overview of Asia’s Flex
Experience
Asia’s Flex Experience - overview

Mature Flex Markets Developing Flex New Flex Markets Immature Flex
Markets Markets

Countries Singapore, Hong Philippines, China, Taiwan, India, Australia, New

Kong, Malaysia Indonesia, Thailand Japan, South Korea Zealand, Vietnam

Infrastructure Mature market with Developing markets All New markets with no
infrastructure in place in with some flex plans in known flex
terms of ready pool of place for several years Markets which have implementations
insurers, medical and continued growing seen interest in flex and
providers, flex interest. there are some plans in Insurers are unfamiliar
experience & expertise, place though relatively with flex and there are
market best practices, Insurers are somewhat few. Insurers are no known flex providers
technology & internet familiar with flex and relatively new to flex
there is a growing For Australia & New
infrastructure to support Japan & Korea Zealand, some of the
flex programs number of vendors
providing flex consulting more commonly flexed
Infrastructure not yet in benefits are tied to
and administration place to support flex
services superannuation
programs. Lack of packages and hence
market practice, local may not allow for
flex expertise and flexibility.
experience. Insurers
are generally wary of
flex programs and not
keen to support

Regulatory There is no known regulation that would inhibit introduction of Flex programs in these countries except
‘diminution of benefits’ regulation in Philippines which does not permit auto reduction of benefits to core
level without employee consent

Mercer 29
 Asia’s Flex Experience - overview

Mature Flex Markets Developing Flex New Flex Markets Immature Flex
Markets Markets

Countries Singapore, Hong Philippines, China, Taiwan, India, Australia, New

Kong, Malaysia Indonesia, Thailand Japan, South Korea, Zealand, Vietnam

Tax Singapore & Malaysia Philippines & All FSA reimbursement Fringe benefit tax
Thailand items are taxable in applies on employers
Some tax efficiencies hands of employees.
available as FSA Some tax efficiencies
reimbursements for available as some FSA
medical, dental, health reimbursement items
screening & maternity are tax exempt for
expenses for employee, employees
spouse & children are
generally tax exempt for Indonesia
employees FSA reimbursement
Hong Kong items are taxable in
hands of employees
All FSA reimbursement
items are taxable in
hands of employees

Mercer 30
Asia’s Flex Experience - overview
Mature Flex Markets Developing Flex New Flex Markets Immature Flex
Markets Markets

Countries Singapore, Hong Kong, Philippines, China, Taiwan, India, Australia, New
Malaysia Indonesia, Thailand Japan, South Korea Zealand, Vietnam

Market Mostly MNCs and large Mostly MNCs and large local organizations Not known
Prevalence local and government-
linked organizations

Between 50 - 200 Philippines China, Taiwan & Few

companies on Flex India
programs to-date, mostly Less than 50
MNCs in financial companies on Flex, Less than 10
services, technology and mostly pharmaceutical, companies on flex
logistics industry. Also manufacturing, telco primarily in technology
includes numerous and BPO industries industry
government ministries and Indonesia Japan & South Korea
government-linked
organizations Less than 10 Less than 5 companies
companies on Flex, on typical flex
mostly manufacturing, structures and those
logistics and that we are aware of
pharmaceutical are from technology
industries industry. However,
there appears to be a
Thailand prevalence of
Less than 5 voluntary top-up
programs in South
Korea

Mercer 31
 Asia’s Flex Experience - overview

Mature Flex Markets Developing Flex New Flex Markets Immature Flex
Markets Markets

Countries Singapore, Hong Kong, Philippines, Indonesia, China, Taiwan, India, Australia, New
Malaysia Thailand Japan, South Korea, Zealand, Vietnam

Common Comprehensive Core Plus Comprehensive Core China, Taiwan & India Not known
Flex Models Plus
Comprehensive Core Plus
Flexible Spending
Account Only Japan & South Korea
Voluntary Top-Up
Flexible Spending
Account Only

Benefits Life & Accident Insurance China, Taiwan & India Not known
Commonly Medical Outpatient & Inpatient Insurance Same as Singapore, Hong
Flexed Kong & Malaysia
Dependant Coverage
South Korea
Dental Insurance
Life & Accident Insurance
Maternity Insurance
Allowances
Health Screening Insurance
Japan
Some Allowances
Not known

Mercer 32
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