Rob Thurston, Human Resources Consulting Group

Vince Ceriello, HR Consulting/VRC Consulting Group

An expression we hear all too frequently these days from the mouths of HRMS vendors, consultants, trainers, and other service providers: " We need to think outside the box" is, quite frankly, getting a little old and in many cases, just pure rhetoric. An entire cottage industry of HRMS product and service providers exists that do nothing more than try to get companies to think creatively … at optional extra cost … to think outside their technical expertise; to look at things in other ways; to change their viewpoint.

There is nothing inherently wrong with thinking creatively but it is too simplistic to merely think outside the box. The thinking literally has to be "bigger than the box". It needs to be bigger than our office, bigger than our department; bigger than the enterprise itself.

All of us in HRMS need to think outside our industry. You might take great pride in your work product, knowledge, and expertise, but that is not enough. You cannot survive in the HRMS arena if you don't understand what is going on outside it.

Need to Know versus Information Overload

HRMS professionals are consistently asked to evaluate and recommend technology and software solutions … often without being able to see the big picture. Advances in HRMS technology that were thought to be 5 -10 years into the future are now readily available today. Change has become the only constant in the HRMS industry. So how do you make the right decisions now and have confidence that these decisions will withstand intense scrutiny 3 - 4 years from now?

One solution might be to have HR and HRMS be part of the overall company strategic planning process. We've heard that one before, haven't we? The problem is that, while we insist on being involved in the strategic planning and future directions of the enterprise/region/division/office, we are often told that we don't need this level of information to do our jobs. In essence, enterprise/region/ division/office management withholds or otherwise refuses to share strategic information. Information is shared on what they perceive is a "need to know" basis. And management doesn't think we need to know.

But here's the catch! How can you reach the best solutions if you don't have all the information needed to make the best, most informed decisions?

It's a paradox!

At the same time we are jockeying for position, HRMS practitioners are experiencing information overload. Clearly, the need for speed parallels new advances in HRMS technology, software, and implementation time frames and in the tools we use to make it happen. But do these new methods really provide the best solutions?

Let's summarize:

  • The rate of change in information is increasing
  • HRMS needs strategic information in order to make the best decisions
  • Management does not readily share strategic information with HR/HRMS
  • The HRMS function is also experiencing information overload

A New Way to Look at the Problem

Obviously, there are no easy answers. But isn't it frustrating when someone points out that the solution to the problem is just "staring you right in the face"? or "why can't you see the forest instead of just the trees"?

Over the next few years newer trends will cause HRMS professionals to reinvent the tactics they employ with regards to technology. Although 2004 - 5 - 6 sounds far off, companies must prepare now to effectively implement new technology. Management will demand that HRMS evaluate the need, timing and costs of new technology.

Focusing on what the HRMS industry is doing and doing well will, alas, not get the job done. The recent major fluctuations in the financial and stock markets provide a good model from which to learn.

Let's take a 30,000' look at Wall Street. For the last few years more and more brokers with little industry experience were selling the "latest and greatest". The current price of the stock didn't matter because it would definitely be going up. What the company did, the promises for specific industries, realistic Price/ Earnings Ratios, or profitability was irrelevant. What was being sold was the promise of growth, the speed by which one could generate fantastic returns, and that the stock had broad appeal.

The result? The bubble burst. Even with progressively lower interest rates, a favorable business environment and decreasing governmental regulation, financial and stock markets have declined. We saw the NASDAQ drop almost 60% in the last six months, though it has recovered somewhat since. The lessons to be learned are that fundamentals like profitability, solid financials, and past performance are critical. There must be a historical profitability or Return on Investment (ROI). In short, a track record.

Managing by ROI

Why can we not manage our decisions like management does. We should be able to manage by profitability and by ROI. One problem is that we are constantly bombarded by this need for speed -- by what is in vogue; by the "flavor of the month". The latest and greatest flavor as applied to HR technology solutions will probably not taste good in the near term future. Over the past few years, some of us have been preaching the same general sermon: to succeed in HRMS, there has to be a Return on Investment

Paraphrasing what we said in Employee Benefit News last November: "The best business management decisions for evaluating HR and employee benefit self-service options are obviously those that bring the highest rate of return to the organization. If management can buy a new machine costing $100,000 that saves the company $100,000 in cost of production, there is not a manager alive that would object to acquiring that equipment. Why? Because it generates an almost immediate100% return on invested capital. We must look at the investment cost of new technology/software acquisition/system implementation with its return on investment (ROI) before we look at any other option. If a change to your HRMS strategy increases ROI, minimizes current and future risk and guarantees delivery on time, then the time and money invested in the past becomes irrelevant."

For a moment, let's assume that a new and exciting HR technology solution is presented to you.

First- it must pass the "sniff test". Does it smell right to you? Does your gut feeling tell you it will increase ROI? That the decision to acquire an HRMS has an ROI component? If it doesn't smell right to you, then you probably should not evaluate that solution further.

Second- if it smells right, can we develop a Cost/Benefit/Value Analysis as part of the Feasibility and Cost Justification Stage? This should address the following issues … and more. For example, can you:

  • Identify and separate needs versus wants?
  • Eliminate from immediate consideration the wants and focus on the needs?
  • Determine what is being done now that must also be done in the future?
  • Identify what is not being done now that needs to be done?
  • Determine the ROI for each of these needs?
  • Develop a Cost/Benefit/Value Analysis to justify each need?
  • Identify the pertinent Change Agents and determine how to manage them?
  • Evaluate the ' wants' in the same manner

Third- if the presented need is still a priority, has an ROI component, and can be cost justified, then we should proceed to the Cost/Benefit/Value Analysis. If we cannot, obviously we should go not further in evaluating that solution.

Fourth- execute the Cost/Benefit/Value Analysis. Identify the value-added for each significant change or need. Then review each potential implementation option and assess its optimal value. Consider:

  • Internal development and hosting
  • External application development, licensing, and implementation
  • Partial internal / partial external development
  • External hosting
  • ASP / Outsourcing

When you have a handle on these, calculate the ROI. While you are at it, calculate the cost of not proceeding (current costs plus lost opportunity costs)

Fifth- If the ROI is less than the cost of not proceeding, then save your energy. Do not invest any effort to evaluate that solution further. You have just saved yourself a lot of aggravation to say nothing of time and money.

Sixth- If the ROI is greater, then run, do not walk, to management to gain their support. This can be accomplished in a variety of ways. Nothing spells success like ROI.

By using these basic, financially oriented tactics and techniques, HR and HRMS will be thinking outside itself.

Future Trends and What they mean

There are some trends being discussed in the HRMS arena that also require thinking outside the Industry. Some are valid, some are not. Here are a few of these facts and myths. You determine their applicability to your environment:

"The Latest Technology Must be the Best. Therefore, We should Adopt it."  Not necessarily. A lot of HRMS vendors have developed very complex and exciting applications. They appear to do everything but "slice bread". The problem is that you might not need to have your bread sliced. Remember to segregate the functions and features offered and then focus on needs vs. wants.

Example: many of the new Web-enabled solutions require a high-speed connection well beyond what conventional modems provide and the very latest versions of Microsoft Explorer or Netscape Navigator to work properly. But recent studies show that fewer than 14% of employees have T1, ISDN, DSL, or cable modems available to them outside of their work place. But over 30% have the latest version of Explorer or Netscape. That leaves a majority, or about 56%, that does not have even the basic capacity to access the Internet. The latest technology can't be the "best" technology if the majority can't use it.

Many vendors seem to work on the theory that if they build something it will answer the question. What they fail to realize that often they are creating an answer where there isn't a question.

"The Internet will Continue to Expand and all New Technology Solutions Must be Web Based."  Not true. A 1999 study, "Nothing But Net: American Workers and the Information Economy," showed that 68% of employees have a computer at work but only 23% use[ or are permitted to use ] the Internet regularly. In some parts of the country, these percentages are considerably higher but then we have all heard of the abuses of Internet access by employees left unsupervised.

Of course, use of the Internet will continue to expand but it will still be several years before all employees can use or have access to the Internet at work, at home, and while traveling.

"Company Data and Security is Assured under the ASP Model."  Not necessarily. People data is arguably the most valuable asset of a company. We live in the Information Age and your internal data is a measure of your competitive advantage. What is your tolerance for risk?

Keeping data secure and safe from competitors - particularly that which identifies your talent pool -- is critical. Doing business with an ASP who has been in business fewer than five years, has no track record, has questionable financial backing to be able to stay in business, and cannot sell or lease the software they host is a risky business. If they claim that they act solely as the host/administrator and you have limited access to the software, you may be putting your firm and your data [ and your job ] at great risk.

According to some of the HRMS industry market-watchers, many ASPs will fail or be forced to merge in the next few years. Is that a good and safe Return on your Investment (ROI)? Maybe, maybe not. Plan for the worst and hope for the best if you choose to use an ASP. Get the lawyers involved. Your contract should include release of Source Code and working software for internal use, free transfer of your data to another source upon demand, access to the vendor's technical staff, and other safeguards, such as a clause for consequential damages if the failure of the ASP leads to a disruption of your business operations.

"Outsourcing is Always the Best Answer and is an Idea whose Time has Come"  Not always. Except in the largest of companies, employers will ultimately return to offering internal, in-house self-service to employees. Why?

Because an employee's ability to deal with people they know and trust, to be able to interact with the system, possibly through an intranet approach, and to have access to information that will enable them to better understand their own benefits will promote the level of participation by the employee. The higher the participation level and involvement, the greater the potential for employee satisfaction. The benefits of this approach, possibly reducing turnover, are obvious.

Chances are your HR staff knows the benefits plans as well as or perhaps better than anybody. An ASP, on the other hand, would have to build a team around a few experienced people and hire the balance needed off the street or from its competition, possibly with little or no prior experience. Generally, they will not know your business.

If you do choose to outsource get a Service Guarantee stipulation in the contract with the ASP. Require in your contract performance benchmarks, speed and reliability of service, and customer satisfaction survey minimums. Stipulate penalties for poor performance. Finally, get general liability insurance and/or require the ASP to get Professional Liability [ errors and omissions ] insurance to cover loss of data, computer viruses, transfer costs, etc. if they go out of business or, more likely, if they are merged into another operation.

"HRMS is Just the System, Right?  You haven't been listening. An HRMS certainly includes software, hardware, and a database, but also includes policies and procedures, users needs and experience, documentation and help screens, management decision support, and even manual processes. If you think that an HRMS is just a matter of acquiring the latest software and the bigger computer you can afford, you are in for a rude surprise. The software will be less than 25% of the overall cost of implementing the HRMS and less than 10% of the cost of the system over its useful life cycle.

Summary

Being open to ideas and techniques that come from outside the HRMS industry can really make a difference in the success or failure of the HRMS function and therefore HR itself. To be part of the strategic planning process, we must manage the HRMS like a business and use financial tools like Cost/Benefit/ Value Analysis and ROI. Just because everyone is excited about the flavor of the month now doesn't mean it will taste as good in two to three years.

Many HRMS professionals are now realizing that the latest and greatest technology might not be the best solution. Hopefully many of the HRMS vendors and consultants will realize that they are building an answer where there may not be a question.

About the Authors- Vince Ceriello is a Partner with HR Consulting Group and Rob Thurston is President and can be contacted for further information atwww.hrconsultinggroup.comThis email address is being protected from spambots. You need JavaScript enabled to view it. , or  (801) 765 4417 . (published in the HRLink magazine in January 2002)

Employee Benefits Consulting Articles and Resources

You're a busy HRMS professional. You've just researched, evaluated, negotiated, selected and finally implemented the "latest and greatest" HRMS application only to discover, much to your horror, that it is already obsolete.

State-of-the-art technology has become a constantly moving target, and just when you think you have the latest and greatest, it's devastating to realize you don't have it at all. Obsolescence is a fact of life, and it will usually occur right after you have implemented a new system.

How can a HR pro stay ahead of the technology curve? How can you be sure that the decision you are making today will still work tomorrow? You can't.

But you can consider a nugget of wisdom from an old dog who has been around this business awhile. That nugget?

"What goes around, comes around."

I believe that technology and systems come and go in cycles. Kind of like fashion. And if it was good once, it means it could be good again. Maybe better.

I'd like to make a case for returning to the mainframe as the engine to run HR systems. Yes, mainframes. Not PCs. Not PC farms. Just good, old, dependable, reliable, cost-saving mainframes. Let's take a look at what's "gone around" to see how I "came around" to our opinion. Lets start with payroll systems as an example.

1970 Payroll done on mainframes.
1980 PCs become popular. Payroll still done on mainframes.
1985 PC Networks come in to use. Payroll still done on mainframes.
1990 Client server with networks (AS400/minis and PC servers). Payroll for extremely small employers being done on minis and PC servers-slow. Payroll for medium employers being tried on client server--very slow. Payroll for larger employers attempted on PC server farms--very slow. Most payroll for major employers still using mainframe.
1998 Web-based systems for both Internet/Intranet using PC server back-end. Payroll for extremely small employers being done on PC servers--still slow. Payroll for medium employers being tried on client server--still slow. Payroll for larger employers attempted on PC or mini server farms-still slower than using mainframe.
2000 Web-based systems. Payroll still is faster and more cost effective using mainframe back-end. Many payroll systems are moving back to larger servers (i.e.-mainframes) to get it done and done efficiently.

So in the 30 years from 1970-2000 we have come full circle and are rethinking mainframes. Want further proof that what goes around comes around?

Big Blue

It seems like a million years ago, and in techno-time it probably was, but actually it was only 1981. I worked for, what was considered at the time, to be one of the most innovative and strongest companies in the world -- IBM. Not just IBM, but IBM corporate. Headquarters. New York. As in city.

In 1981, there were two mottos that were part of the IBM culture:

  • Mainframes are our business
  • No one has every been fired for recommending IBM

A large meeting was called and the rumor mill was in full force with the speculation that IBM had a revolutionary new system that would keep it the ruler of the hardware world. And we lucky employees would get to witness history by seeing it first.

Buck Rogers, the senior vice president of marketing at the time, stood in the middle of the IBM conference center surrounded by hundreds of spellbound Big Bluers. Next to him was a small table containing an object, hidden by a draped cloth. He finally removed the cloth and we beheld a small machine with two openings. It was not much bigger than the IBM Selectric typewriter. None of us knew what it was, but it didn't look like much.

Yet Buck Rogers, in all solemnity, declared, "This is our new business." It was the IBM 8088 dual floppy drive Personal Computer (PC).

I thought, "Mainframes are our business."

My brother, who had been one of IBM's top sales people said, "This will never replace the IBM Selectric typewriter."

This was in the summer of 1981.

Within three years, PC hardware was the focus of IBM. By the end of 1984, my brother's sales division had been closed because no one was buying Selectric typewriters.

IBM had changed. The world had changed. No one wanted to talk about mainframes. IT people were being ridiculed for deciding to stay with IBM mainframes.

By the 1990s, it was all about PCs, software and consulting. Everyone wanted client-server systems based on PC networks.

Back to our nugget-"what goes around comes around." Fast forward 10 years to now.

Today, the majority of IBM's revenues again come from mainframes. More and more IT people are recommending IBM and mainframes for heavy processing. Again.

So why are HR professionals still reluctant to come full circle and look at mainframes, again?

I Feel the Need...The Need for Speed

In the movie Top Gun, Maverick and Goose are trying to win the Top Gun Tournament for being the best fighter pilots. The competition is almost over, and the pressure is really mounting. When faced with hopelessness and overwhelming odds, Maverick exclaims, "I feel the need... the need for speed." They exchange "high fives" and all seems well with the world. "Seems" is the operative word here, as nothing in the movies is ever as it "seems." You know the story. They end up crashing their plane.

The lesson here, of course, is that often when the pressure is on, instead of pulling back and rethinking our strategy, we feel instead the need for even more speed. HRMS professionals should remember that speed can be a dangerous thing.

HRMS professionals need to pull back, slow down a little bit and plan. Yet the need for speed keeps many professionals from really planning for the next few years. And I believe that includes evaluating all your options, not just the new, greatest technology. I strongly recommend a look at the mainframe.

Remember in the 1970-80s no one was ever fired for recommending IBM. But that changed. In the 1990s, it became Microsoft and PeopleSoft that replaced IBM. Everyone was talking about PCs and software. In the early 1990s, no one was ever fired for recommending Microsoft or PeopleSoft.

But recommending Microsoft or PeopleSoft in the 2000s is no longer a "sure thing." Now it could be Oracle or Linux, and it changes literally everyday. Don't let the "need for speed" keep you from taking the time to consider all the possibilities and keep you from making the right recommendation in the 2000s.

The Law of Sunk Costs

With HRMS, the pressure is on to be faster, newer, more efficient, and on the "cutting edge." But at what cost?

Let's suppose in the last few years you bought a new and exciting payroll system that is the envy of the HR community. By now, the payroll system is bug free, has been running for a couple of years, doing what you want and doing payroll processing in three hours. Let's suppose you have invested more than $1 million dollars in software, hardware and implementation costs alone. In addition, you personally have invested years of blood, sweat and tears into making this payroll system perform for your company. Then let's suppose that someone approaches you with a system that does payroll in 30 minutes - and it's an old technology. Should you explore switching payroll systems?

Remember, you've just spent years of work and $1 million dollars for this new and exciting payroll system that everyone in the HR community covets. But just how much is it really worth?

Nothing.

It is worth nothing.

All that time and effort is what we call a "sunk cost." It is irrelevant to the situation at hand. The real issue is whether reducing payroll time from three hours to 30 minutes is worth it.

You have to look at the economics of the situation as it stands right now. The law of "sunk costs" says that it doesn't matter what you have spent in time, resources and even capital/money in the past. You must base all future decisions on their potential return on investment (ROI). You need to ask yourself from this point forward what are the benefits and costs.

Starting today, which option would be more profitable and risk-free for your company? For years, we have been advising our clients that the best business management decisions for evaluating HRMS options are obviously those that bring the highest rate of ROI to the organization. If management can buy a new machine costing $100,000 that saves the company $100,000 in cost of production, there is not a manager alive that would object to having that equipment. Why? Because it generates a 100 percent return on invested capital.

If by changing payroll systems from your new, coveted version that takes three hours to run your payroll, to an older technology system that takes only 30 minutes, will save you money and will increase your company's ROI, then it should be done.

What this means is that you need to look at the investment cost of being on the "cutting edge" and having the latest technology/software with its ROI versus other options that could actually be better choices for your company.

Is that a Good Thing or a Bad Thing?

I love the new commercials from IBM pitching outsourcing and ASPs. In one, the CEO canvases the staff to get their reaction to a merger. The CFO, COO, and marketing and sales guru all give thumbs up when suddenly, from the back of the room, the CTO asks how the expansion will impact existing projects like the eight server farms, the Internet and two intranets, and the wireless project. A befuddled CEO murmurs to a top aide, "Is that a good thing or a bad thing?"

So, is it a good thing or a bad thing to have someone else host your application or to even outsource your entire HRMS process?

Neither. And both. Meaning there isn't one right answer for everyone. Sure, outsourcing and ASPs are all the current buzz. But you need to make this decision based on your needs and your expectations. There are too many companies out there claiming to be ASPs -and many of them don't know what they're doing. They seem to be going out of business at a high rate. You don't want to get hooked up with one of those. But there are some tried and true ASPs out there that could actually help. We have to go back to our nugget and suggest that you carefully consider what is best for you.

Consider ROI and what is best for your company. Watson Wyatt reported that the primary reasons that companies outsource are:

  • 36 percent want to maintain or improve service to employees
  • 29 percent want to reduce workload to existing staff
  • 14 percent want to reduce costs
  • 12 percent want to free up resources in order to focus on other company business

Yet some surveys during the last few years show that costs, workload and resources actually increased internally at the company after outsourcing. You need to ask yourself if a person hired off the street by an ASP knows as much about your employees as you do. Can you be convinced that service and company relations will improve?

I say, "show me the money!" Show me with statistics and surveys that outsourcing is an improvement and increases the total ROI at my company.

Many HR and HRMS professionals insist that traditional outsourcing options and ASPs are the best way to get "cutting edge" technology and processes. I say, at what cost? And what if you can have tested and true technology and process for less than it would cost to outsource. Here we go back to our ROI points- better and cheaper? If it is, do it by all means. If it's close, work an agreement that benefits your organization. But don't go with it just because it's the buzz.

The Real Deal

When Ralston Purina Company recently decided to Web-enable its human resources system, it turned to its current system provider, Tesseract, a move which saved it months of implementation time. "We decided to use the Tesseract Web server product for launching our company into the era of Web-enabled human resource system technology," said Scott Littlejohn, Ralston's Director of HR Technology and Services.

"The enterprise server is efficient and reliable and the service is unsurpassed. The Web server product is just another example of ways that Tesseract continues to provide us with current solutions to make our operation run more smoothly. It is a key component of our strategy to improve HR service delivery to our associates."

Why do I tell you this story? It goes back to ROI. Tesseract estimates that it would have taken Ralston three times as long to Web enable if they went with another technology vendor, outsourcing option or ASP. That decision made good business sense for them.

But outsourcing, when customized to meet a company's specific needs, can give tremendous ROI. Bethlehem Steel is another Fortune 500 company that uses Tesseract's product as the foundation for moving its human resource system into the future using Web-enabled technology. "We've been using the Tesseract engine for years to run our complex HR system," said Dorothy Stephenson, vice president, human resources. "The enterprise server is efficient and reliable and the service is very good and helps us meet our goal of superior service for our employees."

The Web server product is delivered entirely via a standard Web browser interface and operates from an enterprise server. The Web server product gives employees ownership of their own data by enabling them to make changes through the Internet/intranet on their addresses, emergency contacts, W4 information, exemptions and similar information. The product also enables HR and payroll administrators to manage the system via the Web. But Bethlehem Steel's system is hosted externally. "Beth" can control its data, information and security, even though the system is hosted externally. And Stephenson knows the value of ROI. She estimates the cost of its system, with external hosting, costs about 10 cents per employee per month.

The Call

From where I sit, I see the cycle is coming full circle. My advice? Get off the HRMS roller coaster and take the time to catch your breath and plan. There is no need for speed - it will only get you in trouble. The key for real managers of the HRMS process is to plan, budget and implement according to ROI. Don't be afraid to look at the "old" and don't jump toward the new just because it's the buzz. Stop and analyze what's best for your company, swallow and get past "sunk costs" and get yourself a system that works for you and your company.

- Rob Thurston- can be contacted for further information atwww.hrconsultinggroup.comThis email address is being protected from spambots. You need JavaScript enabled to view it. , or    (801) 765-4417   (published in IHRIM Executive Magazine in November 2001)

Employee Benefits Consulting Articles and Resources

How do you know what the future of Human Resources Management Systems (HRMS) and Outsourcing will be?

Can any of us in our industry predict what is going to happen in the next five to ten years? We would to try by exploring the past and also by making some future common-sense predictions.

PAST PREDICTIONS

There is a saying that "past performance is indicative of future performance". So first let me share some of my past predictions with you. I need to clarify that some of these predictions are non-outsourcing related but are all Human Resources and Benefits related. Anyway, lets see if any of these predictions were valid.

Past Predictions by HR Consulting Group 1987-2003

  • 1987"A Personal Computer is far less expensive to operate than a mainframe. In the next few years it will be so inexpensive to just add more hard disk storage onto a PC that minicomputers may become obsolete." 80% correct.
  • 1991"Issues regarding age discrimination, sexual harassment, management development…. will all pale in comparison with the cost of health care. Attempts at utilization review and managed care will have little impact on costs". This prediction came true and even 12 years later is still valid today.
  • 1994"Medical IRAs allow that the money that's been set aside isn't used by the end of the year in which it's been earned, it can be carried forward… and provide strong financial incentives for employees to be wise health consumers.." HRA s were passed into law on 8/2002 so this became true.
  • "The Health Card, similar to an ATM card would be issued to every employee…..and payment for services could be made via…the employee's checking, debit or credit card account, accessed like an ATM transaction… if the employee has a medical FSA ." This became true since Debit cards have been popular since 1998.
  • "Any HRIS and medical system will need components of Debit and Credit card processing, EDI for online eligibility and plan information, electronic funds transfer for transfer of funds, and interactive voice response units." 100% correct.
  • 1995"We are seeing a lot of interest in … Internet access. Enrollments, e-mail, training and even telecommunications are applications for the Internet". Everyone knows this happened.
  • "HR departments are now being run as profit centers and each additional staff person or equipment purchase must be justified." 100% correct
  • "The use of outsourcing is growing". This is still true even today
  • "Those employers that do cost-justify the purchase of new technology systems and decide to not outsource are moving to client-server applications." 100% correct for 1995.
  • "Within 3 years most computer literate employers will be doing training, employee communications, and updating of HRIS and benefits by the Internet." 80% correct
  • "In the immediate future most jobs, job postings, sample of work product… will occur using advanced technology… using Internet delivery systems." Everyone knows this is true.
  • "In the next 5 years any employer still using/accepting paper applications and resumes will be in the "dark ages". 80% correct
  • "Most firms should first explore voice response, then move to networked systems… and finally to electronic data interchange (EDI) processes that might incorporate the Internet." All of these things happened.
  • 1996"By 1997, more than 80% of employers will outsource all or part of their communications and enrollment processes for benefits. Other areas of outsourcing are training, retirement services, and even the entire HR function…. Computer based training will be used in every aspect of HR." About 70% has happened.
  • 2000"ASPs (Administration Solution Providers) will end up with only a few, major players and many of these ASPS will be out of business in the next one to four years. The Gartner Group has this to say about ASPs …there are 480 retail ASPs, but 60% of them will be bankrupt." This is happening right now.
  • "The Internet will continue to expand….and this trend will continue until a more efficient method is found." 100% correct
  • "Telecommuting will be the norm and within 10 years 40% of employees will telecommute". I am about half right but I still have 7 more years to reach my prediction of 40%.
  • "Technology will level the playing field … We predict that it really will be profitable to use limited HR staff to handle self service technology." This has come true.

So has my past performance made me an expert in predicting the future? Over the last 16+ years I have made some predictions that have come true. (Naturally I did not mention the predictions I have made that did not come true!)

NEW PREDICTIONS

I could make some easy predictions like HR will need to focus on Return on Investment (ROI). I could predict that more and more services will be done using the Internet. There have already been many articles on these subjects and I can recommend several to you.

Gazing into my Crystal Ball I see some trends, which might be worth considering.

1- Mainframe back-end systems will become the "workhorse" of HRMS in the next 5 years.

I believe that technology and systems come and go in cycles. Kind of like fashion. And if it was good once, it means it could be good again. Maybe better. In October 2001 Mary Kohler, President of Tesseract HRMS Software and I agreed that: "What goes around, comes around."

Since 2000 many employers have implemented Web-based systems. However, many applications in HRMS that are data intensive need more speed. In fact, Payroll is a business function that is still faster and more cost effective using a mainframe back-end. So if you are using a Web front end for Payroll; then usually you will have more speed with a mainframe backend. In fact, many payroll systems are moving back to larger servers (i.e.-mainframes) to get it done and done efficiently.

15 years ago a lot of time and attention at IBM was focused on Personal Computers and mini computers.

Today, the majority of IBM's revenues again come from mainframes. More and more IT people are recommending IBM and mainframes for heavy processing. Again. And the cost of these mainframe servers is falling dramatically.

So why are HRMS professionals still reluctant to come full circle and look at mainframes, again?

2- For the next five years, using only online Internet technology might not be the best solution for your company. In fact, state-of-the-art technology has become a constantly moving target, and just when you think you have the latest and greatest, it's devastating to realize you don't have it at all. Obsolescence is a fact of life, and it will usually occur right after you have implemented a new system.

Vince Ceriello, noted HRMS expert and President of VRC Consulting and I have noted:

"A lot of HRMS vendors have developed very complex and exciting applications. They appear to do everything but "slice bread". The problem is that you might not need to have your bread sliced. Remember to segregate the functions and features offered and then focus on needs vs. wants."

Example: many of the new Web-enabled HRMS solutions require a high-speed connection well beyond what conventional modems provide and the very latest versions of Microsoft Explorer or Netscape Navigator to work properly. But recent studies show that fewer than 14% of employees have T1, ISDN, DSL, or cable modems available to them outside of their work place. But over 30% have the latest version of Explorer or Netscape. That leaves a majority, or about 56%, that does not have even the basic capacity to access HRMS applications over the Internet. The latest technology can't be the "best" technology if the majority can't use it.

Even though it is popular to focus on the Internet as the main system for outsourcing, customer service, and Human Resources- should it be? I think that the Internet should not be the main focus until the following is available:

  • Wireless Internet connections at low cost
  • Universal connections to the Internet at DSL speeds or better
  • Cheaper and easier access to employees while traveling, commuting or from home

In fact the Internet might even be replaced by some new and cheaper technology in the near future.

3- Careful Selection of an Outsourcer will be based on value- not just price

Dave Ulrich, national expert in HR, has stated that Human Resources creates value in three areas:

  • For employees- which should create more committed employees, longevity, less turnover, more loyalty
  • For customers- which should create more revenue and repeat sales
  • For investors- which should create more market value

If the outsourcing of HR functions and the HRMS decisions you are making are not creating this value in all three areas; you need to refocus and reload. Why? Because the experts agree that price is not the only issue in outsourcing and HRMS decisions.

Watson Wyatt reported that the primary reasons that companies outsource are:

  • 36% want to maintain or improve service to employees
  • 29% want to reduce workload to existing staff
  • 14% want to reduce costs
  • 12% want to free up resources in order to focus on other company business

So in 1994 only 14% of employers were focusing on price as their reason to outsource. In fact, recent surveys show that costs, workload, and resources actually increased internally at the company after outsourcing. Also a 2003 survey on "Reasons for Outsourcing" shows new reasons and new functions to outsource.

Alan Eilles, Vice President of BP Downstream, has listed some items to consider in selecting an Outsourcer. None of these reasons listed is price:

  • Good cultural fit
  • Shared values such as respect for the individual, diversity, etc..
  • Ability to team with other suppliers
  • Alignment of business strategies
  • World class processes, expertise, advanced technology and innovation
  • Commitment to collaboration and continuous improvement
  • Clear expectations and accountability of both parties
  • Clear but flexible contract with a view to mutual benefit of both parties with the right incentives to drive the right motivation
  • Performance and cost transparency (i.e., metrics monitored and clearly visible to all business units)
  • Relationship management

So focus on value and you will not be disappointed in your Outsourcer and in your HRMS system.

4- Speed will be "risky" in making decisions about HRMS and Outsourcing.

In the movie Top Gun, Maverick and Goose are trying to win the Top Gun Tournament for being the best fighter pilots. The competition is almost over, and the pressure is really mounting. When faced with hopelessness and overwhelming odds, Maverick exclaims, "I feel the need... the need for speed." They exchange "high fives" and all seems well with the world. "Seems" is the operative word here, as nothing in the movies is ever as it "seems." You know the story. They end up crashing their plane.

The lesson here, of course, is that often when the pressure is on, instead of pulling back and rethinking our strategy, we feel instead the need for even more speed. HRMS professionals should remember that speed could be a dangerous thing.

HRMS professionals need to pull back, slow down a little bit and plan. Yet the need for speed keeps many professionals from really planning for the next few years. And I believe that includes evaluating all your options, not just the new, greatest technology and the newest Outsourcing option.

We can learn from the hardware and software industry that making a decision quickly might not be the right thing to do:

"Remember in the 1970-80s no one was ever fired for recommending IBM. But that changed. In the 1990s, it became Microsoft and PeopleSoft that replaced IBM. Everyone was talking about PCs and software. In the early 1990s, no one was ever fired for recommending Microsoft or PeopleSoft.

But recommending Microsoft or PeopleSoft in the 2000s is no longer a "sure thing." Now it could be Oracle or Linux, and it changes literally everyday. Don't let the "need for speed" keep you from taking the time to consider all the possibilities and keep you from making the right recommendation in the 2000s."

With regards to outsourcing and HRMS systems- it makes sense to wait until you see if Oracle acquires

PeopleSoft. It might be less risky to wait and not change to the "latest and greatest" software or

Outsourcing provider. Do your homework. Check the financial backing of the providers you are going to work with, and most of all- take your time. The "need for speed" could be risky indeed.

5- the fastest growth area and greatest value for HRMS will be in Employee Self Service

I believe that the goal of most employers is to increase value. Employers would love to hear that their employees feel that the employer:

  • repects them
  • provides them with more autonomy
  • gives them better information
  • offers them more "real" incentives to work smarter
  • is willing to share more of a financial stake and cost savings with them

Could that even be possible? It is if you continue to focus on Employee Self Service. Surveys show that employees value and want more information via Self Service. Employees of all ages want information quickly and accurately via Self Service.

Mercer Human Resources Consulting in 2003 surveyed many medium and large sized firms and found that more than two-thirds of those employees who responded want even more varied information via the Internet. Interestingly- the web sites least preferred as a source of information were those sponsored solely by the employers or by health plans. Linking many website together and allowing in-depth self-service were requested most by employees.

Employees want the information to make better decision about all areas of HR that affect them; especially in benefits costs and decisions. One answer to the looming health care crisis is to give employees better information via Employee Self -Service..

Soon employees will be making the majority of all decisions about health care. Eastbridge Consulting did a study in September 2003 and concluded:" Employee-consumers will still receive the majority of their benefits through their employer, but "the majority of decisionmaking will shift from employer to employee, [including] allocating the dollars contributed by their employer as well as their own contributions, selecting the types and amounts of products and manufacturers." In addition, "the old concepts of 'group,' 'individual' and 'voluntary' [insurance products]" will no longer have meaning by 2020, Eastbridge believes. Rather, products will be seen "as one business and sold by the same intermediaries and on single platforms."

6- HRMS decisions in the next five to ten years will focus on the Law of Sunk Costs

Many vendors who sell HRMS systems and outsourcing services seem to work on the theory that if they build something, it will answer the question and everyone will make a decision to buy it. What they fail to realize that often they are creating an answer where there isn't a question.

How can you be sure that the decision you are making today will still work tomorrow? You can't.

With HRMS, the pressure is on to be faster, newer, more efficient, and on the "cutting edge." But at what cost? The best thing you can do is to manage by the Law of Sunk Costs.

Let's suppose in the last few years you bought a new and exciting payroll system that is the envy of the HR community. By now, the payroll system is bug free, has been running for a couple of years, doing what you want and doing payroll processing in three hours. Let's suppose you have invested more than $1 million dollars in software, hardware and implementation costs alone. In addition, you personally have invested years of blood, sweat and tears into making this payroll system perform for your company. Then let's suppose that someone approaches you with a system that does payroll in 30 minutes - and it's an old technology. Should you explore switching payroll systems?

Remember, you've just spent years of work and $1 million dollars for this new and exciting payroll system that everyone in the HR community covets. But just how much is it really worth?

Nothing.

It is worth nothing.

All that time and effort is what we call a "sunk cost." It is irrelevant to the situation at hand. The real issue is whether reducing payroll time from three hours to 30 minutes is worth it.

You have to look at the economics of the situation as it stands right now. The law of "sunk costs" says that it doesn't matter what you have spent in time, resources and even capital/money in the past. You must base all future decisions on their potential return on investment (ROI). You need to ask yourself from this point forward what are the benefits and costs.

Starting today, which option would be more profitable and risk-free for your company? For years, we have been advising our clients that the best business management decisions for evaluating HRMS options are obviously those that bring the highest rate of ROI to the organization. If management can buy a new machine costing $100,000 that saves the company $100,000 in cost of production, there is not a manager alive that would object to having that equipment. Why? Because it generates a 100 percent return on invested capital.

SUMMARY

So where do we go from here?

I suggest that we should all be aware of these future predictions and trends. But don't keep so focused on the future that you miss what happened in the past. Remember that: "what goes around comes around".

In 2002 I proposed that HRMS professionals must: "Think not only Outside the Box, but Think Outside the Industry." However, I admit that there is evidence that a return to old-fashioned values and methods has some merit.

There is even a new bestseller from Kirk Cheyfitz that seems to be support that position. Its entitled: "Thinking Inside the Box: The 12 Timeless Rules for Managing a Successful Business". Free Press, 2003.

So, it might not hurt to consider and even return to the core values and basic management principles that have worked in the past. We should all learn from the example of what happened at Enron, Arthur Anderson, et al.

After all; who could argue with Cheyfitz's very first of his 12 Timeless Rules: "Don't do anything stupid"?

Sound advice to live by.

About the Author

Rob J. Thurston, President of the Human Resources Consulting Group, has been a national speaker and noted author on HR consulting and systems development since 1981. He has implemented and designed some of the largest selling employee benefits software systems nationwide while part of an international brokerage firm, a national administration firm and while as a consultant. Currently, he is working on the development of several advanced technology systems for both HR and for employee benefits.He has available at no cost or obligation a comprehensive listing of software and consulting firms providing advanced technology systems for benefits enrollment, communication and administration. Please request this list by calling Mr. Thurston at (801) 765-4417, email This email address is being protected from spambots. You need JavaScript enabled to view it., website www.hrconsultinggroup.com or writing: HRCG, Inc., 1202 E. Dover, Suite 201, Provo, UT 84604.

Employee Benefits Consulting Articles and Resources

By Rob J. Thurston

To control costs, you can either switch providers, limit coverage or try something different. Here’s what that something different might look like.

Would you like to finally implement a new health-care plan where your employees will feel that you:

  • respect them,
  • provide them with more autonomy,
  • give them better information,
  • offer them more “real” incentives,
  • are willing to share more of a financial stake in the cost of their health care?

Could that even be possible? Especially when, according to Dave Williams of Human Capital Management.biz, “Ironically, even after investing enormously in employee benefits, To control costs, you can either switch providers, limit coverage or try something different. Here’s what that something different might look like. the benefits often fail to produce the desired results for the company and the employees. Poorly managed benefit plans can actually make employees less happy, less loyal, and less productive. Adding insult to injury, the average employer spends $14,000 on benefits per employee per year (more than 42 percent on top of payroll according to the U.S. Dept. of Commerce), but employees typically undervalue their benefits at less than 50 percent of their actual cost.”

According to most consulting and health-care firms, the average rate increase for health-care benefits will be more than 13 percent for 2004. In the past, most employers would switch healthcare providers and carriers on average every four years, hoping to reduce their rates of coverage. But organizations remain stuck in an inflationary spiral of health-care costs – despite utilization review and managed care.

Here’s what the choices look like: Stay where you are and face a 13 percent-plus rate increase, switch health-care providers and carriers again, or do something else. That something else might involve consumer-driven health-care plans (CDH or CDHCP), health reimbursement accounts (HRAs), retiree medical accounts (RMAs), flexible spending accounts (FSA s) and debit/credit cards.

CDH and HRA s

Employees, too, are upset about rising healthcare costs and not being able to make their own decisions about health care. They want control – more of a consumer-driven approach to benefits. That’s one factor that has prompted employers to look at the new health reimbursement accounts (HRA s) that have been available since June 2002. HRA s feature employer-funded accounts for medical expenses reimbursement, usually combined with high-deductible health insurance. Employers may fund up to the deductible or a lower amount. These accounts can help an employer limit his costs while giving an employee control of and access to health-care spending.

Although these HRA s are relatively new, there’s some evidence that both employers and employees like them. New research by Mercer Consulting suggests that employers seeking relief from rising health-care costs are increasingly turning to consumer- driven health or HRA  plans and achieving positive results.

Employers who offer an HRA  plan are getting about 15 percent of eligible employees to sign on, Mercer finds. Forty-five percent said employee response to the HRA  plan has been “strongly positive,” while none reported “strongly negative” feedback.

In terms of account funding, the median amount provided by employers in health reimbursement accounts is $750, with a median deductible of $1,500 for single coverage. Nearly one in five employers allows for account rollovers into retirement so workers may finance retiree health coverage.

CDH plans appear to be doing exactly what benefits experts predicted: saving employers money. Eighty-five percent of employers told Mercer the CDH plan is their lowest-cost health plan option. Looking forward, all current CDH plan sponsor respondents indicate they will offer the plan again next year.

Ron Kirkpatrick of Liberty Health Group has several dozen HRA  clients linked to debit cards. That firm allows employees to rate their physicians, providers and to receive incentives by being efficient health-care consumers. Though average client size is only 150 employees, Kirkpatrick says the cost containment and health-care savings have been dramatic.

Ric Joyner of EFlexGroup, Inc. has helped many clients offer an HRA  linked to a debit card. Joyner uses upfront deductibles and copays that can be paid for, pretax, via a flexible spending account (FSA ) linked to the HRA  (funded by the employer). To speed up the claims process, EFlexGroup uses technology to issue reimbursements daily via electronic funds transfer, paper checks with explanations of benefits, and with debit cards.

RMAs

Rising health-care costs among retirees are leading many employers to explore retiree medical accounts (RMAs) as well. A recent Watson Wyatt study found that a “small but increasing number” of companies has begun to introduce retiree medical accounts as an alternative to traditional retiree medical benefits. With an RMA, an employer contributes a fixed dollar amount to an account, which the retiree uses to purchase health insurance. Contribution formulas differ, but employers typically credit a fixed dollar amount for each year the employee participates in the plan. In the Watson Wyatt sample of 56 large employers, annual credits ranged from $750 to $2,500 per year of participation, and interest rates on the accounts ranged from 5 to 7.7 percent both before and during retirement.

According to the study, only 2 percent of large employers have RMAs for current retirees. However, 7 percent have adopted them for future retirees and 13 percent have RMAs for new hires.

Debit/Credit Cards

Many employers have also started using debit cards to help employees offset expenses with faster reimbursement of out-of-pocket health-care costs for bothFSA s and HRA s.

Since 1978 the growth of FSA s has been slower than expected. There are only 24 million such accounts in the United States. But the growth of debit cards has been even slower. Since 1998 there have only been about 500,000 debit cards implemented. A recent IRS ruling on debit and credit cards should increase future usage and the level of participation. (The ruling set up guidelines for employers to avoid any liability due to workers who may misuse the cards, and eased demands that workers provide receipts.) However, many employers have been disappointed that more employees are not using debit cards and that their availability has not increased participation in FSA s and even HRA s. These employers see the time and investment in debit cards as a major expenditure with little return on investment.

In fact, employers should be worrying more about future ROI. If changing your health-care strategy and adding a HRA /FSA  with debit/credit cards will increase your ROI, minimize your current/future risk and guarantee greater satisfaction by employees of their benefits, then how much time, money, and strategy you have implemented in the past should be irrelevant.

You Do It Best

Employers are likely to return to asking employees to make more decisions about their health care. But employees want information about these CDH plans. A survey of HRA  participants found that the No. 1 item they wished for was to have more information and access to the Internet to get those answers from their employer – not from a consulting firm.

From the employer’s perspective, an added benefit of providing such information is that the employee’s ability to work with people they know and trust, to interact with a Web-based system and to understand their own type of benefits, will increase the average level of participation per employee. The higher the participation level, the greater employee satisfaction, which will lead to less turnover.

Employers may be able to provide a higher level of customer service. For instance, most companies can put as many staff as need be on their healthbenefits plan team during peak work periods (open enrollments, year-end processing, etc.) to ensure that all functions are handled promptly without reducing the quality of service. It may be harder for a consulting firm or outside vendor to do so without incurring additional expense or charging companies more money.

Your HR/benefits personnel know the benefits plan better than anybody else. You can staff your self-service processing unit with existing benefits staff, thus immediately adding a high degree of plan knowledge to your team.

Right out of the gate, your HR/benefits staff will understand an employee’s unique needs. Plan participants will feel more comfortable talking to fellow employees than to employees of another company. If the self-service information needed by the plan participant is of a sensitive nature, he could access much of the information via automated Web self-service technology. In most cases, having someone who understands the working environment is a real advantage of self-service.

And in most cases, only the employer can truly know if employees would view CDH plan service negatively. You might ask your employees what they prefer. A survey of employees to accurately gauge perception and the use of focus groups helps discover what employees really want. You may be surprised by the results of the surveys and focus groups. Why? Because employees really would rather have the freedom to make their own decisions, to use internal self-service technology, with the option of employer live support, to go as slow or fast as they want regarding the administration and communications of health benefits.

Your management is focusing on cost-effective solutions to health care to control costs – in other words, on the bottom line. The promise of consumer- driven health-care plans is that they can help you manage health care and benefits like a business operation.

Rob J. Thurston is president of the Human Resources Consulting Group, and a national speaker and author on HR consulting and systems development. If you’d like to receive a list of HRA , debit/credit cards, software, and consulting firms providing advanced technology systems for benefits enrollment, communication and administration, email him at This email address is being protected from spambots. You need JavaScript enabled to view it..

Employee Benefits Consulting Articles and Resources

Are you skeptical or confused that HSA s will really save the employer money?

Don't understand why some employers are waiting to implement a HSA ?

We will try to answer these questions in this article.

The Current Health Care Environment --Right now employers pay $5 out of every $6 spent on health care in the private market.

Adding insult to injury, the average employer spends $14,000 on benefits per employee per year (more than 42% on top of payroll according to the U.S. Dept. of Commerce), but employees don't fully recognize or appreciate it. In fact, employees typically undervalue their benefits at less than 50% of their actual cost.

Therefore most employees do not understand and know the true cost of health care and believes that "my insurance will pay for everything." Over utilization and uneeded consumption of health care are the results.

"But in some ways it "actually makes sense" economically because employers' payments are excluded from taxes, unlike employees' out-of-pocket payments, which are made with after-tax dollars. In addition, because employers would save money on lower premiums for plans with higher deductibles and coinsurance rates, they could pass on the savings to employees in the form of higher wages, Lee states (Lee, Wall Street Journal, 8/9/04). Susan Lee, Wall Street Journal Editorial Board

So why have most benefit plans offered and sponsored by Congress/Government directed to individuals not been popular and do not help individuals lower their health care costs? Because most health plans are not working unless there is strong endorsement and adoption by employers. And employers will not adopt these higher deductible plans and attach a HSA  to it unless there are incentives to do so.

Don't believe me? Consider the facts:

  • Historically MSAs (which Congress created to lower health care costs) did nothing unless an employer sponsored them
  • Historically FSA s have not grown as anticipated unless the Employer heavily promotes and communicates them
  • Many Fortune 500 clients have all loved the idea of HSA s until they were told there could be no claims substantiation, no claims audits by a qualified Third Party Administrator (TPA), and no restriction on employer contributions. These are all disincentives for an employer to adopt a HSA .
  • Our clients that are implementing HSA s under current law are replacing either their old MSA, expanding on an existing HRA  and have in general less than 100 employee lives.
  • Larger employers with more than 500 lives are waiting on HSA s hoping that further IRS clarification will restrict funds for health care only, and allow claims substantiation.

Many Small Employers Are Turning toHSA s for Help

Information Strategies Inc. (ISI) did a semiannual survey of about 1,200 small employers.

According to the survey results, more than half of small employers intend to change the health coverage choices that they now offer to employees. Among these employers, about 20% say they are considering making an HSA -compatible high-deductible health plan available. By contrast, only about 8% of employees say they are considering a health reimbursement arrangement (HRA )-based plan. About 10% of employers say they will make flexible spending accounts (FSA s) available.

The survey results also confirm that employers are increasingly interested in shifting more of the costs and decision making to employees, says ISI President JoAnn Laing. "We're seeing a real movement toward requiring employees to participate in the process of holding down costs," she adds.

Recent Experiences Among Small Employers

Double-digit rate increases 68.8%
Significant employee resistance to change 14.0%
Switching more costs to employees 26.4%
Reducing costs by decreasing benefits 34.1%
Limiting choices to new employees 4.8%
Eliminating health care contribution entirely 4.1%
Other 12.4%

Planned Changes/Additions to Health Coverage Choices

Health Savings Accounts (HSA s) 20.4%
Partial coverage with high-deductible plan 17.1%
Flexible Savings Accounts (FSA s) 9.6%
Health Reimbursement Arrangements (HRA s) 8.3%

Where/What are the Rules and Regulations needed for a HSA ?

The Treasury has created a website just for HSA s:www.ustreas.gov/offices/public-affairs/hsa/faq1.html . Please visit it.

The Treasury Department and The IRS have issued many rulings and announcements in the last year. The previous guidance addressed:

  • Notice 2004-2 (general overview of HSA s)
  • Notice 2004-23 (safe harbor definition of preventive care)
  • Notice 2004-25 (transition relief allowing establishment of 2004 HSA  as late as April 2005)
  • Rev. Rul. 2004-38 (defines scope of other permissible non-HDHP coverage)
  • Rev. Proc. 2004-22 (transition relief from Rev. Rul. 2004-38 for prescription drug plans offered under separate plan until January 1, 2006)
  • Rev. Rul. 2004-45 (addresses the scope of permissible Health FSA /HRA coverage maintained by an eligible individual)
  • Sample Trust/Custodian documents
  • Notice 2004-43 (transition relief for plans in states that cannot qualify as HDHP due to state laws until January 1, 2006)
  • FAB 2004-1 [EBSA/Department of Labor] (outlines rules for determining whether HSA  is subject to ERISA)
  • Notice 2005- 8 (defines the tax treatment of HSA s for Partnerships and S Corporations)
  • Notice 2005- 25 (defines that a married individual can be eligible for aHSA  even if the spouse has a non-HDHP family coverage that does not cover the individual)

Key Highlights

Eligible employee for a HSA  must be covered by a high-deductible health plan (HDHP). Many employers offer employees a choice of several health plans, including HDHPs and non-HDHPs. In this situation, if the employee chooses the HDHP is he eligible for a HSA ? Yes- as of the date he enrolls in the HDHP.

What if the employee is eligible for Medicare? If they are just eligible and not enrolled in Medicare Part A or B, they can continue to fund an HSA  and make additional catch-up contributions from age 55-65. Once they enroll in Medicare they loose their eligibility to fund additional amounts into the HSA .

A health plan does not qualify as an HDHP unless it limits annual out-of-pocket expenses for covered benefits to $5,000 for self-only coverage and $10,000 for family coverage. (These limits will be adjusted annually for inflation.)

On April 13, 2005 the IRS issued Ruling 2005-25 that could allow employers to let employees elect FSA s for each dependent and their spouse but still have the other spouse just covered under the HSA  with a qualifying HDHP Plan; as long as they were not covered under the HDHP and HSA .

Benefits under Employee Assistance Plans, Disease Management Plans and Wellness Programs generally do not disqualify an employee from being eligible for a HSA .

Mistaken distributions from an HSA  can be repaid to an HSA  without penalty or tax.

HSA  salary reduction by an employees can allow changes in elections throughout the year as long as any election is only effective prospectively

Employer matching contributions made through a cafeteria plan are not subject to the comparability requirements for discimination testing. It should make testing easier to pass.

Pre Tax HSA  contributions may come from four sources: the eligible individual, the eligible individual's employer, any other person or a rollover contribution from another HSA  or MSA. Any person, regardless of family status, can make contributions to an HSA  for an eligible employee.

Distributions from an HSA  are generally excluded from an HSA  beneficiary's gross income to the extent the distributions are for qualified medical expenses.HSA  funds can also be withdrawn for non-medical reasons but are includable in gross income and generally subject to an additional 10% excise tax.

Could HSA s be used as savings vehicles by deferring when nontaxable benefit reimbursements are received? Yes.

May HSA  distributions pay/reimburse long-term care insurance premiums, even if the distributions derive from amounts contributed by salary-reduction? Yes.

HSA  is not a health FSA  so HSA  distributions for the cost of a long term care services are nontaxable payments for medical expenses.

Individuals age 65 or older and eligible and enrolled in Medicare may use theHSA  to pay for Medicare premiums (including reimbursing the payee for premiums withheld from Social Security payments) and the retiree's share of employer-provided health care costs. Individuals under age 65 and covered by Medicare for end-stage renal disease or disabled cannot use the HSA  to pay for Medicare or other medical premiums

Employees who elect to make HSA  contributions can start, stop, increase or decrease elections at any time, so long as the elections are prospective only.

An employer can add an HSA  as a new plan benefit mid-year, and employees can prospectively elect the HSA .

So Where can I Learn More?

Buy a Kit or package that has the forms, materials and documents that you need. There are several lawyers, law firms, and consulting firms that have developed such a Kit. Go to www.hrconsultinggroup.com  and see what a Kit looks like. Search the Internet or go to the major Benefits publications (we recommend Employee Benefit News- go to www.benefitnews.com , select SourceBook, select several topics like HSA , HRA , Flex, or even Comprehensive Benefits Consulting Services, etc..) and find the case studies and plan designs on HSA /HRA s and on Consumer Driven Health. Attend a Web conference, local meeting, or national conference on these topics.

Summary- We are still very excited about HSA s. We feel employers should offer HSA s to employees who work for them. Understanding the current Guidance, Rulings, and what is allowed are crucial to having a successful HSA .

ABOUT THE AUTHOR

Rob J. Thurston, President of the HRConsultingGroup.com, has been a national speaker and noted author on HR consulting and systems development since 1981.He is a charter member of the National Association of Professional Enrollment Specialists (NAPES), charter member of the National Association of Health Underwriters (NAHU), National Association of Professional Benefit Administrators (NAPBA) and of the National Association of Life Underwriters (NALU). As an Accredited Executive in Personnel (AEP) from the Society of Human Resource Management, he has spoken at the national BMFE, MI2, NAPES, NAPBA, Profit Sharing Council of America, IHRIM, ECFC, HR Forum, SHRM, IFEBP, and others. He holds an MBA degree from Brigham Young University. He currently sits on the Board of Directors of NAPES and NAPBA.He has available at no cost or obligation a comprehensive listing of HSA ,HRA , Debit/Credit Cards, software, and consulting firms providing advanced technology systems for benefits enrollment, communication and administration. Please request this list by calling Mr. Thurston at    (801) 765-4417  , email This email address is being protected from spambots. You need JavaScript enabled to view it., website www.hrconsultinggroup.com or writing: HRCG, Inc., 1202 E. Dover, Suite 201, Provo, UT 84604.

Employee Benefits Consulting Articles and Resources