Hired Help: Finding the Right Consultant

The when and how of selecting an employee benefits consultant.

by Joanne Sammer

EXECUTIVE SUMMARY

CPAs can help companies hire consultants to deal with a wide variety of employee benefits challenges including managing the rising cost of health insurance, maintaining competitive benefits offerings and dealing with the complexity of pension and other retirement plans. Before hiring a benefits consultant, companies should check to see whether they already have the necessary expertise available internally in human resources or in departments such as IT, finance, risk management or operations. While using internal resources will save on consulting fees, it’s important to consider the cost of the work that may not get done while staff members are tied up on the benefits project. It’s a good idea to have a clear goal in mind for the benefits consulting project. This will help ensure the company achieves the desired results but also stays within its stated budget. Ongoing monitoring of the consultant’s work is also critical to the success of the project and avoiding cost overruns. Companies typically can hire consultants on a project basis or keep them on retainer. Some benefits executives feel a retainer arrangement is inefficient as it may lead to overreliance on the consultant and be costly because there may be months when a company is paying for resources it isn’t using. CPAs shouldn’t expect consultants to provide all the answers to their employee benefits problems. Typically a consultant will provide a range of options for management to consider, leaving company executives with some tough decisions to make in order to achieve the desired outcome. Joanne Sammer is a freelance business writer. Her e-mail address is Joanne@joannnesammer.com.

or many companies employee benefits have become a major management challenge. Health insurance costs are skyrocketing. Pension rules and regulations continue to grow in scope and complexity. And employers still face significant legal and fiduciary obligations. It should come as no surprise that companies frequently turn to outside experts for help in dealing with benefits-related issues, particularly the rising cost of health coverage. Indeed, in 2005 companies spent $4.5 billion on benefits consulting services according to Derek Smith, director of research at Kennedy Information, a Peterborough, N.H.-based firm that tracks the management consulting industry. Companies looking for a benefits consultant have plenty of options to choose from. Smith estimates that about 100 entities in the United States do some benefits consulting, though no more than a dozen account for the majority of the benefits consulting market. Companies also can get benefits-related assistance from a variety of other sources, including accounting firms, insurance brokers and law firms. This article will give CPAs the guidance they need to select and work with a consultant to solve a variety of benefits-related problems.

IS A CONSULTANT NECESSARY?
Companies hire benefits consultants for a number of reasons. Many want to cut health costs by switching insurers or adopting so-called consumer-driven health plans. Others are looking to add programs such as health savings accounts or Roth 401(k)s. Still others want access to strategic planning and leading-edge technology so they can offer a state-of-the-art benefits program. And some even want to outsource their entire human resources department—including the administration of employee benefit plans.

In addition to providing technical expertise, benefits consultants can bring a different point of view to a project. “They can challenge your perspective and make it better,” says Marc Buchsbaum, CPA, vice-president of compensation and benefits at NCR Corp. in Dayton, Ohio. “Consultants also can lend credibility to projects and recommendations because of their expertise.” He recalls a consultant who attended a meeting with NCR’s CEO and other key executives on an important, if emotional, benefits issue. “The consultant was very vested in the outcome of the meeting and passionately gave his view of the situation, which went well beyond polite consultant-speak.” His input helped the company better understand its own views on the issue and come to a resolution.

Before rushing out to hire an employee benefits consultant, CPAs first should ask if the company really needs an outside consultant. After all, many have the necessary expertise internally—and not just in the HR or benefits department. Individuals in IT, finance, risk management, operations and other areas may be able to contribute to a project. When LifeBridge Health in Baltimore hired a consultant to review its retirement programs, Guy Van Tiggelen, CPA, director of compensation and benefits, says it relied on internal resources to do about half of the work, including reviewing existing retirement plan documents and conducting internal reviews and assessments.

Using internal resources is particularly attractive because there is no added cost; the company must pay those individuals anyway. However, CPAs should weigh the cost of what does not get done while those internal resources are tied up on the benefits project against the cost of hiring an outside consultant.

SET CLEAR GOALS
Once a company decides to bring in an outside consultant, the CPA’s first challenge is to define the scope of the project. LifeBridge Health turned to a consultant for help consolidating its multiple 403(b) plans under one vendor and finding a company to take over its self-insured health plans. In both instances the consultant helped LifeBridge develop requests for proposals, evaluate the results and select the right vendor.

A successful project means having a clear end goal in mind before even starting the hiring process. “It’s important to find out what you want from the project,” says Van Tiggelen. After all, consultants charge by the hour and fees can quickly get out of hand if a company later expands the scope of the project or is uncertain about its goals. “It’s easy to find yourself with overruns if you don’t keep tabs on costs.”

Communication is a key element in the client/consultant relationship. “It’s important to keep the lines of communications open and set expectations of what you want the consultant to do,” including what the engagement will cover and a full disclosure of fees, says Karen Sanchez, CPA, QPA, a partner with Sikich LLP in Aurora, Ill. “There can sometimes be a gap between the consultant and the client as to what a given project requires.” Sanchez says some projects take longer than the client expects, especially if the client doesn’t appreciate the magnitude of what is required.

Martha Priddy Patterson, a director in Deloitte Consulting’s human capital practice in Washington, D.C., agrees companies should be clear about what they want the benefits consultant to do and communicate that goal to those consultants under consideration. She notes that companies sometimes hire consultants for reasons they don’t necessarily convey up front—for example, to deliver bad news to employees or executives or to validate a decision that already has been made. “That’s fine as long as the consultant understands what’s happening from the beginning,” she says. “But if a company hires a consultant to review its retirement benefits when its true goal is to find ways to eliminate a defined benefit pension plan, then the consultant’s findings and deliverables may not be what the company really wants.”

THE COST FACTOR
CPAs who help clients or employers hire benefits consultants play a crucial role in making sure the company gets maximum value from its consulting dollars and that the project is a success. “You have to manage the relationship; it’s your responsibility to make sure the project gets completed,” says H. Robert Sanders, CPA, vice-president of compensation and benefits with St. Louis-based Centene Corp. “This means monitoring performance and making changes if the consultant is not performing as expected.”

CPAs should determine how much money the company has to spend before looking for a consultant. To keep costs under control Van Tiggelen uses consultants only on a project basis. “We decide on the project scope and the resources necessary,” he says. “If there is an internal knowledge or resource gap, we go outside to find what we need.” In most cases, this means looking for consultants with specialized expertise. LifeBridge used a benefits consultant to assess the retirement programs it offered across its various facilities. “Our programs were not equal, so we needed experts to benchmark our retirement coverage against our labor market competitors and develop recommendations to help us reach our goals.”

Although companies can choose to put benefits consultants on retainer or pay per project, Sanders has found it most effective to hire consultants for specific projects. “Hiring on a retainer is inefficient—you start relying on them to do work that should be done internally.” Moreover, Sanders recalls that as his need for consultants ebbed and flowed, he ended up using a consultant heavily one month and very little the next. With a retainer, “you can end up paying for what you are not using.” Because some companies are wary of keeping a consultant on retainer or using the same consultant or firm for every project, they maintain relationships with multiple consultants.

Does size matter? Whether a company should hire a large national or global consultant or a smaller local or boutique operation depends on a number of factors. Some argue there are relatively few differences among the large benefits consulting firms. “It comes down to how the consultant relates to us as clients,” says Buchsbaum.

Small companies with small budgets and companies that use consultants only on a project basis may find it difficult to get the attention of the larger consultants. “Some of them want an extended relationship or they aren’t interested in dealing with you,” says Van Tiggelen. “It also depends on the size of the project and the potential for future work.”

MANAGING THE PROJECT
CPAs will find a wide range of consultant/client relationships. At one end of the spectrum are straightforward, almost commodity-like projects—such as auditing benefits payments—that internal staffers don’t have time to handle. At the other end are projects involving critical questions about key benefits programs, such as pension design and funding. These projects require consultants to be the client’s business partner and to have a strong understanding of the company’s business needs and what it is trying to accomplish. “A business partner relationship means the consultant will be there if the client has a problem,” says Joel Rich, a senior vice-president of the Segal Co. in New York City. “These are ongoing relationships, not one-off projects.” For example, a consultant in this type of relationship might provide ongoing updates on key legislative issues related to the client’s benefits needs and objectives.

Van Tiggelen says a project timetable is critical to a well-managed project. “Know what is needed, the steps involved and the necessary timeline,” including a calendar and project plan with specific dates for completing various elements. Even with this information, Sanders says it’s important to have meetings to make sure the consultant is adhering to project plans and readjust as necessary. “Success or failure often depends on whether the consultant follows the plan, so you have to stay on top of it.”

CPAs also should make sure all staff members involved in the project are aligned as a team. Many benefits-related issues affect several departments, such as treasury, legal, HR or finance. That makes it important to assign a point person on staff to interact with all departments and understand their needs and expectations and communicate them to the consultant. “You need to reach out to others to find out if they have any concerns that might affect a project,” says NCR’s Buchsbaum.

START SMALL
With new consultants, it can be a good idea to begin with a small project to get a sense of what the consultant can do and how they work. “When you’re a prospect, some consultants will promise you a lot,” says Rich. A smaller project can help CPAs gauge how much of what the consultant has “sold” them comes true. Small projects might include making sure the company’s benefits program is aligned with its objectives, improving communications with employees about benefits options or making sure 401(k) plan investment choices are broad enough to meet employee needs.

Other projects can be much larger in scale. For example, Sanders has used consultants to help revamp a former employer’s multiple health plans. The project’s complexity was driven by the number of plans involved, the fact that the company self-insured the plans and the complexity of the related information systems.

WHAT TO LOOK FOR IN A CONSULTANT
With so many benefits consultants in the marketplace, it can be difficult for a company to find the right one for a given engagement. As with most things, the best source of referrals is professional colleagues. Van Tiggelen suggests CPAs get involved with industry and professional associations to develop a network of contacts who either can recommend a benefits consultant or are consultants themselves. Such relationships also make it easy to keep up with who is doing what in the employee benefits consulting area.

Once you have assembled a list of prospective consultants, selecting the right one is no different from choosing any other service provider. Interviews, requests for proposals and reference checks can all help CPAs determine whether a consultant is the right fit in terms of skills, knowledge, personality and approach. When checking references, CPAs are likely to find a consultant’s past clients to be very forthcoming about their experiences. Sometimes the choice comes down to something as esoteric as chemistry between the consultant and the project leader.

A consultant should have experience not only with the type of project involved—selecting a new disability insurance provider or adding a 401(k) plan—but also with companies of similar size and in a similar industry. CPAs and other project leaders should feel comfortable working with the consultant and talking confidentially about the benefits issues the company faces.

Rich suggests CPAs look for consultants who can speak to them on their level and in terms they understand. “Finance people tend to consider things in terms of their effect on earnings per share, the profit and loss statement or other financial measures,” he says. “If consultants don’t have that background, they can’t put information into a context that allows the client to make the right decision.”

Working style also is a key consideration when choosing a consultant. For example, some CPAs will expect a consultant to provide frequent updates and progress reports, while others may leave certain specifics of the project to the consultant’s discretion. Any approach is fine as long as CPAs communicate their expectations to the consultant from the start. “You need to be candid about what you want, why you want it and when you need it,” says Deloitte’s Patterson.

» Practical Tips

Have a clear goal in mind before hiring a benefits consultant and fully communicate that goal up front. Start with a small project to get a sense of what individual consultants can do, how they work and if they deliver on the promises they make. Finance people often like to have proposed changes expressed to them in terms of the impact on earnings per share or profit and loss. Look for a consultant who can speak in financial terms you and other decision makers will understand.

FEW EASY ANSWERS
Hiring a consultant to address employee benefits issues doesn’t always lead to a turnkey solution. CPAs and senior management still will have some important decisions to make. For example, if a company hires a benefits consultant to benchmark health insurance costs and identify cost reduction strategies, the consultant might deliver a range of options for the company to consider instead of just one solution. “If you hire someone to help with a complex issue, the complexity won’t go away,” notes Sanchez. “You will still have tough decisions to make to get the desired outcome”—a competitive benefits package at a reasonable cost.