What do investing, 401(k) record keeping and benefits brokerage have in common? Fidelity. The Boston based company recently announced that they are entering the small and mid-size benefits business competing with traditional benefits brokers. What’s driving this trend and will there be more companies like Fidelity entering the benefits market?
Fidelity is not alone. Zenefits, an online benefits broker which promises to help smaller businesses integrate all benefits including HR administration, payroll and retirement along with healthcare has made a big splash. MassMutual has set up a private benefits exchange for their 401(k) and 403(b) clients which also helps people allocate their benefits and retirement budget. And while Fidelity is just entering the small and mid size markets, almost 10 years ago, it tried to offer integrated benefits for larger companies.
According to Joe Markland, a benefits broker expert, the trends driving companies like Fidelity, MassMutual and Zenefits to compete with traditional benefits brokers include:
- Simplification – Employers need one company to help them navigate the complicated laws, regs, and technology to serve a shifting workforce.
- Outsourcing – More companies will look to outsource benefits and retirement services.
- DC-ization of Healthcare – Companies are shifting healthcare costs and decision to employees just as they did when they moved from DB (defined benefit) to DC ( defined contribution plans like 401(k)s) in retirement. People need help managing their benefits budget.
- Financial wellness – Stress in the workplace leads to lower productivity. Financial wellness includes managing costs of healthcare.
Markland candidly points out that the elephant in the healthcare room is the commissions of benefits brokers. Zenefits started as a software company to help companies manage HR administration but soon realized that there was more money becoming a benefits broker. Integrating healthcare and 401(k) record, where margins are thin and it’s hard to distinguish one from the other, will be attractive to more DC service providers according to Markland.
At the core, there’s a convergence of benefits and retirement forcing companies and their employees to look at their budgets to make wise decisions that are right for them. On the table now are benefit brokers’ commissions which are relatively rich and apparently attractive.
