By Thomas A. McCoy, CLU
CIGNA's $38 billion in retirement plan assets under management is about equally divided between the defined benefits side and the defined contribution side. The latter, which includes the popular 401(k) plans, is growing faster than the defined benefits business. But rather than view the defined benefits side as a laggard, CIGNA has developed some new initiatives to take advantage of the changed market for defined benefits pension business.
"The total defined benefits plan market is $3.7 trillion," says Mark Lynch, senior vice president and consulting actuary at CIGNA. "That makes it still larger than the 401(k) side. And for us it's growing between 5% and 7% per year."
While the small, closely-held companies continue to shift out of defined benefit plans and into 401(k) plans, Lynch says, "in the middle market, (200-5,000 employees) the evidence is that this has stopped. Organizations in the mid-market are committed to a combination of defined benefit and 401(k)s.
"Property-casualty agents have access to the financial officers of many of these companies," Lynch points out. "We are establishing marketing partnerships with P-C agencies which can lead to significant opportunities.
"If you go back 20 years P-C agencies were a good source of business for us, but that has sort of atrophied, probably because at that time the business got really complicated as a result of significant pension legislation. I think many agencies decided this is too hard, especially when they were being positioned as a consultant to the client."
Now the company has made providing pension plan services simpler for the agent through the formation of the marketing partnerships. CIGNA will tailor the partnerships to the individual agency's current capabilities in the benefits market and the client's needs. (See boxes on next page.)
One client situation which has become increasingly common, says Lynch, is the mid-sized company with a defined benefits plan that is looking to outsource some of the services connected to that plan. "More and more plan sponsor organizations have trimmed down their human resources staff or will be doing that as they re-engineer. So they're looking for providers to take on more of the burden of day-to-day administration of their plan using call centers.
"We've invested in providing those services to a pension plan, including 800-number call centers where plan participants can get benefits projections and other information on their plan.
"What makes this strategy even stronger for agencies we work with," Lynch adds, "is that not a lot of other providers are calling on these companies. A plan sponsor with a 401(k) and a defined benefit plan probably
gets 10 providers knocking on its door for the 401(k) business for every one that's calling on the sponsor for the defined benefits."
Another positive factor about this market, Lynch points out, is that "the baby boomer age group is getting into the positions of responsibility in companies. They're starting to focus more on their own retirement security, and if their company has a defined benefit plan, they're a lot more interested in it than they were 10 years ago."
One P-C and financial services firm which has bought into CIGNA's initiatives is Meeker-Sharkey Financial Services, based in Cranford, New Jersey. They are no strangers to the benefits consulting business, deriving some $4.5 million of their total of $20 million in revenues from benefits.
Still, explains Ken Spencer, chairman of the agency's benefits consulting department, "We had not paid much attention to defined benefits plan business before getting involved with CIGNA.
"As our agency grew we began to run into more and more defined benefit plans already in existence among our property-casualty clients. We felt the best way to handle them was to form a strategic alliance with a very strong source. CIGNA presented their program, and I was astonished how good it was."
The agency targets mid-sized companies that need to maintain the services of their defined benefit plan, despite having downsized their human resources staff. Among the payoffs for Meeker-Sharkey in this market, so far, has been the writing of a case with $26 million of assets. "You only have to put on a couple of those to have a tremendous revenue source which is ongoing," says Spencer.
Meeker-Sharkey, with 30 employees in its benefits consulting department--10 of them sales people--is far more attuned to the benefits market, both defined contribution and defined benefit plans, than many agencies. Spencer said the agency would consider alliances for benefits business with property-casualty firms which want to utilize Meeker-Sharkey's services.
Lynch emphasizes that CIGNA's pension programs operate separately from the company's other product lines, such as life, health and disability products. A broker which institutes pension plan services with CIGNA for one of its clients where the health care coverage is written somewhere else will not feel pressured to write the health with CIGNA. "That client belongs to the agent," says Lynch, "and we respect that.
"P-C agencies are looking for new revenue opportunities," Lynch concludes. "We think we are positioned to help them earn that revenue."
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Concept One--Referral/door opener approach
* Broker provides introductions to existing clients sponsoring defined benefit plans.
* Joint meetings: Broker endorses CIGNA.
* CIGNA actively conducts need finding, issue/solution identification and presentations.
* Minimal training/preparation need by broker.
* All marketing support materials provided by CIGNA.
* Marketing materials available to broker to use to establish new relationships.
* Asset-based compensation arrangement (e.g., points on assets for business acquired by CIGNA, level based on degree of involvement and relationship and competitive situation).
Concept Two--Strategic alliance with broker as consultant
* Broker provides retirement plan consulting services to clients on a fee-for-service basis.
* CIGNA provides technical, analytical and administrative support.
* Joint meetings: Broker endorses CIGNA services.
* Process and product training provided by CIGNA to broker.
* Joint development of marketing materials positioning broker as retirement benefits consultant and CIGNA as investment/plan services provider.
* Ongoing administrative, actuarial and investment management and consulting provided by CIGNA.
* In addition to fee-for-service revenue, asset-based compensation available as described under Concept One.
Concept Three--Private label full service
* Broker positioned as full service pension provider.
* Similar to Concept Two but with most services labeled as provided by broker.
* Process and product training provided by CIGNA to broker.
* Joint development of marketing materials positioning broker as full service pension provider.
* CIGNA services provided on a sub-contracted basis.
* Potential revenue sources include:
- Consulting fees
- Mark-ups on subcontracted services
- Asset-based compensation as described in Concepts One and Two.