Finding innovative solutions to provide retirement/benefits administration services is becoming more important than ever in today's changing economic climate for Plan Providers, Record Keepers and everyone else in the value chain.
Overview: Global Delivery Model
Though a global phenomenon that has come to stay, outsourcing seems to win a broad-based organizational commitment particularly during the times of uncertainties such as: "Y2K" and the economic downturns of 2001-02. The recent and on-going slow-down, triggered by the sub-prime crisis, is no exception. Organizations are under great pressure to reduce costs (for survival) and to find new market differentiators (for growth). Outsourcing promises to support organizations to achieve exactly these twin goals.
As the importance of employer sponsored retirement plans continues to increase and more workers enter the workforce, the number of participants in a company's defined benefit and defined contribution plans will continue to increase, thereby increasing the costs to administer these plans. In this context finding innovative outsourcing solutions to provide retirement/benefits administration services is becoming more important than ever for the retirement industry.
Global Delivery Model and Retirement/Benefits Administration
Globalization of business processes began when organizations needed to externally distribute business processes across organizational, geographical and cultural boundaries to enhance competitiveness through growth, learning and value addition. To do so the vendor distributes projects to different strategic locations across the globe and delivers the services. An organization's success rate is based on their ability to creatively leverage the right outsourcing partner. Today outsourcing is pursued not just for labor arbitrage. Organizations that see value in co-creation believe in adopting the new ethos of: "create-using-global-hands-and-deliver-with-local-touch", the underlying theme of the global delivery model (GDM). They truly view their outsourcing team as an extension of their own employee base.
For a long time, benefits administration, including health and welfare, pension administration, and Consolidated Omnibus Budget Reconciliation Act (COBRA) services, remained as the proverbial "black-box." It was managed in-house mainly for data security reasons. However, today a host of benefits administration processes such as 401 (k) administration (DC Plans), pension administration (DB Plans), health care benefits administration and payroll, among others, are outsourced because of a compelling value proposition and advances in technology that have led to more secure networks and safer means of transferring data back and forth to the vendor.
Benefits of Outsourcing Retirement/Benefit Administration Services
The retirement industry faces many strategic and tactical challenges. These include consolidation of players, greater financial disclosure and transparency requirements, regulatory changes, rising costs of administration, staff turnover, shortage of qualified people and increasing IT capital expenditure. Outsourcing addresses most of these aspects by providing a long term strategic alternative for a low cost back office administration capability.
• Cost Reduction. Generally U.S.- based providers can reduce costs about 35 to 40% by outsourcing their back office administration processes using a Global Delivery Model. GDM offers a selection of geographies that provide good quality services at lower costs. Nevertheless, outsourcing does bring down the total cost of ownership of the business processes and is therefore one of the main drivers for most corporations.
• Operational Efficiency: In the wake of technology-induced productivity improvements, retirement plan providers are doing away with manual processes, spreadsheet-based administration approaches, and decentralized service delivery models. A technology-enabled BPO can help providers achieve better governance control and improved levels of efficiency in managing the different aspects of retirement administration. Processes like compliance testing, Form 5500 preparation, contribution/distribution, trust accounting and others can all benefit from some level of procedural review and automation. Choosing a provider with expertise will ensure that another set of industry expert eyes is reviewing your process.
• Round-the-Clock Processing: Taking advantage of time differences allows round the clock processing. Work sent to an office in India at the end of the U.S. work day can be prepared over night and ready for review at the beginning of the next work day thus improving turn around time and creating efficiency.
• Enhanced Customer Service: By outsourcing the routine tasks and processes, providers can free more experienced and seasoned staff to offer high-end services like plan design and consulting that will bring in more revenue. Being freed from these routine tasks, senior associates can spend more time with customers and improve customer satisfaction and repeat business.
In addition, GDM will inherently provide soft benefits like process re-engineering, process discipline and continuous improvement.
Challenges in outsourcing Retirement/Benefit Administration Services
Awareness of the challenges and risks may help plan providers mitigate risks and proactively address them to have a productive and profitable outsourcing experience.
• Geo-Political Risks: Understand the economic and political environment of the outsourcing destination of your GDM vendor. There are many global rating agencies that monitor country-specific political, economic, social and security developments and forecast their impact on legislation, financial markets, investment and trade risks.
• Regulatory Requirements: There is a greater scrutiny from the government over the past several years, prompting new disclosure requirements and other rules to help protect the plan participants. These regulatory changes effect how retirement plans are designed, administered and managed to meet all the regulatory requirements.
• Security: It is a prerequisite that GDM vendors ensure network security using firewalls, antivirus software, physical security through security guards, access control cards, secure logins, separate work area's for large customers and multiple centers for fail-over continuity and fire alarms. The vendors should have a business continuity plan with adequate redundancies.
• Communication & Cultural Boundaries: For a successful engagement, clear, consistent and frequent communication is a must. A formal communication plan should include, project reviews, weekly meetings and other communication and team events to break down the barriers to communication and establish a relationship between the employees of both companies built on trust and mutual respect. An in person meeting of some of the key stake holders at a defined frequency will be very beneficial in building trusted relationships between team members.
• Management Commitment from Within: Expect outsourcing initiatives to hit several road bumps in the initial days as it will be a huge cultural shift for the employees and stakeholders involved. Unwavering commitment to the initiative and buy in from the top management is very important to make the outsourcing initiatives successful.
• Consolidation: Mergers and acquisitions, downsizing, and rightsizing all affect the benefit programs. During such organizational changes employers will be required to make changes in plan design and features - changing formulas, freezing accruals and terminating plans – and need support of a specialized third-party and a focused GDM vendor.
• Technology: Thanks to the development of web-based administration tools, organizations can empower the participants with self-service tools. Employees can enroll online, set contribution rates, and update fund choices with data files interfaced to company payroll systems without manual intervention. There are web-based pension estimators, information on total benefit package that goes beyond pension to savings, health and life insurance, and estimates of Social Security. Choosing the right technology that is scalable, secure, customizable and user-friendly is a challenge for the plan providers.
• Cost versus benefit analysis: Providers have to identify all the costs involved in outsourcing such as transition efforts, technology, infrastructure, oversight and compliance. These should be weighted against the benefits of wage arbitrage, enhanced customer attention, increased operational efficiencies, security, data consistency, quality of service and scalability. Only after careful consideration should it be determined if outsourcing is the right course of action.
• Partnering with a Focused BPO: As retirement/benefits administration functions are becoming more complex, specialization of the vendors becomes the key to outsourcing success. A specialist vendor can do a better job, possibly cheaper and certainly more efficiently, than a BPO with a dozen or more service lines. The specialist vendor can bring two important factors to the table: experienced staff with domain expertise and updated technology relevant to your business line. The focused outsourcing vendors have the broad capabilities to define, develop and administer a full array of retirement/benefits administration processes. They bring a consultative approach to administration, making process improvements and operational recommendations backed by the capabilities and experience to implement and administer those recommendations. When choosing the right outsourcing vendor, plan providers have to take many things into consideration such as track record, focus, financial stability, quality of human resources and competency.
Best Business Practices
Outsourcing may not start producing results from day one. It is a relationship between the customer and vendor that needs time to mature. The best way to manage the relationship is to value the relationship itself over short term gains. View the beginning of the engagement as an investment in time and effort to establish a foundation. This foundation needs to be secured based on trust, mutual respect, quality assurance and performance. Taking the time to get it right in the beginning will help a plan provider realize long-term benefits and savings. The relationship starts with understanding requirements: The plan provider should identify the goals at the beginning of the engagement and put in place a regular process to measure the relationship against mutually agreed goals. A well-written contract that articulates the roles, responsibilities and the deliverables of each of the parties is the beginning of a successful relationship.
Conclusion
Retirement/benefit plan providers have unique requirements to manage their back office. The administration processes in this industry need a well-defined methodology and domain knowledge to meet the needs of the plan sponsors and plan participants. It is possible to leverage Global Delivery Models by choosing the right partners with the required domain knowledge and a track record. The early adapters have already succeeded in outsourcing the retirement/benefit plan administration processes. Retirement plan providers can completely outsource administration functions or use a combination of internal and external resources to administer plans and leverage technologies and people in combination with outside vendors, to achieve better profitability and revenues. With careful planning and execution it is possible for any company in the retirement space to leverage the Global Delivery Model.
About the Author
San Asuti is the EVP of Congruent Solutions Inc.
Source: FSOkx |
