Companies Hesitant To Elect Total Outsourcing Solutions

Only 26.8% of the 315 companies polled by Watson Wyatt completely outsource the administration of their pension benefits, as most (59.8%) a blended sourcing model to be the best solution. Even more pronounced is the disparity of complete outsourcing of health and welfare plan administration (3.5%) to blended sourcing (86%), according to the Benefits Outsourcing Study.

“One-stop outsourcing makes sense for some, ” Richard Hubbard, Watson Wyatt’s global director of the technology solutions practice said in a news release. “But most companies today are leveraging their technologies and people in combination withoutsidevendors to achieve better results.”

In deciding to outsource a particular defined benefit plan administrative function, large and mid-sized companies were generally meeting the goals they had set related to transaction integrity/accuracy, customer service and cost. Nine out of 10 companies have noticed improved customer service and added flexibility or features to their plans since striking an outsourcing agreement. Additionally, more than seven out of 10 have seen added self-service functionally (78.3%) and have been able to refocus human resource staff on strategic activities (75%).

Among transaction accuracy/integrity goals, most common was the 89.3% that accomplished a consolidation among their vendors, followed by 88% noting an improvement in transaction accuracy, 83.5% that were able to automate administration and 76.5% that have aggregated multiple internal databases.

Combined, this helped companies reach their cost/efficiency goals. More that eight out 10 (86.7%) of the large and mid-sized companies have noted an increase in productivity, 81.8% have been able to cut down on human resources headcount and 67.3% have been able to reduce costs. Overall though, ” companies do not have as precise a handle on costs as mightbeexpected, given the stakes involved,” said Hubbard. “That said, costs are not the only factor in outsourcing decisions. Otherconsiderations – such as improving service to employees and reducing HR‘administrivia’ – usually come into play. There is noone-size-fits-all answer. The right mix will vary by company cultureand capabilities.”

For defined benefits plans, processing benefit payments is the most commonly outsourced administrative function, with approximately 80% of large and mid-sized companies shifting that function to outside vendors. This was followed by maintaining data and calculating benefits, done by 60% of the large and mid-sized group and ongoing retiree administration, elected to be outsourced by roughly 50% of large and mid-sized employers. The least likely defined benefit administrative function to be outsourced is employee interaction, done by only three out of 10 large and mid-sized companies.

Further disproportion was found in the number of companies that elect to bundle actuarial services with defined benefit administration. Only 6% of respondents said they bundle their actuarial and plan administration functions and outsource all of them to one vendor. The vast majority (94%) either outsources actuarial and administration services to multiple vendors, done by 71% of the total survey group, or uses a mix of insourcing and outsourcing approaches, 23% of the sample uses this approach.

“Many companies are concerned abouttherisk of putting all their eggs in one basket,” said Tony DeNucci,national leader of pension administration systems for Watson Wyatt’stechnology solutions practice.

“Today’s web-based defined benefit administration tools allowcompaniesto keep those functions ‘in house’ that make the most sense, likeinteracting with employees, while outsourcing other services, likesystem hosting or more complicated participant calculations,” saidDeNucci. “And, when done right, these web-based tools allow plansponsors to electronically interact with their consultants andactuarieson participant-specific issues, while giving employees direct accesstotheir data to do their own retirement modeling.”

Companies are most commonly turning to outsourcing of FSA administration, done by roughly 85% of the large and mid-sized employers polled by Watson Wyatt. This was followed by more than seven out 10 sending COBRA administration to an outside vendor. Divergence was noted by Watson Wyatt among large and mid-sized companies at this point in the functions outsourced. Large companies were somewhat more likely then their smaller counterparts to outsource additionally health and welfare functions, such as:

• annual enrollment (50.0% versus 35.2%)
• ongoing retiree enrollment/administration (47% versus 35%)
• interacting with employees (37% versus 29.3%)
• ongoing enrollment (41.5% versus 27.6%)
• FMLA administration (11% versus 9.2%).

As the results show, most health and welfare tasks are handled in house. Most common among these was the 72.3% of companies processing transactional events internally, followed by technology concerns handled internally by 58.4% of respondents and answering employee questions, handled internally by 35.1% of the survey sample.

Much like defined benefit administration, large and mid-sized companies were generally meeting the goals they had set related to transaction integrity/accuracy, customer service and cost. More than 88% of companies have noticed improved customer service, added flexibility or features to their plans since striking an outsourcing agreement and seen added self-service functionality (78.3%). Additionally, 75.7% have been able to refocus human resource staff on strategic activities.

Among transaction accuracy/integrity goals, most common was the 89.3% that note an improvement in transaction accuracy, followed by 86.2% accomplishing a consolidation among their vendors, 85.9% that have aggregated multiple internal databases and 85.2% that were able to automate administration.

Combined, this helped companies reach their cost/efficiency goals. More that eight out 10 (85.7%) of the large and mid-sized companies have noted an increase in productivity, 75% have been able to reduce cost and 73% have reduced human resources headcount.

Copies of the Watson Wyatt Benefits Outsourcing Study are available at www.watsonwyatt.com.