It is no secret that plan sponsors employ outside money managers to run their pension assets -- 84.3 percent of respondents to this month’s Pensionforum say they’ve hired outsiders to manage more than 90 percent of their assets.
They aren’t stopping at money managers, however. Nearly 62 percent of respondents say they outsource some of their benefits functions. Most use vendors to handle benefits payments, pro-cess changes in plan options (such as changes in 401(k) investment choices) and process 401(k) loans and withdrawals.
It’s not a new trend, however; 64.9 percent of these respondents say they have been outsourcing for more than five years.
The causes are clear: Plan sponsors are looking to save money and to concentrate on core businesses. Outside vendors appear to be getting the job done: A whopping 86.2 percent of respondents say they are pleased with their vendors’ performance.
Adding self-service functions is increasingly popular: 84.6 percent of respondents have automated or increased the automation of their benefits in recent years.
The most likely processes to be automated? Updating participant data, processing changes in plan options and enrollment. Other functions that plan sponsors have automated include allowing participants to make projections regarding their pension plans, answering participant queries and processing 401(k) loans and withdrawals.
For those plan sponsors that have decided to handle some operations in-house, the reasons are mixed: 34.3 percent say it is cheaper to perform them internally, 28.6 percent say they have in-house expertise, and a further 28.6 percent say their internal systems are adequate.
What percentage of your assets are managed in-house?
Less than 10 percent 84.3%
10 to 25 percent 1.7
26 to 35 percent 0.0
36 to 50 percent 3.3
51 to 99 percent 9.1
100 percent 1.7
Other than asset management, do you outsource any of your pension or other benefits functions?
Yes 61.5%
No 38.5
If so, what do you outsource? (Check all that apply.)
Answering participant queries 45.6%
Enrollment 32.9
Benefits calculations 39.2
Payment of benefits 69.6
Processing changes in plan options, such as changes in 401(k) investmentchoices 72.2
Processing 401(k) loans and withdrawals 69.6
Other 12.7
If so, how long have you been outsourcing?
Less than one year 3.9%
One to two years 10.4
Three to five years 20.8
More than five years 64.9
If so, who is the provider of your outsourced functions?
Another unit of your company 2.5%
An outside company 97.5
If so, why do you outsource?
To save money 10.0%
To concentrate on core businesses 17.5 Both 63.8
Other 8.8
If you do not outsource any of your pension or other benefits functions, do you think you will outsource some in the future?
Yes 26.5%
No 73.5
If not, what is your reason?
Cheaper to perform in-house 34.3%
We have expertise in-house 28.6
Our systems are adequate 28.6
Other 8.6
Have you automated or increased the automation of any benefits functions in recent years?
Yes 84.6%
No 15.4
If so, which functions? (Check all that apply.)
Answering participant queries 39.2%
Updating participant data 68.6
Enrollment 47.1
Processing changes in plan options 57.8
Processing 401(k) loans and withdrawals 37.3
Allowing participants to make projections regarding their pension plans 41.2
Master-trust activities (oversight of entire pension fund) 15.7
Research 4.9
Tracking and analyzing investment managers 20.6%
Other 9.8
If so, when did you automate or increase your use of automation?
Less than one year ago 9.9%
One to two years ago 49.5
Three to five years ago 30.7
More than five years ago 9.9
If so, why did you automate? (Check all that apply.)
To save money 42.6%
To speed up the function 72.3
To provide more data 49.5
Because the capability was available 41.6
Other 5.9
In general, are you pleased with your vendors’ performance?
Yes 86.2%
No 2.8
Not applicable 11.0
Which of your goals has outsourcing fulfilled?
To save money 46.7%
To speed up the function 70.1
To provide more data 50.5
Other 13.1
Not applicable 10.3
The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.
