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By Russ Banham
For many
years, outsourcing the administration of pension plans didn’t
make much sense, especially for midsize companies.
The salary
of an internal secretary charged with fielding the occasional
questions and helping those approaching retirement
calculate their benefits was actually less than what an outsourcing
firm charged to replace her, admits Curt Morgan, senior vice
president of Mellon HR Solutions.
Defined Benefit managers
used outside trustees and actuaries mostly to comply with
complex regulations and reporting requirements
that govern the plans. And they often had the assets managed
by outside investment firms. Only large companies generally
could justify having an investment manager on staff. Now the
idea of outsourcing the rest of plan management—essentially
plan administration and the selection and monitoring of outside
investment managers—is slowly catching on and has even
reached the middle-market. A cutoff of 10,000 or more employees
has been replaced with 3,000, and that number continues to
fall, Morgan reports.
The $1 billion (annual revenue) Certigy
Inc. of Alphatetta, Ga., is happy with a bundled solution
for its defined benefit
plan. When the company was spun off from Equifax in 2000,
3,000 U.S. employees and their share of the corporate pension
plan went with it. Equifax had outsourced plan administration
but not actuarial and investment activity. However, Certigy
wanted to go further, reports Dick Gapen, vice president
for human resources. So it went for the full package from
Mellon.
“We outsourced virtually everything,” Gapen says. “They
took over all the actuarial activity, the government reporting
and discrimination testing, all the investing activity, payments
to beneficiaries and call-center response,” he explains.
Assets are invested in Mellon mutual funds run by Mellon
managers, he adds.
“A bundled solution just works better
than what we had at Equifax,” Gapen happily declares. “The
people at Mellon are masters of the defined-benefit arena.
Our employees
can get answers to their questions on-line. We know exactly
what we will be paying and can budget for it. And it’s
good to have everything done in one place, so you don’t
have to referee disputes between different vendors over what
they’re not getting from each other. We definitely
saved on headcount by outsourcing.”
Reduction in headcount
is always a nice payoff, but it’s
not usually the main driver when companies pick bundled DB
outsourcing, Morgan says. Companies do it to avoid failing
to comply with one of the complex regulations and reporting
requirements. And plan participants have learned from their
Defined Contribution colleagues to expect more information
at their fingertips.
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