HR Professional - August/September 2009 - (Page 18)

C OM P E N S AT ION BY ALLEN MINUSKIN BUILDING THE BUSINESS CASE FOR OUTSOURCING BENEFITS ADMINISTRATION n recent years, many companies have outsourced non-core business functions, including finance and accounting, facilities and customer support, commonly referred to as “business process outsourcing” (BPO) services. One additional subset of BPO services is pension and benefits administration. I Cost analysis Pensions and benefits have substantial impacts on companies. They are used to attract, motivate and retain employees. But administering a benefits program is complex—they’re subject to a bewildering maze of regulation, and they need to be communicated effectively. There are high costs associated with maintaining an in-house pension and benefits administration department, including: Staffing: Competent benefits staff is hard to find. Paying the right salaries and benefits, providing office space and planning for absences and departures must be considered. Often the ROI in a benefits department may edge into the negative. Technology: Plan members expect instant responses to information requests, whether related to personal accounts or specific plan provisions and requirements. Technology changes rapidly. When three-year-old software is considered obsolete, the cost of keeping existing systems current can be significant. Administrative complexity: Benefits administration is not what most firms do best. Pension and benefits programs are complex enough when the organization is stable; it increases dramatically as companies restructure through acquisition, mergers, spin offs or downsizing. While companies can perform this service in-house, does it make sense to apply their resources to this highly specialized and complex function? Outsourcing upside Like other outsourcing providers, third-party administrators (TPAs) offer the latest technol- ogy, in-depth expertise and a cost-effective alternative to doing benefits administration in-house. They concentrate on their specialty: spread the cost among a number of clients and stay agile as technology and processes improve. Specialization: Pension and benefits administration is their sole business. They can devote their energies and focus their experts on delivering efficient services. Economies of scale: TPAs often provide similar services to multiple clients. By spreading the costs of technology, staffing and office space, TPAs achieve greater economies of scale. This also enables TPAs to maintain state-of-the-art pension and benefits systems. For example, it is now common for TPAs to provide web-based self-service to plan members. Lower overhead and flexibility: TPAs are much leaner than the companies who sponsor the plans. They have the flexibility to quickly and efficiently improve their own service standards and react to legislative and regulatory changes. Some companies that have shifted to a new delivery model have seen annual savings around 30 to 40 per cent of total HR costs. These savings are derived through staff reductions, technology unification, vendor consolidation and process efficiency—particularly gained through direct access implementation. Reality check Some companies firmly believe that things are best done in-house; however, (especially in times of economic uncertainty), there often comes a point when even they become unable or unwilling to continue to do everything themselves. In the constant struggle to handle all the tasks and projects needed to keep things running, they reach a point where each additional dollar and unit of energy devoted to non-core tasks begins to yield less and less return. That is the tipping point where the case for outsourcing becomes more and more compelling. Allen Minuskin is the general counsel in Canada for Buck Consultants, an ACS company. 18 A u g u s t / S e p t e m b e r 2 0 0 9 HR P R OF E S S I ON A L

Table of Contents for the Digital Edition of HR Professional - August/September 2009

HR Professional - August/September 2009
Editor's Letter
Leadership Matters
Wellness ROI
Human Capital
Talent Management
HR 101
Interview with Dr. Kathryn Cramer
Off the Shelf
The Last Word

HR Professional - August/September 2009