Shifts in outsourcing practices push pricing lower without sacrificing customer satisfaction. Buyers need to ensure they are driving the right behavior among participants and providers.
According to TPI’s Prevalence Database, 96 percent of all U.S. employers with 10,000 employees have outsourced 401(k) plan administration. In addition, 35 percent have outsourced their health and welfare administration, and another 65 percent have outsourced pension administration. In addition, many have purchased the technology required to administer their plans while they continue to deliver customer service in house.
With such a high incidence of outsourcing, and a maturity of the benefits-outsourcing marketplace, you might think there’s not much innovation or change in the industry. This is hardly the case. In fact, service providers continue to invest heavily in their technology and overall service offerings, simultaneously working to adapt their capabilities to meet the ever-changing marketplace. Here is a brief overview of some
• Performance Standards. In the early 1990s when benefits outsourcing was first offered, the only way a participant could secure assistance with a transaction or an inquiry was by a call to a service center representative. The performance standard developed at the time generally required 80 to 90 percent of all calls to be answered within 20 to 30 seconds. Years later, even with the availability of the Internet and self-service rates that often exceed 90 percent, many plan sponsors still maintain the same average speed of answer (ASA) standard.
We now see employers relaxing their ASA standards, which results in an immediate and sustained cost reduction because it enables providers to reduce staff.
• Offshore Service Delivery. Today, nearly all major benefits outsourcing firms perform some work offshore. And while a steadily increasing level of backroom services are delivered offshore, client-facing services for U.S.-based participants are virtually non-existent. However, we are aware of two large, high-profile employers currently working on projects to move client-facing benefits outsourcing services offshore. Another large firm is keeping a close watch on these pioneers to see if this new delivery model is successful. If so, the third firm will follow fairly quickly. Once these initiatives prove successful, we believe the rest of the market will slowly move in this direction.
• Spanish Web. Few top-tier service providers offer web access in Spanish today, but this is changing. The firm with the largest market share in the H&W and pension outsourcing service areas is already rolling out this functionality.
• IVR. Utilization of IVR systems as an option for inquiries and transaction processing is dropping rapidly; in many cases being eliminated. Plan sponsors find that where a participant does not have Internet access, it is less expensive to drive them to a service representative than to maintain the IVR system.
• Acquisitions. Two of the top benefits service providers have been acquired within the past couple of years (in whole or in part) by larger firms with capabilities that extend beyond benefits and HR outsourcing (i.e., IT, F&A, etc.). The benefits outsourcing divisions of these new organizations have been strengthened by the influence of their new owners.
In addition, one of the world’s largest benefits and HR consulting firms acquired a strong mid-market H&W and pension outsourcing firm and merged it with its 401(k) administration services. This formed what has proven to be an exceptionally competitive offering, especially in the middle to low-end of the plan market.
• Fees. Pension and 401(k) administration fees have continued their downward trend, but the range between the high and low bid in the RFP processes that TPI manages tends to be narrow. Meanwhile, H&W fees have also continued to trend downward, but we regularly see as much as a 25-percent difference.
Employers considering outsourcing benefits administration services for the first time as well as those planning to renew existing agreements have much to consider. Providers are offering an ever-increasing array of services, using better technology delivered from more locations around the world. This increase in services also comes with declining prices. In addition, there is a need to re-evaluate performance standards to ensure you are driving the right behaviors with both your participants and your service provider(s). Finally, today’s employers have more qualified benefits outsourcing service provider candidates to consider than ever before.