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Web Spreads Its Wings In Pension Administration

By: Elaine Dupuis

In the area of pension plan administration, among the most significant and positive developments have been the advancements in technology and, in particular, web-based tools that give Defined Benefit and Defined Contribution plan administrators and members immediate access to retirement and pension asset information.

The pension administration world in 1991 was still trying to understand the potential power of PCs in a mainframe world. PC users were migrating from DOS to Windows and, other than a few Canadian software development firms, most organizations providing pension and retirement savings plan administration services were still utilizing mainframe systems supplemented by paper files and excel spreadsheets.

Looking back over the past 15 years, third-party administration has survived as the most widely utilized service delivery model primarily for small and mid-sized DB plans. In 1991, the difference was in the way the model operated. Contribution and service data was typically updated once each year and, in the interim, if a member terminated or retired, their hard copy file with year-to-date information was sent to the administrator where benefit options were calculated. Annual member statements were produced once and all of the year-end data was supplied by the plan sponsor – usually six months (or more) into the new year!

Plan sponsors who elected to keep DB plan administration inhouse had new options to consider with the launch of Windows-based software which was available from the software development firms and consulting houses that were in the software business at the time (1992-1993). This inhouse administration model ensured HR maintained direct contact with the member. However, it required plan sponsors to retain pension expertise as well as technical support. During this same period, DC plans (including Group RRSPs) were being established and these plans were almost exclusively administered by the financial institutions that were investing the funds. The shift in risk to the plan member and the off-loading of administration were the two main reasons for the popularity of these plans.

Direct Member Contact

As a plan member today, whether participating in a DB or DC plan, the new norm is ʻadministratorʼ and ʻplan memberʼ access to web-based tools that support the calculation of estimates of current and future pension entitlement. Some tools also allow members to make changes to their data such as beneficiary designation, investment options, and contact information. In some cases, retirees can view their ʻgross to netʼ pension calculation and change banking and address information online. But, buyer beware, not all technology is as good as it looks on the browser.

Today’s Administration Service Delivery Models

Todayʼs DB pension administration service delivery models are also significantly different primarily due to advances in technology. Outsourcing has become a very popular and more affordable model – even for the mid-sized plans. In this model, the plan member typically contacts a ʻcall centreʼ where their questions are answered and their benefits are processed. This has effectively removed the HR middle-man from the servicing role.

A variation on this model, but one that has not been as widely accepted, is ʻcosourcing. ʼ In the co-sourcing service model, all of the standard or transaction-based processing (enrolments, terminations, annual statements) is managed by the service provider. However, the plan member contact and processing of non-standard calculations (retirements, death benefits, buybacks, marriage breakdowns) is handled by HR through on-line access to the service providerʼs system.

Third-party administration is still a widely utilized option for small and midsized DB plans. However, data updates are now typically more frequent than annually and tend to be electronic file transfers via interfaces with the plan sponsorʼs payroll provider rather than paper-based. Webbased tools have also been made available to some clients utilizing this service delivery model so that HR departments and plan members can access data directly.

Most of the large public sector, multiemployer, and some mid-size to larger Canadian firms have maintained their inhouse administration models supported by ʻclient-serverʼ or ʻbrowser-basedʼ pension technology which, in some cases, is technologically superior to that of firms providing administration services to plan sponsors. There are only a couple of software development firms left in Canada and the large actuarial firms have all exited this business. Large institutions with a ʻbook of businessʼ environment have started to embrace the concept of buying versus building software. IT departments, led by a new breed of business-oriented CIOs, no longer have software development mandates and have shifted their focus to supporting the business with effective thirdparty solutions.

Looking Ahead

So whatʼs next in the world of pension plan administration?

Investment in technology will continue to be a thorny issue for administrators of DB and DC plans due in part to the costs associated with the development of new tools and migrating ʻbook of businessʼ environments to new platforms. No one wants to pay for access to the ʻlatest and greatest,ʼ but expectations are high in terms of timely and technologically-advanced service delivery especially in the area of member self-service.

Pension plan administration costs have been, and will continue to be, a sensitive issue for plan sponsors as fiduciaries; members as beneficiaries; and software development firms and administrators as business enterprises. Margins will continue to be tight.

Greg HurstElaine A. Dupuis is with Dupuis Consulting.

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