401k Offshore processing

[Guest JohnXXXX]

Desire to talk to an organization interested in establishing all processes/procedures necessary for effective administration of 401k defined contribution plans offshore.

[Guest LWilson]

What's the difference between processing them onshore or offshore. 401(k) falls under US tax law, period.

[david rigby]

Or do you mean that the TPA will reside in Bermuda?

(It is a shame that they no longer teach sentence diagramming.)

[MGB]

By taking it offshore, the plan sponsor loses all the protections afforded them under state laws for professional malpractice. Any plan sponsor doing this needs to have their head examined.

[Guest JohnXXXX]

The trust arrangements stay in the US. So does the consulting.

All computer processing, programming and help desk work would be done offshore. Costs would be a fraction of here.

SAVINGS - big-time. By the way, credit card processing is already being done offshore. No reason in this world that the physical 401k record-keeping processes won't be next.

I am looking for a company interested in this type of arrangement.

[Guest LWilson]

Although exploiting cheap, offshore labor is often a cost effective solution, I think you are wrong in the 401(k) arena . . .

The large "vanilla" plans, which are most likely the kinds of clients that you are looking to attract, are already seeing their costs minimized through recordkeeping/pension plan packages provided by organizations such as Fidelity, Vanguard, etc. You and your venture capitalist are going to have to scramble to beat what these large investment families have to offer in terms of fees for overall recordkeeping/investement services/compliance & reporting . . .

Smaller companies with "vanilla" arrangements are finding costs are reduced when they go through internet pension plan providers. The online pension software serves as "recordkeeper," and the client is offered a package of investments from which they can make push-button selections. Participants can get prospectuses online, realign their accounts online, apply for loans and distributions online, etc. Participant Statements and 5500s are generated based on period to date activity . . . Very little human intervention at the recordkeeping end of things . . .

Maybe you could train your offshore employees to design and administer cross-tested plans for architects, doctors and lawyers. That's where the money is in this business.

[Guest JohnXXXX]

Ummm, could be.

But the truth is I'm thinking we could do the processing FOR places like Fidelity or Vanguard or ??? for maybe 1/3rd to 1/4th of what it is currently costing THEM.

Those are the kind of places I am looking at/for. We are talking about the big 100,000+ participant size plans. You have to remember that offshore salaries to do this kind of work are maybe 1/10th of the US scales.

I do understand that this is something new in the 401k industry, but believe me many large US organizations in the other business areas are going the offshore route for 2 reasons - quality of program development (and resultant processing) and cost.

[Guest LWilson]

Sounds like you're going to need to get connected with the "really big boys." I doubt they lurk around sites like this . . .

I would suggest putting together a slick presentation and giving it to every professional organization that's willing to listen . . . CPAs, CFOs, JDs, etc. At some point, you may chance upon the "golden ear."

Good luck.

[Guest JohnXXXX]

My thoughts too.

I just wanted to pass it by here to get some reaction before proceeding.

[mbozek]

Two Questions:

1.What kind of support for all of the admin/legal/tax issues will be provided by employees at this off shore facility. Will non us personnel be able to cope with comlex, constantly changing US laws on a day to day basis and provide competent administration recordkeeping/ data processing for plan sponsors. Given the issues discussed at this site I dont think you will get competent advice/answers from off shore personnel. This type of back office admin is much different that the data processing (eg. software programming) which is being shifted to places like Canda, Ireland and India which have much lower labor costs. Are plan sponsors willing to trust plan admin/fiduciary liability/ tax liability to an off shore vendor that is not subject to US law or personnel who do not understand the US regulatory system for benefit plans?

2. While the trust may be subject to us law, most of the vendors operating off shore place restrictions on the rights of customers to sue, e.g. all disputes are to be settled by arbitration in the country where vendor does business and liability is limited to maximum permitteed under domicile of vendor. e.g., no malpractice liability, punitative damages, compensatory damages, etc. Off shore vendors cost of doing business is lower because their liability risk is lower.

[Guest JohnXXXX]

Well, the day-to-day administration is simply not that difficult. I don't know if you are aware of the quality of the help desks in the US on benefit plans (ie, 401k) but it surely isn't very high.

Usually, most companies assign their trainees to the help desk. The answers they give to many questions are down-right wrong. About the only reliable thing you get out of them is the request for a form and sometimes you don't get the right one at that. Sorry to say that, but it is true.

But consulting on all issues stay exactly the same. This is just a black box operating as far as you are concerned. All info is still on-line so you can view account balances, apply for a loan, etc, etc. Its just that the actual processing is done there, not here. You as a TPA would still be responsible for reconciling, discr testing, plan and legal compliance, etc.

You sumit a prelim val just as you normally would, it processes, the results come back to you. Do a final val? Ditto. You as a user wouldn't know the difference. Auto scheduling, the daily cycle is just as you get it now.

The miracles of modern computers folks! This type of processing will be here before you know it.

[Guest LWilson]

We are all well aware of high tech/low cost administration/recordkeeping . . . see my earlier post . . . large & small "vanilla" plans with cost conscious sponsors already do this through investment houses and internet pension providers, and these systems even spit out compliance tests and 5500s.

As far as "help desks" go, you are right . . . but I doubt having islanders sitting at a help-desk instead of continental Americans is going to provide a better scenario unless the knowledge base of the people who are put at the help desk is better.

The reason CONUS help desk employees give wrong answers is because the big investment houses that employ them don't care if they give wrong answers, and they are probably trained by people who don't know the right answers . . . and it doesn't matter, because a help desk person is just a tiny bolt in a big piece of machinery . . . and there haven't been any class action law-suits regarding bad help desk answers, so it continues, unabated . . .

(Just an aside, I imagine a majority of help desk questions go like this: "Hey, where's my distribution check?!? I sent the paperwork in yesterday?!?" and not, "Could you please explain to me the ramifications of this QDRO?")

So, what you're saying is that the islanders will be better trained question answerers, and the reason they'll be better is . . .

Because they have that "quality for nothing" ethic?

That you care in a way Fidelity doesn't?

That no one at your offshore organization will work the help desk until they've had a longer training period?

That they will be trained to say, "I don't know," if they don't know?

And how will you know that the technique of training your help desk people will be any better than the training continental help desk people get? You feel that they will learn and repeat information better because they are not Americans? Because they are happy islanders who do quality work for pennies a day vs. lazy continentals who do a half-***ed job, and think they deserve more?

Okay, so anyway, they will answer questions properly, and do recordkeeping and reconciliation/reporting functions better and cheaper than their continental counterparts . . . they will cost half of what their continental counterparts cost . . . again, you're presenting this to the wrong audience. I don't think you'll find a cookie-cutter processor, OR a high falutin' Fund Investment Manager on this Message Board.

[Guest JohnXXXX]

Right you are. This isn't the proper place.

I'm just passing thru, checking out the concept.

[BFree]

There are already examples of the processing end of 401ks being done overseas. Saw it in an accounting mag last year.