outsourcing pensions work - pros and cons

[Guest student_actuary]

We are a small sized pension-consulting firm. Our chief actuary (who is also the owner) has decided to outsource some of our work to a pension-consulting firm in India. I am looking into the phase out of the work. To start with we will be outsourcing benefit calculations, benefit statements and 5500s for our smaller clients. We plan to outsource the actuarial valuations of the smaller clients in the near future. (They are using DATAIR in their Indian office)

My boss has enough confidence that this will work. He has met the actuary of the India firm (who is an FSA I believe) and he seems impressed with their setup.

I want to know if anyone has had any experience with outsourcing to an Indian firm and what their difficulties have been. Good or bad, I appreciate you sharing all of it with us. The more we learn from others experiences, the better prepared we will be. This is a first time exercise for our company and my boss is pretty psyched about making it work since it means HUGE cost savings at our end.

You can also pm me if you feel you don’t want to share some information with everyone else.

[Guest Pensions in Paradise]

In addition to the cost savings, has your firm considered the possible consequences? How are your clients going to react when you inform them that you are outsourcing your work to India? You do realize of course that you have to inform your clients.

[Lori Friedman]

Offshore vendors operate in a highly-competitive market for U.S. business, with new companies being formed constantly. Each foreign outsource firm will promise the highest quality of service for a minimal expense. The reality, however, could be very costly to your employer. Here a few thoughts to consider:

1. Overseas vendors, especially the newer startup companies, often encounter financial difficulties and either shut down or are acquired by other firms with different priorities and procedures.

2. An unreliable vendor may put aside your work when it acquires a larger or more profitable client. You'll learn about this under the worst circumstances, such as when a deadline arrives but your work product isn't available.

3. Overseas vendors frequently have rapid turnover. Skilled employees find better jobs and are difficult or impossible to replace.

4. The local highway and transportation network may be inadequate. Electricity may be unreliable and subject to frequent blackouts.

5. Your employer will be affected, either directly or indirectly, by unfamiliar legal systems and tax and regulatory agencies.

6. Your employer will deal with a different culture -- people who may not understand the U.S. business environment and its customers, lingo, traditions, high quality control, and expectations for prompt delivery of products or performance of service.

[Dougsbpc]

It depends on what type of relationship your firm has with its clients.

Three years ago we were approached by an actuary who was originally from India but is now living in the US. He had connections with administrators in India and claimed that outsourcing would lead to doubling my income. He also mentioned that the administrators were technically as good as our administrators. Perhaps he was correct about this, but after thinking about it we realized that our firm has close relationships with our clients, many of whom are local. When they call or stop by, they are dealing the same person who may have been in the same traffic jam or were just informed by that person that they will pass the ADP test by making a small qnec. In any case, we want to have our own administrators who can think on their feet and communicate well with clients, brokers and accountants.

On the other hand, if you have a firm that has distant relationships whereby administrators are simply running the numbers and emailing results, outsourcing may work as long as you dont run into the problems Lori outlined.

[GBurns]

While this might be a good idea from some points of view it might not be overall.

What has been their track record as far as accuracy and response to problems?

Have you considered what the reaction from Plan Sponsors, Investment providers and your clients in general will be?

Can your competition use this against you, in any way, whether for current business or in the future?

[Guest mjb]

Why is outsourcing benefits work a problem? Accounting firms have been outsourcing tax returns for years. Insurace co outsource claims processing. Banks outsource loan processing. What is unique about pension consulting that requires that it be done domestically?

[GBurns]

Nothing uniques requires that it be done domestically. But nothing stops a client from refusing to do business with a firm that out sources to a foreign country or a particular country. The reason could be as simple as "Buy American". Who knows? But that is not the issue.

The issue is whether or not there are pros and cons.

1 of the cons is client and investment provider reaction. Who knows what that will, so Why not find out first? The same applies to competitors.

As for tax returns, claims etc being outsourced. Those are currently being questioned, even by the Legislature, aren't they? Questions of privacy, release of private information including PHI etc are concerns that are being now raised.

The fact that a number of companies have done it, does not make it right, proper or prudent.

[Guest mjb]

who is questoning? The companies who farm out claims comply with HIPPA. INs co have been sending cliams to affiliates in Ireland and England for over 10 yrs.

[GBurns]

Who is questioning? The US Congress, some state legislatures and even the IRS. It has had extensive news media coverage.

http://www.irs.gov/newsroom/article/0,,id=151368,00.html

http://www.irs.gov/newsroom/article/0,,id=151372,00.html

Other items related to claims etc can be found through a Google search.

http://markey.house.gov/index.php?option=c...d=881&Itemid=85

Note the links at the end.

http://www.privacyrights.org/ar/outsourcing-privacy.htm

http://www.informationweek.com/story/showA...icleID=18400011

http://www.usnews.com/usnews/opinion/artic...517/17dobbs.htm

[Guest FLMaster]

Outsourcing is an issue. There is on benefits firm we worked with that did outsource their work and we even looked into it ourselves. For routine work this will be an issue, for tax law interpretation and strategic planning it is not. For example a client approached us regarding the tax aspects of a pension plan and acquisitions. The answer cannot be outsourced at it involved 368(a)(1)(B) reorganizations and estate and gift tax applications. If you operate in a consulting position or as an analyst your job is secure. If you operate as a math mechanic or clerical form processor, I suggest you improve your skills. Hope this is helpful.