DB Outsourcing

[seatpa]

Our firm does DC plans exclusively at the moment.

We are considering finding an actuary to back office DB plans, particularly cash balance or db/dc combo plans.

I'm wondering if anyone here does this and has any thoughts or experiences? I know a lot of TPA firms do it.

Just to be clear, I am not sending anything to India. If we do it, we'll look for a US-based actuary, preferably someone local.

[david rigby]

... preferably someone local.

Please define "local".

[Bill Presson]

We use Cash Balance Actuaries and they've done a very good job for us.

http://www.cashbalanceactuaries.com/

[K2retire]

One of my former employers did that. He felt it was important to split the work rather than be totally dependent on a single firm. One of the firms he used was in the same town, the other was about 250 miles away.

[Effen]

Our firm does DC plans exclusively at the moment.

We are considering finding an actuary to back office DB plans, particularly cash balance or db/dc combo plans.

Just a few words of caution, a few questions you should ask yourself....

1) Since you work "exclusively" on DC plans, what makes you think you have the expertise to do DB work? Do you have anyone on your staff who knows how to do it? How will you (the owner) know if the work is being done correctly?

2) Will the clients be asking your staff for direction on DB issues? How will they respond? Who will pay the price if they respond incorrectly?

3) How will you be able to tell if the actuary you are outsourcing things to is doing it correctly?

Much of the work we take over comes out of situations where the db work was outsourced. The TPA fronting the work had no idea what they were doing and assumed the actuary was watching out for their interests. Many actuaries who are willing to sign outsourced work are not of the highest professional character and often take a "garbage in, garbage out, is not my problem” approach. I personally know several who admit up front that they feel they have no obligation to do anything other than confirm the data, and check the valuation. They give no thought to 401(a)26, 410(b), 401(a)(4), etc. If the plan doesn't comply with the discrimination rules, that isn't their problem. So, whose problem is it?

DB/DC Combos and cash balance plans are nothing to dabble with. Sure you can make some money, but just make sure you make enough to cover any corrective actions you may be asked to pay for if/when something blows up.

There are some good ones out there if you choose to go that route, but I suggest you find an actuarial firm to partner with instead. Let them do the db work, and you stick to the dc work. It may be a little clumsy for the clients, but that way you won’t have to assume that something with your name on it is actually correct.