“Free implementation” has become a ubiquitous element of benefit plan administration proposals today. That’s because the biggest impediment to plan sponsors switching benefit administrators is the enormous up-front cost of implementation.
It’s understandable that plan sponsors seeking improved servicing or a better deal would find an offer of free implementation appealing. But, rest assured, with free implementation, you get what you pay for. All the processes necessary to make the switch will cost your selected vendor a lot of money — sometimes upward of a million dollars for large organizations with complex benefits and legacy plans. More often than not, a small portion of these costs are eaten by the vendor-elect, and the balance is quietly folded into the plan sponsor’s extended contract — so either the plan sponsor or the participants pay most, if not all, of the conversion costs over time.
But there’s a second part of the equation that few plan sponsors consider. On top of paying vendor conversion costs that are buried in the contract, plan sponsors still must set aside significant internal resources and funding to support the implementation. To be done correctly, regardless of what any vendor will tell you, the plan sponsor must remain heavily involved.
Understanding the true cost of implementation will help plan sponsors evaluate potential benefit administrators and initiate the implementation process with eyes wide open and a more realistic budget.
Don’t Cut Corners
Plan sponsors who initiate implementation unprepared to perform heavy lifting are often tempted to cut corners. But, be warned, shortchanging the process will transfer legacy problems—or introduce new ones—to your new vendor.
For defined benefit (DB) implementations, plan sponsors should ensure that vendors assign a senior-level actuary to their implementation team, particularly in the case of large DB plans with unique legacy provisions that have been around for decades. Frequently, legacy provisions are not documented or well defined. While the vendor’s team roster may appear to include a senior actuary, that person can’t just be window dressing. In these instances, vendor actuaries must roll up their sleeves and assume detailed involvement in specification development and review, test case development and the testing process itself.
Actuaries are essential to resolve plan discrepancies, interpret complex calculations and research technical issues. Even a very strong vendor implementation team is no substitute for the technical knowledge and advanced skillset possessed by an actuary. If the vendor does not supply a quality actuary at a detailed level, the plan sponsor will likely have to supply one themselves—at significant cost.
Switching Vendors Requires Preparation
If you think changing vendors will improve participant servicing or yield long-term cost savings, then your organization should certainly proceed. As you embark on the search for a best-fit benefits administration vendor, plan sponsors should be aware that “free” comes at a cost. Do your homework and be prepared to dedicate a full-time project manager to the job along with all the other internal resources necessary to successfully execute the specification process and testing. And if it’s not feasible to allocate these full-time internal resources to the project, expect to hire an outside firm with strong expertise in successfully executing complex benefit administration implementations.
Andrew A. Adams is founder and principal of Strategic Benefits Advisors, an independent, full-service employee benefits consulting firm that solves benefits issues for clients with 1,000 to 300,000-plus employees. Adams has 33 years’ executive-level experience in benefit plan administration and consulting. He can be reached at email@example.com.
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