Outsourcing Trend Gains Momentum

December 3, 2002 (PLANSPONSOR.com) - Despite - or perhaps due to - one of the most challenging years in recent business memory, plan sponsors finally seem to be enthusiastically embracing a "new" business model - the outsourcing of defined benefit and defined contribution plan administration and management to a single provider.

Certainly that has been the experience of JP Morgan/American Century and Towers Perrin, whose year-old alliance offering total retirement outsourcing has signed up 11 corporate clients in that short span, representing more than $10 billion in assets and covering some 686,000 participants.

All of the 11 signed up for DB/DC integrated administration: Some will also include actuarial services as wealth as health and welfare administration, both provided by Towers Perrin. The typical contract is either a three-year or five-year commitment, says JP Morgan/American Century chairman Jeff Garrity.

Both Ways

According to Towers Perrin managing director Bob Hogan, third-party consultants were involved in more than half of the 11 searches. “Plans aren’t looking for either a fully integrated solution or a best-in-class solution – they want both,” Garrity says.

One of the most recent to embrace the model is Broadview, Illinois-based Robert Bosch, a manufacturer of industrial and automotive parts.   Bosch tapped the alliance to administer, manage, and integrate its $475 million, 16,000 participant DC plan and its DB plan.

Plans with 5,000 participants and above are perhaps best suited for outsourcing, Garrity says, although a handful of the 11 plans the alliance has taken on include plans with between 1,000 and 5,000 participants.  

“New” Moves

While hardly a new concept, HR outsourcing is enjoying a fresh level of interest from providers and plan sponsors alike.   In the  November issue of PLAN SPONSOR magazine , Mellon Senior Vice President Tony Martin notes that while only about 2% of the 500 largest US corporations have made large-scale outsourcing deals to date, 15% to 20% are likely to have done so five years from now. At the same time, proposing such a move is bound to attract the attention of numbers-conscious bigwigs such as CFOs.

A handful of other firms have begun to focus on total retirement outsourcing – Cigna, Fidelity, Mellon and New York Life are among the more prominent.