Nearly half of the participants at a discussion held last week by PLANSPONSOR magazine and underwritten by SEI, said the main reason for outsourcing was a simple lesson in comparative advantage, in that others could manage pension assets better than they could.
Thomas O’Brien, CEO and investment committee chair at Atlantic Bank of New York, a commercial real estate company with about 450 employees, said when his company decided to outsource all of the management of their pension assets, it was because they thought a management company would do a better job, not because it would be less expensive.
Of the participants at the panel, 47% say the most common reason to outsource the management of pension assets is because the services would be better performed outside the company, 12% wanted to reallocate time and resources, and only 6% say cost would be the deciding factor. Nearly one in five (18%) are not considering outsourcing,
And while outsourcing may free up resources, it does not completely relieve the fiduciary responsibilities of the plan sponsor. Panelist Bob Smith, chief investment officer at Delaware-based Delphi Financial Group, with about 1,100 full-time employees, said his company was more “comfortable as an overseer,” instead forming a committee that would keep an eye on the asset management functions it outsourced to SEI.
The attendees were also asked whether they would consider outsourcing all of the pension plan management to a single provider. Most of the attendees already did this, with 41% saying they already did so; 24% were considering this option; 18% said they were uncomfortable outsourcing to a single provider; and 12% said their board prefers to maintain control of manger selection.
Still, some plan sponsors at the discussion wondered whether, if they outsourced all of the management functions to one provider, they could regain control of one or more of the functions if they were unsatisfied, rather than reversing the decision to outsource altogether. While taking back an outsourced service would be difficult, Smith said, it is certainly possible.
– Adrien M. Martin