Benefits March 25, 2004

Study: Companies Need Better Handle on Benefit Outsourcing Savings

March 25, 2004 (PLANSPONSOR.com) - Canadian companies may put their benefits administration in the outsourcing basket to slash costs, but that doesn't mean they've been carefully tracking those savings, a new study found.
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The study by Watson Wyatt Canada found that only 70% to 80% of companies have successfully brought down defined benefit (DB) costs while 67% to 83% have done likewise with group and health care (G&HC) plans.

The problem is simple in many cases; the Watson Wyatt study finds most organizations do not know their outsourcing costs. Over half (51% and 64%) are not aware of outsourced ongoing costs for DB and G&HC plans, respectively, and nearly all (92% and 96%) are not aware of total per-participant service center costs for both pension and health care plans.

“Overall, companies do not have as precise a handle on costs as might be expected, given the stakes involved,” said Ed McMahon, technology solutions practice leader for Watson Wyatt Canada. “Despite their strong interest in reducing costs, this lack of awareness makes it difficult for companies to understand the total financial impact of sourcing decisions and to benchmark performance over time.”

Companies cite several important goals when selecting pension and health care plan administration vendors and products including :

  • reducing costs
  • improving transaction accuracy and integrity
  • improving customer service.

With both DB pension plans and G&HC plans, the survey finds most companies are generally successful in meeting important goals.

Specifically, 89% to 96% say they are successful in improving transaction accuracy and integrity for DB plans across a range of factors, and 80% to 90% are successful in improving customer service. The same is true for 83% to 93% and 79% to 88% of companies for G&HC plans.

The study also examines the specific plan administration functions companies outsource. Those DB pension functions most likely to be handled by outside suppliers include processing benefit payments (80%) and maintaining data and calculating benefits (71%), while interacting with employees is the function least likely to be outsourced (18%).

Despite growing interest in using outside vendors for some human resources functions, the study finds very few Canadian companies completely outsource their employee benefits administration. Instead, most firms employ a combination of internal and external resources to administer their pension and health care plans and help meet business objectives.

A total of 127 Canadian companies of varying sizes and industries participated in the survey.

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