The Efficiency and Oversight Trade-Off

Outsourcing defined benefit functions offers expertise and technology, but requires strong provider oversight.

PLANSPONSOR’s 2026 Defined Benefit Administration Survey found that half of responding DB plan providers outsource investment management services for at least some clients, while another 33.3% rely on a partner. The survey also found that nearly 7,500 clients represented by respondents use fully outsourced DB administration arrangements, excluding de-risking services.

As defined benefit plans mature and internal pension expertise becomes harder to maintain, many plan sponsors are turning to providers for administrative and investment support. While outsourcing can provide access to specialized talent, technology and operational scale, experts caution that sponsors remain responsible for overseeing the functions that providers delegate.

“The most important thing for a defined benefit plan sponsor to understand is the responsibilities it maintains when functions are outsourced,” says Shannon Maloney, a managing director and the national practice leader for DBs and ESOPs at Strategic Retirement Partners. “I have seen it misunderstood. Outsourcing a function does not outsource the sponsor’s responsibility; what matters is selecting the right partners, understanding who is responsible for what and having a process to monitor them.”

Good governance starts with the provider-selection process, according to Monica Gallagher, founder of corporate DB administration at October Three Consulting. Sponsors should evaluate prospective providers’ qualifications and experience, as well as their cybersecurity and data privacy practices, business continuity plans, SOC audit results, and liability insurance coverage. Ongoing monitoring should include regular reporting against agreed-upon service levels, ideally conducted monthly.

Growth of Outsourcing by Sponsors and Providers

Maloney says outsourcing continues to gain momentum, particularly in administration and investment management, although different factors are driving each trend.

“On the administrative side, technology and human capital are major drivers,” she says. “DB administration is highly specialized, and many of the professionals who have administered these plans for decades are retiring.”

At the same time, sponsors and participants expect more automation, easier access to information and a digital experience comparable to what they receive from defined contribution plans. For many organizations, maintaining the necessary expertise and technology has become increasingly difficult and expensive.

Gallagher says many HR departments no longer have the resources to support pension administration entirely in-house. Even organizations that retain knowledgeable pension staff often find competing priorities make it difficult to manage all plan-related responsibilities. As a result, some sponsors fully outsource, while others adopt a co-sourcing model.

Both approaches allow sponsors to leverage providers that can invest in specialized talent and pension technology at a scale that is often difficult to achieve internally.

On the investment side, Maloney says the growth of outsourced chief investment officer arrangements is being driven by increasing portfolio complexity and fiduciary demands.

“DB plan committees are being asked to oversee increasingly sophisticated portfolios while also managing funded status, interest-rate risk, liquidity needs and, ultimately, the plan’s liabilities,” she says.

Many sponsors are choosing to delegate day-to-day investment decisions to professionals with the resources and expertise to implement complex liability-driven investment and risk-management strategies while adapting to changing market conditions.

Specialization has also encouraged providers to form strategic partnerships. According to Gallagher, advances in technology have made it much easier for firms to collaborate and jointly deliver bundled services without housing every capability under one roof. In some cases, providers have established master services agreements that allow sponsors to work under a single contract.

Even in those arrangements, however, oversight remains critical.

“The sponsor’s role shifts from performing the function to prudently selecting and monitoring the provider performing it,” Maloney says. “Whether it is administration or OCIO, there should be clear accountability, defined responsibilities, appropriate benchmarking and an ongoing process for determining whether the provider continues to meet the needs of the plan.”

The greatest value derived from outsourcing, she adds, often accrues to organizations with lean internal teams, complex or frozen plans, significant retiree populations or limited internal DB expertise. Still, sponsors should carefully evaluate providers’ technology, staffing, controls and business continuity plans before entering a fully outsourced relationship.

“Sponsors should also be careful not to become so removed from the plan that they lose the ability to effectively oversee it,” Maloney says.

Rising Expectations for Technology and Service

As outsourcing has expanded, expectations for technology and service have risen significantly.

According to Maloney, plan sponsors increasingly expect real-time or readily accessible data, stronger reporting capabilities and fewer manual processes. Participants, meanwhile, want intuitive self-service tools, easy access to benefit information and digital support throughout retirement.

“Participants increasingly expect their DB plan experience to look more like the experience they have with their DC plan,” she says. “Easy access, understandable information and the ability to see their benefit without having to make multiple phone calls.”

Yet providers face an ongoing challenge: Many DB plans still rely on decades of historical data, legacy systems and complex benefit provisions.

“A modern, participant-facing website does not necessarily mean the underlying administration is modern,” Maloney notes. “Legacy systems and historical data continue to be an issue, particularly during provider transitions. That makes data quality and implementation capabilities extremely important when evaluating providers.”

Gallagher says sponsors now expect unprecedented transparency into plan administration activities, including access to participant data, transaction monitoring, call recordings, retirement workflows and on-demand reporting.

From the participant perspective, web self-service has become a necessity. Retirees increasingly rely on online tools to make banking and tax-withholding changes, access income verification documents and retrieve tax forms without contacting a service center, Gallagher says.

For sponsors, however, accurate administration remains the foundation.

“Sponsors expect calculations to be correct and benefits to be paid accurately and on time,” Maloney says. “That alone is no longer enough to differentiate a provider.”

What increasingly separates providers, she says, is responsiveness, proactive communication, problem-solving ability and a deep understanding of the sponsor’s plan.

“They want someone who can identify an issue before it becomes a problem, explain complicated subjects in plain English and coordinate effectively across the various organizations supporting the plan,” she says.

Gallagher adds that, ultimately, sponsors outsource administration to reduce operational burdens and improve outcomes for participants.

“Outsourcing to a provider with deep pension expertise who continues to invest in technology to support increased automation and minimizes risk allows plan sponsors to have better peace of mind,” she says.

Consolidation and the Road Ahead

Beyond technology and service delivery, sponsors are also navigating a rapidly changing provider landscape.

Maloney says consolidation among administrators, actuarial firms and investment managers is prompting sponsors to focus more closely on continuity and accountability.

“As providers, actuarial firms and investment managers combine or are acquired, sponsors are paying closer attention to whether the people, service model and expertise they originally selected will remain in place,” she says.

While larger organizations may offer greater scale, resources and technology investments, sponsors still want to retain the institutional knowledge and personalized service that are especially important in a DB environment. According to Maloney, one of the most important differentiators is how providers respond when problems arise.

“Problems will happen,” she says. “The best providers take ownership, communicate clearly, bring the right resources to the table and work collaboratively toward a resolution.”

Looking ahead, both experts expect outsourcing and strategic partnerships to continue expanding as plans mature and internal pension teams shrink.

Maloney believes service models will become increasingly integrated, with sponsors seeking fewer handoffs, clearer accountability and better coordination among providers. She also expects technology and artificial intelligence to automate more routine administrative work, although not at the expense of professional expertise.

“If anything, as plans mature and move toward de-risking, plan termination, risk transfer or other end-state strategies, experienced advice becomes even more important,” she says.

In Gallagher’s view, in five years, “we believe that most defined benefit plans will be cash balance plans with interest crediting tied to market returns. As the market changes daily, we expect that daily valuation of these cash balance plans will be the expected norm requiring robust technology.” —Rebecca Moore