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Benefits and Pensions MonitorProvider Selection: It Pays To Be PreparedBy: Jeffrey Schmidt The Canadian universe of benefit and pension plan administration advisors is shrinking. Jeffrey Schmidt, an independent consultant, looks at the impact of this on the provider selection process. RFP … RFI … RFQ … TPE … The process of selecting a vendor for benefits and pension plan administration and advisory services is a whole lot more complicated today than it was 10, or even five, years ago. This phenomenon can be attributed to changing external market influences as well as an increased emphasis on governance, which in turn has resulted in more sophisticated approaches to the selection process. Externally, the universe of Canadian providers is smaller today than it was even a few years ago and it continues to shrink in virtually every quadrant of service – from outsourcing, to consulting, to insurance. The contraction of the marketplace has been driven by a need to create economies of scale to pay for the increased reliance on technology and the demand to keep this technology at the leading edge. However, it has concentrated greater expertise into the hands of fewer players, partly because of this increased complexity – both technological and otherwise – of service provision. While competition continues to be robust in most respects, the law of supply and demand has noticeably shifted advantage toward the fewer (and bigger) vendors that now constitute the benefits and pension marketplace. Therefore, more than ever before plan sponsors need to be better informed and better equipped when seeking to compare, and negotiate with, potential providers. Not that these comparisons are necessarily easy. Consider administration outsourcing as a case in point. Because outsourcing is a relatively new (albeit rapidly maturing) business, a somewhat confusing array of terminology has arisen as providers jockey to differentiate themselves and their service offerings. There is greater onus on plan sponsors to define their requirements and expectations carefully when sourcing providers and to ask specific and detailed questions to ensure absolute clarity around capabilities and pricing.
‘Apples To Apples Last and not least, plan sponsors must thoroughly understand implicit differences in outsourcing service models in order to analyze proposed services and pricing – a process that is more akin to comparing the components of fruit salad than to the proverbial ‘apples to apples’ comparisons which is the goal of any tender process. Internally driven considerations of governance and due diligence have also transformed the RFPprocess. Whereas traditionally benefits and pensions RFPs were the exclusive domain of HR, it is now common to see finance, purchasing, IT, legal, and other corporate stakeholders (including unions) play an active role in the selection process. On the positive side, many organizations now make better and more informed decisions and negotiate better terms as a direct result of using an integrative approach. However, many organizations also find such multi-disciplinary approaches challenging to manage and execute. In light of these and other changes in market and governance dynamics, many organizations have adopted new approaches toward the provider selection process. These include:
The use of TPEs as both independent advisors and dedicated project managers is becoming more prevalent in outsourcing initiatives where multi-year, multi-million dollar contracts are the norm and where the entire sourcing process (from development of a business case to implementation) typically spans many months. Many major outsourcing providers welcome the involvement of independent expertise in the selection process, citing benefits such as elimination of conflicts of interest where, for example, an advising firm may also provide outsourcing services. Reduced costs of proposal preparation are another important advantage of this approach. Regardless of how organizations choose to select benefits and pension providers going forward, it’s safe to say that the market environment is more complex than ever and that the stakes are also increasingly high. It pays, therefore, to invest both time and resources wisely
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Jeffery Schmidt is an independent consultant who assists organizations with outsourcing and other strategic benefits and rewards initiatives.