The Department of Labor says it is investigating the outsourcing of employee benefit plan services, including its legal framework under the Employee Retirement Income Security Act, and benefit industry insiders are urging the department to remain flexible on the subject.

The DOL’s ERISA Advisory Council said last week it plans to identify current industry practices and trends regarding the types of services being outsourced and the market for delivery of those services as part of its 2014 issue agenda.

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Based upon testimony from benefit industry experts, the Council will submit recommendations to DOL Secretary Thomas Perez about current best practices in selecting and monitoring outsourced service providers, including possible performance standards, the benchmarking of costs, and mitigating conflicts of interest. In their written testimony benefit experts are urging the council to consider the complexity of outsourcing benefit administration and consider flexibility within its recommendations.

“Outsourcing will mean different things to different people and companies and in the context of different benefit plans,” says Allison Klausner, assistant general counsel of benefits for Honeywell International Inc., in testimony submitted on behalf of the American Benefits Council, of which she is a member and officer of the executive board.

“For this reason, in particular, flexibility must be a key component of any government or company initiative to shape the selection and monitoring of a supplier to whom a portion of the plan function has been outsourced,” she adds.

Margaret Raymond, an attorney at T. Rowe Price Associates, in written testimony dated June 11, says outsourcing employee benefit plan services is an especially important topic for defined contribution plan sponsors.

“Outsourcing of DC plan services allows employers to focus on their core business, but increased regulatory and judicial scrutiny of outsourcing practices has created apprehension among DC plan sponsors,” she writes, adding that “balancing these competing concerns is particularly relevant to the success of a voluntary system that now accounts for much of working Americans’ retirement savings.”

Trends

Regarding trends in the outsourcing of employee benefit plan administration, Raymond says DC market complexity has caused employers to turn to advisers and consultants for help selecting a recordkeeper.

“The presence of consultants and advisers in today’s market is significant and their unique qualifications assist sponsors who might otherwise lack the necessary experience or resources to identify, evaluate and select among a large field of providers.”

The skills and specialized knowledge of advisers and consultants can “further the information gathering and analysis in the recordkeeper selection and monitoring process, all keys to prudent fiduciary decision-making by the sponsor,” she adds.

For both plan sponsors and outsourcing service providers, a key question the ERISA Advisory Council says it is investigating is the allocation of legal responsibilities and risk for activities of the service provider on behalf of the plan, including both responsibilities imposed by ERISA itself as well as responsibilities allocated and risks assumed by contract.

As part of its 2014 issue agenda, the ERISA Advisory Council is also investigating issues and considerations around facilitating lifetime plan participation and pharmacy benefit manager compensation and fee disclosure.

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