How to choose a corporate pension provider in 10 easy steps
May 2009
HR & Recruitment Ireland
One of the most difficult areas for HR managers to co-ordinate is the decision making process around who will manage the various aspects of the employee benefits/pension programme.
Failure to select the right providers at the outset leads to many time consuming difficulties for the company
HR and Finance teams in the future (including hair loss, caffeine dependency and a nervous tick
developing any time someone mentions the word pensions!).
The following areas should be considered to ensure that the benefits are suitable for the scheme
members, in line with the HR programme, will be administered effectively and provide value for money
for the company:
BENEFIT DESIGN:
At the outset of the scheme, the employer needs to decide on the type of scheme (defined contribution, defined benefit or group PRSA), contribution levels, investment options, ancillary benefits (death in service and disability benefits), trusteeship (if required), administration platform, communication and scheme advisers.
Unless the HR manager has recently undergone such an exercise in a previous employer, it is vital that the project is managed as a tender process.
Expertise should be sought from a firm of consultants/advisers who specialise in this arena.
RESEARCH:
The HR team should undergo a review of the benefits provided by the competitors in their sector, their parent company if a multi-national operation and best practice in the Irish commercial market.
Again outside expertise should be sought if the data is not readily available.
TRUSTEESHIP:
Should the scheme be either a defined benefit or defined contribution scheme, the question of trustees will arise, as the scheme benefits are provided under trust.
The broad options are:
- Professional Trustees
- Sponsoring employer
- Individuals nominated by the company
- A mix of company and staff nominees
ADMINISTRATION PLATFORM:
This is an area where there have been traditionally many headaches for the HR and Finance Teams, due to the poor historic performance of the pensions industry in providing administration services for corporate schemes.
There are two routes which can be chosen:
A. The “bundled” solution, such as an off the shelf plan with one of the main insurers, which will cover the administration, investment, insurance of risk benefits and documentation areas of the scheme or
B. The “unbundled” approach, which allows the package to be divided up to allow the sponsoring company (and trustees if appropriate) to place the administration services onto the best platform, insure the risk benefits for the lowest cost, invest the assets with a number of suitable managers and tailor the scheme communication materials to suit your own corporate philosophy.
The chosen administration platform should have the following features:
- Have a proven track record of performance (5 years +).
- Independently verified processes.
- A web based, encrypted system, with graphic illustrations and high quality member information.
- No legacy issues on conversion from one platform to a web based system.
- Flexibility to allow for future technological developments.
- References from existing companies/users.
INVESTMENT VEHICLE/FUND OPTIONS:
The fund manager or managers should be selected using the following criteria:
- Financial Rating
- Funds Under Management
- Stability of Team
- Range of funds under management
- Performance of available funds
- Custodial arrangements
The most important task when this task is completed is for the company/trustees to decide on the benchmarks which the fund manager/managers will be assessed against over the next 3/5 years.
DOCUMENTATION:
The quality of the scheme documents is important for both attracting potential key staff to the organisation and also explaining (in English not Pensions!) the scheme benefits to the membership.
The trustees also need to review the scheme documents to ensure that the scheme Trust Deed and Rules are up to date with current legislation.
COMMUNICATION:
The communication of the scheme can take a number of forms:
Scheme booklets, Q+A documents, information forums, pension websites (internet and intranet), promotional campaigns, member packs including fund options literature, dedicated email addresses for queries.
All of these tools can assist in promoting the scheme as part of the HR programme.
CHARGES/FEES:
The charges of the investment manager, administration manager, risk insurer and pension adviser should be highlighted at the outset.
These charges/fees can be borne by the employer as part of the overall scheme costs or shared between the employer and employee contributions to the fund. The charging structure should be transparent, flexible and
negotiable!
LAUNCH/ROLL OUT:
This is a crucial area for the HR team, as many of the hours spent in researching, designing and costing the scheme can be wasted unless the launch is properly co-ordinated. Representatives from the scheme administrators, investment managers, trustee board and scheme advisers should be present.
REVIEW:
The pension providers should be reviewed every three/five years to ensure that the various parts of the scheme are performing well and the scheme is still in line with the requirements of company and industry standards.
SUMMARY
In selecting a suitor for the Company Pension Provider, beware the old adage: marry in haste, repent in leisure
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