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© Copyright 2000 Rogers Media. The following article first appeared in the January 2000 edition of
BENEFITS CANADA magazine.
The Plugged in Plan
Looking for a new pension administration system? A bit of techno-planning
will ensure you get the right fit.
BY SHERYL SMOLKIN
Pension plan sponsors seek out new pension administration solutions for a variety of reasons. In some
cases, dated systems cannot easily accommodate new legislation or proposed plan amendments.
In other cases, mergers or acquisitions mean that multiple plans must be rationalized and accommodated.
Private sector spin-offs of government agencies can also present a unique set of plan administration
challenges.
Whether an organization decides to purchase a pension administration system for in-house use, or it opts
for partial or full outsourcing, vendor selection is a serious matter. At all times, the plan administrator
must continue to fulfil statutory fiduciary responsibilities. The pension plan and the pension fund must be
administered in accordance with the plan documents and relevant pension standards legislation. Furthermore,
where an agent is employed, the plan administrator must:
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personally select the agent;
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be satisfied as to the agent's suitability to do the delegated tasks; and
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carry out reasonable and prudent supervision of the agent.
There is considerable variation among pension plan provisions and plan administration requirements.
However, all plan administrators can evaluate prospective vendors of in-house or outsourced pension
administration solutions against the following common criteria.
VENDOR INFORMATION
The financial viability and technical competence of prospective vendors must be carefully assessed. The
expensive and time consuming transition to a new form of pension administration is not an exercise that
most organizations will want to repeat in the near future. Therefore, ask vendors to address these and
other issues:
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Who owns the company? Is it incorporated? Give all relevant information about
parent/affiliated/subsidiary companies and union affiliations.
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What business are you in? How long have you been in business?
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Describe your strategic plans regarding functionality, market share and proposed enhancements of the
proposed pension administration solution.
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How many employees does your company have? How many people have been hired or terminated in the last
three years?
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Can you provide organization charts and position descriptions showing the inter-relationships for
applicable categories or positions within your company?
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What team members will be assigned and dedicated to this project? Ask them to provide copies of their
curriculum vitae.
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State the name of any sub-contractor(s) to be used and details of teaming or partnership arrangements
that may be entered into with other firms to support this initiative.
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Discuss your company's experience including references from customers (Canadian, in particular) that
have successfully adopted the pension administration solution you are proposing. References should
relate to clients of a similar size and complexity.
To ensure the prospective vendor has the capacity to meet a commitment to your organization, find out what
percentage of the company's business your project will represent and how winning this business may impact
the delivery of any existing or pending contracts. Vendors submitting proposals should also provide copies
of annual reports, financial statements, information relating to revenue and revenue growth for this line
of business, and information relating to research and development as a proportion of total revenue.
DATA CONVERSION
Clean and complete data relating to active, deferred vested and retired members must be collected and
maintained on an ongoing basis in order to administer a pension plan. Data is required to calculate past
service entitlements, benefits on disability, termination or death and to comply with statutory disclosure
requirements.
Your organization may still maintain all or some records in hard copy personnel files. Even where there is
electronic data available, it may be incomplete or in a format that cannot be easily loaded into some
computerized pension administration systems.
Therefore, it is important for prospective vendors to describe how they propose to convert data, and what
part of this process will have to be done by your staff.
Suppliers responding to your request for proposal (RFP) should also address historical data requirements
and how they propose to handle year-to-year values where historical data is unavailable. Finally, assuming
your organization can provide a conversion file compatible with the system's specifications, confirm the
costs associated with loading data onto the new system.
MEETING THE REQUIREMENTS
The system must meet all of the statutory and contractual requirements of plan administration. The RFP
should include a summary of the plan text, a description of the particular calculations and reports which
must be prepared on a regular basis plus any other functionality that is unique to your pension plan.
Ask for a guarantee of compliance with the Income Tax Act, and the pension standards legislation of both
jurisdictions in which you currently operate, and others where you may do business in future. Clearly
specify if bilingual reports and member services are required.
Ensure the system setup will accommodate plan amendments, multiple pension plans, flexible pension plans
and allow determination of pension benefits and supplemental benefits at the same time--even if these
features are added to your program after the initial installation. You may also want the system to be
capable of administering future add-ons such as defined contribution plans and group registered retirement
savings plans, without triggering repetitive data collection and retention.
The pension administration software should allow streamlined enrolment of new employees using data from the
human resources system. It should also be able to accommodate reinstatement of a member after re-hire and
deal with member transfers into the plan based on reciprocal transfer agreements.
Depending on plan provisions, it may be important to question whether the system handles grandfathering of
plan rules based on date breaks (for example, if pre-1990 service is on a career-average basis with regular
updates to current earnings level, and post-1990 service is based on final average earnings). If the plan
is not fully retroactive, multiple service breaks based on pre- and post-pension reform dates will also
have to be accommodated.
The ability to model possible scenarios using member pension benefits data to assess the effect of an
amendment to plan provisions under consideration will also be valuable to your organization. This
capability must run parallel to the actual plan under administration without modification of working data.
Furthermore, it should be possible to apply modeling capability to a defined group of members or the entire
plan membership, and produce reports based on these simulations.
TECHNICAL REQUIREMENTS
Establishing technical requirements in the RFP for your pension administration system should be done in
conjunction with your information technology department. Whether you purchase a system for in-house use or
you outsource, you will want to ensure the software has an open and flexible architecture. A highly
parameterized system based on rules and not programmer discretion will take less time to customize now, and
be easier to update later.
Your pension administration system should also be user-friendly and accessible from local sites and remote
locations in multi-user mode over dial-up and leased lines. Growth capabilities to handle expansion of
communication services, processing demands and data storage should be carefully examined. The proposed
solution should also interface with other internal human resources software, the payroll system and
electronic mail. Software security features and performance standards also bear consideration.
SURVIVING THE LONG HAUL
Once your new pension administration system is up and running, its long-term viability will depend on the
adequacy of vendor support and maintenance. For in-house installations, try to negotiate a locked-in
service contract for up to five years and make sure you understand any caps that might be made on hours of
service or training stated in the contract. Determine expected support turnaround time and frequency of new
software releases, particularly where there is legislative change.
And, in light of the rapid pace of technology, it would be prudent to find out if the vendor will continue
to support old versions of software if clients do not upgrade, and how many versions of old software the
company is currently supporting.
If you are outsourcing, the vendor's staff members will be dealing directly with your pension plan members.
Review the vendor's level of service capabilities on a local, regional and national basis. And keep the
following suggestions in mind:
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Ask how many hours each day employees are able to talk to a live customer service representative, and
how quickly employee queries are answered.
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Question how staff members are trained both initially and when legislation and plan provisions are
amended.
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Find out if there are preventative maintenance programs and practical disaster recovery plans in place.
EVALUATE WITH GUSTO
Asking the right questions in an RFP is not enough. A system of evaluating responses should be established
prior to sending out the RFP, or on the return date you will have no logical way to rationalize proposals
submitted by competing vendors. Some criteria will be mandatory, and non-compliance with these requirements
will definitely prevent vendors from making the shortlist. However, other desirable features of the system
can be weighted and given available points up to a maximum.
A rigorous and well-documented search for a new pension administration system can be a productive exercise.
Your due diligence will ensure all statutory fiduciary responsibilities are met before, during and after
the transition. It will also facilitate selection and implementation of a long-term approach to plan
administration that is most compatible with the needs of both your plan members and your organization.
Sheryl Smolkin is a lawyer and director of the Canadian Research & Information Centre at Watson
Wyatt Worldwide in Toronto.
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