Benefits | 10 MIN READ
Is your union ready for self-administration?
In this post, we'll cover:
- The history of pension administration
- The benefits of self-administration for the union & it’s members
- What needs to be done right for a successful self-administration
Pension administration has been a stagnant industry in that not much has changed over the last few decades. Unions are running 25-year-old legacy systems or outsourcing to a large Third-Party Administrator (TPA). This needs to change for the union and the members sake. More recently, we have seen a large amount of consolidation between some of the giants in the industry. A large U.S bank (Goldman Sachs) has been buying up TPAs across Canada. People Corporation (who own Coughlin, BPA, Benefit Partners, and Health Source Plus) have recently been acquired by Goldman Sachs. This does not bode well for the market, especially for the unions looking to have some control in their pension administration for members.
Self-administration of defined benefit multi-employer pension plans
The History of Pension Administration
When we talk about pension administration, we mean defined benefit multi-employer pension plans. These plans are large, complex, and extremely important to the pool of people that are invested in it (their retirement). When we look at how these plans are administered by unions over the last 25 years, there have been two methods that have stayed constant:
1. Outsourcing to a TPA
2. Running a legacy system (10-30 years old)
There are clearly pros and cons to each of these methods. So, let’s run through a pros and cons list for both to break everything down.
Outsourcing to a TPA
Outsourcing to a TPA certainly has its benefits. It frees up some time for the union as they don’t have to do as much work. Outsourcing is and always will be a great way of reducing the workload and still getting the job done. But the problem we see is the low member service, the slow transition times, and the price tag. TPAs are notorious for high fees on manual tasks like annual statements that could be done in-house with some help from a software package and a few automations. Finally, the lack of access to data when needed. There is nothing more frustrating that not being able to access information that is rightfully yours. Many TPAs have been withholding information or making it difficult to access it to stay in control of the union and continue billing behind closed doors. It is just a job to them. Your members deserve to be served by union representatives that care and are willing to go the extra mile. Not to mention, members who join the union and fight for their rights and job security don’t want to have to deal with a TPA firm who doesn’t know them or anything about them.
Running a Legacy System
Running legacy systems. We see it every day. Organizations that invested a large sum of money into a system over the last 10-30 years and it is finally paid off, so day-to-day costs are low. These systems still do the job they were set out to do, but there are risks associated with continuing down this road.
There are multiple scenarios that could be detrimental to the union. For example, you have an AS/400 in the back room at the union hall. A fire breaks out and you lose everything.
Example #2, your AS/400 is running perfectly fine. You are serving your members on a day-to-day basis but there may be some human error at touchpoints and clean data is hard to come by. One day the company that does maintenance and support on the legacy system decides that this business is no longer viable due to the few systems that are still in operation, or the technicians with this dwindling skillset are ready to retire. This leaves the union in a situation where they need to act quickly in finding and implementing a new system to replace it. Forward thinking and a little bit of planning can go a long way in avoiding situations like this.
The Benefits of Self-Administration
Self-administration has been around since the 90s with legacy systems such as the AS/400. It has a multitude of benefits to the union and its members, a lot of which align with unions missions. So why aren’t more unions using the self-administration method?
For starters, it can be an overwhelming process to think about. Imagine transforming the way you have done something for decades and putting all the responsibility on the union staff. It is a big responsibility and a daunting task. So why bother? Here are the benefits of self-administration and how to mitigate the risk involved:
1. Member service - This is always #1 in our books. Your members are your reason for being, the lifeblood of the union and they deserve top notch service in any dealings with the union. Having members dealing with the union and the union dealing with the members on retirements, transitions and pensions creates a comfortable environment in which the member gets quick and easy access to their benefits and the union ensures the member is taken care of and treated with respect. With a modern cloud-based pension administration system like Union.dev’s Pension Reporting System (PRS), dealing with members is seamless. With full audit trails, quick and easy transitions, built-in communications, member portals, and everything loaded into the system (document storage, custom reporting, member statements) PRS makes it easy to do the job of a TPA while remaining in control of your union and its data.
2. More unionized jobs - If you look at the decision with a very narrow focus, it is essentially choosing between outsourcing to a white-collar firm who is there to make money on their services (a business) or choosing in-house administration that will create new jobs within the union hall that friends, families, and members can benefit from.
3. Cost Savings - The cost of outsourcing pension administration is astounding. We have seen plans running millions of dollars per year in fees paid to their TPA. Situations where year-end statements sent to members cost the union hundreds of thousands of dollars… to send statements… These costs can be greatly reduced by using technology, workflows, and leveraging your own data and internal communication methods.
4. Data Access - With self-administration you are equipped with all of the necessary member information. If they call in and have questions or need assistance, the team can rely on the data at their fingertips knowing that it is accurate. Creating a union hall full of advisors and experts who are in full control.
5. End-to-end processing (transitions) - When a member is going through a transition (retirement, marriage breakdown, disability, etc.) they shouldn’t have to go through the 30–90-day industry average transition time. Many of these members or beneficiaries need access to these benefits immediately to survive. Asking them to wait 90 days because of poor processes and workflows is asinine. In-house administration can cut these times down to as little as a single day. With a modern, cloud-based solution, these transitions can be done in hours without any TPA intervention.
What Needs To Be Done Right
With any project of this scale, there are a lot of moving parts and things that can fly under the radar when they shouldn’t. With any implementation it is important to work with an expert that has the experience and can help direct and manage the project from start to finish.
From our implementation experience, here are some key points that need to be executed for a successful project:
- Access to the prior administrators closing data. The transition cannot be made without access to this information. Although many TPAs make it difficult to access this information, they are legally obligated to give it to you.
- The ability to add new remittance data. This functionality allows for tracking, accuracy, and full audit trails.
- An updatable database to reflect ongoing processing of benefits. Benefits processing doesn’t stop because you are changing processes or systems.
- Be able to provide complete and accurate data extracts for actuarial valuation, year-end reporting and produce bulk calculations for annual member statements.
- Run in parallel to ensure 100% accuracy. Running the new system in parallel with your current method for 1-3 months is recommended to give everyone the confidence that it is 100% accurate.
With implementing certain systems, the advanced ones allow you to implement the above at your own pace. You can implement the whole end-to-end process, or you can use pieces of the platform to implement one at a time. This allows stakeholders to sign off on each section an ensure 100% accuracy. If your union is considering self-administration, talk to an expert and make sure that you don't get stuck buying old software or something a TPA has thrown together in order to keep your business.