In 2008, July Business Services (JULY) had the opportunity to create an overseas organization to serve as our back office. This company, DataPath, Ltd., is a wholly-owned subsidiary of JULY and is located in Dhaka, Bangladesh. Since we opened our doors there eight years ago, several of us at JULY have spent many hours traveling to and working in Bangladesh to conduct training on plan administration and other retirement plan functions.
Our team is now experienced on most retirement plan administration processes and some employees have obtained their Qualified 401(k) Administrator (QKA) certification through ASPPA—we are the first overseas team to receive QKA certifications through ASPPA. Below are some of the processes our team is handling:
- Calculating Eligibility
- Allocating Contributions
- Updating Vesting
- Trust Accounting
- Non-Discrimination Testing
- Preparing Year Plan Reports
- Preparing Plan Documents
- Adjudicating Distributions
- Preparing Form 5500
We have learned a great deal through this process, including the challenges, benefits, and opportunities presented by working with an overseas team. We have learned how to train overseas team members, to implement quality control processes, to leverage technology for remote team management, and how to effectively communicate despite being in opposite time zones. We have also built meaningful professional relationships with team members who have been with us since we opened our doors eight years ago. Our firm has experienced a number of benefits from developing this resource that we are excited to share. Below are the top six benefits we have experienced and the reasons we believe some third party administrators should consider an overseas business process outsourcing (BPO) solution.
Increased profitability is no doubt the top reason that firms seek BPO solutions. The retirement industry has become competitive and fee pressure continues to mount. Some of this is the result of globalization itself as it is now commonplace for firms to leverage lower-cost overseas wages. Based on our experience, TPAs using a BPO solution can reduce wage costs by 15% to 30% over traditional staffing models depending on several factors. The savings vary based on the level of the TPA’s own wage market, the level of wage rates in the overseas destination, and on how effectively the TPA leverages the solution. Increasing profitability, however, is only one factor that TPAs should realize when implementing BPO. In our own firm, we have experienced several other benefits.
Small and mid-sized TPAs tell us they often have difficulty growing because of the cost of hiring, the difficulty retaining experienced plan administrators, and the ramp-up time for training new employees. We have had several TPA clients come to us for an emergency staffing solution after losing a key employee just before a major plan deadline. Regardless of the reason, we have seen that having an overseas staffing solution has helped improve scalability. Since staffing is more affordable in an overseas economy, TPAs can often afford to increase head count, and while training is still a challenge, BPO solutions often provide TPAs the ability to leverage trained team members alongside trainees, making the ramp-up time quicker.
Enhance Client Service
Another benefit we have experienced is that our U.S. employees are now more available when clients need them. Prior to implementing this solution, because of the high work volumes and peak seasonal demands in the TPA profession, we found our employees were often forced to choose between completing an urgent project or answering a client phone call. With our BPO solution, we have increased availability for knowledgeable U.S. team members to be more available and pro-active with clients. This change has led to an increase in client service and satisfaction.
A fourth benefit that TPAs should expect is improved turn-times on plan administration projects. The amount of improvement will depend on how the TPA chooses to implement the solution, but in general, turn-times on reports should increase from a few weeks to a few days. On distribution and loan adjudication projects our firm has reduced payout time by one to two full days. Having a South Asia workforce means having a constant, 24-hour processing timeframe. Distributions received late in the day no longer wait 24 hours for processing, but instead get started later in the evening while our U.S. staff sleeps. Most of the time, these projects are completed overnight and ready for clients the next morning.
A benefit that may not be apparent is an increase in process and service innovation. Our own BPO solution includes access to software developers who have experience with the most common plan administration and client management systems. For example, our team has built and enhanced many reports from administration systems and may have already created or customized reports that TPAs need. Our BPO team has leveraged our software developers to help automate key processes such as manipulating and automating hard-to-use recordkeeper file imports and creating Excel macros to perform QC on census files. With a good BPO solution, TPAs should expect to see an increase in process and service innovation.
Improve U.S. Jobs
The final benefit that is also often overlooked is the impact on U.S. jobs. There is a perception that overseas BPO solutions are all about “outsourcing” U.S. jobs. Over the eight years we have built our solution, this has not been our experience, and we do not recommend this to TPAs as a strategy. While it is often true that TPAs may not hire as many U.S. employees, our experience has been that existing U.S. jobs are enhanced. This happens because U.S. employees’ time is freed up from repetitive and process-oriented tasks to use their experience and knowledge to be more impactful in serving clients. S. employees often gain freedom from the pile of work in front of them to be more consultative and pro-active with clients.