Where does the growing demand for outsourcing come from? NAS’s experience in the industry suggests the following root causes are at work: profit margins of companies with in-house pension administration operations are being squeezed by the inefficiencies of these units. The cost of operating these units (training costs, office space, salary and benefits, costs of maintaining and upgrading hardware and software) is mounting faster than the marginal revenue generated by the administration unit. At the same time, end-clients are becoming dissatisfied and turning elsewhere because they are not being served in a timely manner by in-house units.

Rapidly changing pension laws and regulations, coupled with a shortage of specialists and technicians having the necessary actuarial, computer and accounting skills, means that many in-house units often lack the expertise to administer pension plans effectively. Faced with high turnover, their staffs are unsure of the proper course to recommend and are thus exposing their companies to a higher risk of liability claims arising from errors and omissions.

These in-house realities are now being translated by a growing number of companies into a search for a timely, cost-effective, reliable pension administration service--even if this service must be found outside their own company.