The recent announcement that global HR consulting firm Mercer had decided to transfer much of its Canadian pension and group benefits outsourcing business to Morneau Shepell, a competitor in this country, came as a surprise to many. Aside from the specific issue of why Mercer opted to take this step, the news has prompted a greater focus on the HR outsourcing landscape and why some firms have opted to provide these services while others have not.
Business priorities
Under the terms of the Mercer-Morneau Shepell agreement announced on November 1, Morneau Shepell acquired 250 employees and approximately 60 pension and benefits outsourcing clients from Mercer. Jacques Théorêt, Mercer’s Canada/Latin America region leader, calls the company’s decision “difficult but appropriate,” given Mercer’s business direction in Canada.
But the move does not mean that Mercer is out of the pension and benefits administration business. Théorêt clarifies that the company will maintain its third-party pension administration business in Canada, where it has more than 300 clients. Going forward, Mercer intends to “continue and accelerate” its investments in its “core consulting businesses: talent, health, retirement and investments.” Mercer will retain pre-existing consulting relationships that it has with the outsourcing clients transferred to Morneau Shepell.
Paul Forestell, senior partner, retirement, risk and finance, with Mercer, explained why the company chose to send business to Morneau Shepell. “We looked at who had been making the necessary investments in technology and was very active in outsourcing in Canada,” he says.
Pension and benefits outsourcing forms a sizable chunk of Morneau Shepell’s business. More than 25% of its more than $400 million in annual revenue comes from these activities, according to Alan Torrie, president and CEO of Morneau Shepell. “In order to support this part of the business, we’ve made considerable investments in technology and will continue to do so,” says Torrie. Morneau Shepell expects to invest another $20 million to $25 million over three years in systems and service improvements to support the acquired clients.
Committed to outsourcing
But what prompts one consulting firm to invest its resources in outsourcing and another to direct its energies elsewhere? Bill Morneau, executive chairman of Morneau Shepell, explains that, initially, the company served mostly small and medium-size clients, and pension and benefits administration was often part of that service. However, in the 1990s, the firm made a more conscious decision to invest in outsourcing, says Morneau, due to a “collision of factors that rapidly increased market demand.” These elements included increasing complexity of pension and benefits plans, growing conversion to DC plans, rise of flexible benefits plans, emergence of the Internet, generational change/turnover in internal HR staff and client desire to offload transactional work. The company also determined that becoming a leader in the pension and benefits outsourcing space in Canada would be a business differentiator and help it to become “a Canadian success story,” says Morneau.
Global firm Aon Hewitt offers full-scale business process outsourcing, where multiple HR services are handled by a single provider for large organizations. The company caters to a full range of outsourcing clients, according to Aon Hewitt’s Canadian CEO Tony Gaffney. “Recent technology investments in administration, in particular, include improved service offerings for the small and mid-market segments and a new service offering for large and multinational organizations.”
Provider options expand
Large HR consulting firms aren’t the sole providers of outsourcing services—and, given the amount of consolidation that has occurred in the industry, employers may appreciate having additional options. Insurance companies provide benefits administration services and dominate in DC pension plan outsourcing. Some smaller employee benefits consultants also offer administrative services, though they may target smaller or particular types of clients. “We don’t focus on one market or geographic area and have clients in both the public and private sectors,” says Mark Hogan, senior vice-president with Coughlin & Associates, which has provided benefits administration services to multi-employer groups since its founding in 1958.
As the outsourcing market becomes more competitive, Canadians can expect to see more software and technology companies—including those based outside the country—offering their services here. Van Zorbas, a partner with Deloitte, says that Tata and Wipro, both based in India, are two such examples. These firms usually bid on larger business deals but will include pension and benefits outsourcing as part of the package. Forestell explains the increased interest in Canada: “The Canadian market is small on a global scale, so it wasn’t the first place IT companies came in order to develop their HR outsourcing business. But they are coming.”
Xerox, which offers HR consulting services through Buck Consultants, already provides benefits outsourcing services in Canada and plans to expand its reach. Angela Goodchild, senior vice-president and general manager, HR outsourcing and solutions, with Xerox, says, “Canada is a strategic market for our HR services as it has a complex pension environment from a compliance perspective. With multiple jurisdictions currently reforming their pension legislation, plan sponsors and employers depend on the experts to help them keep everything straight.”
Emerging trends
Towers Watson conducts an annual global HR Service Delivery and Technology Survey. The 2012 results indicate a spike in the number of organizations adopting outsourcing—from 17% a year ago to 26% this year. While these findings are not Canada-specific, Tracey Malcolm, director, HR service delivery, with Towers Watson, confirms that organizations in this country seems to be following this trend.
The survey report attributes this jump to niche and single-function outsourcing of HR activities, including pension and benefits administration. Outsourcing frees the organization to “focus on core processes, realize related organizational efficiencies and maintain a level of effective governance.”
Alain Malaket, senior director, pension and benefits, with George Weston Ltd., doesn’t foresee his organization going the BPO route, but he does identify real advantages to pension and benefits outsourcing that preclude any consideration of bringing administration back in-house. “Performing pension calculations is not our speciality. We rely on our outsourcing partners to provide that expertise and mitigate our liability.” Malaket offers further pluses: effective member com-munication, education and information; internal support for the HR team; and long-term administrative cost predictability through the contract with the provider.
Once the choice to outsource has been made, however, Malaket has important advice in order to maximize the relationship. “Communication is key. Both client and provider need to invest the time upfront and on an ongoing basis to be clear with each other,” he says. “The two parties need to understand what they’re getting into and partner with each other.”
Marcia McDougall is a freelance writer and president of InteGreat Marketing PR Events. mmcdougall@integreatmarketing.com