The outsourced chief investment manager chosen by one NeuGroup member company to handle billions in retirement assets “underpromised and overdelivered,” according to a member presenting on how the provider guided the corporate through a multilayered process he described in detail at a recent session of NeuGroup for DB and DC Plan Management . - The firm secured lower management fees and replaced customized 401(k) investments with lower-cost standard products. During the session, answers to questions posed by members revealed the work required to implement and maintain the OCIO, including provider oversight, trustee-custodian coordination and paring down hundreds of legacy operational tasks to those a small internal team still needs to perform.
Handing off assets and staff. The pension team found an OCIO that could manage the portfolio and reduce pension risk for less than the cost of the internal operation while absorbing many of its employees. The OCIO received discretion over the portfolio and uses outside firms to manage specific asset classes. These managers offered the OCIO lower pricing because it represents hundreds of billions of dollars in client assets, giving it more negotiating leverage than the member company.
- The provider also replaced the company’s customized target-date funds with a less expensive standard product, reducing fees paid by 401(k) participants—proactively addressing beneficiaries’ concerns around fees and performance.
- The OCIO then helped revise the investment policy and conduct an asset-liability study.
Monitoring without managing. The member and others on the pension committee meet with the OCIO quarterly to review portfolio performance and other issues. He didn’t say which benchmarks or specific metrics are used to judge returns. Asked whether the firm could steer assets into its own products or receive indirect compensation, the member said the OCIO uses no proprietary products in the portfolio and receives only its disclosed fee based on assets under management.
- The committee must ensure that monitoring of the OCIO does not fall into the legal definition of managing investments. The provider may present several options and recommend one; routinely directing it to choose another could blur fiduciary responsibility and defeat part of the rationale for delegation.
- Delegating investment discretion to the OCIO may shift responsibility for manager selection and other investment decisions, but members noted that it may not prevent sponsors from being named in a lawsuit. “If you’ve got money in your pocket, you’re going to get sued,” one member said.
Compressing the transition. A member whose company is now making a similar transition asked what had proved most challenging. The presenter named the administrative burden of transferring investment authority, especially revising contracts and account documents with the trustee-custodian.
- The OCIO estimated that implementation would take nine-to-12 months, explaining that much of a typical transition is spent waiting for the sponsor company to answer questions, provide data and sign documents. The member committed to responding within 24 hours to each request, and assigned employees to move each item through the trustee-custodian.
- That required accommodating different processes across the custodian’s departments. One required wet signatures, another used electronic signatures and a third accepted signed PDFs. The member said, “We did whatever they asked,” allowing the transition to launch well ahead of schedule.
The work that remains. An operations-consulting unit from the OCIO firm pared hundreds of legacy trust-operations tasks to the essentials, making the work manageable for a three-person team at the company. Former colleagues who joined the provider remained available as backup.
- The retained employees now monitor the arrangement, coordinate with the trustee-custodian and other vendors and preserve the institutional knowledge needed to keep the retirement program operating smoothly.
Continue the conversation. Protecting a pension surplus, evaluating risk transfers and preserving flexibility as obligations shrink will be on the agenda when members of NeuGroup for DB and DC Plan Management meet Nov. 11-12 in Chicago. To view the agenda and event details, and register or show interest in attending, click here . 
