The perils of benefits outsourcing: a cautionary tale.

• Author: Sherter, Alain
• Position: Metropolitan Atlanta Rapid Transit Authority's unsuccessful outsourcing process

Lured by the promise of lower costs, streamlined administration, and enhanced customer service, thousands of U.S. employers in recent years have turned to outsourcing to address their various benefits and human resources needs. The experience of one employer, the Metropolitan Atlanta Rapid Transit Authority (MARTA), serves as an example of the perils that can befall the unwary employer that embraces outsourcing without thoroughly analyzing the outsourcing process itself.

MARTA, the public transit authority for the City of Atlanta, Georgia, has about 3,600 full- and part-time employees and more than 700 retirees. When it explored benefits outsourcing, MARTA offered a range of union and nonunion employee health benefits - including medical indemnity, point-of-service, flexible benefits, short-term disability, vision, and retiree medical and life insurance plans - through six different vendors. The number of participating vendors played a crucial role in outsourcing considerations, because an outsourcing service bureau will be required to provide plan information to each vendor in its respective data format. Coordinating these data interfaces takes a lot of time and a lot of planning.

Prior to outsourcing, health and welfare benefits at MARTA were administered through the organization's risk management and human resources departments, the latter of which also administered the company's defined benefit pension plan. Responsibility for data management and data integrity was split among the human resources, payroll, risk management, and information systems units. MARTA opted to outsource its benefits plans following a negative internal audit that showed that the human resources department no longer could handle primary responsibility for administering the firm's benefit plans. In addition, officials viewed outsourcing as a "safe, proactive" way to transfer accountability for employee benefits to another party.

MARTA also wanted to reduce the size of its benefits staff; improve its ability to budget for benefits expenditures; automate manual functions, such as maintaining personnel files and submitting claims; minimize reliance on its information systems unit; and improve the level of service to employees.

Timing Is Everything

Perhaps the central problem in its outsourcing effort was that, because its benefits contracts were soon due to expire, MARTA lacked sufficient time to prepare for each step in the outsourcing process, such as submitting a...