Considering an In-house Modernization: What You Need to Know
By: Kevin Lynch, Linea Solutions
Pension organizations often face a critical decision between rewriting their current systems, upgrading with commercial vendors, or pursuing in-house modernization. This article delves into why some organizations are going the in-house route, the advantages and disadvantages of doing so, and the planning that an in-house modernization requires.
This is an excerpt from NCPERS Fall 2023 issue of PERSist, originally published October 24, 2023.
We've seen it many times before: Pension organizations like yours get to a fork in the road where you need to decide whether to rewrite the code of your current system, upgrade with a commercial off-the-shelf vendor, or modernize to a more cohesive technology.
There may be multiple issues that get you to this place:
Processes that heavily rely on paper or “digital” paper (PDFs) requiring time consuming manual entry
Outdated legacy technology that is difficult to support
Insufficient access to comprehensive dashboards with metrics and reports
Minimal front-end validations on employer contribution files allow for incomplete or inaccurate data
Lack of data security and potential cybersecurity risks
The inability to program legislative and technology changes in a timely and cost-effective manner
Faced with this decision, some pension funds saddled with these issues are choosing to modernize in-house.
Why are they doing this? Because they believe that retaining control over their systems, resources and priorities is the best way to continue delivering excellent customer service.
Going the in-house modernization route has several advantages:
Controls the priority and pace of change
Gives your organization an opportunity to streamline your system and use business process improvement strategies
Allows your organization to prioritize your implementation schedule and maintain it
Ensures your membership needs are being met by technology you control
However, there are also many challenges you need to consider.
Implementing a new system is a once in a career undertaking and many on staff will not have the experience or expertise to perform this transformation effectively, or there are not enough staff to dedicate their time to assisting in this transformation.
The new architecture will be even more complicated to manage technologically and even for large organizations, outside contractors will often have to be used for coding.
These initiatives require lots of internal leadership over a long period of time. Your leadership needs to get behind this, and will need to continue motivating others over the course of several years to ensure that staff and stakeholders can also get behind the changes.
They also require documented governance structures for decision-making, and that structure needs to be followed or there will be breakdowns in how important decisions are made and are accepted by others.
These projects also require lots of resources, and typically more resources than currently exist on staff. Purchasing COTS software means you are outsourcing many things to a vendor; if you decide to do this in-house, it means those resources need to be available internally, or need to be hired (many just for this project, and others in an ongoing capacity.)
To address these challenges before fully going down the path of a modernization, your organization needs to conduct a full assessment to address Risks/Timelines and Budgets based on market knowledge, peer interviews and vendor demos. This needs to be performed to ensure you are confident in the path selected and it is the best fit based on your organization's priorities, needs, and skillsets.
If your organization determines that the in-house modernization route is the correct one, you will need to ensure you have tracking of the project, testing plans in place before you begin, training for stakeholders on how your new system will work, and development of a cybersecurity structure in tandem.
About the Author:
Kevin Lynch has been involved in solutioning for the Pension administration business for over 20 years across a variety of roles and organizations in North America. He has pension administration operations, implementation, and business development experience. He has worked on both public and private sector pension plans in Canada and the United States. He has worked for multiple pension administration providers in both a third-party administration capacity and at a software vendor. Kevin has lead an entire Pension Administration practice at a global consulting firm responsible for over 200 colleagues worldwide and over 100 clients. His expertise lies across pension administration best practices, process improvements, and customer satisfaction initiatives.