Plan Sponsor has an interesting article: “Businessman Threatens To Pull K Plan From ING Due to Outsourcing.” The article reports that Fred Tedesco, president and co-owner of Pa-Ted Spring Co. Inc., sent a letter to ING Group threatening to take his company’s 70-person 401(k) plan business elsewhere if the company outsourced any more computer jobs.” Quote of Note:
Even though Tedesco said he realizes that losing his firm’s small 401(k), with several million dollars of assets, would mean little to ING, which has administered the plan for a year. . .”the whole point is to set the stage for other people to look at” the issue. . . The move by Tedesco may be the initial ripples of an oncoming small business tsunami. Several pro-American business groups are expected to start urging small businesses to take similar stands against insurers and financial services firms. Leading the charge is MADe in USA, a coalition of employees and owners of small and medium manufacturers that Tedesco helped create more than a year ago.
While I applaud Mr. Tadesco’s efforts (anyone who is a regular reader at Benefitsblog knows my great concerns about this whole outsourcing movement), this is another area where ERISA plan fiduciaries need to tread carefully. Generally, plan fiduciaries may not make investment decisions based on social, moral and other noneconomic criteria (referred to as “social investing”) unless the policy also satisfies ERISA’s fiduciary requirements of loyalty to plan participants, prudence, and diversification. The DOL has addressed these concerns in DOL IB 94-1 (1994), also known as DOL Reg. section 2509.94-1. See also, Advisory Opinion 98-04A in which the DOL stated:
The Department has expressed the view that the fiduciary standards of sections 403 and 404 do not preclude consideration of collateral benefits, such as those offered by a “socially- responsible” fund, in a fiduciary’s evaluation of a particular investment opportunity. However, the existence of such collateral benefits may be decisive only if the fiduciary determines that the investment offering the collateral benefits is expected to provide an investment return commensurate to alternative investments having similar risks. In this regard, the Department has construed the requirements that a fiduciary act solely in the interest of, and for the exclusive purpose of providing benefits to participants and beneficiaries, as prohibiting a fiduciary from subordinating the interests of participants and beneficiaries in their retirement income to unrelated objectives. In other words, in deciding whether and to what extent to invest in a particular investment, or to make a particular fund available as a designated investment alternative, a fiduciary must ordinarily consider only factors relating to the interests of plan participants and beneficiaries in their retirement income. A decision to make an investment, or to designate an investment alternative, may not be influenced by non-economic factors unless the investment ultimately chosen for the plan, when judged solely on the basis of its economic value, would be equal to or superior to alternative available investments.2In discharging investment duties, it is the view of the Department that fiduciaries must, among other things, consider the role the particular investment or investment course of action in the plan’s investment portfolio, taking into account such factors as diversification, liquidity, and risk/return characteristics. Because every investment necessarily causes a plan to forgo other investment opportunities, fiduciaries also must consider expected return on alternative investments with similar risks available to the plan.
(It may very well be that the plan fiduciaries of the 401(k) plan mentioned in the Plan Sponsor article have dealt with these fiduciary concerns, but the article does not mention it.)
Regarding outsourcing in general, the New York Times reported last week: “Who Wins and Who Loses as Jobs Move Overseas?” In answer to the question “How big an issue is job migration?” an economist states:
Offshore outsourcing is a huge deal. We do not have a data series called jobs lost to offshore outsourcing, but 23 months into the recovery, private sector jobs are running nearly seven million workers below the norm of the typical hiring cycle. Something new is going on. America is short of jobs as never before, and the major candidates for our offshore outsourcing are ramping up employment as never before. So yes, I think two and two is four.
Also, Business Week Online had this: “The Rise Of India: Growth is only just starting, but the country’s brainpower is already reshaping Corporate America.”
Also, this from Philip Greenspun’s Weblog: “Outsourcing to India in Business Week and at MIT” (which by the way, inspired 86 comments with respect to one post.)
UPDATE: David Giacalone has a great post on developments in legal services outsourcing: “Corporate Outsourcing May Bring Trickle-Down Competition and Options in Legal Services.” You can access a brief post here at Benefitsblog on outsourcing of legal services to India.