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What Does the Vanguard Partnership with Infosys Mean for My Plan? A Q&A Assessment

On July 14th Vanguard announced a new partnership with Infosys, a global Information technology consulting firm headquartered in India. Under this new partnership, effective October 12th, Infosys will provide recordkeeping services and technology enhancements to the Vanguard recordkeeping platform. Since the announcement, PEI has had numerous conversations with the senior leadership teams of both Vanguard and Infosys. As a result, we have developed the following questions and answers to help you gain a better understanding of the partnership and what it means for your Plan:

Q1: Who is Infosys?
A1: Infosys is an Indian multinational corporation that provides business consulting, information technology and outsourcing services. Headquartered in Bengaluru, India their stock (INFY) trades on the NYSE. McCamish Systems, a provider of one of the most widely used nonqualified plan recordkeeping systems is a U.S. based subsidiary of Infosys. The Newport Group, one of the largest providers of nonqualified plans (and one in which Vanguard currently partners with on nonqualified plan administration and design) uses the Infosys McCamish system to recordkeep its plans.

Q2: Why was the partnership created?
A2: Vanguard’s recordkeeping platform has been operating in a mainframe environment where implementing cutting edge technologies is a slow and cumbersome process. Infosys has the resources and expertise to modernize their recordkeeping platform by leveraging cloud-native technologies. Vanguard believes that Infosys can modernize its platform much quicker and more cost-effectively than they could do on its own, and as a result help Vanguard maintain a competitive edge versus industry peers.

Q3: What is cloud-native technology?
The answer to this question is supplied by Vanguard:

A3: To understand the benefit in Vanguard building a cloud-native platform, think about your phones. Chances are your phone runs either iOS or Android – that is the operating system.

A cloud environment like a phone’s operating system, uses Amazon Web Services for its cloud implementations.

All of the apps you have on your phone can be built in two ways. Native-built means the app is built specifically for the operating system.

This is what Vanguard is doing with the cloud, building a truly cloud-native recordkeeping platform.

People who make phone apps could also just “enable” the app to work with iOS or Android. That is like taking an existing website meant for a computer and putting a wrapper around it to make it look like a mobile app. The app is basically a retrofitted experience that is not optimized for your phone.

We see a lot of our competitors taking this same approach, using the cloud to run their legacy systems.

Native apps are better able to take advantage of upgrades to iOS or Android. Apple and Google continuously add new features to their operating systems, so when a new feature like touch ID or Face ID comes out, native apps can quickly use them because the app is built using the same set of guidelines.

The “mobile-enabled” app will usually have a much harder time using new features and capabilities. Getting those features running takes a lot of time and costs more. Every time a new iOS or Android feature comes out, developers of “enabled” apps have to decide whether to put in the hard work needed to use them.

In this respect, cloud environments work similarly to phone operating systems. By building a cloud-native recordkeeping platform from the ground up, Vanguard will always be positioned to rapidly leverage the latest capabilities developed by Amazon Web Services.

Without applying cloud-native technology, a recordkeeper trying to run their legacy system in the cloud will have a much harder time since they are essentially bolting emerging technology onto an outdated platform. They will constantly need to spend more time and money, and often end up delivering less value.

Q4: What specific enhancements can plan sponsors expect to see through the deployment of the new technology?
The answer to this question is supplied by Vanguard:

A4: Plan sponsors can expect to see improvements in the participant experience and plan operations in both the short- and long-term.

For participants, some of those experiences will include a fully redesigned participant website, new communications channels such as AI (Artificial Intelligence) powered text interactions, and seamless data sharing with outside-plan benefit accounts like HSAs and pensions.

For plan sponsors, Vanguard will offer enhancements in administrative and operational flexibility, including support for a wider range of payroll services (like flat-dollar caps, complex match formulas), expanded withdrawal options, a streamlined rollover process, and strong support for multi-vendor plans.
Additionally, Vanguard is developing new reporting capabilities to capture broad participant sentiment and provide sponsor-level next-best action guidance on a completely overhauled and rebuilt plan sponsor web portal.

Q5: How will the services that Vanguard and Infosys offer be divided?
A5: Vanguard will continue to directly provide the following services: Relationship Management, Advice and Wellness, Strategic Retirement Consulting, and a call center for participant interactions that require a licensed representative (complex transactions or investment discussions).
Infosys will provide information technology, a call center for basic participant questions, implementation and conversion services, recordkeeping administration and operations.

Q6: Where will the Infosys personnel reside?
A6: A corporate center will be deployed within 30 miles of Vanguard’s PA headquarters in Malvern, PA. Over time, some administrative, operational, and technology functions will be assumed by professionals overseas. All client-facing staff, such as the Client Relationship Administrators, will always be located in the US.

Q7: Will my Relationship Manager (RM) change?
A7: No, your RM will not change and will remain a Vanguard employee.

Q8: Will my Client Relationship Administrator (CRA) change?
A8: No, your CRA most likely will not change but will become an Infosys employee eff. October 12th provided he/she accepts an employment contract with Infosys. If so, your CRA will retain the same contact information (Vanguard phone number and email).

Q9: What changes will be made with the call center?
A9: Vanguard’s own call centers will continue to operate in Pennsylvania and Arizona. Vanguard call center staff who transition to Infosys will be also be located in PA and AZ. In addition, Infosys will operate an overseas call center at a secure location in Manila, Philippines.
Vanguard employees who are FINRA-licensed call center reps will continue to handle investment-related questions from participants. Using intelligent routing based on analysis of caller intent, less complex non-investment related calls will be routed to Infosys call centers.
The plan is to have 45 call center reps in Manila by year-end and increase that number over time as training allows.

Q 10: Within this arrangement, what specific functions will be performed offshore?
A 10: As mentioned above, call center reps who handle non-investment related calls will be based in Manila. Overtime, there could be an increased foreign footprint including the creation of additional technology jobs in India. Currently, Vanguard has a contract with an IT consulting company in India for some technology functions.

Q11: When will the changes be made?
A11: On October 12th, 1,300 employees of Vanguard that work in the areas mentioned above (information technology, implementation and conversion services, recordkeeping administration and operations including CRAs) are slotted to become Infosys employees.
We just recently received news that 97% of these employees have accepted their offer of employment from Infosys.
Other than that, Vanguard indicates very little will change in the short-term. All of the changes in technology and related enhancements will phase in over a 3- to 5-year period.

Q12: Will there be changes made to the participant or plan sponsor websites (My Plan Manager)?
A12: Prior to the announcement of the Infosys partnership, plans were underway to enhance both websites. A redesigned participant website is scheduled to be rolled out by January 2021. Enhancements to My Plan Manager are scheduled to begin at the end of this year.

Q13: Will there be a conversion?
A13: No, changes to the recordkeeping system will be rolled out on a gradual basis. Vanguard has advertised this as a “frictionless” transition. Plan sponsors will continue to send data and requests to Vanguard as they always have, and data will continuously route to the legacy platform as the cloud-native platform applications are developed. Eventually, the cloud-native platform will take over all functions of the legacy platform.

Q14: Will this arrangement require a new service agreement?
A14: No, Vanguard remains the designated recordkeeper and trustee, as applicable. All service agreements remain with Vanguard.

Q15: Who is ultimately responsible for the delivery of services to my Plan?
A15: Vanguard remains responsible and accountable for the delivery of all recordkeeping services. Vanguard’s Institutional Strategic Partnership Office (SPO) will oversee and monitor Infosys’s performance. Current Service Level Agreements will be adhered to. Missed levels or poor service delivery will be addressed through adjustments to process, personnel changes, financial penalties, or, in an extreme situation, through termination of a specific service.

Q16: Does Vanguard have experience in managing other third party relationships?
A16: Yes, one example includes its relationship with Ascensus (small market DC plans) since 2012. More recently relationships have been established with Newport Group (nonqualified plans), TD Ameritrade (brokerage accounts) and EQ (stock plan administration integration).

Q17: Who will be responsible for maintaining Cybersecurity?
A17: Vanguard’s Security Operations Center will continue to monitor and protect Vanguard from cybersecurity threats. All data shared between Vanguard and Infosys is securely encrypted, including web transmissions and email communications. Infosys maintains a comprehensive information security program that includes physical, administrative, and technical safeguards to protect the privacy of all nonpublic information.

Q18: Where and how will data be stored?
A18: All participant data is stored within the United States. As Infosys begins performing services offshore, they will do so from secure Offshore Development Centers (ODCs) that meet Vanguard’s “clean room” security requirements. Clean room requirements mandate that data remains stored in the U.S. and access from offshore locations will not permit storage or copying of Vanguard data to offshore locations. Also, offshore computing devices use a thin client technology and are not capable of storing or printing data locally.

Q19: How will fees be affected?
A19: Recordkeeping fees are not changing. However, as economies of scale are achieved, in the long-term, there is potential that fees might trend downward as a result.

Q20: Will Vanguard be issuing a participant communication announcing their partnership with Infosys?
A20: Vanguard has told us that a communication piece geared to 401(k) participants will be issued shortly.

Q21: Is there any reason to put my Plan out to bid as a result of this change?
A21: In PEI’s opinion, Vanguard’s partnership with Infosys is motivated first by its desire to get ahead of the competition in terms of technology and innovation, and second to reduce internal costs.

Plan sponsors may see a reduction in recordkeeping fees if this is a successful partnership but in the distant future at best.

Furthermore, the foreseeable trend will be one in which providers look to deploy their recordkeeping systems to fully incorporate cloud technology. Other providers who are keeping a close eye on this venture may decide to follow in the same footsteps.

This new service model should allow Vanguard to continue to deliver on its core competency, investment management (through its mutual fund offerings), while delegating recordkeeping to a partner who can do it more efficiently.

Also, we understand the concern our clients have about the security of participant data. We will report back to you at a later date on cybersecurity policies as this information is shared by Vanguard.

If plan sponsors are currently satisfied with the services Vanguard provides, we see no immediate reason at this stage to be concerned with this change. PEI will continue to monitor Vanguard’s level of service in the months and years ahead; and we will continue to engage in conversations with our clients to obtain their feedback as the partnership is forged.