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How a Money Management Firm Benefited from Outsourcing Its HR to a PEO

In this article, explore how a money management firm thrived by partnering with a PEO (Professional Employer Organization).

The subprime mortgage crisis, the unimaginable fall of Bear Stearns, and the free fall of the dollar make the financial markets today a place fraught with peril as well as possibilities. These are the markets that Pegasus Capital Advisors LP, a private equity firm with $1.8 billion under management, has to operate in.

Human resources responsibilities for the 30-person firm fall under the bailiwick of Daniel Stencel, the chief financial officer. He found chasing down answers to employee questions about the firm’s 401(k) retirement account or vacation days left was a huge time sink. He says checking on COBRA health insurance payments from former workers took forever. “Employees’ problems can take up the whole day,” he reports.

Outsourcing the entire suite of HR processes to ADP TotalSource freed up his time and allowed him to do more strategic work. “Outsourcing has helped me tremendously because I have a billion other things besides HR I need to get done,” says Stencel.

Reducing liability

Outsourcing also shifted some of the potential legal liability to ADP, which he is thankful he doesn’t have to shoulder. The U.S. Supreme Court overturned a lower court ruling and gave employees the ability to sue the trustees over mismanagement of their 401(k) accounts. “Now I don’t want my name as the trustee,” he says.

“We take responsibility for the actions we take regarding the TotalSource Retirement Savings 401(k) Plan,” says Mark Benjamin, CEO of ADP TotalSource. The HR supplier has an investment committee that meets every quarter to determine the funds that stay in the mix and has hired an outside investment advisor to assist the committee with selecting and monitoring the plan’s funds.

Stencel feels secure outsourcing the firm’s 401(k) administration to ADP in part because the supplier has a dedicated staff that handles day-to-day 401(k) administrative issues. “I don’t have time to do all that,” says Stencel.

“Not many small and medium-sized businesses are examining their 401(k) plans every quarter,” Benjamin posits.

Another 401(k) challenge: Did a new hire make the plan top-heavy? Firms constantly need to reassess. “We handle compliance testing for buyers that adopt our plan and notify them of potential testing issues. This reduces their responsibilities,” says Benjamin.

ADP buyers are provided a $1 million in the aggregate per year employee practices liability insurance (EPLI) policy when they purchase the bundled HR services package — just in case.

Deciding to outsource everything HR to a PEO

When its partners founded Pegasus Capital 11 years ago, it outsourced its payroll to ADP. An ADP representative made a sales pitch: ADP TotalSource could take over the entire HR administration, handle the firm’s health and welfare benefits, and adopt the ADP TotalSource Retirement Savings Plan. Stencel liked the idea of a professional employer organization (PEO) handling his HR. “My ears perked up,” he says.

He began to assess the benefits of a bundled solution. First, the PEO becomes his HR department. He had never been able to hire a professional HR manager because the firm is based in Cos Cob, Connecticut, an area known for its generous salaries. “Even if I hired an HR person with little experience, it would still cost me around $100,000,” he says. And he doesn’t have to hire additional staff to manage the department, either.

The importance of competitive benefits

Outsourcing allows Pegasus to gain more benefits for the same money. “We are a small firm, so we had no pricing power in the marketplace when it came to benefits,” he reports. ADP’s roster of benefits was deeper; “now we have Fortune 500-like company benefits,” Stencel says. For example, Pegasus Capital added short and long-term disability insurance to its benefits roster. (The firm had major medical and dental before outsourcing.)

Having a rich benefits package is important when a money management firm is trying to attract top talent. “We are a firm with extremely demanding professionals,” says Stencel. Adds Benjamin, “Money management firms hire sophisticated and demanding employees. Outsourcing allows them to offer the best 401(k) plans and the most comprehensive healthcare plans, which are table stakes in HR for them.”

Top benefits also aid employee retention. Stencel says that before he had ADP’s benefits package, employees would mention during exit interviews that they were joining another company because it had better benefits or higher matching percentages for the 401(k) plan.

The value of HR specialists

No more questions from employees for Stencel. Now they call ADP’s call center that is staffed with individuals that are supported by HR professionals. “Now my employees can talk to HR specialists instead of me,” says the CFO.

ADP assigns each buyer an HR specialist who will show up on site if necessary. (ADP TotalSource has 50 offices all over the country.) Stencel says his HR specialist was valuable when Pegasus had an issue with one of its assistants. He had his HR specialist interview every assistant in the firm to determine the extent of the problem.

“They all reported to me. I know they would have been reticent telling me what they were really feeling,” he says. But they were open to talking to an impartial third party. After discussing the HR specialist’s findings, he says, “She helped me take the ball and run with it.” The assistants felt the company was listening to their issues, he adds. “Our specialist made them feel important.”

Benjamin says ADP HR specialists help their buyers with “tough terminations and harassment claims.” They are trained to conduct professional interviews and investigations. “We correct issues before they become problems,” says Benjamin.

The best part of purchasing a bundled HR policy, says Stencel, is “ADP stays on top of everything and I don’t have to worry about it.”

Embrace the transformative power of PEOs to elevate your business. Witness the growth, efficiency, and success that HR outsourcing can deliver for your money management firm.

Lessons from the Outsourcing Journal:

  • Being the trustee of a 401 (k) plan may now have added liability thanks to a recent Supreme Court decision. Outsourcing the plan administration shifts much of the potential liability to the HR supplier, who is responsible for the actions it takes in administering the plan.
  • Financial services firms typically have demanding employees. Small firms with top benefits can recruit and retain the best employees. One way to afford these benefits is to outsource.
  • Outsourcing to a PEO provides HR specialists who can help with tough termination and harassment issues. They are also available to answer time-consuming employee questions, freeing the buyer to do more strategic work.


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