Over the past several years the retirement planning industry has seen a number of large mergers and acquisitions among record keepers. John Hancock bought New York Life; Great-West, Putnam, and JP Morgan became Empower; OneAmerica bought BMO; and Transamerica bought Mercer just to name a few. This industry consolidation has been driven by rising technology costs that have made smaller record keepers less competitive. It has also resulted in commoditization of record keeping services.
Commoditization means that the services that these large record keepers offer are beginning to look more and more alike, and the record keeping companies are now competing on fees. What this means for you as a plan sponsor is that each year the average fee charged by record keepers industry wide is dropping. Lower fees create both an opportunity and a risk for plan sponsors and fiduciaries.
The opportunity is to renegotiate your plan’s record keeping fees on a regular basis, thus creating a cost savings to pass along to your participants. The risk is that if you’re not regularly going to your record keeper to renegotiate fees, you may find yourself paying far more than the industry average without even knowing it. It is this type of scenario that brings home the importance of having a formal, documented process in place that benchmarks your plan’s service providers. This helps ensure that you are always meeting your fiduciary duty to pay only reasonable fees for necessary services.
Another interesting question that comes out of this record keeper industry consolidation is “What should you do if your record keeper is acquired by another record keeper?” The answer is simple, but important. You must do your due diligence on the new record keeper. Ask questions so that you understand the new company’s fee structure, their service model, and their technology. It’s also important to ask why this consolidation is taking place. A record keeper consolidation is a great opportunity for you as a plan sponsor to push the new record keeper to renegotiate fees because they will want to retain as many of the old company’s clients as possible.
After asking all of these questions, consider whether this new record keeper is going to meet your plan participants’ needs. If the answer is clearly “yes,” then there’s no problem staying with the new record keeper. However, if the answer is “I’m not sure,” then it may be a good time to go to market to see what other service providers would be able to offer and at what cost. Keep in mind that a record keeper merger or acquisition can benefit your participants if the new company provides a better website experience with an enhanced platform.
©2016 by Kyle Halberg, JD, ERISA Research Analyst, Pension Consultants, Inc., 300 S. Campbell Ave., Springfield, MO 65806. 417.889.4918.
www.pension-consultants.com. All rights reserved. Used with permission.
