Bundled versus Unbundled Retirement Plan Pros and Cons by Alison J. Cohen, Esq.
Bundled versus unbundled retirement plan services is a concept with which many plan sponsors struggle. Like so many things in life, one size doesn’t fit all and bundled versus unbundled retirement plan services is one of them. When deciding what type of service vendor is best for your retirement program, it is important that you understand what those choices are. A ‘bundled’ service model is one where a single vendor, usually a financial institution, acts as the custodian, recordkeeper, and third-party administrator (TPA). Besides providing the platform for investments, the 800 number and web access for your participants, and the accounting for the plan funds, the bundled service model furnishes the plan documents, performs all nondiscrimination testing, and will prepare for signature the Form 5500. An ‘unbundled’ service model is one where an independent TPA provides the plan documents, performs the nondiscrimination testing, and prepares for signature the Form 5500. A financial institution acts as custodian and recordkeeper. There are different possible flavors of this split relationship.
Why Would I Want to Go Bundled?
When pondering, bundled versus unbundled retirement plan services, consider the complexity of your retirement plan. If you have a retirement plan that is simple and requires little special attention, going with a bundled provider may be a suitable option. The bundled arrangement can provide a single point of contact, but it could be via a general 800#, where you interact with a team of retirement plan generalists who are not assigned to you or your specific plan. That type of anonymity may not be the level of customer service that will work best for you or your plan participants.
A bundled arrangement may appear to have lower overall fees for your plan and participants, but that is not always the case. Plan fiduciaries are responsible for understanding the complexity of all fees and making certain those fees are reasonable based on the services being performed. Bundled providers may also have an existing payroll interface, making administration appear seamless.
Bundled providers, however, often limit some plan design options which can prohibit you from being able to use some of the more favorable nondiscrimination testing techniques.
Why Would I Want to Go Unbundled?
Engaging a TPA can mean that you get to work with a staff of credentialed, highly-experienced professionals who can help you to maximize the design, operation, and communication of your retirement plan. This will ensure that your goals for your retirement plan program can be met. At a TPA firm, you will generally have a single point of contact with whom you can always reach and is familiar with your company and your retirement plan. TPA firms also often have much lower turnover, making it possible to develop a long-term relationship with your contact. That high-touch feel may just be what you need to keep your plan on track.
TPAs can work with nearly any financial institution, providing you with the benefits of a bundled provider, and with the expertise of the TPA. While you may be paying fees to separate vendors, the total may still end up the same amount as with bundled.
Operating your plan in an unbundled environment also permits you to pick and choose the best of all possible worlds. If you outgrow (or prefer to not work with) one provider you can change out that specific service provider without losing other providers, you favor. This can offer important flexibility, particularly in relation to funding choices.
Making the Choice
A fiduciary is obligated to prudently select service providers. The bundled versus unbundled retirement plan decision is a big one. This means looking at total cost, however, the collective cost should never be an exclusive measurement of which firm or vendor is best for your plan. Before you start deciding which service model will work for your plan participants, you should make a list of the qualities and features of your plan and your service providers that are important to you. Senior management may have specific goals or individuals it wants to reward. Your employees can also give you a good idea of what would increase their satisfaction with the retirement program. When the time comes to make the bundled versus unbundled retirement plan decision, use your list. This list should help guide you to determine the service model that will bring your retirement program to the next level.
Alison is a Partner with Ferenczy Benefits Law Center in Atlanta, Georgia. Alison advises clients on many issues related to qualified retirement plans, including design, mergers and acquisitions, audits, and operational issues. Alison commonly works with clients that have operational issues to guide them through the Internal Revenue Service (IRS) and/or Department of Labor (DOL) corrective programs, prepare corrective filings, and prepare and support clients through an audit conducted by the IRS and/or DOL.
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