Consolidation of record keepers serving defined contribution plans is heating up as fees continue to get lower and the demand for services continue to rise which is unsustainable for providers that do not have scale. Which is why big companies have sold off their record keeping division recently like NY Life, Mercer, JP Morgan and BMO as well as Xerox which is planning a spinoff. What does that mean to plan sponsors and how can their either take advantage or protect themselves?
The report published in Workforce.com notes that fees have dropped from a median of $118 per participant to $64 in 2015, a 46% decline and a 9% decline over the previous year. At the same time, demand for services continue to rise. To sustain, providers have to get bigger either through new sales, which is slow, or mergers and acquisitions. Managing 1 million participants used to be thought of as the minimum required to sustain – that number has risen to 3 million according to some experts with providers like Fidelity managing the plans for almost 19 million participants.
With declines in pricing, it’s incumbent for plan sponsors to periodically check pricing to make sure their fees are reasonable not just because of the DOL regulations but also because of the rash of lawsuits that are coming down market. In fact, a recent Cogent survey with plan sponsors shows that fees are one of the biggest drivers for record keeper changes.
So what are the risks and opportunities? Smaller national providers are at risk of not being able to keep up with behemoth record keepers that regularly spend over $100 million annually to upgrade and improve technology not to mention the cost of operations and sales. No one likes to go through a conversion if their record keeper is sold and why not take advantage of the new technology and services being developed? On the other hand, with fees dropping, plan sponsors have the opportunity to upgrade services and lower costs sometimes without even changing providers.
