When ADP and other payroll vendors got into the defined contribution (DC) business record keeping plans like 401(k)s almost 15 years ago, they struggled with brand perception. What does a payroll company know about investing? At that time, the DC industry, especially the smaller DC market, was dominated by mutual fund companies who offered 401(k) plans but only if the plans used their funds.
Fast forward and the DC industry is completely different today with massive consolidation forcing out many of the mutual fund providers unable to deal with the cost and complexities of running DC plans while being required to offer competitor’s investments. Now payroll companies like ADP and a few competitors have taken a significant market share, especially with smaller DC plan, because of the efficiencies and cost saving combining payroll and DC administration. And while investments are key, payroll companies can offer best of breed outside investments because they don’t manage money and can avoid the potential conflicts of using proprietary funds as the DC industry moves toward a more open architecture environment.
And while 50,000 DC plans under management puts ADP as one of the largest DC record keepers with market share of payrolls growing rapidly, ADP has well over 500,000 payroll clients which means that 90% use another DC record keeper. Joe DiSilva, General Manager of ADP’s DC business reviews some of the advantages of combing payroll and record keeping including:
- Alleviating risk
- Faster allocation of deposits
- Seamless transfer of files
Most major record keepers work closely with payroll vendors to integrate administration without plan sponsors having to get involved but with the growing use of auto-plan features like auto-enrollment and auto-escalation, that integration will only become more important putting payroll providers in a strong position. Payroll company’s market share will only rise as plan sponsors look to manage costs in a highly litigious world, improve efficiencies and remove administrative burdens. And if something goes wrong, there’s only one “throat to choke”.
