Recordkeeper consolidation is in the news again! Rampant recordkeeper consolidation in the retirement plan industry continues apace. One recent example of a behemoth power merger is Empower Retirement’s $3.5 billion acquisition of Prudential’s retirement business, as reported in a recent article from the Society for Human Resource Management (SHRM). This means that retirement plan sponsors and committees may have fewer options to choose from when it comes to selecting a recordkeeper.
A plan recordkeeper’s functions are many, including executing participant trades, mostly on online platforms. Recordkeepers also work in tandem with plan fiduciaries, such as the members of a retirement plan committee responsible for selecting and overseeing the plan’s investment. These firms are also typically involved with delivering participant education and communication programs. Some even provide investment advice for participants.
One problem with recordkeeper consolidation is that employers don’t have the option to choose when their recordkeeper merges with or is acquired by another firm. The relationship may then become new and unfamiliar, and therefore, more difficult to manage and navigate. In short, it means the employer loses control, according to Carol Buckmann, a partner with law firm Cohen & Buckmann in New York City, who was quoted in the SHRM article.
However, there is an upside. Recordkeeper consolidation could also produce recordkeeper relationships that generate additional value for employers and participants. Recordkeeper consolidation is designed to create economies of scale, which can lead to enhanced services and potentially lower fees. That said, better services at a lower cost is never a guarantee. It behooves plan fiduciaries to regularly benchmark their current providers against competitors to ensure the plan sponsor receives appropriate value for their plan dollars.
Selecting a new recordkeeper can be an arduous process, resulting in a lot of change and turmoil for employers and employees. And given the current pace of recordkeeper consolidation, a plan sponsor may wonder if it’s worth making a shift to a new provider. According to SHRM, “…shopping around by soliciting requests for proposals (RFPs), for instance, can yield important intelligence regarding the state of pricing and the level of services being offered. For example, employers with defined contribution retirement plans, defined benefit pension plans, and stock-compensation plans could find opportunities to save time and money by consolidating the administration of all of those plans with one provider.”
A 2021 study from Principal Financial Services found that consolidating multiple plans under a single provider can improve the efficiency and consistency of plan administration. It also reduces an employer’s administrative burden, especially those with unique plan design features. Having a single provider is also advantageous for plan participants, especially if it enables them to use a single telephone number, website, or app to manage all of their accounts.
Saving money and time aren’t the only reasons to consider shopping around for service providers post recordkeeper consolidation. According to SHRM, “Recent litigation involving retirement plan fees means employers need to demonstrate that they are taking steps to manage the fees participants pay while also increasing the services available to plan participants.” This research may not require a full-blown RFP. A request for information (RFI) may suffice to gather market insights. Again, from SHRM, “The key question is whether the fees of the current provider are reasonable given what that provider is offering relative to what the market is offering.”
Cybersecurity may be another issue employers look at when considering recordkeeper partners. Employers can request information about their efforts to secure participants’ account assets and personal information. Provider protocols for preventing ransomware and other cyberattacks could put retirement plan data and other assets at risk. Related to this is the use of confidential participant data to cross-sell investment products to participants who are rolling over assets from a 401(k) to an individual retirement account (IRA). The DOL is exercising greater scrutiny on how participant data is being used in this context, as well as plan audits.
Recordkeeper consolidation is likely to continue. Retirement plan sponsors and committees should consider their current provider relationships with the understanding that changes could happen at anytime, whether precipitated by a merger or acquisition, or due to a benchmarking exercise. It is beneficial to exercise discernment and caution in these circumstances, and do proper due diligence to ensure that you and your participants are getting the best value at a reasonable cost, and that you are fulfilling your fiduciary obligations.
