The good news is that plan sponsors have many choices when selecting a recordkeeper for their defined contribution plans. The challenge for many businesses, especially for small businesses, is that day-to-day running of their businesses leaves little time to review, monitor, and optimize their DC plan. The result is that many plan sponsors lack a comprehensive understanding of who the top 401k providers are. PLANSPONSOR magazine conducts an annual recordkeeping survey profiling top providers. Here is their list of the 2015 top 401k providers and a few of my thoughts.
2015 TOP PROVIDERS (RECORDKEEPERS)
|By Total Defined Contribution Assets ($MM)|
|9||Xerox HR Solutions, LLC||$194,398|
|10||Principal Financial Group||$173,267|
|11||T. Rowe Price||$146,439|
|12||Bank of America Merrill Lynch||$134,822|
|13||John Hancock Retirement Plan Services||$126,171|
|14||Transamerica Retirement Solutions||$125,323|
|15||MassMutual Financial Group||$120,810|
|20||ADP Retirement Services||$59,553|
|By Total Defined Contribution Plans|
|2||John Hancock Retirement Plan Services||54,329|
|3||Principal Financial Group||51,020|
|4||ADP Retirement Services||47,605|
|9||MassMutual Financial Group||32,981|
|16||Lincoln Financial Group||26,531|
|18||Transamerica Retirement Solutions||23,603|
|19||Plan Administrators, inc. (PAi)||13,768|
|20||Alliance Benefit Group||12,268|
Fewer Providers Due to Industry Consolidation
While defined contribution (DC) plans continue to grow in assets, number of plans, and participants, the number of recordkeeping service providers is declining. For example, Empower Retirement was established as a rebrand of Great-West Retirement Services, Putnam Investment's retirement business, and J.P Morgan Retirement Plan Services. John Hancock Retirement Plan Services acquired New York Life Retirement Plan Services. This summer, the Bank of Montreal agreed to sell its US retirement-services business to OneAmerica Financial Partners. Many plan sponsors remain uncertain how this industry consolidation will impact their retirement plan services and pricing. While some are concerned that fewer competitors mean less choice, others predict that the remaining service providers, fewer in number but more dominant in position, will be able to provide more value and deliver better technology to plans and their participants. According to PLANSPONSOR, 20 recordkeepers now account for 87.7% of defined contribution assets—up from less than 75% in 2005.
While choices for selecting a 401k provider remain abundant, plan sponsors are challenged to identify their needs and engage the best service providers to meet those needs. Recordkeeping 401k providers can vary significantly in that some deliver more services while others promise less cost. Case in point, Paychex is the top 401k provider in the country based on number of DC plans. However, Paychex does not make the top 20 list based on assets ($.) How can this be? The reason is that Paychex shines as a provider for start up plans and smaller plans, i.e. plans with smaller assets and/or fewer participants. Like everything in life, there is no one-size-fits-all solution that is best for everyone. It always "depends."
Your Needs Are a Moving Target
Many business owners say that they're not familiar with the variety of 401k provider options because they rely on the rep who sold them their plan. This comes as no surprise because business owners are focused on running their businesses.
Even if your plan is set up perfectly today, your needs will change over time. Plan assets grow and the number of participants change. Therefore, it is a good best practice to review your plan regularly to see if plan design changes can be implemented to improve the plan and make sure that your costs are reasonable. If your plan has changed so dramatically, it could call for a complete change in 401k providers.
We Can HelpThe process of reviewing your plan does not have to be difficult or time consuming. Whether you are trying to improve an existing plan or setup a new one, considering watching our 30-minute webinar where we discuss common 401(k) mistakes to avoid and ways to optimize your retirement plan. We want to help you ensure that you are working with the best 401(k) service providers for your company and its employees.
When was the last time you reviewed your plan and decided to change service providers? Please share your experiences and thoughts.