Plan sponsors, that is companies that offer their employees a 401(k) plan, have many choices when selecting service providers for their defined contribution plans. The challenge for many businesses, especially for small businesses, is that the day-to-day running of their businesses leaves little time to review, monitor, and optimize their retirement 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's their list of the 2016 top 401(k) providers and a few of my thoughts.
2016 TOP PROVIDERS (RECORDKEEPERS)
|By Total Defined Contribution Assets ($MM)|
|9||Transamerica Retirement Solutions||$204,936|
|10||Xerox HR Solutions, LLC||$185,092|
|12||Bank of America Merrill Lynch||$158,155|
|13||T. Rowe Price||$148,559|
|14||John Hancock Retirement Plan Services||$124,325|
|16||MassMutual Financial Group||$120,104|
|20||ADP Retirement Services||$59,720|
|By Total Defined Contribution Plans|
|2||John Hancock Retirement Plan Services||55,404|
|3||ADP Retirement Services||55,015|
|12||MassMutual Financial Group||31,920|
|14||AXA Equitable Life Insurance Company||28,622|
|15||Lincoln Financial Group||27,811|
|16||Transamerica Retirement Solutions||25,385|
|18||Alliance Benefit Group||12,708|
|20||Aspire Financial Services||10,325|
Fewer But Stronger Providers
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. The Bank of Montreal sold its US retirement-services business to OneAmerica Financial Partners.
The result of this industry consolidation is that recordkeeping assets are concentrated among the largest 20 providers. The big are getting bigger -- through both acquisitions and organic growth. As recordkeeping services become commoditized, the remaining service providers are fewer in number but more dominant in position. They are better able to provide value and better technology to plans and their participants. Overall, these trends are benefiting plan participants.
Better Investment Choices
One of the areas where we see competition driving service providers to improve offerings is in the area of investments. Providers are increasingly offering open architecture investment platforms that allow 401(k) plans to offer the best funds across asset classes and strategies. According to PLANSPONSOR, 87% of recordkeepers now offer sponsors a choice of over 1,000 mutual funds, while 65% market over 4,000 mutual fund options. If your plan has very limited fund choices and a proprietary lineup dominated by a single fund company, take note! That could pose a risk to plan trustees.
Recordkeeping 401(k) 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 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. Therefore, plan sponsors need to maintain a process for evaluating their needs and trying to engage the best service providers to meet those needs.
Your Needs Are a Moving Target
Don't allow your 401(k) plan to become stagnant. 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 best practice to review your plan regularly to see if plan design changes can be implemented to benefit participants and make sure that your costs are reasonable. Further, you need to keep up on regulatory changes and keep your plan compliant. If your company's needs have changed dramatically, it could call for a complete change in 401(k) providers.
We Can Help
The 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 evaluated your service providers? Please share your experiences and thoughts.