Cogent: Advisers Should Lean Into 401(k) Cost-Cutting Conversations

Plan advisers should be ready for, if not prompting, conversations with plan sponsors who are scrutinizing their defined contribution retirement plans, including pricing transparency, according to the lead researcher of a recent Cogent Syndicated retirement report from Escalent.

Reducing retirement plan costs is a core focus for 50% of defined contribution plan sponsors with more than $100 million in plan assets, according to Escalent’s Retirement Planscape report released June 30. That’s up from 35% from the same survey in 2021, showing increases in both cost pressure and in focus on better provider performance, according to Sonia Davis, the report’s lead author and a senior product director at Escalent.

“One of the key takeaways in this year’s research is that cost reduction is now a universal endeavor across all 401(k) plan sponsors,” Davis says. “It’s not just among the more micro-plan sponsors.”

In a survey of 1,353 plan sponsors conducted in February and March, 19% said they were “not at all confident” in the stability of the global economy, an increase from 12% in 2021, according to the report. When researchers asked plan sponsors about their “biggest pain points,” the top concern was evaluating their 401(k) plan, according to Davis.

“That is a sign that both firms and the intermediaries have yet to provide sufficient support in helping [plan sponsors] evaluate and help them understand what is going on,” she says. “Plan sponsors don’t want to be caught off guard; they want to be sure they are doing what’s best for their participants.”

Retirement plan committees “are getting more scrutiny from their executive committees,” Davis says, including having to define and explain costs and administration of their retirement benefits. Transparency and education from plan advisers can be a key asset for clients as they navigate these meetings, according to Davis.

“The more plan sponsors are informed and the more they understand the fees, the better off everyone is,” she says. “Advisers are being vetted by their ability to be transparent.”

Some of the larger plan sponsors may want to send requests for proposal to recordkeepers and third-party plan administrators to gauge the market and return with price negotiating power, something with which plan advisers can assist, Davis notes.

The Escalent survey also found that plan sponsors are more aware of digital 401(k) plan providers than in the past: The firm found that the proportion of plan sponsors who are unaware of digital recordkeepers decreased to 39% this year from 52% last year.

Five of nine digital providers evaluated also increased their brand awareness over the year, Davis says, citing ShareBuilder 401k, 401k Easy, Vestwell Holdings Inc., Ubiquity Retirement + Savings and Guideline Inc.

The biggest draw for plan sponsors considering digital recordkeepers are better cost structures (43%), according to the report. The next biggest draws are better digital capabilities (36%), easier participant onboarding (34%), better payroll integration (33%) and  innovative technological platforms (31%).

“They are getting on some of these plan sponsors’ radars,” Davis says. “How much of a threat they can be [to legacy recordkeepers] is still kind of TBD, but the fact that large and mega plans are aware of them is something that more of the established firms definitely need to take note of.”