2018
PLANADVISER Recordkeeper Services Guide

401(k) Industry Snapshot

The 401(k) plan is the most common institutional retirement savings vehicle and now accounts for more than 60% of all defined contribution (DC) plans, participants and assets. But the market is far from uniform. Over 90% of the plans have less than $10 million in total plan assets, yet these plans account for only 20% of total 401(k) participants and less than 15% of the total assets. Stated differently, the 700 largest plans—accounting for 0.1% of all plans—control 50% of all assets and over one-third (36%) of all participants.

Not surprisingly, the industry has evolved to cater to the unique needs of these two distinct markets, with smaller plans commonly sold or serviced through intermediaries and larger plans more apt to be sold directly. Recordkeepers have somewhat mirrored this trend, resulting in two somewhat separate and distinct competitive landscapes: Smaller plans tend to align with adviser-centric businesses or those supplying core business services—e.g., payroll—while larger plans migrate toward providers offering proprietary, and customizable, platforms.

Beyond these differences, even the smallest plans can offer competitively priced investment options, managed accounts, mobile apps and comprehensive financial wellness education if plan sponsors can find the right partner. —Brian O’Keefe

403(b) Plans Industry Snapshot

Authorized in 1958, 403(b) plans have been around far longer than their 401(k) counterparts, but it has taken nearly 60 years for them to accumulate $1 trillion in total assets—a benchmark 401(k) plans passed more than two decades ago. Over the years, 403(b)s and 401(k)s have started to look more alike, but clear differences remain. Most notably, many 403(b) plans are exempt from requirements set forth by the Employee Retirement Income Security Act (ERISA), and some continue to offer multi-vendor environments, where a participant can choose from a number of recordkeepers to service his plan.

The annuity-based origin of the 403(b) market is evident among service providers: Organizations with roots in the insurance industry still control a significant portion of 403(b) assets. Like the overall market, these providers have evolved to offer products and services on par with those of other competitors in this market. Additionally, service models have changed to align with specific market sub-segments, such as K – 12 schools, which can vary widely based on their geography and community; higher education institutions, hospitals and health care organizations—affluent compared with other organizations; and many churches and charities, which tend to have smaller plans. As a result, sponsors have many good choices for a 403(b) recordkeeping partner. —BOK

457 Industry Snapshot

With over $350 billion in recordkept assets, 457 plans account for the third largest pool of defined contribution (DC) assets, providing public, governmental and certain nongovernmental employees with access to benefits typically associated with 401(k) and nonqualified deferred compensation (NQDC) plans. Governmental 457(b) plans—similar to 401(k) plans in terms of eligibility guidelines and contribution limits—are the largest subset of plans and cover 6.5 million participants, while nongovernmental 457 plans must limit participation to highly compensated employees (HCEs).

Many recordkeepers service both plan types, but the governmental plan market is dominated by four providers—Empower Retirement, ICMA-RC, Nationwide and Voya Financial—which accounts for about 85% of governmental 457(b) assets. The nongovernmental 457 plan market is only slightly less concentrated, with the four largest providers—Lincoln, TIAA, T. Rowe Price and VALIC—overseeing almost 70% of total assets.

Unsurprisingly, 457s, as supplemental savings plans, are less successful at capturing participant savings than are other plans—the $47,800 in average 457 plan assets per participant is lower than the comparable figures for both 401(k) ($78,300) and 403(b) ($61,300) plans. But, as the plans’ asset growth is in line with other plan types, recordkeepers appear committed to helping 457 plan participants succeed. —BOK

Nonqualified DC Plan Snapshot

Prior to 2008, plan sponsors could find just two types of providers in the nonqualified deferred compensation (NQDC) market: specialists, who offer deep NQDC-specific expertise, and generalists, who offer NQDC administration as a convenient add-on to their qualified plan business. Since then, the market has become more blended, with the emergence of “hybrid” organizations capable of delivering on both value propositions. Today, the market is almost evenly split, with hybrid organizations totaling more assets/participants, and specialists retaining more plans, which may explain why only 10% of the overall market bundles NQDC plans with other services.

Generally speaking, NQDC plans are small—75% have fewer than 25 participants and 65% have less than $5 million in assets/liabilities—and are funded via a rabbi trust (70%). Mutual funds are the most common source of funding (75%), with corporate-owned life insurance (COLI) and business-owned life insurance (BOLI) together running a distant second (15%). Approximately 20% of NQDC plans are unfunded. Although they are small, NQDCs can be an important but complex benefit for high-income employees/executives, so finding a provider capable of delivering the right combination of knowledge, administration, funding strategies and participant education is no less important than decisions related to larger, more common plan types. —BOK