2019
PLANADVISER Recordkeeper Services Survey

The 2019 PLANADVISER Recordkeeper Services Survey utilizes data gathered in the 2019 PLANSPONSOR Recordkeeping Survey. That annual survey is compiled from self-reported data submitted by recordkeepers of 401(k), 403(b), 457, nonqualified deferred compensation (NQDC) and other defined contribution (DC) plans. This year’s survey differs from past iterations in that it excludes SEP [Simplified Employee Pension] and SIMPLE IRA [Savings Incentive Match Plan for Employees individual retirement account] plans, a change that had a material impact on a handful of providers and that merits consideration when looking for trends in the data. These two markets will be covered in a future issue.

Of the 56 participating recordkeepers, 45 claim to serve the intermediary market and are featured in the grid on pages 36 and 37. These firms supplied information on the types of intermediaries they work with, fee structures used, and support services to advisers and other intermediary types. All data are as of December 31, 2018. Readers are encouraged to follow up with providers directly for further detail on the scope and availability of service offerings. For information on licensing the supporting data on all 56 recordkeepers or to learn how to participate in the 2020 PLANSPONSOR Recordkeeping Survey, please email surveys@strategic-i.com. —Brian O’Keefe

401(k) Industry Snapshot

The 401(k) plan is the largest workplace savings vehicle and now accounts for more than, on average, 65% of all defined contribution (DC) plans, participants and assets, but the market is far from uniform. Almost 90% of 401(k)s each have less than $5 million in assets, but these plans account for less than 20% of 401(k) participants and less than 10% of 401(k) assets. Stated differently, the 647 largest 401(k)s—i.e., those that have over $1 billion in assets—control 49% of 401(k) assets and nearly 33% of all participants.

Not surprisingly, the industry has evolved to cater to the needs of plans both large and small, with larger plans more likely to be sold direct and smaller plans typically sold and serviced through retirement plan advisers, who offer added value to sponsors lacking the knowledge or time to maintain their plan.

Overall, fiduciary concerns are driving a more expansive review of 401(k) provider capabilities. Sponsors have always taken an interest in service offerings related to potential administrative headaches such as compliance testing and Form 5500 preparation and filing. But many requests for proposals (RFPs) now explore other areas of fiduciary importance, including fiduciary outsourcing options, cybersecurity protocols and disclosure of ancillary business revenue that might be connected to plan administration. —BOK

403(b) Plans Industry Snapshot

Although 403(b) plans and 401(k) plans have started looking increasingly similar in recent years, clear differences still remain. Most notably, the majority of 403(b) plans (74%) 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. Multi-vendor plans introduce additional compliance requirements that carry significant penalties if not met, meaning sponsors must understand how participant contributions are allocated and how providers share information across participant accounts. Conversely, sponsors can opt for a single-vendor plan, to consolidate and simplify plan administration.

Across the industry, service models have changed to align with specific subsegments of the market. Aff luent industries such as higher education and health care—which represent 67% of 403(b) plan assets—often have different servicing needs than do the K – 12 schools, churches and charities that make up the rest of the market. Investment lineups are also changing as more contemporary investment options displace the annuity contracts on which the industry was built. All of this change has fueled recent improvements in processes, systems and technology that have helped to modernize the plan sponsor and participant experience. —BOK

457 Industry Snapshot

With over $380 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, which can be similar to 401(k) plans, are the largest subset and cover 7 million participants, while nongovernmental plans must limit participation to groups of highly compensated employees (HCEs) and cover less than 250,000 participants.

It is not surprising that, as supplemental savings plans, 457s are less successful at capturing participant savings than are other plans—the $47,000 in average 457 plan assets per participant is lower than the comparable figures for either 401(k)s or 403(b)s.

The secondary nature of these plans and the limitations many public-sector 457s face in offering automatic enrollment and automatic escalation creates opportunities for providers to differentiate on the quality and effectiveness of services that successfully increase participation and contributions levels. Examples would include on-site meetings, online tools, financial wellness programs and communications/education campaigns. Retiree services also take on increased importance, as 457 participants may have multiple distribution options across multiple plans to consider at retirement. —BOK

Nonqualified DC Plan Snapshot

AAlthough the average nonqualified deferred compensation (NQDC) plan is small—63% have fewer than 25 participants, and 75% have less than $5 million in assets/liabilities—this vehicle can be an important benefit for high-income employees and executives. Therefore, finding the right provider is no less important than when making similar decisions for other plan types.

The first question sponsors may face is whether to outsource administration to a specialist, which offers deep NQDC-specific expertise, or a generalist, which offers administration of the plans as a convenient add-on to other services. Yet, the line between these types of providers continues to blur as acquisitions and improvements in technology and integration have forged hybrid organizations capable of delivering on both value propositions. Today, only 23% of the overall market bundles NQDC plans with other services.

Regardless of service strategy, leading NQDC service providers possess the knowledge and systems necessary to manage the complexity of these plans. Nonstandardized vesting schedules, informal funding vehicles—used in almost 20% of NQDCs—and a wide range of permissible distribution options represent just a few of the many challenges NQDC plan sponsors and participants face, so having access to the resources to monitor and prevent potential regulatory violations is of critical importance. —BOK