Recordkeeper Consolidation Considerations for Retirement Plan Sponsors

Dustin Roberts, MBA, QKA, AIF®

Recordkeepers continue to make news with acquisitions involving some of the industry's largest and most recognized names, a consolidation trend that impacts tens of thousands of employers and millions of participant accounts each year. A carefully considered selection of a provider can be wholly displaced by this now common occurrence when two merge or one acquires another. It is important for plan sponsors to consider how the change will affect the plan and participants, starting with plan governance, timing, service, and technology.

PLAN GOVERNANCE

If a plan's recordkeeper is changing due to an acquisition, one of the first questions that comes to mind is "when." Instead, begin by asking "if." Plan sponsors can view this in the context of the plan governance strategy and determine how the change fits rather than seeing it as something that is happening to the plan. Selecting a recordkeeper is, after all, a fiduciary function. An acquisition and the related impact to the provider’s service model, people, resources, and even fees may undermine the due diligence that led to the current choice.

One best practice is to conduct a Request for Proposal (RFP) or Request for Information (RFI) periodically to assess vendor options or renegotiate fees. If it has been more than a few years, this may be a prudent step to take. For more information on this, read Innovest's Summer 2020 InnoViews article, Crafting Effective Request for Proposals. If an RFI/RFP has been conducted recently or is not currently feasible, some analysis is still beneficial. Plan sponsors can start by asking, "Are we happy with our provider?" and "What do we like most and least about our current provider?" These should consider both plan sponsor and participant experiences. By comparing these answers to the qualities plan sponsors deem most important, they can examine how well the current provider meets their needs.

A transition may also offer an opportunity to resolve service or feature gaps with the current provider without the full undertaking of an RFP and conversion. The chance to test-drive the new provider first may be appealing. In either case, as a plan fiduciary, it is essential to take an active approach to this partnership by gathering those thoughts and documenting the decision-making process.

TIMING

A broad timeframe (i.e., 12-18 months) typically applies when a provider announces this type of acquisition, but a specific date for each affected plan might not be. It is helpful to confirm this as soon as possible because it will impact the plan governance calendar and help determine if there is enough time to complete an RFP, if warranted or desired.

The transition communication plan and timing are also important. If considering a proactive change, plan sponsors will need to know when the new provider intends to notify participants, so as to intervene prior. If going ahead with the transition, they can assess how the communication timing aligns with current employee education strategies or schedules.

Migrating multiple retirement plans is a large and coordinated task. A provider might move all plans at one time or use a phased approach. The latter can allow for some flexibility as to the specific date for a particular plan. The phased approach can also give the provider a chance to monitor the process and even gather customer feedback to improve from one group to the next. Plan sponsors should consider if there is flexibility and if other dates offer any advantages.

SERVICE

Plan sponsors often rely on provider personnel that they know and trust to help manage the plan, such as relationship managers, compliance specialists, or education consultants. Team members may transition, and restructuring may be minimal, but some change is likely due to differences between the two providers' service models and coverage needs. A larger or combined provider may divide plans by size differently, and different tiers may correspond to various available services or resources.

Plan sponsors should consider the current service experience and understand how that will look with the new provider. Consumers often look to reviews and ratings to help make purchasing decisions for personal services, and a similar approach can be helpful here. Industry associations and many providers themselves conduct customer satisfaction surveys, though consideration of the source is important, as any self-furnished survey results are likely only to be of the positive variety. Consulting with other service partners and peers that have experience with workplace retirement plans can also be beneficial to get unbiased insight on providers’ capabilities.

TECHNOLOGY

Website and mobile experiences predominantly shape the recordkeeper's relationship with participants, so it may help to request a demo or preview of these resources. Technology is vital for a provider beyond the user interfaces, though, down to the recordkeeping platform itself and the cybersecurity protections that surround it.

Plan sponsors and participants should expect some minimum capabilities, so these features and tools are less likely to make a meaningful difference in the assessment. Plan sponsors should note any enhanced or unique functions that they rely on currently, however, as those may expose more meaningful provider differentiation. Examples of this might include payroll integration partners, custom model portfolio recordkeeping, specific or complex eligibility tracking needs, or financial wellness resources.

The commitment and capacity to invest heavily in the recordkeeping business, including service and technology, determines which providers are growing through vendor consolidation. Therefore, the new provider may offer advantages over the current one, but plan fiduciaries should be proactive in that assessment. For over two decades, Innovest has worked with all major recordkeepers and helped clients successfully execute this crucial responsibility.