UpFront | Published in May 2012

Consolidation Confusion

Plan sponsors not sold on benefits of bundling with one vendor

By Tara Cantore | June 2012
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Forty-eight percent of plan sponsors whose retirement plans are not fully bundled with one vendor indicate they would be open to bundling the plans if convinced of the benefits, a recent study says. Still, many have strong reservations about the strategy that would need to be overcome first.

According to Chatham Partners’  report “2011 Trends in DB [Defined Benefit] Bundling and Total Retirement Outsourcing [TRO]: Evaluating the Opportunity in a Recovering Economy,” most semi-bundled sponsors agree that cost savings and efficiency will probably result from bundling. However, many of them, as well as unbundled plan sponsors, balk at trading off investment flexibility and adding to their risk. Some of the latter group even doubt that projected outcomes—such as saving resources,  time and the cost of administrative and investment fees—can even be achieved.

To gain insight about the findings, PLANSPONSOR spoke to Chatham Partners’ CEO, Peter Starr, who also put them in context. Some plan sponsors don’t think they can achieve more by bundling their plan packages, Starr said. “They don’t believe it saves time and resources, their costs, [and] they don’t believe the benefits outweigh the risks.

“If you track historically, you see the same results—less than 20% have a strong belief in those outcomes. If you do not believe in those outcomes, you are less likely to consolidate your program to a single provider. So if you look at the constituenc[ies] that are truly unbundled [they tend to stay that way].”

What the study also showed was sponsors’ varying degrees of satisfaction with their existing plans and desire to improve them. For example, the greater majority are comfortable with the level of expertise, resources, cost and time expended in administering their benefit plans. And while 84% of respondents are not concerned with the current level of expertise, sponsors most likely cite discomfort with their plan’s cost, and 20% express interest in reducing it.

Sponsors of the largest plans (more than $500 million in DB assets) are least comfortable with the resources currently devoted to running their plans; they also are least concerned with making changes to the level of expertise and cost. Conversely, sponsors of the smallest plans (less than $50 million) are most comfortable with their resources at hand but least comfortable with the expertise, cost and time.