DB Plans Wringing More from Master Trust Providers

February 21, 2003 (PLANSPONSOR.com) - Defined benefit plan sponsors, both public and corporate, appear to be getting more for their money, according to new research from PLANSPONSOR and the Bank of New York.

Most (58.3%) public plan respondents have increased the number of services from their custodian over the past five years, as have 47.1% of corporate plan respondents to the PLANSPONSOR/Bank of New York Research Study on Master Trust & Custody.   However, despite the expansion of services, nearly half of both public (45.8%) and corporate (49.2%) plan respondents say their custodian pricing has not changed over the past five years, while roughly 1-in-4 in each category said their pricing had decreased.

Proposal Pause?

Perhaps as a result, it had been more than five years since more than 60% of public plan respondents issued a request for proposal (RFP) to evaluate custodian services, as had 54% of corporate plans.   On the other hand, nearly a third of public plans (29.2%) had done so in the last two years, compared with 21.8% of corporate plan respondents.

Performance measurement was most frequently cited as the service added to the custodian relationship, by more than half (51.2%) of corporate plans, but just 35.7% of public plans.   Transition management was the second-most cited addition by both corporate (29.3%) and public plan (28.6%) respondents.   Compliance was third highest on both lists.

However, public plan sponsors cited risk management as the fourth-most utilized additional service (21.4%), which only 7.3% of corporate plan respondents named.   The fourth-most utilized service for corporate plans was securities lending.

Transition “Take”

Considering the prominence of transition management in the expanded service category, it was not surprising that roughly two-thirds of survey respondents either had used, or said they would consider using, their custodian bank to execute investment manager transitions, with corporate plans slightly more inclined to answer in the affirmative.  

Of the third that would not consider using their custodian bank, roughly a third (34.1%) cited a perceived conflict of interest, while roughly another third (31.7%) noted a perceived lack of ability by the custodian bank.   Roughly one-in-five said they were not aware their provider had this capability.

The survey was based on 123 usable plan sponsor respondents during October and November 2002, based on a questionnaire developed jointly by The Bank of New York and PLANSPONSOR.