Shining Examples

When plan sponsors reflect on their plan’s success in 2020, what will likely be top of mind is COVID-19 and how it affected their organization. The 2020 PLANSPONSOR Best in Class list, culled from the results of our 2020 Defined Contribution (DC) Survey, offers insights into the relationships between plan sponsors and their recordkeepers, through the first three quarters of this difficult year. As other recent DC Surveys have found, recordkeeping fees remain compressed. To stay competitive, providers must excel in technology and other specialized services—a demand that drives costs up while revenues are down, says Robyn Credico, defined contribution consulting leader, North America, at Willis Towers Watson in Arlington, Virginia. Another reason revenue is falling for recordkeepers is that fewer sponsors now opt for bundled recordkeeping solutions. This means opportunities for leveraging new business from current clients have diminished, she says. Even up against these challenges, she says, “recordkeepers work hard to differentiate themselves in different markets.” Pamela A. Popp, president of Lockton Retirement Services, in Kansas City, Missouri, agrees. The fundamental recordkeeping function—what she calls “the basic block and tackle”—is now often referred to as a “commodity.” And the value-add services that recordkeepers need to differentiate themselves require significant investment. This has a predictable trajectory. “Recordkeepers consolidate for scale and growth,” she notes.

Is Consolidation a Good Thing?

As the 2020 PLANSPONSOR Recordkeeping Survey shows, consolidation of the industry continues. While it may be a little unsettling for plan sponsors and participants whose recordkeeper merged with or was acquired by another, Popp says she believes such transactions ultimately benefit them because the “surviving” recordkeeper is the one most invested in technology and cybersecurity.

Typically, when recordkeepers consolidate, they try to maintain the best of both companies, says Credico. An acquired company’s plan sponsor clients will experience change. Therefore, “[they] need to do their due diligence on the new recordkeeper,” she says. “The fiduciary duty of selecting providers means don’t just go along with the change.”

With an acquisition, the acquiring company will usually maintain the sponsor’s contracts until they run out, she says. “But it’s important to benchmark fees, which may go up or down after that.”

How to Choose

As the pool of recordkeepers gets smaller, plan sponsors might have a harder time differentiating between them and not know which considerations matter most.

Sponsors should seek a team that will focus on their needs and offer effective solutions. “They’ll want to look for a recordkeeper that does a fair amount of business with plans like theirs and of the same size,” Credico says.

Investment in technology is a differentiator for recordkeepers, Credico says. “More participants tend to go to the internet for services, so recordkeepers should be improving their websites and making them user-friendly,” she says.

In addition, she notes, there is a big market for financial wellness programs and products integrated with technology. “Student loan benefits, managed accounts and advice that incorporates participants’ total financial picture are examples of tools that address individual challenges, not just saving for retirement,” she says. “Recordkeepers that focus on these are the ones that will differentiate themselves.”

“Ultimately,” says Popp, “the industry will end up with a couple of handfuls of recordkeepers with significant scale and a focus on participant value-add services. To me, this is a standard life cycle of the industry, and, as it matures, we’ll see more consolidation.”

—Rebecca Moore