Study: TRO Slow to Catch On

May 5, 2006 ( - Plan sponsors are reluctant to get too involved in a Total Retirement Outsourcing (TRO) contract where they bundle their defined benefit and defined contribution plans, a new survey found.

A news release from Waltham, Massachusetts-based Chatham Partners, a financial services consultant, said its survey of 466 plan sponsors found that employers are still largely staying away from bundling because they believe it does not deliver true cost savings. The sponsors also assert that bundled arrangements do not offer the same degree of investment flexibility that their current unbundled arrangements provide, the Chatham poll found.

As a result, Chatham said in its news release, just over one in 10 (13%) plan sponsors intend to bundle their defined benefit plans in the coming 12 to 24 months. However, the sponsors left a door open: if they could be convinced of the benefits, over 50% would bundle their DB plans. Not only that, but 67% would integrate the management of their DC and DB programs with a single vendor.

Moving plan investments into a bundled solution appears to be a sticking point that inhibits the growth of DB and TRO bundling. Almost one-third of plan sponsors responded that they would be willing to bundle services to achieve incrementally lower costs. However, fewer than 15% of sponsors stated that they would be willing to alter their relationships with investment managers/consultants or sacrifice investment flexibility to save money.

“The marketplace for bundled Defined Benefit and Total Retirement Outsourcing is experiencing growing pains,” said Peter Starr, President and CEO of Chatham Partners, in the news release. “Service providers have built a vast array of products with advanced features and functionality that, in many respects, has outpaced the sponsor’s ability to recognize inherent value. Despite the growth of this market, it is safe to say that a revolution has not occurred. Instead, the process has unfolded as an evolution,”

Plan sponsors have a common series of attributes they hope to realize through fully bundling their DB plans. These include:

  • greater cost savings,
  • enjoying greater efficiency and time savings,
  • having a single point of contact,
  • improving the quality of plan sponsor services, and
  • having greater vendor accountability.

According to the announcement, findings of the study also include:

  • 37% of the plan sponsors reported being uncomfortable with the time, resources and costs associated with running their plans; however, only 12% are actively interested in reducing costs. The remaining 25% assert that, while uncomfortable, cost reduction is not a priority.
  • Plan sponsors who have already made the decision to bundle some of their services are more predisposed to bundling additional services. Almost one-third of sponsors who take a semi-bundled route state their intention to bundle additional services within the next 12-24 months.

The 123-page report is based on in-depth telephone interviews with a nationally representative sample of 466 sponsors, affiliated with corporate plans ranging in assets from $1 million to over $1 billion, and 14 service providers. Additionally, Chatham Partners conducted over twenty in-depth interviews with major industry providers, the company said.

More information is at .