Benefits and Compensation

Service Provider Reviews Don’t Lead to Greater Turnover

One result of the new fee disclosures requirements and retirement plan sponsors’ new duty to ensure reasonable service fees has been increased review of many plans’ provider costs. Through requests for proposals, comparative benchmarking and renewed scrutiny of current providers, plan committees and sponsors are endeavoring to learn if they are paying too much for administrative services.

Yet one report finds that, due in part to commoditization of 401(k) product and service offerings, more sponsors than ever are staying with their current providers, especially after participating in a final presentation with an existing TPA under review. 

Anova Consulting Group, a provider of client satisfaction data to the financial services industry, in a Feb. 12 press release said its analysis of 2012 “win/loss” surveys, part of data it accumulated since 2007 from 1,200 interviews with midsized to large 401(k) plan sponsors, showed that 31 percent of final reviews by plans with between $20 million and $500 million in assets resulted in the plan sponsor staying with its recordkeeper. That figure is up from 28 percent in 2011 and 18 percent five years ago. 

The data does not include non-competitive re-bid situations, however, which Anova Consulting said are “an increasingly commonplace alternative to a full search/RFP process for plan sponsors who are not necessarily dissatisfied with their provider but conduct periodic due diligence reviews for fiduciary reasons.” 

“Over the last five years, the percentage of plans conducting full-blown searches and electing to remain with their current providers has increased roughly 10 percent each year,” according to Anova Consulting President Richard Schroder . “If this trend continues, it will mean that in five more years, 50 percent of the plans conducting finals searches will remain with the incumbent,” he said. 

Finding out More 

To read the complete story on Thompson’s HR Compliance Expert, click here. 

To learn more about managing plan fee expenses, see ¶285 in The 401(k) Handbook.