Those intending to add or consolidate plan sponsors should also weigh the notice requirements and the work required to create new summary plan disclosures with the perceived administrative benefits of consolidation. For some plan sponsors, staying put may be the best option.
As benefits continue to be a leading item in recruitment and retention of top candidates, plan sponsors may be considering changing their plan providers as well as their plan options. According to 2022 study by Willis Towers Watson, 75% of retirement plan sponsors have made a change to their plans over the last 2 years.[1] More importantly, those who have already made a recent change are considering making another within the next two years. Some plan sponsors may be asking if its time to consider switching plan providers to get more flexibility and new ideas. Some of those sponsors may want to consider adding or consolidating plans. This could be especially true for plan providers offering both 403(b) and 401(k) plans. Decisions concerning changing providers should always involve legal counsel. They should also not be done in haste to keep up with others in the industry. If it feels like you are stuck between a rock and a hard place, here are a few thoughts on the pros and cons of adding plan providers, consolidating multiple plans and staying put. It may come down to considering the benefits of consolidating (or cutting) versus the costs of noticing a change (or the paper). In other words, to get unstuck from the rock, consider the scissors and paper.
There are strong arguments for consolidating plan providers. As the Society of Human Resource Managers recently reported “A 2021 survey of 311 plan sponsors conducted by Principal Financial Services found that consolidating multiple plans under a single provider can improve efficiency and consistency of plan administration while also reducing the time the employer must spend on retirement plan administration. This is particularly true for employers whose retirement plans have unique plan design elements.”[2] This could result in cost savings, which, in turn, could result in the ability to offer new or different benefit options. That same survey found that there were significant savings in staff time for those plan sponsors who did consolidate their plans, with a range of 3 to 7 hours of staff time saved per month. Consolidation also reduced staff time for those plans requiring non-discrimination testing, with some reporting an average of 36 hours per year saved. Since staff capacity is often a consideration for plan sponsors in determining whether a new benefit can be offered, these savings could be significant for plan sponsors who want to add to their benefits line-up. For example, many plan sponsors want to add financial counseling to their plan options but hold back for two primary reasons. According to a 2019 study from Deloitte,[3] 44% of plan sponsors held back from offering more financial counsel due to fiduciary concerns and risk management. 27% of plan sponsors held back from offering this option due to financial concerns (an increase from a similar survey in 2017). Recent studies now show 9 out of 10 plan sponsors are working on offering financial wellbeing programs as part of their plan offerings. Cutting, or consolidating, plan providers could give plan sponsors more flexibility.
On the other hand, many plan sponsors may be asking whether they should have more than one provider. Deloittes’ study also noted that half of all plan sponsors surveyed were considering new options. However, some plan sponsors in special categories, like those with 403(b) plans may be more likely to consider working with more than one provider. “Most (80 percent) of higher education institutions have a relationship with just one plan provider, although those with more than $50 million in plan assets are more likely to work with multiple providers to give employees plenty of options.”[4] Since providers may want to stay with current providers based on their relationship, but may be in need of different options, or investment products with lower fees, choosing to take on additional providers may be a good option.
For those torn between consolidating and or adding new providers, one commentator noted “Employers, however, may weigh the convenience and possible savings on labor and fees against the risk of having all their benefit plan eggs in one basket….” Plan Sponsors who may be considering outright changing their plan providers should consult their legal counsel as early as possible as changing plan providers requires notice to plan participants. Those intending to add or consolidate plan sponsors should also weigh the notice requirements and the work required to create new summary plan disclosures with the perceived administrative benefits of consolidation. For some plan sponsors, staying put may be the best option. In other words, consider the paper requirements of making a change.
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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