Great competition and consolidation in the retirement plan sector means that there are generally thin margins for all but brokers and high-end providers. Recordkeeping pricing is primarily a function of average account balance, total assets, the complexity of a plan and participant count. Vendor revenue comes primarily, if not exclusively, from investment management fees. Therefore, larger plans are often placed in a higher service tier that affords them enhanced services. Today, a company may be able to secure enhanced services and much lower rates than in the past.
In addition, improvements in technology mean vendors are able to provide services at far lower internal costs. With heavy competition for new business, vendors are willing to pass those savings on to the customer. Plans that came to price agreements in an era before this dynamic miss out one these developments.
Situation: A major U.S. food distributor was unahppy witht he services they were receiving for their 401(k) and pension plans, which were administered by separate vendors. Service was somewhat erratic, participation rates were low and expenses were high.
Solution: Tomkins and Associates, in conjunction with Integrity Research Associates and Retirement Engineering, Inc., analyzed plan service details and discovered that the unbundled model in place lent itself to inefficiencies resulting in what we felt was a much-inflated price. Tomkins and the plan sponsor identified an opportunity to integrate administration of the two plans, realizing 1) a single point of contact for participants and HR; 2) open architecture investment flexibility; 3) improved and invigorated participant education services; and 4) lower overall costs to both plans. Tomkins and Associates initiated the vendor search process and distributed a Request for Proposal to interested and appropriate vendors for integrated pension and 401(k) services. The project included several meetings and phone conferences with HR, management, and vendors, and numerous hours analyzing and summarizing vendor responses.
Results: Although the plans might not have been considered very attractive, each of the vendors, including the incumbents, made initial offers that would integrate and enhance services for the two plans and cost less per years than the incumbant arrangement. With their new vendor, the client saved over $500,000, employee relations and education were reinvigorated, the 401(k) plan fund lineup was made more robust and the DB plan investment mangement became more diversified. All parties remain pleased.