Companies that offer employees a 401(k) plan have many choices when selecting service providers for defined contribution plans. The challenge for many businesses, especially those small- and medium-sized, is that day-to-day operations leaves little time to review, monitor, and optimize their retirement plan on a regular basis. The result is that many plan sponsors lack a comprehensive understanding of who the top 401k providers are. Because your plan assets change due to financial market conditions and retirement plan contributions, it's important for plan sponsors to understand the service provider landscape and ensure that their plan is with the best provider for their participants (employees.)
PLANSPONSOR magazine conducts an annual recordkeeping survey and in 2017 profiled 55 leading providers that represent more than $6 trillion in assets and are estimated to account for 85% of the total defined contribution market.
Here's their list of the 2017 top 401(k) providers and my thoughts.
2017 TOP PROVIDERS (RECORDKEEPERS)
| By Total Defined Contribution Assets ($MM) | ||
|---|---|---|
| 1 | Fidelity Investments | $1,629,337 |
| 2 | TIAA | $465,184 |
| 3 | Vanguard | $443,874 |
| 4 | Empower Retirement | $443,114 |
| 5 | Voya Financial | $312,783 |
| 6 | Prudential Financial, Inc. | $262,802 |
| 7 | Wells Fargo | $227,800 |
| 8 | Transamerica | $206,780 |
| 9 | Conduent LLC | $195,539 |
| 10 | Bank of America Merrill Lynch | $191,635 |
source: 2017 PLANSPONSOR Recordkeeping Survey
| By Total Defined Contribution Plans | ||
|---|---|---|
| 1 | Paychex, Inc. | 77,000 |
| 2 | ADP Retirement Services | 66,244 |
| 3 | John Hancock Retirement Plan Services | 56,133 |
| 4 | Principal Financial Group | 52,607 |
| 5 | American Funds | 51,510 |
| 6 | Voya Financial | 47,045 |
| 7 | Ascensus | 44,994 |
| 8 | Nationwide | 37,048 |
| 9 | Empower Retirement | 36,208 |
| 10 | Fidelity Investments | 32,999 |
source: 2017 PLANSPONSOR Recordkeeping Survey
Service Providers Evolve
While defined contribution (DC) plans continue to grow in assets, number of plans, and participants, the number of recordkeeping service providers continues to decline. In many ways, pure recordkeeping is often considered a commodity so providers have in turn developed investment, technology, and servicing option. Notably, only a few recordkeepers offer participant-focused apps for mobile devices.
Plan Design
In an effort to help companies better prepare their employees for retirement, there has been a continued push for automatic plan features like auto-enrollment, auto-escalation. Auto-portability allows participants to automatically bring their retirement account balance with them when moving from one job to the next. By automating enrollment and increasing contributions, the data says that plans sponsors and participants are more likely to achieve their goals.
Tech-Based Startups
New providers specializing in the micro- to small-plan markets include Betterment for Business, Captain401, and Guideline. These providers typically offer limited investment options alongside low fees by leveraging technology platforms. Most of these firms did not respond to the PLANSPONSOR Recordkeeping Survey so it's too early to know their impact on the 401(k) market.
No One-Size-Fits-All
As always, recordkeeping 401(k) providers can vary significantly in that some deliver more services while others promise less cost. Case in point, Paychex is the top 401k provider in the country based on number of plans. However, Paychex does not make the top 10 list based on assets ($.) How can this be? The reason is that Paychex shines as a provider for start up and smaller plans, i.e. plans with smaller assets and/or fewer participants. Like everything in life, there is no one-size-fits-all solution that is best for everyone. Therefore, plan sponsors need to maintain a process for evaluating their changing needs and proactively engaging the best service providers to meet those needs.
Your Needs Are a Moving Target
Don't ignore your 401(k) plan and allow it to become stagnant. Even if your plan is set up perfectly today, it's not guaranteed that it will be perfect 5 years from now. Plan assets grow and the number of participants change. Therefore, it is a best practice to review your plan regularly to see if plan design changes can be implemented to benefit participants and make sure that your costs are reasonable. Further, you need to keep up on regulatory changes to keep your plan compliant. If your company's needs have changed dramatically, it could call for a complete change in 401(k) providers.
We Can Help
The process of reviewing your plan does not have to be difficult or time consuming. Whether you are trying to improve an existing plan or setup a new one, consider watching our 30-minute webinar where we discuss common 401(k) mistakes to avoid and ways to optimize your retirement plan. We want to help ensure that you are working with the best 401(k) service providers for your company and its employees.
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When was the last time you reviewed your plan and evaluated your service providers? Please share your experiences and thoughts.
