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 2020 compiled self-reported data submitted by recordkeepers of defined contribution (DC) plans that represent more than $8.2 trillion in assets. It is estimated to account for 90% of the total DC market.
Here's their list of the 2020 top 401(k) providers and followed by my thoughts.
2020 TOP PROVIDERS (RECORDKEEPERS)
| Top 10, by Total 401(k) Assets ($MM) | ||
|---|---|---|
| 1 | Fidelity Investments | $2,037,733 |
| 2 | Empower Retirement | $493,577 |
| 3 | The Vanguard Group | $454,223 |
| 4 | Alight Solutions | $434,737 |
| 5 | Principal Financial Group | $322,976 |
| 6 | Voya Financial | $211,389 |
| 7 | T. Rowe Price | $195,224 |
| 8 | Prudential Financial, Inc. | $180,544 |
| 9 | Bank of America Corporation | $173,412 |
| 10 | Charles Schwab | $162,876 |
source: 2020 PLANSPONSOR Recordkeeping Survey
| By Total Defined Contribution Plans | ||
|---|---|---|
| 1 | Paychex, Inc. | 17,693 |
| 2 | ADP Retirement Services | 9,112 |
| 3 | American Funds | 6,986 |
| 4 | Ascensus | 6,382 |
| 5 | John Hancock | 5,662 |
| 6 | Empower Retirement | 4,399 |
| 7 | Guideline | 4,334 |
| 8 | Principal Financial Group | 4,017 |
| 9 | Transamerica Retirement Solutions | 1,830 |
| 10 | Newport | 1,544 |
source: 2020 PLANSPONSOR Recordkeeping Survey
Impact of the Pandemic
The pandemic has caused massive dislocation among small businesses, even after the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Impacts were significant across industries like retail, arts and entertainment, personal services, food services, and hospitality. In contrast, technology, finance, professional services, and real estate-related businesses experienced less disruption.
The CARES Act created a new emergency retirement plan distribution option dubbed the coronavirus-related distribution, or CRD for short. A CRD may be drawn from a DC plan or from an IRA in any amount up to $100,000. Additionally, the law doubled the size of the loan a participant may take, from $50,000 or 50% of one's account balance, whichever is lower, to $100,000 or 100% of one's account balance.
Working with Recordkeepers
Plan Sponsors adopting CARES Act provisions have been working with their recordkeepers to amend their plan documents. Recordkeepers have also been busy fielding participant questions with regard to loans, in-service withdrawals, COVID-19 related withdrawals, and the consequences of each. Call centers have also experienced increased demand in fielding participants' questions about market volatility. Many sponsors have checked on their recordkeepers' business continuity plan to ensure that its services are operating smoothly during these unusual times.
No One-Size-Fits-All
As always, recordkeeping 401(k) providers can vary significantly in that some deliver more services while others promise less cost. Case in point, Paychex is the top 401k provider in the country based on number of plans. However, Paychex does not make the top 10 list based on assets ($.) 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 most things 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 likely 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?
