When companies select a defined contribution retirement plan provider, size is often a factor. Many plan sponsors choose a large, household name. Sponsors assume these companies, with their heritage, national reach and deep resources, can provide everything plan sponsors and participants need.
Large retirement plan providers often lack customized services that are needed. Instead of getting an all-inclusive experience, sponsors are left to make major decisions on their own.
Plan sponsors often assume they’ll receive the best investment advice from a large provider. But, since the provider often offers proprietary investments, they can’t make recommendations about specific funds. This would be a conflict of interest. Instead, the provider may recommend an asset class and present the plan sponsor with multiple fund options in that asset class. It’s then up to the plan sponsor to select the individual funds.
Many plan sponsors aren’t equipped to make this all-important decision. They expect the large provider to play an advisory or fiduciary role, only to discover that those responsibilities fall on them.
Instead of getting the administrative services and advice from one platform, the sponsor now has to go to an outside consultant. What they thought would be a streamlined process now involves several vendors. Otherwise, they risk not fulfilling their fiduciary duties.
A recent class-action lawsuit filed against Anthem shows that even selecting low-cost, large provider funds might not be enough to fulfill fiduciary responsibilities.
Another top goal of plan sponsors is to increase participation in a retirement savings program. Key to achieving this goal is education.
It is often assumed that large plan providers have more resources for education. However, their business model may be built on selling investments, not services. They may have some education tools, but it may not be their top priority.
Customizing education is important to increasing employee participation. This includes simple things like creating and distributing targeted messages to participants, holding group and one-on-one meetings, and creating messages that tie into companies’ goals, mission, and brand.
These are things that independent providers may be more likely to offer. Since they work closely with companies, and in a greater advisory role, they can more easily customize materials and services.
Large retirement plan providers often have impressive participant websites with lots of bells and whistles. However it’s important to take a second look. Often these websites contain information overload and are not intuitive to the average participant. This can lead to inaction on behalf of the participant. Providers may also use this participant website as an opportunity to advertise other products in hopes of up-selling to the participant, and from a plan sponsor perspective, this might not be anything you want to encourage.
Just because they’re big doesn’t mean large providers can do everything you need. So, before selecting a provider, make sure they can provide you with the advice, fiduciary support, customized education and participant support you need and want.
Tara is President of Conrad Siegel Investment Advisors, Inc., chair of the investment committee, and a member of Conrad Siegel Actuaries' business development committee.
