A recent report from Accenture highlighted the challenges facing 401(k) recordkeepers in an increasingly competitive environment. The industry is experiencing a wave of acquisitions and partnerships as companies search for ways to offset slimmer profit margins and find the capital necessary to invest in their technology platforms and keep them on the cutting edge.

For recordkeepers, this consolidation has led to a fiercely competitive market, as companies battle to increase market share and take advantage of the economies of scale that come with higher assets under management. For plan sponsors, it presents an opportunity to keep plan costs down without sacrificing any of the support or benefits of a well-managed retirement plan. When combined with the ongoing advances in artificial intelligence-enabled technology solutions, for both participants and plan sponsors, the potential to reduce costs while enhancing what the benefits program offers to employee participants has never been better.  

Anova Consulting Group’s retirement research has shown that plan sponsors have clearly noticed these trends and are taking advantage of the opportunity to deliver more to participants while maintaining their fiduciary responsibilities. Anova Consulting’s research explored the factors considered by plan sponsors throughout the recordkeeper evaluation process and evaluated what is driving buying committees’ decisionmaking processes. A look back at the last five years shows a slow and steady shift in what plan sponsors are looking for in a recordkeeper, and it is not just the lowest price anymore.

Decision Drivers: The Shift Away From Price

Recordkeeping fees have been squeezed to the point where there is rarely a meaningful gap between one finalist and another. Based on responses from plan sponsors and advisers interviewed by Anova, this fee compression has caused a shift in the reasons for choosing a recordkeeper.

In the past five years, we have seen the percentage of buyers who identified price as a top reason for their recordkeeper choice drop to 58% from almost 70%. Price is therefore still a significant factor, but less of a differentiator or a decision driver.

The same is true for investment options. With most recordkeepers now offering open architecture, the investment options offered by a provider are now only cited 13% of the time as a reason for selecting a recordkeeper. This has dropped significantly over the last half-decade, as most recordkeepers now offer a similar slate of nonproprietary products, from standard mutual funds to target-date funds to exchange-traded funds, reducing the ability for one recordkeeper to stand out from another.

Growing in Importance

So what are companies looking for when selecting a recordkeeper for their defined contribution  plan? Anova’s research revealed a steady increase in the importance of client service and of a strong relationship between the two organizations.

Service starts with establishing rapport between the plan sponsor and the recordkeeper. A trusted relationship and a connection between the relationship manager, the client service manager and the plan sponsor are key drivers of a successful partnership. Plan sponsors often cite the confidence they have in a recordkeeper delivering on the promise of service and support as an increasingly important reason for selecting a partner.

Dynamic Participant Experience

There has also been a steady increase in the expected quality of the participant experience. This often starts with technology. As most participants access their retirement plan online, either through a browser or a mobile app, a simple, easy-to-use platform is essential in not only encouraging participation, but also in getting employees to take advantage of all the benefits the plan may offer.

Assistance with investment decisions, educational opportunities and other features that used to depend on human interaction can now be accessed and completed online. Of course, there are still some transactions—and some participants—that require access to a human, so a call center is also still an important support component for some companies.

Getting the Most out of Your Plan Review

Given the complexity and disruption involved with a move to a new 401(k) provider, it is important for buying committees and plan sponsors to learn as much as possible about the companies competing to manage their plans.

Most companies will work with a financial adviser when selecting a recordkeeper. Be sure to ask your adviser about their experience with each recordkeeper. Does the recordkeeper have a lot of experience with companies like yours? What are their differentiators in the market? Which one has a culture that would be a good fit with yours?

Keep in mind that most sponsor-recordkeeper partnerships last more than seven years¹, so it is important to think long term. Another important consideration is whether a bundled or unbundled solution is best for your plan. Work closely with your adviser on these questions while preparing the request for proposals. This will help you narrow down your choices ahead of the finals presentations and help the selected recordkeepers come prepared to discuss what you care about. Allow at least an hour for each presentation so that you have time to ask questions and hear about the key features of what each recordkeeper has to offer.

Selecting a Recordkeeper

Once you have had a chance to meet with the competing recordkeepers, take the time to review the options as a group.

The RFP process will have focused on many of the details, like pricing, investment options and participant offerings. In the next phase of the evaluation, it is important to take a more holistic view of what the relationship will look like. Be sure to consider the various stakeholders in your company’s plan. Will the new recordkeeper be a good partner and provide the best solutions and services for all your employees—executives, office and non-office workers—and those managing the program day-to-day?

Once you have taken all these factors into consideration, you’ll know you’ve done your best for all participants and stakeholders.

1. 2024 Cogent Syndicated Report by Escalent (https://escalent.co/news/ma-activity-healthy-business-growth-are-now-top-triggers-for-switching-401k-recordkeepers/)

Brendon Attridge is a senior engagement manager with Anova Consulting Group, a voice-of-the-customer research firm that specializes in win/loss analysis. He is responsible for building and maintaining long-term partnerships with Anova’s financial services and retirement clients. His responsibilities also include identifying and communicating actionable insights to help clients win and retain more business. Brendon draws on his 25 years of research and consulting experience to drive value clients.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.