Partial Bundling Overtakes Full Bundling for Retirement Plan Services

According to Callan’s 2019 Defined Contribution Trends report, while the proportion of plans that were at least partially bundled rose from last year, the number of plans that identified themselves as fully bundled (12.3%) is at the lowest in the survey’s history.

“This reflects a larger unbundling trend we have observed over time,” the report says.

By way of definitions, Callan says fully bundled plans are those in which the recordkeeper and trustee are the same, and all of the investment funds are managed by the recordkeeper. A partially bundled plan is one in which the recordkeeper and trustee are the same, but not all of the investment funds are managed by the recordkeeper. A fully unbundled plan, on the other hand, ensures the recordkeeper and trustee are independent, and that none of the investment funds are managed by the recordkeeper.

According to Callan’s latest analysis, fewer than one in ten (9.1%) mega plans, defined as those with assets greater than $1 billion, had a fully bundled structure at the end of last year. Conversely, 56.1% of mega plans were unbundled. Callan’s report shows nearly two-thirds (65.0%) of mid-sized plans ($100 million to $500 million in assets) reported using a partially bundled structure and 15.0% indicated they utilized a fully bundled structure, down from 21.9% last year.

Partially Bundled Plans Remain Popular

Particularly in the small- and mid-sized plan segments, industry analysts tend to agree that the prevalence of partially bundled plans will likely remain prevalent for some time. This is, in part, because providers of recordkeeping services are facing fee compression challenges in this market segment and are, as a result, creating new approaches to partially bundled plan solutions.

One example to consider is Empower Retirement’s recently launched Empower Select program, focused on medium and small employers. The solution is not fully bundled because it includes more than 1,000 investment options for participants to consider. However, Great-West funds are made available and, in order to participate in the Empower Select program, external mutual-fund providers pay a fee for fund distribution.

The Callan data also calls to mind Fidelity’s 2018 announcement that it would begin charging a 0.05% fee on assets invested through its institutional retirement plan recordkeeping platform into Vanguard products, including the firm’s popular suite of index-based target-date funds (TDFs) and collective trusts. The announcement grabbed attention in part because Fidelity and Vanguard are two of the largest-volume providers of retirement plan recordkeeping and investment products for defined contribution retirement plans in the U.S.