Data and Research April 10, 2019

Partial Bundling Overtakes Full Bundling for Retirement Plan Services

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, in part because recordkeepers are facing fee compression.

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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.

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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.

Data and Research April 10, 2019

Lincoln Offers Suggestions for Boosting Employee Retirement Confidence

Lincoln's inaugural Consumer Retirement Index found only 25% of Americans are very confident about retirement, but there are steps that sponsors and advisers can take to improve this outlook, Jamie Ohl, president of the retirement business at Lincoln Financial Group, tells PLANSPONSOR.

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In conjunction with National Retirement Planning Week (April 8-12), Lincoln Financial Group launched a new, quarterly measurement of Americans’ retirement outlook. Called the Consumer Retirement Index, the initial launch found that only 25% of Americans are very confident about retirement.

Created in partnership with CivicScience, the index’s findings are based on respondents’ answers to three questions: being able to accumulate enough money to retire when they want, being able to convert savings into retirement income that will last throughout their lifetime, and having enough money to maintain their lifestyle in retirement.

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In order to boost Americans’ retirement outlook, there are a number of practical things that retirement plan sponsors and advisers can do, Jamie Ohl, president of the retirement business at Lincoln, tells PLANSPONSOR.

Sponsors and advisers need to “make people aware of how critically important it is to save for retirement, and how much they need to save,” Ohl says. “Forty-three percent of people know they need to save 15% or more of their salary, and 60% know they need to save at least 10%. Being aware is the start.”

However, “The No. 1 issue [keeping people from saving for retirement] is competing priorities,” Ohl says. “If I think about individuals at every life stage, there is always something competing for retirement plan dollars, be it saving for a down payment on a home, saving for your children’s education or taking care of your parents. In order to save for retirement, people need to create a budget in order to find the money to save for retirement, so employees need budgeting tools. Only 45% of people have a budget.”

And the third thing that sponsors and advisers can do it to help people who are retiring convert their savings into income that can last their lifetime, Ohl says. It is a positive step that recordkeepers are including projected monthly income in retirement on participants’ statements and online, she says. The next step is to actually help people who are retiring create that lifetime income stream. Annuities can plan an important role in providing greater certainty about Americans’ income in retirement, Ohl says.

Sponsors and advisers also need to educate people about the importance of long-term care insurance, be it hybrid life insurance/long-term care products or riders than can be added to annuity and life insurance products, she says. To achieve all of the above, it is a wise move for participants to meet with a financial adviser, she says. They can help savers identify the benefits of the many solutions available in the marketplace to provide income and long-term care.

Ohl says she hopes the Consumer Retirement Index identifies areas where Americans need assistance, and that with the help of advisers and sponsors, the percentage of those who are very confident about retirement will grow over time.

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