Unbundled Plans Gained Significant Ground in 2017

Callan has published its 2018 DC Survey, offering up a highly detailed overview of the U.S. defined contribution (DC) plan industry.

The extensive analysis covers a broad range of topics, including a section on the topic of “bundled versus unbundled” plan arrangements. As the research lays out, the proportion of plans that are at least partially bundled fell dramatically from 53.8% in 2016 to 44.0% in 2017, a continuation of the unbundling trend.

“In 2010, 65.1% of plans reported that their plan was at least partially bundled,” Callan says.

Today, just 8.8% of “mega plans” with assets greater than $1 billion utilize a fully bundled structure. Underscoring the strong influence of plan size in this area, nearly two thirds (62.5%) of mid-sized plans with asset levels between $100 million and $500 million report using a partially bundled structure, while approximately a fifth indicating they currently utilize a fully bundled structure (21.9%).

To be clear, according to Callan’s definitions, in fully bundled plans the recordkeeper and trustee are the same entity, and all of the investment funds are managed by the recordkeeper. Partially bundled plans also have the recordkeeper and trustee as the same entity, but not all of the investment funds are managed by the recordkeeper. Finally, in fully unbundled plans, the recordkeeper and trustee are independent of one another, and none of the investment funds are managed by the recordkeeper.

Regardless of how they interact with these key providers, most DC plans—including both ERISA-governed plans and those voluntarily seeking to follow the Employee Retirement Income Security Act (ERISA)—seek to be in compliance with ERISA section 404(c).

“Notably, the number of plan sponsors that do not know if their plan is compliant dropped considerably—from 12.6% in 2016 to 2.2% in 2017,” Callan confirms. “Most DC plan sponsors (84.9%) said they took steps within the past 12 months to ensure compliance—up slightly from 2016 (81.4%). More than six in 10 (60.5%) personally reviewed compliance. Many engaged third parties to review 404(c) compliance, such as their consultant (50.0%) and their attorney (40.7%).”

While the number that did not know what steps had been taken to ensure compliance rose from 9.3% in 2016 to 11.6% in 2017, Callan notes fewer plan sponsors had taken no steps to ensure compliance (9.3% in 2016 versus 3.5% in 2017).