Retirement Plans: Should you Bundle or Unbundle?

It’s tempting for companies to get retirement plan services “bundled” together to save money. And while there are bundled plans that can work for some businesses, it’s not often the best route. Bundled services sacrifice flexibility and customization for the sake of saving money up front, but the truth is there are many ways where the bundle will cost you more down the road and cause more headaches than it’s worth.
‍

To understand if a bundled or unbundled approach is best for you or your client (if you are a financial advisor, for example), we need to understand the different things that third-party administrators (TPAs - like The Ryding Company) and recordkeepers do. First, let’s look at what a high-level TPA typically provides and then look at the recordkeeper side.
‍

TPA responsibilities:

Compliance administration

Guidance on plan design

Form 5500 preparation

Compliance testing and audit support

Conversion support

Plan document support

3(16) plan administration services (in certain cases)
‍

Recordkeeper responsibilities:

Tracking how much investment you have

Tracking where your investments are

Keeping a record of who is in a sponsor's retirement plan

Tracking and handling investment elections, contributions, and distributions
‍

So how does a bundle work?

Some plan sponsors may choose to combine multiple TPA and recordkeeping services for their retirement plans under a single provider as a bundle. In a bundled approach, the recordkeeper takes on the additional work of the TPA in a consolidation effort. This means investments, recordkeeping services, customer relations, technologies, and plan administration (plan design, compliance testing, Form 5500 filing, etc.) are all included in a package. This is an out-of-the-box solution and is generally inflexible.
‍

How does unbundling work? If services are unbundled, then two or more specialist service providers are part of the relationship and work together in their respective areas of expertise. This has the benefit of combining the recordkeeper’s expert knowledge with technology and participant experience and the TPA’s expertise in plan design, implementation, and compliance.
‍

Where does bundling win and where would unbundling win?

Plan design

Winner = Unbundled

Bundled service modes are “one-size-fits-all” plans. There are plan sponsors who may be candidates for this option, but for companies who want their plan to meet their needs and perform well, a plan needs to be designed more flexibly. Is the company’s goal to attract top talent? Reward key team members? Maximize contributions? Minimize tax burden? A TPA will design the plan to meet those specifics and ensure compliance for unique situations. Unbundled is the winner here.
‍

Freedom to switch providers

Winner = Unbundled

Should the relationship between a TPA/recordkeepr and a plan sponsor go south, it is far easier to replace a provider in an unbundled model. Bundled plans are designed to keep a business sticky with them and service level drops in one area need to be reconciled with all facets of the plan. Bundled plans are often less scrutinized because the key service providers are all working for the same company. Checks and balances are lost in a bundle.
‍

Price

Winner (short-term) = Bundled

Winner (long-term) = Unbundled

Since an unbundled arrangement will typically bill based on a fixed-fee structure, the “sticker price” of individual services may seem expensive. In a bundle the costs are more sneaky as the plan assets may determine the fees and they can increase as the plan’s assets grow. This increase in cost will happen regardless of whether or not more services are provided as the assets go up.
‍

Service Levels

Winner = Unbundled

This one is easy to see. The big companies who consolidate their services into a bundle are not as concerned with high-touch service for their clients. There is rarely a reliable person who will take the time to learn and understand your business in a bundle approach. If you have a dedicated TPA advisor or consultant who is ready to help answer questions, the experience will be seamless for the plan sponsor.
‍

It’s usually in your best interest to unbundle

The value of flexibility and customization cannot be overstated, nor can the value of quality service. The unbundled option is a great fit for employers who require more than an out-of-the-box solution. Reach out to our team and we’ll help you and your clients get the best possible retirement plan!!
‍

Contact Us

This information is provided as general guidance and may be affected by changes in law or regulation. It is not intended as accounting or legal advice. If you have questions please reach out to our team.