What Does It Mean to Bundle or Unbundle Plan Providers?

When managing a retirement plan, one of the key decisions an employer must make is whether to bundle or unbundle their plan providers. Understanding the distinction between these approaches is crucial for ensuring that the plan operates efficiently and meets the needs of both the employer and the plan participants.

Bundling Providers
 In a bundled approach, a single provider takes on multiple roles related to the administration of the retirement plan. This typically includes recordkeeping, investment management, compliance services, and participant education. The appeal of bundling lies in its simplicity and convenience. With one provider overseeing most, if not all, aspects of the plan, employers often find it easier to manage since they have a single point of contact. Additionally, bundling can streamline processes, reduce administrative burden, and potentially lower costs due to economies of scale. However, this convenience may come at a cost: reduced flexibility in choosing specific services or investments that best meet the plan’s needs. Employers may also find it challenging to assess whether each component of the bundled service is competitively priced or if they are receiving the best value for each service provided [1].

Unbundling Providers
 Unbundling, in contrast, involves selecting different providers for each service the retirement plan requires. For example, an employer might choose one company for recordkeeping, another for investment management, and a third for compliance or legal services. The primary advantage of unbundling is the ability to customize each component of the plan to better suit the specific needs of the employer and the plan participants. This approach can provide greater transparency, as it allows employers to see the costs associated with each service individually, which can lead to more competitive pricing. However, unbundling also requires more effort in terms of coordination, as the employer must manage multiple providers and ensure they are all working together smoothly. This increased complexity can lead to higher administrative overhead unless the employer or plan sponsor has the resources to effectively manage the various relationships [2].

Choosing the Right Approach
 The decision to bundle or unbundle should be made based on the specific needs and resources of the employer and the retirement plan. Small to mid-sized employers may benefit from the simplicity and reduced administrative burden of a bundled approach. In contrast, larger employers or those with more complex plan needs might prefer the flexibility and potential cost savings that come with unbundling. Employers must weigh the trade-offs of each approach, considering factors such as cost, control, transparency, and the specific needs of their plan participants. Consulting with a fiduciary or a retirement plan advisor can also help employers make an informed decision that aligns with their overall fiduciary responsibilities [3].

References:

 [1] Diligent, Inc. (2023). Should You Choose a Bundled or Unbundled 401(k) Provider? Retrieved from https://www.diligent.com/resources/should-you-choose-a-bundled-or-unbundled-401k-provider 

 [2] Rodriguez, L. (2021). Bundled vs. Unbundled: What’s Best for Your Retirement Plan? Forbes. Retrieved from https://www.forbes.com/advisor/retirement/bundled-vs-unbundled-retirement-plan 

 [3] Smith, J. (2022). The Pros and Cons of Bundled vs. Unbundled Retirement Plans. SHRM. Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/pros-cons-bundled-unbundled-retirement.aspx 

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