Plan Sponsors Not Sold on Benefits of Bundling

Forty-eight percent of plan sponsors who are not fully bundled indicate they would be open to bundling their retirement plans if convinced of the benefits. 


A study by Chatham Partners, “2011 Trends in DB Bundling and Total Retirement Outsourcing: Evaluating the Opportunity in a Recovering Economy,” found that most semi-bundled sponsors agree that time and resource savings and lower administrative fees are likely outcomes of bundling. However, along with unbundled providers, they are unwilling to sacrifice investment flexibility to achieve these outcomes. Further, unbundled providers do not believe that the promised outcomes of bundling are achievable.

PLANADVISER spoke with Peter Starr, Chatham Partners’ CEO, who said some plan sponsors just don’t believe they can achieve more by bundling their plan packages. “They don’t believe it saves time and resources, their costs, they don’t believe the benefits outweigh the risks,” he said.

“If you track those historically you see the same results, less than 20% have a strong belief in those outcomes. If you don’t believe in those outcomes, you are less likely to consolidate your program to a single provider. So if you look at the constituency that are truly unbundled, they don’t because of lack of belief in the outcome of bundling,” Starr added.

According to Starr, some of the benefits of bundling for a plan sponsor include time and resource savings. There are lower costs involved in administrating the program, and lower costs in investment-related fees.  



The majority of sponsors are comfortable with the level of expertise, resources, cost and time involved in their benefit plan administration. In fact, 84% of respondents are not concerned with the current level of expertise. Nevertheless, sponsors are most likely to cite discomfort with their plan’s cost, and 20% express interest in reducing it.

While sponsors of the largest plans (>$500 MM in DB assets) are least comfortable with the resources currently devoted to running their plans, they are least concerned with making changes to the level of expertise and cost. In contrast, sponsors of the smallest plans (<$50 MM) are most comfortable with their resources at hand, but least comfortable with expertise, cost and time.

When asked why larger plans are least concerned with making changes to the level of expertise and cost of their plans, Starr said generally, large plan providers have more in-house resources and are more experienced on the subject of retirement plans. If the plan sponsor at a large company doesn’t have the experience, they usually have long-standing relationships with TPAs that can advise them. However, smaller to mid-sized organizations do not have these external resources. These plan sponsors need to a jack-of-all-trades.

“The large organizations that have a billion-dollar pension fund will have more resources to help them to manage it more efficiently. This doesn’t exist in the smaller organizations; they don’t have much money to spend. They have to do much more with less,” added Starr.  

Interestingly, bundling more services appears to be correlated to sponsors’ declining levels of comfort with the expertise, resources, cost and time associated with administering their benefit plans. This trend is most evident when examining sponsors’ comfort with the cost of their plans (81% of unbundled sponsors are comfortable with cost vs. 73% of semi-bundled vs. 70% of fully-bundled/TRO/TBO).


Although sponsors remain more confident in the level of resources, cost and time dedicated to running their benefit plans than they were in 2005, the feeling of comfort in these areas has held steady since 2008, although it has declined among sponsors of larger plans (>$500 MM in DB assets).

Independent of bundling status, sponsors’ comfort with the resources, costs and time spent running their plans exceeds the level of comfort in 2005 and remains similar to industry-wide sentiments in 2008. However, there has been a noticeable increase in the proportion of fully bundled/TRO/TBO sponsors who indicate that they are uncomfortable with and interested in addressing resources, costs and time.

Starr said, “Our data shows that the primary barrier to bundling among both unbundled and semi-bundled plan sponsors is their unwillingness to sacrifice investment flexibility and increase their fiduciary risk in exchange for promised administrative efficiencies and cost savings.”  In order to engage a single provider for both administrative and investment services, sponsors must be convinced that investment solutions can stand on their own. 

Bundled sponsors, on the other hand, are unlikely to revisit their decision to bundle, but almost 40% will consider switching vendors. According to Starr, “Our findings reveal that service levels have become harmonized throughout the industry, and there is increasing price sensitivity.”