Recordkeeping Landscape Has Shifted Significantly

Recordkeeping systems are not as varied as they used to be, but it's still important for plan advisers to help their sponsor clients pick the right provider.

Twenty-five years ago, a retirement plan recordkeeping system was considered cutting edge if it could offer daily valuation of accounts rather than just “balance forward” processing—the term used to describe valuation updates that were processed monthly or less often.

“Historically it was about the differences in what platforms could handle—daily versus balance forward, defined benefit versus defined contribution—but now most systems can handle pretty much everything,” says Debbie Pritchard, vice president who leads Schwab Retirement Technologies (SRT), a recordkeeping system provider. Based in Phoenix, Arizona, Pritchard explains that choices today are more about volume, customization and control. “These, as well as cost, are the differentiators now.”

Rick Bindler, director of sales and marketing at Datair in Chicago, which provides recordkeeping and other systems software to third-party administrators (TPAs) that serve the micro- and small-plan market, says recordkeeping is now becoming a bit of a commodity. “All systems, whether proprietary or outside-developed are able to do testing, administration, statements, web accounts, etc. There used to be oohs and aahs when [a recordkeeper or recordkeeping system provider] came out with something new; now others catch up pretty quickly,” he notes.

Still, both recordkeepers with proprietary systems and recordkeeping system providers are going to some length now to differentiate themselves, such as expanding into mobile technology, according to Bindler.

Bill Byerly, executive vice president and general manager for Omni, a recordkeeping system provided by SunGard, who is based in Birmingham, Alabama, says recordkeeping systems used be challenged by trying to keep up with the next coolest thing or keep up with changing regulations. Now there’s no one doing anything more elaborate than anyone else. He says getting clean data from plans has become the biggest challenge for recordkeepers.

NEXT: Proprietary vs. technology-provider systems

Pritchard notes that Schwab has both a proprietary recordkeeping system and is the provider of the SRT system to other recordkeeping service providers. She contends that, in developing a proprietary system, recordkeepers can develop a platform that is more economical. For example, data security for Schwab’s proprietary system falls under the Schwab standards for data security as a whole; there are already processes in place to handle data security.

She adds that proprietary systems tend to be more customized than systems developed for the general marketplace. Proprietary systems may be built for a specific market size or scale; systems built for the general marketplace must cover all needs of the marketplace so TPAs can build different experiences for different clients.

However, Bindler believes one of the biggest advantages of non-proprietary systems is the ability to customize for a more varied client base. “We get input from a wide variety of viewpoints, and are able to make software that meets different needs,” he says. “We get requests on a daily basis from clients that want some kind of feature enhancement, so we are constantly updating our system.”

Proprietary systems are more like silos, each meeting the needs of certain clients of similar types and sizes, so the software is not as diversified, Bindler contends. In addition, he says a recordkeeping system provider can spread costs of updates across a wider client base than can recordkeepers with a proprietary system, and the client base consists of TPAs, not plan sponsors.

Aaron Venouziou, president and co-owner of Datair, notes that when one client wants a feature, Datair updates its system as a whole so any client can also use the feature. “We have all variations of design and features to offer plan sponsors,” he says.

According to Bindler, this can also be seen as an advantage of proprietary systems—if a client wants something, the recordkeeper can stop everything it is doing for that client to make the change, but his firm cannot do that.

Byerly notes that recordkeeping system technology providers, such as SunGard, are able to focus only on technology. He says he doesn’t know why recordkeeping firms want to be in the technology business when they have other areas of focus. In addition, he says, because SunGard is an international firm, it can look at what trends are happening in the world market and establish partnerships for international trading.

NEXT: What plan sponsors and advisers should know

Pritchard says retirement plan sponsors and advisers shouldn’t have to worry about recordkeeping system compatibilities, as the recordkeeper or software provider will take care of that. But sponsors and advisers may want to ask how often a recordkeeping system gets upgraded. The big question about technology is what entity is hosting the data and can it handle the size and scale of the sponsor’s plan?

“I think overall the goal would be that plan sponsors and advisers have confidence that the recordkeeping system is regulatory compliant, secure from data breaches, and that participants are getting a great online experience,” Pritchard says.

Plan sponsors and advisers should ask about data security and integrity, according to Pritchard. Bindler adds that one thing plan sponsors and advisers need to ask about is system backup in case of a fire or other disaster.

Pritchard says it is also important that the recordkeeping system is staying ahead of regulatory changes. For example, Schwab is currently working on updating its systems to handle money market reform

According to Byerly, SunGard is a member of both SPARK and the American Society of Pension Professionals & Actuaries (ASPPA). It has biweekly webinars with someone at ASPPA to keep involved with new trends and regulations. SunGard also has business analysts that keep up with what is happening at the Department of Labor (DOL), Internal Revenue Service (IRS) and in Congress.

He says plan sponsors should ask how the recordkeeping system takes in data for compliance testing and trading, and what data it can output. Is a website available for plan sponsors and advisers, as well as participants, do the websites offer education tools, and is data made available and easily readable? “Then they should look at cost,” he adds.

According to Byerly, processing levelized revenue-sharing may still be considered unique, and nonqualified and union plans can get unique in their features, but as more plan sponsors are trying to simplify plans, there’s “not a lot of uniqueness out there.” However, if something special is required, plan sponsors and their advisers need to make sure the recordkeeping system can handle it.

Bindler says, when looking at recordkeeping systems, “there’s no right or wrong, it’s ‘what is the best fit?’”