2021
PLANADVISER Small-Plan Services Survey

401(k) Plans

For plan sponsors, 401(k)s mean many choices in terms of recordkeeper options available. The harder decisions, says Brian O’Keefe, PLANSPONSOR/PLANADVISER director of research and surveys, are: How should you differentiate between providers that offer different value propositions: asset managers vs. banks vs. insurance companies vs. administrators? Do you use a third-party administrator (TPA) for some plan work, or bundle with the recordkeeper? Maybe bundle payroll or health savings account (HSA) platforms?

The SageView Advisory Group LLC request for proposals (RFP) management team maintains a database of over 200 potential RFP questions, says Managing Director Jon Chambers, with the firm in Moraga, California. With RFPs for a large, complex 401(k), the firm might use 100 to 150 of the questions; for a smaller 401(k) with a mainstream investment and plan design, it might use 40 to 50. Chambers typically asks each vendor how much the number of participants in its plans has grown and declined in the past 10 years. “If there are several years of participant headcount contraction, that could indicate problems retaining clients,” he says.

“We don’t ask questions about specific investment lineups,” he notes. “We anticipate creating a new plan menu after the RFP is complete. We do ask about investment flexibility.”

The question list continues to evolve, Chambers says. Besides asking about service standards, recordkeeping systems, payroll interface and fee models, SageView now also seeks to know, for instance:

• Has your firm experienced a cybersecurity or physical security breach in which an unauthorized person or entity accessed your environment/s, that required notification be sent to sponsor/s or participant/s?
• What diversity and inclusion statistics are relevant for your organization, and what initiatives has your firm taken to further its diversity and inclusiveness? —PA

403(b) Plans

The first consideration when conducting a request for proposals (RFP) for a 403(b) plan is which type of these plans is being offered to employees—often determined by the employer’s industry—and whether it will be served by multiple vendors or one, advises Brian O’Keefe of PLANSPONSOR/PLAN-ADVISER. Multi-vendor environments have a different RFP process than does a traditional one-vendor environment.

Prior to IRS regulations passed in 2007, 403(b) plans varied considerably from 401(k)s. Many of the former used numerous vendors—what 403(b) plan sponsors called recordkeepers—as plans were substantially based on tax-sheltered annuities, and participants engaged individually with the annuity providers without plan sponsor oversight. In addition, some plans were exempt from Employee Retirement Income Security Act (ERISA) provisions.

In the 10-plus years since the regulations took effect, 403(b) plans have come to look increasingly like 401(k)s, although differences remain. With the new regulations, recordkeepers had to decide whether they could ensure compliance with the rules concerning each plan type. Many of these vendors exited the business.

Assuming the RFP is for a single-provider 403(b) platform, the questions vary little from 401(k) plan RFPs, says Jon Chambers of SageView Advisory Group. Still, “We are careful in the general profiling questions to ensure that the number of 403(b) plans and participants supported [by the candidate] is meaningful.

“There’s overlap between 401(k) and 403(b) providers,” he continues, “but the markets aren’t identical—some 401(k) providers are strong in the 403(b) market; others aren’t. And some 403(b) providers have very little 401(k) presence. We typically help clients select the right set of candidate firms to receive the RFP by framing prospective vendors’ capabilities and target markets, to avoid a 403(b) plan sponsor selecting a vendor whose primary depth is in 401(k)—or vice versa.” —PA

457 Plans

From a governmental perspective, the request for proposals (RFP) process for a 457 plan is different than for a 401(k) or a 403(b): Public notices and specific requirements dictate how vendors must be selected. In addition, 457 plans likely need different educational offerings and perhaps website tools and messaging. Most government employees are enrolled in a defined benefit (DB) plan and therefore consider the 457 to be supplemental and often neglect to use them, when offered.

457 plans also include smaller varieties: nonprofit 457(b)s and 457(f)s; those too might have restrictions, given their nonprofit status.

Michael Glackin, president of CBIZ InR Advisory Services LLC, in Media, Pennsylvania, points to some distinct differences between 401(k) and 457 plans. It is still common to see insurance companies group annuity sub-accounts with the insurance sub-accounts being offered to 457 plan participants, and employers often will have more than one 457 provider. “Many times, an employer has adopted more than one plan document, with different plan provisions,” Glackin notes.

Employers sponsoring a 457 plan may also have a limited understanding of their fiduciary responsibility regarding, say, plan investments and fees. “At CBIZ, we work to educate our clients about their fiduciary responsibility and stress the importance of the sponsor acting in its employees’ and their beneficiaries’ best interest,” he says. Although public retirement plans need not follow the Employee Retirement Income Security Act (ERISA), the law can give guidance or act as a benchmark for governmental plan sponsors in performing their day-to-day responsibilities, monitoring their plan and requesting a fee proposal.

“When developing an RFP or conducting a search for a new provider, consider questions that are asked in 401(k) service provider RFPs,” Glackin says. They may still be directly applicable to 457 plans and may help sponsors make informed decisions. —PA

Other Small-Employer Plans

While defined contribution (DC) plans have proven popular among many employers, the fiduciary and compliance obligations associated with such plans can make offering them a bit onerous for some smaller employers. Fortunately, small-plan sponsors have a range of other choices for helping employees save for retirement.

The smallest plans—those with one to a few employees—often choose a simplified employee pension (SEP) plan; these now account for more than $230 billion in assets. Another option for entities with one employee—viz., the owner—is the solo 401(k), which offers potentially higher tax savings, plus some of the benefits of a 401(k) plan such as loans and Roth deferrals.

However, both options may struggle to meet the needs of a growing business. Legislative actions have given rise to further choices. The savings incentive match plan for employees (SIMPLE) IRA was the first—followed later by SIMPLE 401(k)s—and provides an easy-to-implement solution for an organization with fewer than 100 employees.

More recently, the Setting Every Community Up for Retirement Enhancement (SECURE) Act authorized the creation of pooled employer plans (PEPs) and groups of plans (GoPs). Meanwhile, an increasing number of states have pushed forward with state-sponsored payroll IRA programs. Such offerings seek to deliver simplicity by standardizing plan design while minimizing other legal/administrative requirements.

The Department of Labor (DOL) website provides several resources that explain the strengths and limitations of each option. —PA