The heat is on! Time to unbundle?

A closer look at bundled vs. unbundled retirement plans

The heat is on. No, we’re not singing Glenn Frey or talking about your stove top or even the weather. We’re talking about how hot customized plan design is in the market! Enter scene: tailored retirement plans designed specifically for clients, to help them meet their unique goals. This type of design is only possible with a great third-party administrator (COUGH COUGH…EGPS…COUGH COUGH). As the heat rises for these plan types, it might be time to consider unbundling. No, we’re not talking about your winter coats, scarves, and hats. We’re talking about unbundled retirement plans and service providers. Check why unbundling is often the best fit for most plan sponsors!

Bundled and unbundled: an overview

So, what exactly are the bundled and unbundled retirement plan models? Here’s a quick snapshot.

Bundled Option: Employers may choose to “bundle” multiple services for their retirement plans with one provider. In a bundled approach, the recordkeeper performs tasks typically reserved for the third-party administrator (TPA).

Unbundled Option: In this approach, employers select two or more specialist retirement plan service providers in an “unbundled” arrangement.  An unbundled retirement plan combines the recordkeeper’s focus on technology and participant experience with the independent TPA’s expertise in plan design, compliance, and regulatory governance.

Let’s take a closer look at these models and the advantages of each. 

The bundled retirement plan model

The term “bundle” in the retail space has come to mean “simpler, cheaper, better.” Anyone else hearing Flo right now? “Bundle your home and auto insurance with Progressive!” But this isn’t always the case. Think of a cold wintery day where you bundle up and it’s hard to move. You lose functionality, flexibility, even efficiency. Here’s what it means for retirement plans:

The bundled provider offers investments, recordkeeping services, a participant interface (website and/or call center), and plan administration (plan design, compliance testing, Form 5500 filing, etc.) as a package deal. However, bundled providers may have limited plan design and document flexibility. This is due to their automation requirements and reliance on the employer’s involvement in day-to-day plan functions. Therefore, employers with confidence in their ability to perform retirement plan responsibilities, who desire simple plan design and require limited administrative guidance often select the bundled service arrangement. 

However, the bundled arrangement rarely meets the complete needs of employers. This is because the service model is typically designed as a “boxed” solution around the bundled provider’s capabilities versus the employer’s unique needs. As we mentioned above, imagine wearing a million layers…think Randy in a Christmas Story . You’re lacking flexibility and the ability to race towards goals effectively!

The unbundled retirement plan model

Unbundled retirement plans feature the TPA and the recordkeeper bringing their unique expertise to the plan and working collaboratively in the best interest of the participants and employer.  The recordkeeper provides investment options, detailed recordkeeping and reporting services, and the participant platform. Alternatively, the TPA proactively consults on plan design and documents, performs compliance testing, and ensures timely government reporting. The TPA also customizes administration services to meet the needs of companies working in changing environments and guides the employer through plan enhancements that adapt to these needs.

Therefore, employers desiring custom plan design and a dedicated retirement plan consultant focused on their plan may prefer an unbundled service model. Think customized like Ralphie’s bunny costume, but much more free (and cool…😉).

A closer look at the pros and cons of bundled and unbundled models

Service. Consider a one-on-one consultative relationship with a service provider versus a “1-800” number to call when you have questions.  How familiar will the consequential service representative be with your plan or current situation? In an unbundled arrangement with EGPS, a dedicated plan consultant is assigned to each plan, ready to help and available for questions daily. EGPS also acts as a liaison with the recordkeeper, making the experience simple and seamless for the employer. We’re not saying employers are shooting their eye out by going bundled, but …it might not be as smooth.

Technical expertise. An independent TPA serves as an extension to the employer’s human resource team, sharing comprehensive and technical expertise. They often offer services that a bundled provider does not. For example, the EGPS Compliance Team can review any compliance concerns that arise with the plan. Then, they provide prudent and sound recommendations for corrections, as needed. However, in a bundled environment, the employer must seek outside counsel or engage an ERISA attorney to address compliance concerns, as these are typically outside of the services the bundled provider offers. Employers often hire EGPS when their bundled providers require help with compliance issues or necessary corrections – oh fudge moments (but sometimes, they don’t actually say “fudge”).

Plan design. As mentioned above, the bundled service model typically provides plan design with less flexibility. However, employers have a myriad of options when it comes to plan design. A TPA will design the plan to meet the employer’s goals. For instance, these might include attracting top talent, retaining existing associates, rewarding key employees, maximizing contributions, minimizing tax burden, getting a Red Ryder BB gun, or any combination of these benefits.

Flexibility with checks and balances. An employer may easily replace one provider in an unbundled model if they have a service issue. It’s as easy as swapping a destroyed Christmas turkey for a Chinese dinner. If the plan is bundled, changing providers impacts all facets of the plan. In some cases, the employer may unbundle their plan with their bundled provider to add a TPA.  Unbundling gives the employer more “sets of eyes” on plan management through the collaborating parties, ensuring higher levels of service and due diligence.

Price. Regardless of the arrangement, all-in costs generally remain comparable whether bundled or unbundled. However, the bundled environment often equates costs to a percentage of plan assets, rather than directly billing the employer based on a fixed-fee agreement. The unbundled arrangement provides the employer with the flexibility to structure fees. Sometimes a bundled arrangement appears less expensive. Yet, asset-based fees increase as the plan assets grow, regardless of the services provided.  Additionally, the independent TPA maintains more robust services, resulting in greater value for the employer.  

Why unbundled retirement plan services may be the better option

Unbundled retirement plans allow employers to receive comprehensive services that will benefit the plan, the participants, the employer, and the financial advisor. Flexibility and customization are key within the unbundled service option. This makes it a great fit for employers who require more than a “boxed” solution. Employers are able to choose the best of all possible worlds in an unbundled environment. Try it out. We triple dog dare ya.

Interested in learning more about the unbundled model with EGPS or want to share this information in a PDF format with clients? Fill out the form below and we’ll be in touch soon!

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