Bundled or unbundled 401(k) plan—which is right for you?
As a plan sponsor, you have a choice to make when selecting your plan’s service providers. Do you go with a bundled package, working with a single provider that handles everything? Or unbundled, choosing each provider for their own area of expertise? Get a quick overview of bundled and unbundled 401(k) plans and factors to consider to help you decide which approach to choose.
The difference between bundled and unbundled 401(k) plans
401(k) plan services generally fall into three broad categories:
- Investment management
- Recordkeeping and plan administration (management of participant accounts and transactions)
- Plan design and compliance such as nondiscrimination testing
Under a bundled approach, you’ll typically choose one recordkeeper to handle all three services for you. If you go unbundled, you’ll generally work with both a recordkeeper and a third-party administrator (TPA).
Businesses often go unbundled because they like the idea of working with a TPA as a hands-on partner, but there’s no right or wrong answer when making this decision. It all depends on how you prefer to manage your 401(k) and your retirement providers. In fact, the number of plans using an unbundled arrangement versus bundled is evenly split (52% versus 48%).1
Evaluating bundled and unbundled arrangements
Regardless of whether you go bundled or unbundled, you have a fiduciary duty to choose service providers that are in the best interest of your plan and your participants. So it’s important to follow a documented process to reach your decision. Your first step might be to create a list of features and qualities that you’re looking for. Documenting what you want and expect out of the relationship can help you explain why you chose one service provider over another.
Items on your list might include:
Feature/quality |
Key considerations |
Plan sponsor support |
|
Participant services |
|
Compliance services |
|
Flexibility |
|
Cost |
|
Be sure to share your list with your plan’s financial professional. They can use your criteria to create a request for information (RFI) or request for proposal (RFP) to help you narrow your search and identify providers that could be right for your plan. And they may be willing to participate in your selection meetings to help you assess each provider’s capabilities.
Focus on the services provided, not number of providers
Ultimately, you want to choose the provider or providers who can:
- Deliver the level of support you want at a reasonable cost
- Help reduce your administrative tasks and fiduciary duties
- Help you attain the desired outcomes for your plan and your employees
For some plan sponsors, this will be a bundled 401(k) package, and for others, unbundled.
Important disclosures
This piece is not intended to be an exhaustive review of fiduciary duties under ERISA. The objective is to highlight the key responsibilities of a plan fiduciary and present the challenges that plan fiduciaries may face in discharging their duties. John Hancock cannot provide legal advice concerning your plan or your role as plan fiduciary, and the information included should not be taken as such. If legal advice or other expert assistance is required, please consult your legal counsel.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.
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