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NEW REASONS FOR SWITCHING 401(K) RECORDKEEPERS EMERGE

BY
Ted Godbout
June 28, 2024
Industry Trends and Research

Some new reasons have emerged as to why 401(k) plan sponsors have
apparently switched recordkeepers in recent years.  

According to the Cogent Syndicated report from Escalent, mergers and
acquisitions (M&A) and “healthy business growth” have emerged as top catalysts
for recent plan provider changes among 401(k) plan sponsors that have switched
recordkeepers in the past two years, illuminating some of the newer challenges
in today’s marketplace.

In a sharp divergence from last year, when overall service quality for
participants was the most dominant trigger for switching plan providers,
recordkeepers now must heed multiple factors, including overall service quality
for plan sponsors, organizational mergers and acquisitions, and growth in the
number of employees and/or plan assets.

According to the findings, the top 5 reasons for switching plan providers among
plan sponsors that switched in the past two years include:

 * Overall service quality for plan sponsors (23%)
 * My organization merged with or was acquired by another firm (22%)
 * Growth in the number of employees/plan assets (22%)
 * Plan investment fees (19%)
 * Participant engagement (19%)

These are among the key findings from Escalent’s 2024 Retirement
Planscape report.

“Incumbent plan providers may be tempted to believe that corporate growth is
purely positive given the potential for increased plan assets and participants,
but they must be vigilant,” explained Sonia Davis, lead report author and senior
product director at Cogent Syndicated. “Healthy growth and M&A activity can
prompt plan sponsors to reevaluate and enhance their retirement plan benefit
offerings in the spirit of being equitable to all parties.”

In fact, average plan provider tenure is trending lower among large-mega plans,
which are defined as plans holding at least $100 million in assets—a sign
challenger firms are starting to have greater success unseating incumbents
within this cohort, the report notes. Additionally, the average recordkeeper
tenure is 7.5 years among large-mega plans, down from 8.4 years in 2022.  

Meanwhile, for the first time in the history of its study, “cybersecurity
threats and data breaches” have eclipsed “underperformance of plan investment
options” as plan sponsors’ biggest fear with respect to managing their
organization’s 401(k) plan, Escalent further notes.

Notably, cybersecurity concerns are up significantly from 40% in 2022 to 47% in
2024. In turn, anxieties around underperformance have lessened to an extent,
from 57% in 2022 to 45% this year.

“Cybersecurity threats previously served as a top concern among Large-Mega plans
but now serve as the most dominant fear across all plan-size cohorts. Providers
must be very explicit in showcasing their data security and cyber-risk
management practices,” Davis further noted.

“As mergers, acquisitions and cybersecurity concerns take center stage, it is
imperative for recordkeepers to clearly communicate their offerings. By
maintaining high-quality service and security standards, recordkeepers will be
poised to win new opportunities and maintain relationships with their existing
clients,” Davis further emphasized.

The findings are based on an online survey of a representative cross section of
1,391 401(k) plan sponsors from Feb. 14 to March 12, 2024. Survey participants
were required to have shared or sole responsibility for plan design,
administration or selection and evaluation of plan providers, or for evaluating
and/or selecting investment managers/investment options for 401(k) plans.

In determining the sampling frame for the study, Cogent relied upon recent Form
5500 filings as maintained by ALM’s Judy Diamond Associates.

 * 


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6/26/2024
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6/25/2024
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6/24/2024
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