The 401k Industry is wrong about thinking bundled is the way to go for large plans. Let me explain why they have this whole thing backwards.

Bundled is better for large plans has been this weird and accepted perspective for way too long. Even my close friends that work in the industry for mutual fund families or recordkeeping vendors will stare me straight in the eyes and tell me that bundled is better for large plans. When I say “large plans”, I guess what I mean is like plans with several hundred or thousands of participants and tens of millions or hundreds of millions of dollars in plan assets. The common misguided (in my opinion) concept here is that bundled providers can offer a more seamless solution, they have technologies that create efficiency and that it is the small plans that require local expert assistance and customized plan design solutions. Hmmm?

Let me shed a little biased TPA perspective on this. Quality compliance work starts with a clean census (it’s the DNA of accurate work) and I have worked on many censuses (pretty sure thats how it is spelled) in my career. I can tell you one thing for sure, the less participants on a census equals a lesser chance of errors in the census. As you proportionately increase the number of participants on a census, you increase the chances that errors and mistakes inevitably will pop up in your scrubbing and review steps. My point is that the more participants you have in a plan, the more valuable it is to have an expert that can scrub, review and quality check census. My second point centers around the need for consulting, it has been my experience that my larger clients are the ones that seem to be in constant need of our guidance and consulting when it comes to retirement plan legislation, rules, etc. Let me ask you, do unique situations like control groups, affiliated service groups, shared employees, divisional hiring and firing, mergers and acquisitions, do these things happen more in large companies or in small privately held companies? Yeah, that’s what I thought.

Bundled is more seamless they say, you know cause you have one point of contact and all. How the hell is working with large financial institutions seamless and efficient (I am literally laughing out loud as I write this)? I love my large financial institution partners, don’t get me wrong….but seamless and efficient, don’t think so. Lastly, they point to technologies like when dealing with loans or distributions. I agree that when you have hundreds or thousands of participants you do not want to be working with a local TPA that is pushing paperwork when handling these type of transactional requests. But these days, that’s a thing of the past. Just about every large 401k recordkeeper out there has the ability to carve out these tasks when working with a TPA and handle in a “semi-bundled” type of approach.

In summary, it seems pretty obvious to me that this concept is backwards. I know if you asked my large clients they would tell you that having a TPA is a blessing. Oh wait, of course they would because they all left the bundled approach and moved to the TPA approach.