By Laura Zindel & Cindy Sandomenico
Consolidation among service providers has been a long-developing trend. Empower, the nation’s second largest recordkeeper, has made headlines over the past few years with several large acquisitions including Personal Capital, Mass Mutual, and Prudential. Smaller deals are making headlines as well.
Consolidation activity can affect retirement plans of all shapes and sizes. As clients of service providers that may be affected by consolidation activity, plan sponsors will need to evaluate how that activity affects them. Some plan sponsors may welcome the new relationship, while others may use the change as an opportunity to examine the value being provided and search for new providers.
While areas like payroll integration can be rather straightforward when transitioning service providers, plan sponsors should be careful to ensure the particulars of the plan document are being satisfied. For example, auto-enrollment procedures, investment allocations, vesting schedules, and processes for uncashed checks are areas that may require attention.
The Pros and Cons of Consolidation
When a service provider is acquired benefits to plan sponsors may include:
- Lower fees
- Access to better technology and tools, such as retirement analyses for participants
- Greater security resources and controls over processes
- Expanded investment offerings and share class offerings
- Better service, such as dedicated contacts rather than generalist account managers
- Opportunity to assess whether the new relationship meets the goals of the plan
Potential drawbacks and challenges may include:
- Lack of advance notice of the deal for plan sponsors
- Timeline uncertainty as many acquisitions take years to fully complete
- Need to thoroughly monitor data migration
- Potential for errors, such as incorrect dates and allocation amounts
- New account manager(s) and other contacts
- Current investments may not be available with the new provider, which may require a new investment allocation analysis
How to Prepare for Service Provider Consolidation
Fiduciaries need to act in the best interests of plan participants. If your service provider is acquired, plan management should contact their existing service provider representative to understand the short-, mid- and long-term goals relating to the acquisition and the impact(s) to their plan.
Insight: Being Proactive Is Being Prepared
Getting a “new” service provider as a result of a merger or acquisition can be tricky even for the savviest plan sponsors. If your service provider is going through a transition, we can help you navigate the process.