Print Print

Bundled or Unbundled?

Bundled or Unbundled

What’s the difference and why should you care?

Budget, flexibility and needs (and the size of your plan’s assets) are major factors when choosing the proper 401(k) retirement plan provider for your business. Deciding to use a bundled or unbundled approach depends on what you need. At one time, one or the other could have been a better option, but things change. LGT would like to walk you through the misconceptions and benefits of bundled versus unbundled 401(k) plans.

The Three Service Components

Three service components are needed to properly administer a retirement plan are:

  • Investments – selecting and monitoring investment options
  • Recordkeeping – maintaining participant account balance records
  • Third-party administration (TPA) – plan design, document preparation, regulatory compliance, plan maintenance and governmental reporting

A bundled provider manages all three components, making it a one-stop-shop for 401(k) retirement plans. This can work well for the plan sponsor, especially for plans under $1 million. The sponsor is able to use one provider for all of its 401(k) plan needs. A majority of the plan’s administrative expenses are offset due to fee-sharing arrangements between the mutual funds or group annuities and the provider.

An unbundled provider offers choice in plan design and, ultimately, maximizes retirement savings for participants. LGT would like to challenge the misconceptions and enumerate the benefits of picking an unbundled plan so that you and your business can make an informed decision.

Common Misconceptions

  • Unbundled 401(k) plans are more expensive. You simply get what you pay for. A bundled plan may offer low-cost options for 401(k) plans, but it does so by limiting the plan sponsor in flexibility and choices.
  • TPA services are free with bundled providers. These providers typically have a much lower base and participant fee, but this is offset by hidden fees in the mutual funds or group annuity products. This has been exposed by enforcing fee disclosure of costs.
  • Unbundled 401(k) plans are more complex. Complexity is the enemy of the generation and, unfortunately, a collective idea of what unbundled plans are like. The truth is, one-stop-shop providers disperse the plan’s services throughout various departments and assign multiple employees to handle each aspect, making the TPA hard to contact. In unbundled offerings, the plan sponsor works closely with a TPA who is accessible, knows your plan and is ready to support you.

Benefits

Unbundled plans offer a sophisticated and customized design individually crafted to meet the needs of the plan sponsor. Conversely, most bundled providers design each plan to fit into the prototype (plain vanilla) document that they use for everyone, limiting the design choices for the plan sponsor.

One of the most important features of an unbundled plan is the opportunity to switch your investment and/or recordkeeping provider when there is a conflict, while maintaining your trusted TPA. Another important feature of an unbundled plan is having an experienced and technically educated TPA who knows all of the intricate aspects of your plan, assigned specifically to you, thus eliminating the frustration of not knowing who to contact when a need arises.

So bundled or unbundled?

Selecting the appropriate 401(k) plan design and service can be tough and overwhelming at times, which is where LGT would like to help. If you have questions about which choice is right for you, please contact Mike Radoff at mradoff@lgt-cpa.com for help answering your questions and clearing away the confusion.