Top of Mind

Casualties of the Retirement Plan Recordkeeping Fees Race to the Bottom

Don’t get me wrong, I LOVE the current pricing environment for retirement plan recordkeeping services. Lower fees. Enhanced services. What’s not to like? It has never been a better time to be a plan sponsor in terms of obtaining amazing pricing from a recordkeeper via a request for proposal (RFP) process, with the type of fee structures that would have been the stuff of dreams just a few years ago.

And more and more recordkeepers are beginning to transition from basis-point pricing, which increases as plan assets increase, to flat-fee per-head pricing, which increases only as the number of participants increases, particularly among large plans. (Though, admittedly this latter method can also result in significant price increases over time, particularly in certain auto-enrolled plans with high turnover.)

So, what am I afraid of? Well, fees can’t go down to zero, so cost savings are going to become less robust over time as plan sponsors continue to go back to the well to renegotiate pricing (which some plan sponsors are doing as frequently as annually, even without benefit of an RFP). More importantly, I am concerned about the casualties of the “race to zero” which I believe can be generally placed into two categories: impact on recordkeeper services and impact on competition.

Regarding services, if you are in the business of making money, which recordkeepers are, cutting prices means reducing profit margins, which is never good for business. To maintain margins, expenses must be cut. Thus far, most recordkeepers have been able to accomplish this by becoming more efficient, via technology or otherwise (which is fine), or by encouraging plan sponsors to purchase higher margin products/services, such as managed accounts, (which is not so fine).

Ultimately, such efficiencies/higher margin services will dry up. What will happen then? Services will ultimately need to be cut. Now, if the RIGHT services are cut (i.e., those which have dubious value), I am all for it. But I am worried that services that actually provide value (i.e., those that drive participant engagement/plan asset growth) will be cut. And that would be bad news for plan sponsors.

In addition, the very competition that has driven down prices may have a negative effect in the long term as well. Every competition has winners and losers, and often the losers either sell out to the winners or exit the business entirely. We’ve already seen extensive consolidation in the 403(b) marketplace, where a handful of vendors control the lion’s share of the assets. Ultimately, such vendor consolidation may result in less competition and, ultimately, a reversal in prices. Do you share any of my concerns about the current recordkeeper marketplace? Or do you think I am off base? Let me know as always on Twitter or at

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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