Defined contribution plan executives are shopping for new record keepers with lower fees and better services as the markets and economy continue to stabilize.
Experts say many DC plan executives — preoccupied with more immediate concerns about the returns of target-date funds, stable value funds and other investment strategies as plan participants were slammed by the market last year — now are turning their attention to their record keepers to make sure they have the best possible fit.
In the past few months, executives at the Oregon College Savings Plan, the Oklahoma Teachers' Retirement System and KleinBank selected new record keepers for their DC plans.
Experts expect even more record-keeper changes in the coming months.
“Record-keeping searches were really pushed to the back burner during the credit crisis,” said Ross Bremen, a partner at Cambridge, Mass.-based consulting firm NEPC LLC. “Now they (plan executives) have the time and ability to look at vendor searches. The prior delay has created a backlog, and we expect to see a significant increase in activity over the next 12 months.”
For example, DC executives at The DIRECTV Group Inc., El Segundo, Calif., are “in the process of planning a change” of its record keeper for its 401(k) plan, said company spokesman Robert Mercer. The DIRECTV Thrift & Savings Plan had $1.37 billion in assets as of Nov. 30, 2008, according to a recent SEC filing. Mr. Mercer said the company's current record keeper is Fidelity Investments. He declined to comment further.
DC plan executives typically search for record keepers at least every five to seven years, while those at larger plans with bigger staffs often re-evaluate every three years, Mr. Bremen said. And while these executives often are looking for lower administrative, trust and custody, and — in the case of bundled providers — investment management fees, he said they're also seeking services that best fit their plans.
“In many ways record-keeping services have become commoditized, but different record keepers are known for different strengths,” Mr. Bremen said. “For example, some firms are known for their communications efforts, while others are known as low-cost providers, or for doing a better job at customizing their offerings. One change is that more plan sponsors are considering creating customized target-date funds, so record-keeper capability in that area is taking on increased importance.”
Matthew Hutcheson, who runs Matthew Hutcheson LLC, an independent fiduciary firm in Boise, Idaho, said he's seeing a “significant” number of plan sponsors leaving group variable annuity providers, where record keeping is done in-house. “In many cases, plan sponsor executives can't determine what's going on behind the scenes in terms of fees, so they can't perform their fiduciary duties,” he said. “Often what you see is not what you get.”