While defined contribution plans have displaced defined benefit plans as the retirement plan of choice for most private companies, many organizations still find themselves managing both.
And in today’s business environment, with executives and managers looking for ways to contain administrative costs and streamline noncore but necessary functions, the idea of putting the management of pension and retirement savings plans under one roof is making more sense than ever.
Many organizations — including private companies and public sector organizations, and other entities that maintain both active and frozen pension plans — often use one retirement provider for their DB plans and another for DC plans. The dual-provider model, however, can make managing benefits more complicated than it needs to be, both for employers and plan participants.
“When you have multiple providers and multiple relationships, who owns that relationship?” asked Mark Valentine, national practice leader: defined benefit/Taft-Hartley/Public Sector at Transamerica. “If you have problems come up, who owns that? If it is a plan sponsor, who do I call and talk to?”
Increasingly, employers/entities are looking at ways to combine those plans under one provider. The move reflects a drive toward greater efficiency at stretched-thin human resources departments, as well as a first step for companies planning to transition away from a defined benefit structure through a pension risk transfer now or in the future.
“We are seeing more of a shift toward providers that offer total retirement outsourcing,” said Laura Gaynor, senior vice president and defined contribution national practice leader at Transamerica. “They can really see the benefits of bundling DB and DC services together, not only from a plan sponsor perspective, but also from the plan participant perspective.”
Benefits to Plan Employers
For starters, combining plans under one provider can create immediate cost savings and efficiencies for the administrative staff.
“Just having to deal with multiple contracts and working with different entities is going to be more time consuming,” Gaynor said. “From a plan-sponsor perspective, if they have to work with two different providers, the soft-dollar costs associated with that are going to be pretty significant. You’re doing everything twice.”
Having a single set of uniform data across both plans also makes it easier for employers to understand what’s working and to get a full view of how the plans are performing. Having access to that data can make it easier to make overall plan-management decisions.
“If I am a plan sponsor, trustee or committee member who has two plans at the same provider, using uniformity of information technology, that should drive my costs lower, so I get the benefit of having a total relationship versus two separate ones,” Valentine said. “As a fiduciary, I now can understand and clearly identify who services what and where potential issues or liabilities are that I need to be focused on.”
If employers/entities do ultimately decide to freeze, terminate or even just downsize a DB plan, that process can go much more smoothly when it involves only one plan provider rather than two. That’s particularly important for companies incorporating DB-style elements into a DC plan.