Industry Insight from Fred Barstein
Active Sponsors Concerned about Fees, Performance & Education

With severe market declines and better service and infrastructure, it is no wonder that fees, fund performance and employee education continues to dominate the concerns of 401(k) plan sponsors that are thinking of changing or actively searching for a new record keeper in 2008.  With the focus clearly shifting to the issues that dramatically affect participant outcomes, the question is whether any record keeper can step up and distinguish themselves in these key areas.

Based on over 2,400 surveys with potentially active 401(k) sponsors, fees continue to be the most cited reason for dissatisfaction in all markets but those concerns diminish for larger plans.  Micro plans also indicated the most concern about education, fund performance and investment options but all markets saw a dramatic uptick in the 1^st quarter of 2009 in concerns about fund performance and fees.  Only the small market showed a relatively mild increase in fund performance dissatisfaction from 2007 to 2008 at just over 10% but the other markets increased by over 30%. 

Record keepers cannot escape the fallout of drastically reduced participants’ balances.  While surveys indicate that participants and sponsors do not blame the 401(k) system for the market declines, expectations are that record keepers and their strategic partners should help improve outcomes.  Obviously, record keepers with proprietary investments will be held most accountable especially those with target date funds, but even record keepers that offer outside investments but screen the funds will not escape expectations.  Open platform providers need to position themselves as more than a utility if they want to impact the 401(k) market or else they will be selected like a commodity – on price alone.  Record keeper cannot expect to be paid a premium for services now considered to be a commodity.

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