THE GOOD NEWS is that 401(k) providers are doing a better job with decreasing levels of dissatisfaction among even active plan sponsors. The bad news is that sponsors have less reason to switch record keepers. Based on almost 30,000 surveys conducted in the first half of 2008 by 401kExchange with plan sponsors with less than $100 million in plan assets, only 4.5% indicated that they were thinking of changing or actively searching for a new record keeper. Of those 1,323 plans, levels of dissatisfaction with most areas of service decreased as compared to 2006 and 2007.

Fees still continue to be the most cited reason for dissatisfaction of those “active” sponsors but the mid market (plans with $10-$100 million in assets) saw a 22% drop in dissatisfaction with fees since 2006. While fewer sponsors indicated concerns about fees in the micro and small markets (plans with less than $1 million and $1-$10 million respectively), that drop was the smallest compared to other levels of service. (See charts below comparing results from 2006 through 2008 for each market and 2008 results by market segment). Only the micro market saw increases in any level of dissatisfaction in 2008 compared to previous years with growing concerns about fund performance and investment options. Surprisingly, fewer mid- and small-market sponsors were dissatisfied with fund performance during a very turbulent market which may be a result of open architecture and the proliferation of hard-to-measure target date funds. Record keeping is by far the least cited reason for dissatisfaction with only 6% of active mid market sponsors indicating a need for improvement which was a 49% drop as compared to 2007. Improvements in levels of satisfaction with employee education in all markets have more to do with the use of target date funds and QDIAs than the improved quality of the materials or meetings.

With lower levels of dissatisfaction among even active sponsors, record keepers will have an even more difficult time convincing them to make a move. As a result, the appetite for acquisitions will grow among providers who need to increase market share at a faster pace than organic growth can produce thereby raising the prices they are willing to pay. Though weaker providers might need to make even more acquisitions, it is questionable whether they can get corporate support for what may seem like exorbitant prices or the funding in a very weak credit market.