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401(k): Shopping à la Carte

Increasingly, companies wonder if they should put all their 401(k) eggs in one basket.

6May

To bundle or not to bundle? That's a question more companies are asking themselves these days. Is it better to tap a full-service provider for the many administrative, investment, and other aspects of a defined contribution plan, or choose different specialty firms for each?


In the early days of 401(k) plans, the unbundled, or à la carte, approach was common, but soon full-service providers came to dominate the market. They offered the simplicity of a single point of contact and, perhaps more important, a fee structure that shifted the burden from employers to employees (mutual fund management fees essentially underwrote the costs of administration, education, and other duties).


Now the pendulum is swinging back. Companies realize that switching 401(k) providers is difficult when they rely on one company for everything: why go to the trouble of finding a brand-new partner when you're only unhappy with one aspect of your current provider's service? With an unbundled approach, if your record-keeper is doing a good job, you keep it. If your investment manager is subpar, shopping around for just that service is relatively easy. Employee benefits firm Spencer & Associates says that 30 percent of companies now take the à la carte approach.


So this year, for the first time, our annual Buyer's Guide to 401(k) Providers (developed in cooperation with Dalbar Inc.) has broken out companies based on this critical distinction. After featuring dozens of full-service firms, we bring you a near-equal number of à la carte providers.

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