After years of extremely low turnover, retirement plan sponsors are giving serious consideration to altering their 401(k) plan recordkeeping relationships. With the current US-based 401(k) retirement plan assets estimated at $4.4 trillion, according to Investment Company Institute (ICI), assets controlled by plan sponsors planning a move represents a $460 billion opportunity for providers that can effectively differentiate themselves in an increasingly commoditized marketplace. These and other findings are included in the annual Retirement Planscape® a Cogent Reports™ study by Market Strategies International.
The report indicates that four in 10 (40%) plan sponsors are very likely to initiate a formal review of their plan over the next year. Meanwhile, 11% of all plan sponsors are already planning to switch providers during the same period.
“We know that plan sponsors typically conduct at least a cursory review of their plan every two years or so to meet their fiduciary responsibilities,” explains Linda York, vice president of the syndicated research division at Market Strategies and lead author of the report. “However, this year we are surprised to see four in 10 sponsors overall initiating a formal plan review, with an even higher proportion of reviews expected among larger plans.”
According to the report, nearly half (46%) of all Mega plan sponsors (those with $500+ million in plan assets) anticipate a formal plan review and 18% feel these reviews will trigger the need to move to a different provider. Comparatively, 40% of plan sponsors in the Micro plan segment (those with less than $5 million in plan assets) intend to conduct a formal review and just 14% within this segment anticipate actually switching.
“As sponsors begin these reviews, they are open to considering many more providers this year than we’ve observed in the past,” continues York. “This is a red flag for incumbent DC recordkeepers that may find themselves under increased scrutiny. At the same time, this is also an opportunity for new providers to make their move to capture new assets and more market share.”
The full report, first conducted in 2010, evaluates the competitive position of 39 plan providers on a variety of metrics, identifying the leaders in overall brand equity in the best position to capitalize on this future growth potential.
“Fidelity Investments, Vanguard and Charles Schwab still top the list in terms of overall brand equity, but several key challenger brands are exhibiting strong positive momentum and are closing the gap with market leaders,” says York.
Brand Equity: Top 10 Plan Providers
Rank 2014
|
Rank 2013
|
Firm
|
1
|
1
|
Fidelity Investments
|
2
|
2
|
Vanguard
|
3
|
3
|
Charles Schwab
|
4
|
5
|
Principal Financial Group
|
5
|
6
|
John Hancock Financial Services
|
6
|
11
|
T. Rowe Price
|
7
|
4
|
Merrill Lynch/Merrill Edge (name combined with Bank of America in 2013)
|
8
|
15
|
MetLife
|
9
|
13
|
Wells Fargo
|
10
|
14
|
Prudential Retirement
|
Source: Market Strategies International. Cogent Reports™: Retirement Planscape®. September 2014.
