Bank of New York Mellon : Should You Switch to an Unbundled Service Provider for Your Defined Contribution Plan?

Written by: Eoin Gill | Corporate Funds Segment Manager, BNY Mellon Asset Servicing

Plan sponsors are, in a growing trend, paying more attention to their defined contribution (DC) plans and the roles of each service provider that helps to deliver these plans to retirees. Their concerns about litigation and liability around fiduciary responsibilities continue to intensify, triggered in part by last summer's implementation of the DOL fiduciary rule. A recent study from investment consulting firm, Callan, for example, highlighted that a significant number of plan sponsors don't know how they're going to monitor their contracted agents in accordance with the new requirements going forward. In addition, investors are demanding greater transparency around the investment selection process, performance reporting, expenses and fees. These factors are pushing sponsors to take a closer look at whether their plans provide the greatest choice, transparency, and flexibility to them, and to their underlying participants.

As a sponsor, you need to consider several key factors to ensure your participants receive the best possible benefits, while empowering you with optimal governance of your plan. A primary consideration is whether to choose a bundled service provider for your plan, which eliminates the need for you to individually select an asset manager, custodian, record keeper, etc. For plan sponsors focused intently on fiduciary considerations, however, bundled service providers also mean restricted investment selections and limited insight into the true costs of asset management and asset servicing. Neither of those plan components are without an associated cost, and the issue of costs and expenses has been the lynchpin in many recent lawsuits filed against plan sponsors.

The alternative is choosing to engage an independent custodian - such as BNY Mellon - that enables plan sponsors to pursue a more open platform for investment managers and strategy selection, as opposed to being captive to a bundled service provider. A custodian can also help: to facilitate decisions regarding the rest of the service providers that deliver these plans to retirees, independently analyze performance that can be more beneficial to sponsors, and provide greater transparency into the underlying holdings that ultimately make up the entire portfolio.