Five Benefits of Unbundling

Why Choosing Individual Service Providers for Your 401(k) Plan is Better

Imagine having an advocate for your 401(k) plan that helps to maximize opportunities and minimize obligations. Third party administrators (TPAs) assume this role as your firm’s 401(k) advocate; however, employers can only benefit from a TPA’s services if they select an “unbundled” arrangement for the management of their 401(k) plan.

How Is a 401(k) Plan Managed?

Employer-sponsored qualified retirement plans, such as 401(k) plans, involve three distinct management services, each requiring professionals and/or organizations with in-depth knowledge in their specific area of management.

The first provider for a retirement plan is the third party administrator (TPA).  The TPA designs a plan that incorporates the appropriate rights and features, calculates optimal contribution levels, and provides administrative services such as governmental form preparation and compliance testing.  These functions are required and must be performed on an annual basis.

The second provider is a recordkeeper. A recordkeeper is selected to track the assets for the individual participants and to provide an online portal for them to check their balances and manage investments.

Finally, a financial advisor is appointed to select and monitor the menu of investment choices within the retirement plan and offer participant education.

Bundled 401(k) Plan

What Is the Difference Between “Bundled” and “Unbundled” Arrangements?

A bundled arrangement is when a retirement plan receives two or more of its services from the same firm.  Many firms offer recordkeeping and administrative services.  In some cases, a financial advisor can offer recordkeeping and administration services, in which case the retirement plan has one single provider.

An unbundled arrangement is when the retirement plan services are performed separately.  The recordkeeper strictly does the recordkeeping while a third party administrator (TPA) performs the administrative services.Unbundled 401(k) Plan

Five Benefits of Unbundling

When employers elect to use an unbundled arrangement, they benefit from the expertise of a third party administrator. TPAs are highly educated and experienced with the design and administration of retirement plans, as this is their sole focus. There are 5 key benefits of unbundling service providers for your 401(k) plan.

1) 401(k) Plan Design

TPAs collaborate closely with the employer, the financial advisor and the CPA to design a 401(k) plan that meets the employer’s goals.  A well designed plan is flexible to adapt to changing business conditions, yet satisfies the complex regulations that govern employer-sponsored retirement plans.

Creative plan design techniques can allow for higher contributions for owners, should that be the goal.  A TPA collaborates with the employer to address contribution goals, tax benefits and employee benefits.

Bundled providers typically take more of a one-size-fits-all approach when it comes to plan design. This means there are less options available and the employer may be stuck with a plan that does not perfectly fit their objectives.

2) 401(k) Plan Administration

TPAs take a proactive approach to administering 401(k) plans. They can foresee possible issues with compliance testing and offer creative solutions to maintain the plan’s qualified status. Conversely, bundled providers usually take a reactive course of action, which can threaten the plan’s qualified status.

3) Dedicated Retirement Plan Professional

In an unbundled arrangement, the employer is assigned a dedicated retirement plan professional to administer the plan. This means that when the employer calls the TPA with a question, they can always speak to an expert that is familiar with the employer’s plan.

In a bundled arrangement, the employer’s question would likely be directed to a call center and handled by a less experienced person that is unfamiliar with the employer’s unique situation or retirement plan.

4) Ease of Switching Providers

In a bundled arrangement, the same firm provides both the recordkeeping and administrative services. If the employer is unhappy with the service they are receiving in either area, they may wish to switch providers. In a bundled arrangement, this would require that both the recordkeeping and administrative services be switched, which can be a time-consuming process.

In an unbundled arrangement, the employer can simply replace either the recordkeeper or the TPA if their expectations are not being met.

5) Transparent Costs

As a fiduciary of the plan, the employer is responsible for ensuring the cost for services to the plan are reasonable.  Bundled administration is typically embedded within the costs of the plan assets.  As plan assets grow, administration fees paid increase.

In an unbundled environment, the administration costs are transparent.  Unlike the bundled approach, the employer has the flexibility to structure how the costs are paid.  The employer has the option to assume the administration fees as part of the plan assets or participant accounts, or have a direct, fully deductible business expense by paying for the costs outside of the plan.  Unbundled services provide many more options to plan sponsors.


401(k) plans are most effective when they are expertly designed to suit the employer’s needs and receive proactive attention from an experienced professional. Unbundled arrangements utilize a third party administration firm to handle these important details, as TPAs have in-depth knowledge and experience in these areas. Conversely, the one-size-fits-all, automated approach taken by bundled service providers can lead to plan qualification issues and headaches down the road.

As a fiduciary of the plan, you are charged with selecting competent service providers for your plan.  Keep in mind that, regardless of the arrangement, the same three services are needed for every 401(k) plan.  Whether the services are provided in a bundled or unbundled arrangement, the fees and services of the providers involved must be examined to determine the correct “team” for your plan.

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