To bundle or not to bundle

Perhaps counter intuitively, bundled plan products require a higher level of knowledge on the part of employers and the advisors they employ than unbundled services. Why is this? Because bundled providers typically service thousands of plans. This requires a great deal of standardization. These services are reactive rather than proactive. For example, many bundled providers expect that employers using their services to already know what provisions they want in the plan document. Are these employers expert in plan design? Their advisors better be. Very large plans receive attention from the bundled provider. Plans under $20 million or so in assets often receive very little support and even less advice.

Contrast this to a plan that unbundles plan services. They will likely retain a third-party administrator (TPA). That TPA will most likely sit down with the employer and explain the various plan design options and find the best combination of provisions for the employer. If something isn’t working out as expected the TPA can suggest alternatives the employer may wish to adopt.

Bundled providers rely very heavily on employer data and provide very little scrubbing of that data. So due to a typo the employer credits an employee that worked 50 hours during the year with income of $75,000. A TPA working for the plan would probably question that data. A bundled provider might not. All of these little discrepancies eventually find their way into the 5500 tax return for the plan and/or impact the various tests the plan must pass each year. If the data is wrong, then the 5500 is probably wrong the testing is probably wrong, and the plan winds up filing an inaccurate tax return.

Since we are well versed in all aspects of the plan, of course we would say that employers derive great benefit from hiring someone like us – or more specifically us. For employers using bundled products, however, an advisor with broad experience is an essential partner. Unbundled services generally include the services of two or three key advisors. With the bundled approach the investment advisor is pretty much it. He or she needs to have a broad range of knowledge. If not, the plan can easily fall out of compliance with the employer only finding out at the exact wrong time – when the Department of Labor or the Internal Revenue Service comes in for an audit.

Subject Reference Information