Someone I know in the industry advised me again how a low cost index fund company was all of a sudden joining together with a well known third party administrator (TPA) in going after smaller plans because their bundled provider solution was always too pricy for most small and medium sized plans.
Partnering up with a TPA to go down-market as I say is actually a smart move. This TPA has traditionally done a solid job in plan administration and has the much-needed breadth of experience in dealing with smaller to medium sized plans. The pricing I’ve seen seems reasonable, but the devil is in the details I guess in the help the TPA is willing to give the plan sponsor in terms of handle holding. Since the bread and butter of their business is actual administration and not payroll, I’m hopeful that the service is good.
For the mutual fund companies out there, I think you’ll see more of these small market solutions because everything that a mutual fund company does in the 401(k) plan business is all about increasing distribution of their product. That’s why they became bundled providers in their first place. No mutual fund company gets into the TPA business for fun and giggles.
I also believe that more and more litigation against plan sponsors who use bundled provider TPAs and selecting the proprietary products of the bundled TPA is going to get these mutual fund companies to rethink their position in the retirement plan space. Partnering up with an independent TPA while private labeling the small to medium sized plan solution is probably a better option in many situations especially with constant threats of litigation. I just think this somewhat new solution (I think it’s been around a coupe of years) is going to catch on.