Bureau of Labor Statistics' data shows a massive imbalance between large and small employers' sponsorship of retirement plans. While more than 90 percent of large employers sponsor a 401(k) plan, only 48 percent of employers with fewer than 50 employees sponsor a plan. (Photo: Shutterstock)

When recordkeepers of small business 401(k) plans pitch the simplicity and low cost of their platforms, third-party advisors and employers often assume that value comes at the expense of quality and service.

“Simple and low cost can mean limited and stripped down,” said Jerry Patterson, senior vice president of retirement and income solutions at the Principal Financial Group, the largest recordkeeper to the $10 million-and-under plan market.

Patterson and the Principal are hoping to break the value-in-exchange for diminished services mold for the small and midsized plan market with the launch of Principal IMPACT, a new recordkeeping platform that's designed to bring the service and wellness programs that benefit mega 401(k) plans to the $1 million to $10 million retirement plan market.

Rolled out earlier this month, Patterson calls the IMPACT platform a “refreshed and repackaged” approach to delivering retirement programs to smaller employers.

“The idea was to take a step back and listen to advisors and plan sponsor customers,” explained Patterson. “This doesn't take away from our existing capabilities, but strikes a careful balance between simplicity, transparency, and low cost with delivering services advisors value to create better retirement outcomes.”

Bureau of Labor Statistics' data shows a massive imbalance between large and small employers' sponsorship of retirement plans. While more than 90 percent of large employers sponsor a 401(k) plan, only 48 percent of employers with fewer than 50 employees sponsor a plan.

There's no shortage of employer surveys enlisted by industry stakeholders and consumer advocates that try to pinpoint the reasons behind the imbalance. Small employers routinely cite cost and complexity as the primary barriers to sponsoring a retirement plan.

The goal of the IMPACT platform is to deliver hard services to advisors and sponsors that are unique to the small plan market.

“Because we work with the entire spectrum of plans—small to large—we can bring services the large end of the market benefits from to the small end of the market,” Patterson said.

Specifically, plans that enroll through the IMPACT platform will have a dedicated client-focused service team that includes a relationship manager, client services manager, and advisor relationship manager, explained Patterson.

IMPACT is not a closed architecture platform, but Patterson said the Principal can deliver “a real competitive” recordkeeping fee when sponsors opt to build investment menus around the firm's proprietary multi-managed target-date fund series and its Principal Pension Builder, an annuity option that guarantees income streams in retirement.

Small plans will also enjoy preparation services, financial wellness tools, and the ability to link health saving accounts (HSAs) to retirement plans—features prominent among large and mega-sized 401(k) plans. “All of the things we do for large customers we can do for customers on the IMPACT platform. We take pride in delivering these capabilities to the small plan market.”

Increasingly competitive market and new small plan legislation on the horizon

The retirement plan recordkeeping market has been challenged by increasing fee pressure, mounting consolidation, and demographic challenges that see more money leaving 401(k) plans than coming in.

This week, the SECURE Act is expected to pass out of the House of Representatives. It includes a provision that would allow recordkeepers to sponsor Open Multiple Employer Plans, which let unaffiliated small businesses pool assets and workers under one defined contribution plan.

Open MEPs are designed to reduce the administrative burdens of single-sponsor plans, offload some but not all of an individual employer's fiduciary obligations under the Employee Retirement Income Security Act, and possibly reduce the costs of sponsoring a plan through scale. The Senate is preparing to consider companion legislation.

Patterson said the Principal is “very supportive of the efforts and thinking in Washington,” but that the launch of the IMPACT platform would be happening irrespective of the larger policy conversations on closing the retirement plan access gap among small employers.

And while servicing retirement plans has become an increasingly competitive business, Patterson says his and the Principal's focus has not changed in his 17 years with the firm.

“All industries move in cycles. There are some interesting shifts in our market driven by demographics—IRA assets are growing faster than assets in DC plans—and where there is pressure on growth in core DC plans you tend to see an increase in competitive behavior,” said Patterson.

“But those pressures have not changed our discipline or approach,” he added.

Making progress in a very different world

Time was when a typical American worker had limited access to credit, perhaps a pension plan, a more solvent Social Security program backstopping retirement, and one employer and one job throughout a work career.

But that was another time. “The world has become way more complicated to navigate work life and saving for retirement,” said Patterson. “It is very different now.”

On balance, the retirement industry, and the policy it works within, have adjusted, but more work needs to be done.

“We're creating plenty of new vehicles and every year that goes by we're getting better,” said Patterson. “Lower cost solutions, technology, and transparency that's come from competition are all really positive things. Has industry reached perfection? No, but I think we are doing good work and will continue to get better,” he said.

“It's an imperfect world, and it will never be perfect,” added Patterson. “But we are making progress.”

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