How Bundled Services in Retirement Plans are Like Fast Food Value Meals

Last Updated: September 10, 2014

You pull up to your favorite fast food chain and decide to order a burger, drink and fries, paying for each separately.  But wait – you notice the menu includes a value meal consisting of the burger, drink and fries, but at a slightly lower price.  Everyone likes a deal, so you order the value meal, even though you probably didn’t need the fries after all.  You decide to save the fries for later, but you never get around to eating them, and eventually end up throwing them away.  It would probably have been better to order the burger and drink separately, after all. We can apply a similar line of thinking when it comes to services made available to you by your plan’s vendors.  Is there value to be gained by bundling services, or should you pay for each service separately? Consider the following scenario:
As a fiduciary, you know you have a responsibility to determine that the fees paid to your retirement plan’s vendors are reasonable.  Everyone in the industry and in the media is discussing the importance of fees and how they must be low.  So, when you notice that your record keeper’s menu of services includes many different services for one low price, you order the ‘value meal’. As you are reading the Department of Labor regulations over your vacation, you notice that nowhere does it say that the fees paid to your plan’s vendors must be the cheapest; instead, it states the fees need to be reasonable.  You feel good about your decision to order the bundled services from your record keeper. A short while later, you get a call from your administrative staff-person who has been diligently reviewing the plan’s schedule of services.  They indicate the plan didn’t use the paper or Spanish-speaking enrollment kits or mid-year discrimination test, and wondered why the plan was being charged for a payroll bridge when there is only one payroll location. After you hang up, you dig deeper into the Department of Labor regulations and notice that in addition to the fees needing to be reasonable for services provided to the plan, the services being provided to the plan must first be determined to be necessary for the plan. You assume a simple phone call to your record keeper should take care of everything: they should be able to refund the fees you paid for the unused enrollment kits, mid-year test and payroll bridge.  And, going forward, you should be able to pay separately for only those services that are necessary to the plan.  Unfortunately, your record keeper lets you know that they have only one pricing model, but they try to soften the blow by telling you that their bundled pricing model is to your plan’s advantage… you’re getting a value meal, after all. The best choice may not always be the value meal; in fact, very few plans take advantage of everything they pay for when it comes to bundled services. As a plan fiduciary, you should be asking your plan’s vendors to break out its fees for each desired and necessary service, so you can then make a determination of reasonableness. Feeling overwhelmed? We’re happy to help you determine the necessary services for your plan and work with your vendors to break out its fees for those services, even if your plan currently has a bundled arrangement. PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


Pension Consultants, Inc.



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