Bundled or Unbundled?

By John Iekel • May 15, 2017 • 0 Comments
FRA PlanTools CEO and Managing Director David Witz recently surveyed third party administrator (TPA) clients as well as professionals who once were part of TPAs regarding why one may want to work with a TPA. Some mentioned bundled providers, and discussed the plusses and minuses they entail.

What’s the attraction? Savings, say some; financial, for those who argue that the overall cost of bundling is less; time, for others; offerings, say still others. “Many of the claims of TPAs could be equally claimed by bundled providers,” said Witz.

And there are bundled provider customers who argue that with their providers, they enjoy the same level of service they would receive from a TPA. “There are many claims that in my opinion are not unique to the local TPA and can be equally claimed by the bundled solution,” said Witz.

Another TPA client said TPAs are preferable because they offer a transparent, “easily discernible” fee structure. A bundled provider client countered, “This assumes the bundled provider hides their fees. This may be more prominent in the past but not so much anymore.”

Bundled providers do have their critics, such as the respondents who remarked:

  • “Local TPA staff typically have broader experience doing more functions, whereas a bundled solution often breaks down the administrative responsibilities into segments like an assembly line”;

  • “Bundled provider is not knowledgeable of market-specific issues”; and

  • “Most bundled arrangements will not provide strategic plan design concepts and do not like advanced allocation strategies. They want plans that are more ‘vanilla’ in nature due to lack of capabilities to service those plans and being volume oriented.”

Others cite accuracy. “Bundled arrangements take the information provided by the plan sponsor and conduct little to no verification in regard to the accuracy of the information,” said one respondent. “Rarely is any final review conducted to verify accuracy of testing.”

Lawrence C. Starr, President of Qualified Plan Consultants, Inc. — whose firm designs, sets up and administers small business retirement plans but is not a TPA — bore out the comments respondents made. “We are definitely not fans of ‘bundled services,’” said Starr. “We firmly believe the financial products should be separated from the accounting, legal and consulting side of the business.

“In our experience, bundled providers are mostly interested in the investments and the ‘stuff’ we do is often of secondary interest,” said Starr, who added that his firm finds that clients that use bundled services often experience a lack of continuity, with the people with whom they work changing regularly.

GF Pension Corporation President Gerald Foran struck a similar tone: “An independent TPA is more accountable to the client than the bundled provider. The TPA’s reputation is on the line, and thus technical issues and service issues are usually fast tracked to the owner or owners. For example, clients generally don’t know how to accelerate an issue to the key people at a bundled provider, but, there is no such hesitation when the owner’s name is on the work.”


Pete Swisher, Pentegra’s Senior Vice President of National Sales, deftly straddles the line. Says Swisher, “I have a different perspective on the whole bundled/unbundled question: instead of focusing on which is better, I’m interested in service models that eliminate disadvantages — think of it as ‘quasi-bundled.’”

“For example,” he continued, “a significant disadvantage of an unbundled arrangement is that participants usually must contact the TPA to take loans or distributions. This takes longer and is a more manual process that might involve the participant first calling the recordkeeper, then being steered to the TPA, then having to complete paper forms, which must then be approved by the employer and routed back to the recordkeeper. Yet modern, bundled recordkeepers can accept such transactions and execute them virtually overnight, via automation. A better service model for participants is therefore to get the TPA out of the middle of the loan or distribution transaction. This means less revenue for the TPA since over 10% of a typical TPA’s revenues come from ancillaries like loan fees, but the ‘quasi-bundled’ service arrangement makes life better for participants and combines the best of both bundled and unbundled services.”