Mergers and Acquisitions Driving Changes in Retirement Plan Providers: Insights from Escalent Report

In the world of retirement plan advisement and wealth management, mergers and acquisitions are not just impacting the companies themselves, but also the plan sponsors who rely on their services. A recent report from Escalent highlights how M&A activity is a top catalyst for plan sponsors changing recordkeepers, shedding light on the various factors driving these decisions.

According to the report, 22% of plan sponsors who switched providers in the past two years cited a merger or acquisition as the reason for their decision. Sonia Davis, senior product director at Escalent, explains that as companies merge, the plan population becomes more diverse, leading to different servicing needs for participants. This diversity underscores the importance of recordkeepers and providers offering solutions that cater to the varying needs of plan participants.

While switching providers can involve significant administrative work, Davis notes that a merger or acquisition presents an opportunity for plan sponsors to reassess the services they need. The report identifies overall service quality as the primary reason for changing providers, with other factors such as plan investment fees, participant engagement, and administrative fees also playing a role in these decisions.

Escalent’s analysis of 1,391 401(k) plan sponsors revealed that large-mega plans reported the highest likelihood of switching providers, with 19% anticipating a change after issuing RFPs in the last year. This trend suggests that challenger firms are gaining traction in attracting new business from incumbents in the large plan size cohort.

Jim Sampson, director of retirement advisory services at Hilb Group Retirement Services, highlights the increase in M&A activity in recent years, noting the impact on plan sponsors as they navigate changes in their retirement plans. Sampson emphasizes the complexity of managing plans through mergers and acquisitions but also sees it as an opportunity for innovation and growth.

In addition to M&A activity, cybersecurity concerns have emerged as a top priority for plan sponsors across all plan-size cohorts. Escalent’s report reveals that the threat of a cybersecurity incident or data breach now surpasses worries about underperformance of plan investment options. Recent data breaches at major financial institutions have heightened concerns among plan sponsors, underscoring the importance of data security and cyber-risk management practices in the selection of plan providers and recordkeepers.

As the retirement plan landscape continues to evolve, plan sponsors must navigate the challenges and opportunities presented by M&A activity and cybersecurity threats. By staying informed and proactive in their decision-making processes, plan sponsors can ensure the best outcomes for their participants and their retirement plans.