401(k) plan sponsors are likelier to leave their recordkeeping providers due to service quality, mergers and acquisitions (M&A), and business growth, reports a new Cogent Syndicated report from Escalent.
The research, which surveyed 1,300 401(k) plan sponsors managing less than $5 million to over $500 million in defined contribution (DC) assets, finds that among plan sponsors who swapped providers in the past two years, 23% changed because of overall service quality, 22% switched because their organization merged or was acquired by another firm, and 22% moved providers due to growth in number of employees/plan assets.
“Incumbent plan providers may be tempted to believe that corporate growth is purely positive given the potential for increased plan assets and participants, but they must be vigilant,” said Sonia Davis, lead report author and senior product director at Cogent Syndicated. “Healthy growth and M&A activity can prompt plan sponsors to reevaluate and enhance their retirement plan benefit offerings in the spirit of being equitable to all parties.”
This is especially true for large and mega corporations with at least $100 million in assets, Escalent finds, as average plan provider tenure trends lower with these plans, to 7.5 years compared to 8.4 years in 2022.
Other organizations may be moving providers due to increased concerns over cybersecurity practices. Escalent data found threats to cybersecurity or data breaches surpassed underperformance of plan investment options as the biggest fear for plan sponsors with respect to managing their company’s 401(k) plan. Meanwhile, fears about over fund underperformance cooled from 57% in 2022 to 45% this year.
Anxiety over cybersecurity risks grew 7% over the past two years, from 40% in 2022 to 47% in 2024, as recent threats expose gaps within recordkeeping practices. Last month, Walmart 401(k) participants were exposed to a data breach after an employee with recordkeeper Merrill Lynch accidentally revealed private information to an unauthorized user, including names and Social Security numbers.
The breach comes a few months after the Securities and Exchange Commission (SEC) vowed to prioritize cybersecurity practices in 2024, after a series of third-party data breaches revealed the personally identifiable information of up to 77.2 million people.
“Cybersecurity threats previously served as a top concern among Large-Mega plans but now serve as the most dominant fear across all plan-size cohorts. Providers must be very explicit in showcasing their data security and cyber-risk management practices,” added Davis. “As mergers, acquisitions and cybersecurity concerns take center stage, it is imperative for recordkeepers to clearly communicate their offerings. By maintaining high-quality service and security standards, recordkeepers will be poised to win new opportunities and maintain relationships with their existing clients.”
SEE ALSO:
- Merrill Cyber Leak Exposes Walmart 401(k) Participants
- Crypto and Cybersecurity Among Top SEC Priorities for 2024
- RIA M&A Activity Up 20% in Q1 2024
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
