Digital Recordkeepers Poised to Disrupt Retirement Plan Market, Address Plan Sponsor Concerns

June 28, 2023

Retirement Planscape® report from Escalent shows plan sponsor pressures, digital recordkeeper consideration

A new Cogent Syndicated report from Escalent shows retirement plan sponsors are facing more cost pressures than ever and have a lower threshold for underperformance, posing an opportunity for digital recordkeepers to solve a need and unexpectedly disrupt the market.

Reducing retirement plan costs is the core focus across all organizations this year, cited by 50% of Large-Mega plans (defined contribution, or DC, plans with $100M or more in plan assets), a sizable uptick from 35% in 2021. And due to plan cost and underperformance concerns, economic outlooks are grimmer than past years with nearly one-fifth of DC plans (19%) “not at all confident” in the overall stability of the global economy, a significant increase from 12% in 2021.

Speaking to this pertinent need, digital recordkeepers’ ability to offer lower fees or better cost structures is a primary motivator for more than four in ten (43%) plan sponsors who are considering working with them this year. Payroll integration (33%), better digital capabilities with online dashboards (36%), easier participant onboarding (34%) and innovative technology platforms (31%) also add to the appeal of working with digital plan providers.

These are among the key findings from Escalent’s 2023 Retirement Planscape® report, which examines plan sponsor priorities; current trends in plan design; and brand perceptions, satisfaction and loyalty of retirement plan providers and investment managers serving the DC plan marketplace.

“Digital recordkeepers are primed to potentially disrupt the market. Traditional plan providers must be cognizant of this potential threat while focusing on what they can do to retain and expand their existing 401(k) business,” said Sonia Davis, lead report author and senior product director at Escalent. “In fact, plan sponsors cite greater difficulty accessing plan provider representatives and investment managers during periods of underperformance this year. Providers must strengthen their basic building blocks—client service, engagement and support—before stepping into a bigger role as strategic partners and expanding retirement plan access.”

In addition to benchmarking the leading 29 DC plan providers and 44 DC investment managers, the report tracks the consideration potential of newer digital recordkeepers, which are also vying to establish a larger footprint in today’s evolving DC plan marketplace. The following is the rankings of the likelihood of plan sponsors to consider digital recordkeeper firms for their organizations’ 401(k) plan in the next 12 months.

Aided Consideration of Digital Plan Providers/Recordkeepers

  1. Human Interest
  2. Guideline
  3. SaveDay
  4. Ubiquity Retirement + Savings
  5. 401k Easy
  6. ForUsAll
  7. Vestwell
  8. 401GO
  9. Share Builder 401k

Base: Plan sponsors aware of the brand
Source: Escalent. Cogent Syndicated. Retirement Planscape®. May 2023.

The study further examines the plan sponsor mindset and overall support needs. Evaluating 401(k) plan fees (40%), dealing with tax reporting requirements (37%) and staying up to speed on new regulations (36%) rank as the top three pain points among plan sponsors.

The SECURE 2.0 Act signed into law in December 2022 is another opportunity for providers to add clarity and guidance, particularly as plan sponsors underscore the need to receive timely, informational updates and proactive recommendations with specific timelines. It’s also key for firms and intermediaries to maintain strong communication and responsiveness.

“There are nearly 100 new provisions in the SECURE 2.0 Act bringing forth new requirements for automatic enrollment and automatic escalation, minimum plan distributions, income annuities, options for emergency savings and a variety of voluntary measures,” added Davis. “If effectively harnessed, they have the potential to radically change the industry for the greater good. The adoption will be smoother and swifter if plan sponsors are properly educated and supported by their providers and intermediaries.”

About Retirement Planscape® 

Cogent Syndicated, a division of Escalent, conducted an online survey of a representative cross section of 1,353 401(k) plan sponsors from February 16 to March 14, 2023. Survey participants were required to have shared or sole responsibility for plan design, administration or selection and evaluation of plan providers, or for evaluating and/or selecting investment managers/investment options for 401(k) plans. In determining the sampling frame for this study, Cogent relied upon recent Form 5500 filings as maintained by ALM’s Judy Diamond Associates. To ensure the population for this research is representative of the universe of 401(k) plan sponsors, quotas were set during the data collection phase around key firmographic variables including total plan assets, number of plan participants, industry and geography. Minimal weighting was applied to adjust for purposeful deviations from the actual marketplace distribution. The data have a margin of error of ±2.66% at the 95% confidence level. Escalent will supply the exact wording of any survey question upon request.

To learn more about the full report, click below.


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