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Understanding 401k Service Delivery Models


There are three main models used by vendors to delivery 401k products to plan sponsors. When doing a vendor search, it is important that you, the plan sponsor, understand the strengths and weaknesses of each because each model will impact differently your workload, plan expenses, and the way services are delivered to you and your employees. Understanding them will also help you compare and evaluate vendors as they present their offerings to you.

"When you understand the different ways in which plans can be assembled, it becomes easier to quickly categorize various products and to understand the inherent tradeoffs within and between each model. Ultimately, this makes you a better shopper." Matthew Gnabasik from his book, Smart Choices, Selecting and Administering a Safe 401k Plan.


The bundled model is where one single vendor provides all investment, recordkeeping, administration, and education services. Generally, no variation from the standard is allowed including no ability to use mutual funds not managed by the vendor. Bundled service providers are able to provide the entire range of administrative services to a plan sponsor from within a "one-stop-shop." Costs are generally lower because the vendor is able to offset recordkeeping and administrative costs from investment management fees.

Bundled services are most prevalent among small plans. According to one study, among plans with fewer than 250 participants, 85% rely on a bundled service provider.


In this model the plan sponsor becomes the "bundler." Plan sponsors provide services through a combination of in-house staff and independent service providers for each critical task. It allows for maximum control and the ability to pick service providers that are the "best of the best," including investment options.

This model is most prevalent among larger plans that have adequate resources to manage such a plan. Independent consultants are often hired to help construct and manage unbundled plans.


This model combines features from both the bundled and unbundled models. The vendor generally provides recordkeeping, administration, and education services just like the bundled provider, but forms one or more alliances with partners to provide a wide array of investment options and other specialty services. The cost of providing recordkeeping and administration services is often subsidized by the alliance partners through 12(b)1 fees or other revenue sharing. This makes the alliance model cost competitive with the bundled model.

This is one of the fastest growing models in the market place among all plan sizes.


The table below summarizes the advantages and disadvantages of each model. Keep in mind that by its very nature, a chart can't cover all situations. There will be exceptions and unusual situations, but the chart will give you a good feel for each model.

  Bundled Unbundled Alliance
Able to get the "Best of the Best" service options No Yes Yes on investment options; no to maybe on other services
Able to have diverse investment options from more than one mutual fund family Maybe if plan is large enough; No otherwise Yes Yes
Ease of changing investment options within the plan High if within limited options made available; Low otherwise High High
Costs Low to Medium Medium Low to Medium
Ease of administration for the plan sponsor High Medium High
Single point of contact? Yes No Yes
Need for ERISA attorney assistance Medium High Medium
Education services Off the shelf with some limited customization usually available Highly customizable and tailored to plan sponsors needs Off the shelf with some limited customization usually available
Technological integration High Medium High
Complexity Low High Medium
Range of additional services (e.g., investment advice, holding company stock, etc.) Medium to High High Medium to High

Other Resources

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation.

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