Emerging New Risks for Retirement Plan Sponsors
Written by Rick Rodgers, AIFA® and Brooklyn Seymour
For decades, the retirement plan industry has evolved in ways that have largely benefited participants and plan sponsors with greater fee transparency, improved investment oversight, independent fiduciary consulting, and enhanced participant education have all contributed to better retirement outcomes and stronger governance. However, as the retirement plan landscape continues to mature, a new set of risks are emerging that are less visible than excessive fees or poorly constructed investment menus. Today, plan sponsors face a changing environment, where industry consolidation, private equity ownership, proprietary product development, and participant monetization strategies are creating new fiduciary challenges. Understanding these developments is becoming increasingly more important for employers charged with overseeing retirement plans in the best interests of their participants.
The Evolution of Defined Contribution Plans
In 1983, approximately seven million Americans participated in defined contribution plans. By 1993, participation had grown to 39 million. In 2019, the number reached 80 million, and by 2024, more than 109 million individuals were participating in workplace retirement plans. As retirement plans expanded, so did the businesses supporting them. When the first 401(k) plan was introduced in 1981, most retirement plans were administered by insurance companies and mutual fund providers. These firms often populated plans with proprietary investment products, and compensation structures were frequently funded through revenue-sharing arrangements that lacked transparency. By the 1990s and early 2000s, concerns over conflicts of interest led to the emergence of independent retirement plan consulting firms. These firms sought to provide objective advice, improve fee transparency, and help sponsors make decisions free from product driven incentives leading to tremendous industry progress. Between 2000 and 2020, retirement plans generally became more transparent, investment lineups improved, fees declined, and fiduciary governance strengthened. However, the major transformation that has occurred over the last several years is consolidation.
A New Era of Consolidation
Both recordkeepers and retirement plan advisory firms have experienced significant consolidation in the last few years. Large wealth management firms such as Wall Street institutions, insurance brokers, and private equity backed organizations have acquired retirement consulting firms at an unprecedented pace. Industry transactions involving firms such as CAPTRUST, Creative Planning, SageView, Morgan Stanley, Aon, Hightower, Mariner, and others have reshaped the competitive landscape.
Organizations that invest heavily in acquisitions typically expect growth and profitability and that profitability depends not only on servicing retirement plans, but also on monetizing participant relationships and participant assets. This is the shift creates a need for plan sponsors to be more diligent.
The Recordkeeper Revenue Challenge
Historically, recordkeepers have generated substantial revenue through the distribution of proprietary investment products. As more independent advisors encouraged competitive bidding, fee transparency, and open-architecture investment menus, those revenue streams from proprietary products declined. At the same time, recordkeeping fees became increasingly compressed. Recordkeepers face shrinking margins, so many recordkeepers sought alternative sources of revenue. Two of the most prominent areas have been managed accounts and wealth management opportunities through IRA rollovers. These offerings have become central growth strategies throughout the retirement plan industry.
The Rise of Managed Accounts
Managed accounts are marketed as personalized investment solutions, but in practice typically rely on algorithm-driven models using inputs like age, time horizon, and risk tolerance to generate allocations from plan funds. While some programs allow participants to include outside assets or broader financial data, this information is often incomplete, limiting true personalization. The fees generally range from 0.35% to 1.00% annually, in addition to underlying fund expenses. This introduces a key fiduciary obligation under ERISA to evaluate the necessity of these services and the reasonableness of their fees.
Another concern is who ultimately benefits financially, as managed account fees can rival or exceed compensation for core plan services, creating potential conflicts when providers or advisors earn more from these offerings than from plan administration. Sponsors must assess whether recommendations are made in participants’ best interests, especially as advisor-managed account programs expand.
Necessity and Reasonableness Matter
Recent litigation has questioned whether managed accounts deliver materially different outcomes than lower-cost target date funds, as many produce similar asset allocations. If outcomes are comparable, plan sponsors must consider whether higher fees are justified given the significant long-term impact of small cost differences. Our analysis shows that a participant starting at age 25 could accumulate nearly $700,000 less by retirement paying ~0.90% versus 0.08%. Starting at age 45, the difference may be about $386,000.
Advisors Are Increasingly Monetizing Participant Relationships
Independent retirement consultants historically differentiated themselves by avoiding proprietary products and minimizing conflicts, but today many firms are moving in the opposite direction, expanding into:
Individual wealth management
Proprietary collective investment trusts (CITs)
Proprietary target date funds
Financial wellness programs
Advisor-managed account services
Industry focus is increasingly shifting toward converting plan participants into wealth management clients. The economics are compelling as a $150 million plan generating $75,000 in consulting fees, capturing just 10% of assets at a 1% advisory fee can increase revenue to $225,000. At higher penetration levels, combined with managed account services, revenue can exceed $400,000. The financial incentives are powerful and so are the fiduciary implications.
Plan Sponsor Awareness and Value of Independent Advisors
As these trends continue, plan sponsors must more rigorously assess whether services are necessary ,fees are justified by the value delivered, and whether advisor incentives, particularly those tied to participant level services or proprietary solutions are aligned with participant interests. They must also remain attentive to broader industry shifts, including growing private equity ownership, increased use of proprietary investments, managed accounts, and the expanding monetization of participant relationships.
The retirement industry has made meaningful progress through greater transparency, fiduciary accountability, and objective advice, and these principles remain essential as new risks emerge. Plan sponsors should prioritize independent advisors who evaluate recommendations without competing incentives and remain focused on central fiduciary standard of ensuring decisions are made to improve participant outcomes rather than maximize provider revenue. In an increasingly complex environment, that distinction is critical and ultimately participants should be educated, not monetized.