Bundled or Unbundled 401(k) Provider – How to Choose

February 13, 2023

Provider Shopping

401(k) providers can deliver either "bundled" or "unbundled" plan administration services. A bundled (or “full-service”) provider delivers all three of the major plan administration services - asset custody, participant recordkeeping, and Third-Party Administration (TPA) - while an unbundled provider allies with at least one other company to deliver all three services. If you’re a business owner, understanding the differences between the two service models can help you choose the best 401(k) provider for you and your employees.

The Major 401(k) Administration Services

All 401(k) plans require three basic plan administration services:

Asset custody – holding plan assets in a trust, executing trade instructions sent by the plan recordkeeper
Participant recordkeeping – allocating plan assets among participants, maintaining an online portal for plan participants and sponsors
Third-Party Administration (TPA) – completing annual ERISA compliance, including nondiscrimination testing, Form 5500 reporting, participant disclosure, and plan document maintenance

Bundled 401(k) providers deliver all three services, while unbundled providers deliver only one or two. To deliver all three services, an unbundled provider must ally with at least one other service provider.

A fiduciary-grade investment adviser or a non-fiduciary broker and insurance agent can usually be added to a bundled or unbundled 401(k) provider for professional investment advice.

The Differences Between Bundled vs. Unbundled 401(k) Providers

In general, bundled providers offer lower fees and more straightforward services, while unbundled providers can be more custom or high-touch. Other major differences include:

Feature	Bundled 401(k) Providers	Unbundled 401(k) Providers
Service model	One company delivers all three of the major 401(k) administration services.	Two or more companies ally to deliver all three services.
Price	Usually cost less.	Usually cost more due to multiple service providers.
Customer support	More likely to offer a single point of contact for business owners.	More likely to have multiple contacts – one for each service provider.
Plan design options	No difference generally. However, in my experience, 401(k) plans with obscure features (e.g., ESOP, ROBS, or prevailing wage) are most often serviced by unbundled specialists.
Financial advisor options	No difference generally. A fiduciary-grade investment adviser or a non-fiduciary broker and insurance agent can be added to either provider for professional investment advice.
In-person meetings	Not likely for small businesses.	Often available for a fee.

How to Choose Between the Two 401(k) Provider Types

Bundled and unbundled 401(k) providers are not inherently better or worse than the other. In fact, each type of 401(k) provider can range from great (competent and consultative services for reasonable prices) to awful (sloppy and/or cookie-cutter services for excessive fees).

My general recommendation when choosing between them - go bundled unless you want a niche plan design or in-person care. Bundled providers are usually less costly and complicated.