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Lessons from Shopping at the Warehouse Clubs: 401(k) Plans Can Benefit from Buying in Bulk, Too

It’s interesting that many of us pay a membership fee to shop at discount clubs like Costco or Sam’s Club to save a few dollars (or even pennies) on an array of consumer goods, many of which we don’t need or will never purchase. It seems as if buying products in bulk to save a few dollars on the goods these clubs offer is so alluring that we cannot resist the opportunity. This is interesting because plan committee members, human resource managers, CFOs, CEOs, etc. often look skeptically at their consultants when they mention that there are potentially significant savings to be obtained by conducting regular and recurring benchmarking and request for proposal (RFP) projects on their 401(k) plans.

Searching for a 401(k) plan vendor is like buying in bulk by shopping for and purchasing services that support the needs of hundreds or even thousands of consumers (i.e., plan participants). Reducing these by just a few hundredths of a percentage point (i.e., basis point) can have a significant impact on the costs of the plan, resulting in lower investment costs and potentially increased investment returns for the participants. However, while many people may shop at discount clubs to save $20 on a computer, many of those same people often fail to regularly shop around to find the best package of price and services for their 401(k) plans.

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Comment   |  5 years, 11 months ago from Houston, TX