Article Key Takeaways

• Recordkeepers now operate as platforms, not just service providers. They control most participant touchpoints while plan sponsors retain the fiduciary risk.

• Retirement plans create high switching costs. Infrequent recordkeeper changes and captive participants give recordkeepers durable commercial leverage.

• Participant engagement drives monetization. Financial wellness tools often double as channels for selling proprietary products, services, and rollovers.

• Fiduciary risk is expanding beyond plan fees. Participant data use, indirect compensation, and rollover recommendations are emerging exposure areas.

• Recent litigation signals increased scrutiny. Voluntary benefits lawsuits suggest employer “endorsement” of platform offerings may trigger ERISA liability.

• Most governance frameworks have not kept pace. Outdated contracts, limited monitoring, and infrequent RFPs leave sponsors exposed.

• Active governance is the solution. Sponsors must understand, monitor, and periodically re-market their recordkeeping arrangements.

Full Article

Think about the last time you switched smartphone carriers. You probably didn't. Between device subsidies, family plans, the ported contacts and app histories, the friction is enormous and the carriers know it. That switching cost is an intentional feature of a strong business model, not a bug. The platform captures users, and users fund the ecosystem.

Your retirement plan's recordkeeper has been studying that playbook. And in most cases, plan sponsors don't yet realize they handed over the keys.

The Recordkeeper Is the Plan

For most American workers, the retirement plan sits alongside their home as the largest financial asset they will ever accumulate. It is the cornerstone of their financial future. And today, for the overwhelming majority of participants, the recordkeeper controls 100% of their experience.

They open an app. They see a recordkeeper-designed dashboard. They receive recordkeeper-authored communications. When they have a question, they call a recordkeeper service center. When they approach retirement, a recordkeeper representative is often the first person to discuss their options. The plan sponsor is largely invisible in that relationship, despite owning all of the fiduciary responsibility for what occurs in the plan and with its selected providers.

This didn't happen by accident. Over the past decade, the major recordkeepers have made substantial investments in participant-facing technology specifically to deepen that engagement. They measure it. They push plan sponsors to encourage it. More engagement means more access to the participants as consumers.

Platform Economics Come to Retirement

In the technology industry, a platform business connects users to products and services and earns value from that connection. Apple doesn't just sell phones; it earns a margin on every app, subscription, and digital purchase made through the device it controls. Google doesn't just provide search; it monetizes the attention of billions of users who have no practical alternative.

The recordkeeper opportunity is structurally similar. The retirement plan is the device, a captive relationship with a participant who logs in regularly, trusts the interface, and has nowhere else to go. Switching costs are high: plans rarely change recordkeepers, and participants rarely opt out of the one their employer selects. The platform controls the touchpoints. The commercial opportunity follows.

What does that look like in practice? We are seeing recordkeepers bundle an expanding array of products and services into their recordkeeping platforms, including:

• Student loan assistance programs
• Emergency savings accounts
• Estate planning tools and document services
• Managed account services
• Proprietary investment products
• Retail IRA and wealth management funnels, particularly at separation from service
• Insurance products, including life, accident, critical illness, and hospital indemnity coverage

Some of these genuinely help participants. Financial wellness tools can improve savings rates, reduce financial stress, and expand access to planning resources that participants might never seek on their own. That is real value. But the commercial logic behind the buildout is not altruism; it is participant acquisition at scale, funded by the data and access that the retirement plan provides.

A Warning From Next Door: The Voluntary Benefits Litigation Wave

If the platform economics framing feels abstract, a wave of litigation filed in late 2025 makes it concrete, and it is coming from a direction most plan sponsors are not watching.

Schlichter Bogard, the law firm that pioneered 401(k) excessive fee litigation and generated billions of dollars in settlements over two decades, has filed a series of class action suits targeting major employers and their benefits consultants for alleged fiduciary breaches related to voluntary benefit programs: accident, critical illness, and hospital indemnity insurance offered through the workplace.

The theory is straightforward but with sharp edges: many employers believed these programs fell outside ERISA under a DOL safe harbor for voluntary plans. Schlichter argues they were wrong. The safe harbor is narrow. To qualify, the employer must not endorse the program, must not derive any compensation from it, and must limit its involvement strictly to allowing payroll deductions. The complaints allege that ordinary employer behavior, such as sending enrollment reminders, placing the company logo on communications, and accepting services from brokers in connection with the programs was sufficient to constitute endorsement, bringing the programs under ERISA's fiduciary requirements.

The implications for the recordkeeping platform question are direct. When a plan sponsor encourages participants to engage with their recordkeeper's financial wellness hub (which may include insurance products, emergency savings accounts, and estate planning services), they may be implicitly endorsing those products. If the retirement plan app carries the employer's brand, and participants reasonably conclude that those products are employer-sanctioned, the safe harbor argument becomes significantly weaker.

Industry observers are already drawing the parallel to the early days of 401(k) fee litigation: a slow build, followed by a flood. Plan sponsors who are not asking these questions now are likely to be answering them in discovery later.

Three Fiduciary Exposure Vectors Most Sponsors Are Missing

1. Participant Data as a Potential Plan Asset

Your recordkeeper collects substantial data about your participants: contribution patterns, investment behavior, account balances, life events, and financial wellness engagement. That data has commercial value. If it is used to facilitate the sale of products and services to participants, there is a credible argument that the recordkeeper is using plan assets for its own benefit, potentially triggering prohibited transaction liability under ERISA §406.

This question has not been definitively resolved, but it is being actively litigated. Plan sponsors should know what data their recordkeeper is collecting, how it is retained, and how it is used. Most do not.

2. Indirect Compensation You Are Not Seeing

ERISA §408(b)(2) requires recordkeepers to disclose direct and indirect compensation. But if the recordkeeper is deriving economic value from the participant relationship through retail product margins, rollover capture, or data-adjacent commercial activity, that value may not be appearing in your fee disclosure in any meaningful way. The arrangement may be far more profitable to the recordkeeper than the fee schedule suggests, and sponsors have no way to evaluate reasonableness without understanding the full picture.

3. Rollover Recommendations at Separation

When a participant separates from service, the recordkeeper is almost always the first call. The recordkeeper has a powerful commercial incentive to capture that rollover into a proprietary IRA. The plan sponsor has no visibility into what is being said. This is happening at scale, every day, in interactions most plan sponsors have never reviewed and cannot currently monitor.

The Questions You Should Be Asking Right Now

These are not hypothetical governance questions. They are the specific inquiries a fiduciary committee should be able to answer about its current recordkeeping arrangement:

1. What participant data does our recordkeeper collect, retain, and use for commercial purposes beyond plan administration?
2. What products and services are being offered to our participants through the recordkeeper platform, and on what terms?
3. What is our recordkeeper's standard practice when a participant separates from service? What does that conversation include, and who benefits from the outcome?
4. What indirect compensation does our recordkeeper derive from the participant relationship beyond our negotiated fee?
5. Have we assessed whether our promotion of the recordkeeper's financial wellness platform constitutes endorsement under ERISA's voluntary plan safe harbor analysis?
6. When did we last benchmark our recordkeeping arrangement against the market?

If you cannot answer these questions with confidence, your governance framework has not kept pace with your recordkeeper's business model.

The Governance Response: What to Do About It

Awareness is the first step. But the governance response needs to be structural, not just informational.

Start with your recordkeeping agreement. Data use restrictions, rollover communication standards, and financial wellness platform disclosure requirements are negotiable contract terms. Most plan sponsors signed agreements that were drafted before these platform dynamics existed, or accepted standard vendor language without negotiating the provisions that matter most in this context. Those agreements are worth revisiting.

Build ongoing monitoring into your committee calendar. An annual review of the products and services offered through your recordkeeper platform and of how participants are engaged is a reasonable fiduciary practice. So is periodic review of your recordkeeper's rollover communication scripts and financial wellness offering disclosures.

Most importantly: run a competitive recordkeeping process. The RFP is the most powerful fiduciary tool available to plan sponsors in this context, not because the answer is always to switch, but because going to market forces a level of transparency that a passive relationship never produces. A well-run recordkeeper search will surface what indirect compensation looks like, what data practices are standard versus negotiable, what rollover communication commitments the market will make in writing, and whether your current arrangement reflects the terms available to a sophisticated buyer.

Many plan sponsors have never run a formal process. Some have not gone to market in a decade or more. In that time, their recordkeeper has built a platform business on top of their participant base. The fiduciary response is to understand what that arrangement actually costs, in fees, in data, in participant outcomes, and to make a deliberate, documented decision about whether it continues to serve the plan.

The Bottom Line

The recordkeeper platform is not inherently bad for participants. Engagement tools improve savings outcomes. Financial wellness programs can reduce stress. Access to planning resources helps people make better decisions. That is real, and it deserves acknowledgment.

But value to participants and value extraction from participants can coexist on the same platform. The recordkeeper's interest in participant engagement is not purely aligned with participant welfare. There is a commercial interest that the recordkeeper is actively investing in and deliberately expanding. The plan sponsor's obligation is not to be cynical about that reality, but to govern it.

Your participants didn't choose their financial platform. You did. That decision carries a fiduciary weight that the current governance frameworks at most organizations have not fully reckoned with. The smartphone carrier analogy is instructive one final time: the carrier competes aggressively for the initial contract, then monetizes the relationship for years. The switching costs protect the arrangement. The plan sponsor's job is to ensure that the arrangement, however convenient, is still working for participants and beneficiaries.

Multnomah Group is a registered investment adviser registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.