One of my biggest complaints about the retirement plan industry is when a service provider gets hired to perform one job and then discovers another way to make money off the relationship.
Participant data is becoming the latest example.
A recent Government Accountability Office report examined the privacy disclosures of 31 retirement plan service providers and raised concerns about how participant information may be used beyond simply administering the retirement plan.
That information can be extremely valuable. We’re talking about names, addresses, Social Security numbers, account balances, and other financial information.
A recordkeeper legitimately needs participant data to recordkeep a 401(k) plan.
The problem is when access to that information becomes an opportunity to market other financial products and services to participants.
The GAO found that 29 of the 31 privacy disclosures it reviewed did not limit the provider’s ability to share participant information for marketing purposes. More than half also did not limit the ability to sell participant data.
That’s a problem.
When an employer hires a recordkeeper, the participants didn’t necessarily volunteer to become prospects for that recordkeeper’s other businesses.
I’ve complained for years about recordkeepers using their access to participants to pursue IRA rollovers, wealth management relationships, and other products outside the retirement plan.
Participant data should be used to administer the retirement plan. If providers want to use that information for something else, plan sponsors should know exactly what’s happening.
Plan sponsors have fiduciary responsibilities. That means they should be asking providers how participant information is collected, protected, shared, and used.
The GAO has recommended that the Department of Labor provide additional guidance concerning participant data privacy.
I think that’s overdue.
A participant’s retirement account isn’t a customer acquisition list.
Plan sponsors should make sure their providers understand the difference.