Choosing a Plan Provider: Some Key Questions
In a previous post, we discussed some attributes of an effective employer-sponsored retirement plan, including careful attention to fees, striving for a positive experience for participants, and matching the plan design with the company’s most important objectives. These elements, along with many others, can help to go a long way toward improving the effectiveness of a company-sponsored plan.
But all of these attributes fall under the influence and, to a large degree, the control of a particular entity: your plan provider. After all, it is the plan provider who provides the services and performs the actions that keep your plan running—not to mention maintaining compliance with applicable regulations. In other words, perhaps the most important decision you will make with respect to your company-sponsored plan is choosing the right plan provider. Here are six questions we believe you should ask anyone whom you are considering as a provider for your company-sponsored 401(k), 403(b), or other retirement plan.
1 – What is your fee structure?
This question should typically come first, because keeping your plan’s fees under control is one of the most important fiduciary duties you have as a plan sponsor. In fact, excessive fees are one of the most common reasons that plan sponsors get sued. And, as the popular meme indicates, nobody has time for that. It’s vital, then, to gather as much information as you can about how the prospective plan provider structures fees, when those fees are charged, and how they compare with fees charged for similar plans in your industry, company-size cohort, or geographical area. Of course, no two plan providers structure their fees the same way, but generally, fees fall into about three areas:
- administration and recordkeeping—the day-to-day tasks of keeping the plan running, such as providing required communication to participants, filing required forms, compliance testing, documenting everything from tracking employee contributions to recording trades, withdrawals, and other activity;
- advising and individual services—a plan is only as good as the benefits it provides, so helping your employees understand and exercise their available options is a key service offered by a good plan provider;
- investment fees—these fees cover the costs for operation of the mutual fund(s) offered by your plan, and the type of fund (active vs. passive management, equity vs. fixed income, domestic vs. international, etc.) can have a major impact on how expensive the fund is to operate.
It is imperative that any plan provider you consider is transparent about these costs and their impact on the plan’s investable assets. Remember that fees directly reduce the amount of money available for investment; making sure they’re competitive is one of the most important jobs you have as a plan sponsor.
2 – Do you have experience offering plans for companies similar to mine?
Every company is different, and an effective retirement plan must take this into account. Depending on the company’s ownership structure, employee count and demographics, industry, and other variables, your plan may require careful attention to design in order to be as efficient as it needs to be. For example, one company might want to offer a matching or profit-sharing component; another might want to structure their plan as a Roth account rather than a traditional one; another might want to offer a cash balance pension plan in combination with a 401(k). Because each company’s needs are different, choosing a plan provider with experience in working with companies similar to yours can provide a major advantage.
3 – How can you help with fiduciary responsibilities?
As a plan sponsor, you have certain fiduciary duties, which means that you must act in the best interest of the plan participants, including oversight of the plan to ensure that it is operating in compliance with applicable tax and other laws. A good plan provider will help you shoulder much of the fiduciary burden, providing you with the documentation, reporting, and other information you need to prove that you are carrying out your responsibilities the right way.
4 – How can you help with setting up the plan?
Obviously, a company-sponsored plan has lots of moving parts. You will be required to submit a large amount of information, and even after the plan is up and running, you’ll have a fair number of recordkeeping responsibilities as plan sponsor. So, the easier your provider can make it to get employees enrolled, produce the required documentation, and perform the other steps necessary for getting the plan launched, the better for you.
5 – What services will you provide to plan participants?
One of the most important keys to plan effectiveness is broad participation, and one of the best ways to improve participation is good communication and service from the plan provider to the participants. A good provider will offer participants timely access to information about their accounts, their balances, their investment choices, and other matters. The provider should also offer systematic and well-designed educational communication to participants and potential participants about the benefits of saving for retirement and the various advantages offered by their plan. The provider should make enrollment as easy as possible and should be available to answer participants’ questions and deal with account service matters in a timely and professional way.
6 – Will I have access to a dedicated representative?
Related to the previous question, this can make a huge difference in how well a plan works for the participants and the plan sponsor. Having access to a dedicated team of professionals who can answer questions, deal with technical problems, and handle other day-to-day issues can make a world of difference in how the plan is perceived, understood, and utilized. Especially with the ever-increasing importance of online delivery of information and services, it’s tremendously important to know that the plan provider has your back when questions or problems arise.
At Savant Retirement Plan Services, we understand that your most important priority is the efficient management and profitability of your company. Our dedicated professionals are focused on doing the heavy lifting as your plan provider so that you can concentrate on running your business. To learn more, visit our website to read our article, “Time for a Change: Smoothing the Transition to a New 401(k) Provider.”
Patricia L. Hutchinson
Director of Retirement Plan Services