The new year is a great time to take stock of your company offerings, and for plan sponsors, that should include a thorough review of your retirement plan provider. With fiduciary duty on the line, not taking the time to carefully review and make any changes can be a costly mistake. But how do you know when it may be time to pull the plug and switch your service provider, rather than just make tweaks to your plan? Here are some things to keep an eye out for.
While some plan sponsors may want to avoid change due to the change management associated with switching providers, the implications of staying with the wrong 401(k) service provider are far greater.
Tax savings are often a main driver for offering a retirement plan, but your plan can lose its tax-qualified status, and fiduciaries can become liable for potentially significant penalties if your service provider falls short on compliance.
Ask yourself the following questions:
Think about the kind of data your service provider has on your employees, and then think about what can happen if that data gets into the wrong hands. A data breach can put your employees’ personal information at risk, create strained relationships with your workforce and expose company fiduciaries to liability. It’s important to know how your 401(k) service provider protects your employees’ information and what it will do when something goes wrong. Most importantly, your provider should:
It is critical to dig into the details of your record keeper’s fees, especially in light of the numerous class actions where plan sponsors and fiduciaries are being sued for operating a plan with allegedly excessive fees. You do not need to select the least expensive provider, but you do need to make sure the fees are reasonable for the services provided. When evaluating your retirement plan service provider, look out for:
If you determine that your retirement plan service provider’s fees are excessive, you have no choice but to get them reduced, and if your provider refuses, you must terminate them in order to avoid violating your fiduciary duties.
Advisors have a golden opportunity to help sponsor clients to understand what they’re getting and the reasonableness of the charges. While some plan sponsors may want to avoid change due to the change management associated with switching providers, the implications of staying with the wrong 401(k) service provider are far greater.
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Allison Brecher is general counsel at Vestwell, a fintech startup innovating the retirement plan market. She brings over 15 years of legal and regulatory experience to Vestwell, having handled high profile and complex litigation involving employee benefits, ERISA, regulatory matters, data privacy, and electronic discovery. Previously, Allison was Senior Assistant General Counsel and Director of…
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