401(k) – Considering Changing Service Providers?
“How-To Build a Business Case”
It is that time of the year, should we or shouldn’t we? Review or not to review? Your Finance and Human Resources/Benefit teams may be in agreement or in conflict to consider this.
We have found the primary stumbling blocks are the following:
- Someone has a Personal Relationship with the Advisor on the Plan.
- Changing Benefit Providers and perceived, too much to handle at the same time.
- Changing Payroll Providers and perceived, too much to handle at the same time.
- Other projects that are putting a strain on your staff to consider a change.
Some of these reasons, especially the first one may be legitimate, but the operative question we like to ask is the following; “How many years have you been using those as excuses?”. The answers are always interesting, but consistent. By not reviewing the plan and the services it could negatively impact you in several ways. Remember, a 401(k) Plan is a benefit to the employees and is meant to Attract, Retain, Motivate and Reward employees. If the plan doesn’t have a competitive “Company Match” or plan components that make sense for Eligibility, Contributions and Accessibility, the participation rate will suffer and possible issues with plan testing. Why? If employees are not happy with the plan and don’t defer more of their paychecks, issues with plan testing and possible “Corrective Distributions” may occur. Anyone that is affected by that issue, is never happy.
Also, your Fiduciary Responsibility also includes knowing your fee structure, all your fees, who is getting them and how much. If an employee complains or files a citation that they feel the fees are too high and the company either ignores it or hasn’t reviewed the plan and fee structure, The DOL (Department of Labor) could investigate or audit your plan. Obviously, this could present a problem.
Where are some of the problems found in plans?
We just discussed fees and fee structures as a problem if neglected. The root of many of these issues is due to several of the fees being “stuffed into the Mutual Fund Expenses”. Most fees are in the “Expense Ratio (EXP)”, sometimes also displayed as “Gross Expense Ratio (GER)”. The Record Keeping and Third-Party Administration (TPA) fees are partially or fully stuffed(included) into those funds. The problem with this is the potential of “overburdening” the employees/participants of the plan with the lion share of the administrative fees. By doing this the long-term performance of these funds for participants is significantly impacted.
Service, Service, Service
This is the #1 reason why companies change 401(k) Service Providers. Attentiveness, Receptiveness, Consulting, On-boarding, Education, One-on-one Investment Guidance and general availability are all part of the frustration. How do you feel about these areas of service on your 401(k) Plan?
Building a Business Case to “Consider a Change in Service Providers”
The Webinar will go into greater detail on many of the facets of Building a Business Case, but we have several questions you should ask yourself. We also include this in our “401(k) Game Plan Worksheet”, a self-assessment of your 401(k) Plan, which we will email you with your registration.
Some Questions to ask in Building a Business Case:
- Have we Benchmarked our plan for Fund Performance and Fee Structure?
- Is our Company Match competitive and has our provider given us any guidance?
- Does our provider offer on-site On-boarding, Education or on-going Investment guidance?
- Is your provider attentive and responsive in a timely fashion to your requests?
- How would you rate the technology platform for Plan Sponsor reporting?
- How would you rate the technology platform for Participants on-line account access?
- Does the Participant Customer Service provide all time zone availability during business hours?
- What percentage of your Administrative Fees are paid by the Plan Sponsor vs. Participants?
- What are your company growth plans and can your provider help you as you scale?
Building a Business Case is easy, you just need to know the right questions to ask and the right partner to provide the guidance and on-going support. Still not sure if you should consider a change? Attend our webinar on October 21st, 2021 and you will receive plenty of great content and materials to assist in any decision you make moving forward. REGISTER HERE – CLICK