Eye on 401(k)

When shopping for a provider, a hands-on approach will ensure a smart match.

When Patricia Gondolfo took over as CFO of Mount Kisco (New York) Medical Group in 1997, the last thing she wanted to do was spend time assessing the company’s 401(k) plan. But she had to, because, as she describes it, “the plan was a mess, and there’s no honeymoon period for a new CFO when you’re dealing with something that important.”

There were many problems. Tax-qualified retirement plans must be administered in compliance with several regulations requiring numerical measurements. This “discrimination testing” is a critical part of an employer’s fiduciary responsibility, yet, as Gondolfo explains, “When the previous provider performed discrimination testing, there was no follow-up. In two of the four years, the testing was not performed at all.” As she looked more closely, she found that Mount Kisco “had compliance problems across the board, and the Statement of Plan Design was a mess. There had been changes made to the plan, but the appropriate amendments were never rewritten.”

Before the conversion, the plan was structured in such a way that 75 of the 500 employees of the health-services firm — the doctors — weren’t able to max out their IRS-allowed contributions. “The plan had a 7.5 percent flat contribution for all classes of employees,” says Gondolfo. “It’s a high percentage, but even with that percentage the doctors were not able to go to the $30,000 maximum.”

Moreover, plan participation among lower-paid staffers was poor, and the provider made no effort to increase participation levels. And the fees being levied struck Gondolfo as far too high, especially given the poor level of service from the provider.

Searching for an Answer

But before Gondolfo put the wheels in motion to find a new firm, she tried hard to work things out with the existing provider. Experts say that’s wise, because shopping for a new 401(k) provider is time-consuming and complicated; as with any long-standing relationship, it’s worth the effort to try to talk things out before moving on.

Gondolfo tried, but she found the firm disorganized and inflexible. In 1998, she began a search, and after a two-year odyssey Mount Kisco finally awarded its business to Springfield, Massachusetts-based MassMutual Retirement Services. Last May, the company moved about $30 million in assets to its new vendor, a switch that Gondolfo says was worth the work.

And work it was, especially for a company that wanted to implement an improved plan (introducing a vesting period and varying the maximum participation levels among different classes of employees) and get better service into the bargain. Gondolfo decided not to put a written request for proposal (RFP) out for response, as companies often do, but to interview more than half a dozen providers and then cull the contenders to a more manageable three or four.

“One thing we asked for was a lot of free analysis,” she says. “We told them to look at our company, our current plan, our challenges for improving it, and make recommendations.”

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