That not only helped Mount Kisco decide how to ultimately shape its plan, but also allowed Gondolfo to peer into the workings of various providers and see how responsive they could be to a complicated request. “I saw a big difference in the infrastructures of various companies,” she says. “Some had great communication and teamwork between different facets of their operations, and some were completely disorganized.”
That was important to Gondolfo because, contrary to what many might expect, it was not the investment performance of Mount Kisco’s previous provider that was at issue, it was the company’s underperforming administrative and communications programs. “I arrived during the biggest bull market in history,” recalls Gondolfo, “yet 30 percent of the plan’s assets were in cash! The 401(k) provider was not doing a good job of letting staff people know about their investment options and how to formulate a retirement strategy.”
Mount Kisco’s efforts to resuscitate its failing 401(k) plan highlight both the upside and the downside of shopping around. Ultimately, the company got service that it deems far superior to what came before, and the internal response has been positive. But the company endured some headaches, especially as the moment to switch drew near. “We felt the market might cool down at any moment,” Gondolfo says, “and we wondered what would happen if we were in the middle of the transition and the market took a dip like it did in ’87, and participants couldn’t get at their accounts to make changes.”
What the company feared, happened: It switched in May, during Nasdaq’s misery, a final bit of tension in a process that no CFO would be eager to repeat. Gondolfo also says that if she had to do it again, she’d make one major change. “I’d choose the initial pool of service providers based on peer recommendations,” she says. Instead, she used a consultant as a first-level screening process, as many companies do. “But you can narrow the field more quickly if a personal contact or someone you trust can vouch for the company,” she says.
Not that she was a slouch when it came to getting the inside story: Gondolfo called 20 references for each provider, all long-standing clients at companies of various sizes. That allowed her to choose three finalists she felt very good about, but two of the three subcontracted the service component of their offering so they could concentrate on the investments. Perhaps because she had had a bad experience with service to begin with, Gondolfo decided that a full-service provider was the way to go. “MassMutual is not the sexiest company in the world,” she says, “but they’re stable and have deep expertise in all facets of the business.”
A Question of Values
But all the due diligence in the world won’t necessarily lead to a smart choice if a company doesn’t know what it’s looking for to begin with. “It’s difficult to find one service provider that can do absolutely everything for every client,” says David Katz, managing director with Barra RogersCasey, an investment consulting firm in Darien, Connecticut. “If you’re in the market for a provider, you have to start by clarifying your objectives.” That means companies need to decide what value they place on name recognition, administrative services, employee education, use of technology, fund performance, and other issues. Some companies, Katz says, have a savvy employee base and don’t need much in the way of education. But they may want as much administrative help as they can get so their internal resources aren’t strained. Others may want their employees to be able to make fund changes with a wireless, handheld device such as a PalmPilot. In fact, knowing the demographics, and the preferences, of your employee base is at the heart of determining your overall needs in a 401(k) provider.