Eye on 401(k)

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

If a face-to-face meeting doesn’t decide, odds are that technology will. Financial services firms were among the first to embrace the Internet, and they continue to set the pace. But the difference in capabilities from one firm to another can vary considerably, and as customers become more demanding, this becomes a critical area of differentiation.

Deborah Mings, CFO of Nelson Staffing Solutions, a staffing firm in Sonoma, California, recently opted for a new company to handle the administrative portion of its 401(k) plan (the investment portion remains with a mutual fund company), primarily to satisfy employee requests for Internet account access. “A lot of people suddenly started asking for this,” says Mings, “so we found two companies that offered it, and we went for the one that seemed to have the most user-friendly design.”

Internet capabilities are a blessing to plan sponsors as well. Tammy Evans, benefits manager at Techneglas Inc., a television-glass manufacturer based in Columbus, Ohio, says, “I wanted that functionality so that when employees ask me about the plan, I can get at the information quickly.” The company has established a “learning lab,” where employees unfamiliar with Web access can learn how to retrieve their own account balances and other information online. “We felt that we needed to push employees into helping themselves,” says Evans. “They’re already learning how to look up information on repairing factory equipment and handling other aspects of their job, so giving them online access to benefits information is a logical extension of that.”

The Internet may be appealing to companies of all sizes, but other aspects of 401(k) plans don’t have such an equalizing effect. While a handful of providers offer services to companies of all sizes, in general the market is strongly segmented; the vendors a small company is likely to consider will be far different from those a multinational evaluates. Sometimes that’s a blessing. “Small companies can take advantage of an existing relationship with a bank or insurance company, or even a CPA, to lead them to a suitable 401(k) provider,” says David Wray, president of the Profit Sharing/401(k) Council of America, a Chicago-based trade association of plan sponsors. That way, they can avoid consulting fees and find a partner relatively quickly.

That, however, means a company may outgrow one or more providers as it matures, forcing it to search yet again. That was a key consideration at StorageNetworks Inc., a data storage service provider in Waltham, Massachusetts, that wanted to find a company it could stick with as it grew. “Some vendors want to give you a prepackaged plan aimed at small businesses,” says Lori Erickson, senior vice president of HR. “When you reach a certain size, you have to go through a major change. We wanted to avoid that by choosing a company that is flexible enough to change its services as our needs change.”

Fred Reish, an Employee Retirement Income Security Act attorney and partner at the Los Angeles law firm Reish Luftman McDaniel & Reicher, says that companies with $1 million to $5 million in assets often face a limited and fairly expensive market for providers. “Between $5 million and $10 million, it starts to open up,” he says, “and once you cross $10 million, it becomes very competitive on flexibility, costs, and levels of service.” Companies owe it to their employees to explore new options as the plan grows, he says, and while that entails some legwork, the savings can be worth it. Small plans may pay 1.5 percent, or more, of assets under management in expense ratios, while companies with $1 billion in assets may pay only two- or three-tenths of a percent.


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