Eye on 401(k)

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

In studying the proposed contract, be especially vigilant about any clauses that relieve the vendor of liability. “I saw one case where the vendor included a provision that said, ‘We’ll supply you with administrative information at year-end, and if you don’t object to anything within 30 days, we’re forever released from liability,’” says Reish.

The 401(k) plan was launched 21 years ago, and today there is an astounding $1.5 trillion invested. Plan sponsors are experienced and fiercely competitive, which is good news for companies looking to make a change. Those that determine their priorities, take a hard look at the firms that seem best able to meet those needs, and draft contracts that clearly spell out roles, responsibilities, and repercussions should be able to offer employees very good retirement plans at a reasonable cost.

Meg Glinska is a freelance writer based in Boston.

A Buyer’s Checklist

A well-organized vendor evaluation assures a wise decision.

1. Define your objectives. If you know what your primary goals are, it will be easier to identify vendors offering services that best fit your needs. To do that, “it’s helpful to look at your current provider and identify problem areas and gaps in service,” says Liz Weber, a principal and mid-Atlantic partner in charge in the compensation and benefits practice of KPMG. You may be able to rectify problems with your provider. If not, you’ll know what your priorities are as you investigate others.

2. Know the 401(k) marketplace. Understanding the different types of solutions available to meet your specific needs is essential, according to David Wray, president of the Profit Sharing/401(k) Council of America. Some companies offer a full array of services, some bundle solutions for various markets, while others specialize in one facet, such as, record-keeping or education and communication.

3. Develope a request for proposal. Experts agree a properly drafted RFP can help sponsors gather data on different providers in a consistent and efficient way. It should gauge vendors’ capabilities in the areas of client services, investments, fees, plan administration, and participant communication and education. Create a matrix so response data can be studied consistently across all candidates.

4. Narrow the field, and pay a visit. Once the list of candidates is narrowed (typically to two to four companies), interview the finalists, preferably at their record-keeping and service-center facilities. “You want to get comfortable with the people who will be responsible for your account,” says David Katz, managing director with investment consulting firm Barra RogersCasey. And don’t forget to carefully quiz a range of references.

5. Develop a transition plan. According to Hewitt Associates’s Scott Peterson, a vendor’s experience with plan conversions should be an important criterion in the selection process. While there are plenty of horror stories about botched transitions, a competent vendor can do a lot to ensure that the process goes smoothly. —M.G.


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