Cruise Control

To chart the proper course for your company's plan, take a hands-on approach.

Having searched for, and found, a 401(k) plan vendor — which is no easy task, as you learned in last month’s article “Eye on 401(k)” — you’re ready to move on to other things. But first, ask a few questions: How aggressively will you monitor your fund performance and costs? Do all of your eligible employees use the plan? Do they know how much they should be saving for retirement? Does your provider deliver daily services in a cost-effective way? Do you know how long it takes for your participants to get their account statements? Do you have a written investment policy for your plan?

True, you’ve outsourced a complex task to a specialist, but as experts are quick to point out, that does not relieve a plan sponsor from fiduciary liability for the plan, its operation, or its continued maintenance. “Once the particular function is outsourced,” says Scott Peterson, Hewitt Associates’s global practice leader for defined contribution services, “the plan sponsor should monitor that service provider constantly to make sure it continues to meet the promised service standards.”

Constantly? Peterson says that discussing how service performance standards will be monitored over time is vital, and that ideally the discussions should take place during the selection process and in the course of the working relationship as well. “Performance standards should address the issues that are most important to the plan sponsor, everything from responsiveness to employee calls to what kinds of accounting controls will be used,” he says. “Having meaningful and measurable performance standards is a very important component in making sure that the plan operates properly over time.”

The 2000 Annual 401(k) Benchmarking Survey, conducted by Deloitte & Touche’s Human Capital Advisory Services Group, found that 86 percent of plan sponsors perform investment reviews at least once a year. In addition, there’s growing interest among plan sponsors in monitoring other, non-investment-related plan activities. “Increasingly, plan sponsors monitor such plan activities as the promptness of responses to questions that plan participants might have, as well as the ability of a vendor to provide error-free processing of transactions,” says Pat Jackson, director of the Deloitte survey.


Monitoring plan investment options to ensure that the funds perform up to the stated objectives is among the most critical aspects of performance measurement. It’s been a standard practice in defined- benefit administration to get routine quarterly reports from an independent consultant. The reports provide performance data, benchmark comparisons, and some analysis of why the vendor’s performance trailed or exceeded the benchmark. Defined-contribution plan sponsors need this information, too, in order to make informed decisions about retaining or replacing the incumbent investment managers (not necessarily synonymous with “service provider,” since some companies use one company for administration, another for investments, and so on).

In fact, at many companies, this form of monitoring entails group involvement. Tammy Evans, benefits manager at Techneglas Inc., a television-glass manufacturer based in Columbus, Ohio, says, “We have an employee benefits committee that oversees all of our benefits. We have an investment policy, and we keep very close tabs on the funds that we offer.”


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