A Cheat Sheet for Finding Your Next Retirement Plan Provider

The following excerpt is from our ebook, “Finding the Right Retirement Plan Provider,” which you can download by clicking here.

An employer can quickly become overwhelmed as they embark on a search for a new provider. To prevent information overload, you should determine your specific requirements before you seek out a new service provider. It is also wise to work through the vendor search process with an expert—such as a retirement plan advisor or independent consultant—given the technical and intricate nature of employer-sponsored retirement plans.

As you determine your search criteria, it is helpful to understand what to look for in a vendor relationship.

Recordkeeper

Find a recordkeeper that will provide an intuitive website for the plan. Your primary interaction with the recoedkeeper is through the plan’s website. You want a site that is easy for employees to use as they manage their accounts and for you to use as you handle plan administration. Test the website before signing paperwork.

Test drive the online-reporting options. Many recordkeepers use old technology platforms that don’t provide reporting flexibility or relevant data. As a result, you might struggle to get information about the plan. Check for customizable date ranges for reporting, online statement access for participants (some providers will mail them directly to participants) and embedded retirement planning features such as future income projections based on current account balances. Also confirm whether the fees for reporting and statement services are charged in addition to the plan’s contracted fee schedule.

Ensure you have a dedicated point-of-contact or a service team. Nobody likes having to deal with a middleman or automated voice prompt when they call a service provider for help. Make sure you have easy, direct access to your provider so you’re not playing “Telephone” with them when you need assistance.

Understand recordkeeper fees. Many recordkeepers charge an asset-based fee that increases as your plan assets grow. While this may be cost-effective for plans that are starting out, it can quickly become expensive once the plan assets have grown over time.

Be sure to determine how each prospective provider is compensated and if the total fee is reasonable based on the services provided. Keep in mind that a recordkeeper’s workload increases as the number of accounts (employee balances) it handles increases, since their primary function is to keep track of the plan records and activity. A reasonable fee is more likely going to be a flat dollar amount based on the number of account balances/participants in your plan, not the size of plan assets.

Third Party Administrator (TPA)

Make sure the TPA is professionally credentialed. The TPA handles the plan design and regulatory compliance aspects of the plan. Given this important function, you need a provider that is up-to-date on regulations. Look for the following designations:

  • Qualified Pension Administrator (QPA)
  • Qualified 401(k) Administrator (QKA)
  • Accredited Pension Administrator (APA)
  • Certified Pension Consultant (CPC)
  • Enrolled Retirement Plan Agent (ERPA)

Look for a proactive provider. A good TPA will help you design a plan that meets your needs while staying compliant with regulatory requirements. You need a TPA that is consultative and will explain how certain design options can benefit and/or hinder a plan.

Understand TPA fees. TPAs typically charge an annual base fee plus a per-participant fee. As mentioned above, be cautious of a TPA that charges asset-based fees since their workload increases with the number of eligible employees, not the size of the plan’s asset balance.

TPAs often double as a recordkeeper. If that’s the case, be sure to break out the fees charged for compliance work. Most hybrid providers charge fees that have both fixed and asset-based components.

Custodian

Weigh the extra costs of custodian fees. A custodian holds plan assets, processes deposits and distributions in addition to executing trades sent by the recordkeeper. Most custodians offer trustee services as well.

If you use the trustee services offered by a custodian, be sure to understand whether they are directed or discretionary. Directed services often don’t offer much additional liability protection and are usually not worth the extra cost. Discretionary services may provide more liability protection and be worth the additional fees, but they can also limit the role of the employer. If you choose to pay more for discretionary trustee services, be sure to document the reasons why the added costs are justified.

Understand custodian fees. Fees for custody services are typically asset-based. As your plan assets grow past a certain level (e.g. $10 million), your custodian will likely reduce the asset-based fee. Some custodians offer a discounted fee structure if certain investments are used (e.g., a money market fund or a stable value fund). It is common for custodians to have a minimum annual fee as well.

Retirement Plan Advisor

Find a retirement plan advisor who doesn’t just talk about investments. The role of the advisor has evolved. In addition to working with plan investments, a retirement plan advisor tackles the following:

  • Taking on a fiduciary role
  • Working with employees beyond the initial enrollment meeting to help with ongoing retirement planning
  • Assisting with compliance and plan design issues
  • Providing guidance and education regarding fiduciary issues, best practices and plan operations
  • Coordinating communication across all vendors
  • Ongoing monitoring of the plan investments and fees and associated documentation

Make sure your advisor is current on all regulatory and marketplace changes. Many advisors split their time between individual wealth management clients and retirement plan clients.

This can make it difficult for them to stay up-to-date with regulatory and marketplace changes that may impact your plan. Make sure you find an advisor who is dedicated to the retirement plan market that can help you navigate the complex landscape and stay current.

Make sure your advisor offers meeting times to plan participants. Many advisors have trouble fitting in face time with retirement plan participants because they are tied up meeting with individual wealth management clients or only offer to meet with the plan fiduciaries. You want a proactive advisor who will dedicate time to meeting with your employees to help them understand how to best use the retirement plan beyond the initial enrollment process.

Advisors that work exclusively with retirement plan clients are more likely to act as a plan fiduciary, provide individual meetings, fiduciary guidance, and other participant services.

Studies have shown that plans with a true retirement plan advisor have better participant outcomes. Participants show a better understanding of savings rates, plan features, and investment allocations.

Confirm your advisor’s fiduciary status. Not all advisors are created equal. Depending on how they are structured, advisors assume varying levels of fiduciary liability. Be sure to read your advisor’s engagement letter or service agreement to understand if they have “skin in the game” or if you will be left alone to defend investment decisions for the plan.

  • Registered Representative / Broker – DOES NOT take on fiduciary liability. Employer and plan fiduciaries still assume ultimate liability for decisions regarding plan investments.
  • 3(21) “Co-Fiduciary” Advisor – SHARES in liability for plan investments with employer. Employer and plan fiduciaries still assume ultimate liability for decisions regarding plan investments.
  • 3(38) Designated Investment Manager – TAKES liability for investments. Advisor handles investment decisions and assumes the related liability.

While there are quite a few professional designations for advisors (sometimes it can seem like alphabet soup), look for those specific to the retirement plan industry. While this is not an exhaustive list, here are a few examples:

  • Certified Financial Planner (CFP®)
  • Accredited Investment Fiduciary (AIF®)
  • Certified Investment Management Analyst (CIMA)
  • Qualified Plan Financial Consultant (QPFC)
  • Qualified Plan Fiduciary Advisor (QPFA)
  • Accredited Pension Representative (APR)
  • Chartered Retirement Planning Counselor (CRPC)
  • Certified Retirement Plans Specialist (CRPS)

Click here to download the rest of our ebook, “Finding the Right Retirement Plan Provider.”

 

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