When you review your plan, you need to understand the roles and responsibilities of each provider. Retirement plan services fall into two primary categories: plan administration and investment management/advisory services.
Plan Administration Services
Plan administration services deal with ongoing plan operations and regulatory compliance. Providers involved with plan administration include the following:
- Recordkeeper– responsible for keeping track of the plan balances and account activity (e.g. contributions, investment performance, distributions, etc.). Provides website access, participant statements and access to online reporting features. The recordkeeper also works closely with the plan custodian to process deposits, trades, and distributions.
- Third Party Administrator (TPA)– Responsible for handling the day-to-day plan administration and the compliance aspects of the plan (e.g. annual nondiscrimination testing and filing the Form 5500 and other required regulatory filings), preparing and updating the plan document, providing allocations for employer contributions, assisting with participant loans and distributions, calculating vesting percentages, and dealing with other administrative tasks as needed.
- Custodian– Responsible for holding and safeguarding plan assets in addition to executing trades and processing deposits and distributions for the plan.
Investment Management/Advisory Services
The investment management/advisory function can include plan-level services and/or participant-level services. Plan-level services generally include selecting and monitoring the investments made available to all participants as part of the plan’s investment line-up. Participant-level services are employee advice and/or account management services provided by the advisor.
When an advisor takes discretion over the plan’s investments (referred to as an ERISA 3(38) investment manager), they take on the fiduciary responsibility for those decisions. This is generally only done for plan-level investments (the list of options made available for the plan), however, some advisors will also take discretion over an individual participant’s account and customize their investments based on personal circumstances (referred to as managed account service or participant investment advice). If you decide to offer some form of managed account or individualized advice service to your employees, you should review the advisor’s service agreement and disclosure documents to ensure you’re in compliance with additional regulatory requirements surrounding participant investment advice.
Plan-level services may include the following:
- Selecting and monitoring investment options for the plan and making changes when necessary
- Creating and managing model portfolios
- Identifying the qualified default investment alternative (QDIA) for the plan
- Providing an Investment Policy Statement (IPS) for the plan’s adoption
Participant-level services may include the following:
- Assisting participants in selecting investments based on their personal circumstances and goals
- Managing a participant’s investment mix based on personal circumstances and goals
- Offering ongoing access to financial education and guidance
- Assisting with enrollment and rollover paperwork
- Providing guidance about savings rates and ways to increase projected retirement income
Two Questions to Ask When You Review Your Provider
As you evaluate your plan’s service providers, ask yourself these questions:
1. What services does my plan need?
Think about what services the plan needs and what expertise is required by the service provider to deliver them. Many small- to medium-sized employers don’t need many of the services vendors offer to larger employers. For example, a larger company might require technical resources such as plan analytics, payroll integration or customized reporting, on-site meetings with a representative at multiple locations, support for multiple languages or outsourced administration services. These features typically come with a higher price tag.
Smaller employers may want more guidance or proactive support given the limited internal resources dedicated to managing the plan. Most of the time, vendors (usually the larger, name-brand companies) can’t customize services or charge less based on what a plan uses. A smaller, lesser-known provider may be a better fit for your plan’s demographics and better support the needs of a smaller employer.
Don’t pay extra for services you don’t need.
2. What services does my provider offer?
Some providers handle more than one function for a retirement plan. For example, your recordkeeper may also handle the annual compliance work (acting as the Third Party Administrator or TPA) and/or act as a custodian.
You should examine each role independently in order to determine if you should replace a vendor or add an extra provider to the team. For example, you might have no problem with the vendor’s recordkeeping services, but the compliance work leaves a lot to be desired. In this instance, you may decide to hire an outside TPA to work alongside the current recordkeeper/custodian.
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