The selection and monitoring of retirement plan service providers is a fiduciary duty. This blog describes the various service providers typically engaged by plan fiduciaries to assist with plan administration. It also describes suggested best practices to ensure that such service providers are independent and objective professionals.
Plan Fiduciary Responsibilities with Respect to Service Providers
Prudently select and monitor all plan advisers, providers, auditors, and all other service providers. They must have a documented process. Monitor them by conducting plan benchmarks every three to four years. It is also important to ensure all parties' fees are fair and reasonable.
Department of Labor (DOL) Guidance
The DOL published a recommended list of specific questions plan fiduciaries should ask and have answered by these parties. They also, for their audit process, request information from plan fiduciaries about these providers including:
- their name, organization, and location
- copies of all engagement agreements
- copies of any management letters
- all parties' fee schedules
Procedural Best Practices
First, focus on the service provider's ability to provide the necessary services to support the plan. Next, focus on the service provider's experience and expertise. A good tactic is to focus the conversation around how to engage the service provider. Finally, ensure plan expenses are "fair and reasonable". This does not mean the cheapest but is interpreted to mean competitive to the market.
Plan Advisers
Plan advisers are professional consultants hired by the plan fiduciary to assist with the management of the plan. Typically, they perform fiduciary services around investment due diligence and selection, provider selection, plan benchmarking, and committee meetings. Plan advisers are generally financial registered representatives or investment advisers.
Services vary greatly from plan adviser to plan adviser so it is important to make certain that comparisons are accurate in writing. Make sure your plan adviser is a fiduciary (not all advisers are fiduciaries).
Providers
Providers are individuals or entities hired to provide administrative services to the plan. These providers typically include record keepers, third-party administrators, and investment management companies. Depending on the services provided, these providers may not function as a fiduciary.
Auditors
Employee benefit plans with 100 or more participants are required to have an audit as part of their obligation to file and annual return/report (Form 5500). There is a small plan exception if there is less than 120 participants and they filed as a small plan the previous year.
A plan sponsor, in conjunction with the plan administrator, should hire an independent qualified public accountant. An audit helps protect the assets and the financial integrity of the employee benefit plan and ensures the necessary funds will be available to pay for retirement benefits.
Overall, it is important to implement and complete a documented process to select and monitor all plan service advisors and providers. Doing so will ensure you are receiving the necessary services from the right providers at a fair price.