What You Need to Know Before Picking a 401K Service Provider
If you happen to be a 401K sponsor, one of the most difficult responsibilities you are to shoulder is finding a reliable and highly competent service provider. Know that finding one isn’t a cakewalk because it’s not like you’re looking for a locksmith to help you get inside your home when you’re locked outside. The fact is the services offered by 401K providers will vary from one company to another. What this means is that one service provider might be ideal for you based on your needs while the others aren’t. The most important consideration is for a 401K sponsor like you to try so hard to search and match the ideal services with respect to plan needs.
It likewise is as important to be informed about the possibility of availing of services you actually don’t need; like for instance, there are several reported cases in which 401K plans of small businesses paid for services that were literally useless because participants weren’t using them in the first place. Obviously, paying for useless services will correspond to bringing down participant investment returns and could even lead to personal fiduciary liability for you, the sponsor.
And taking this into consideration, you have to first have a full understanding of the services that compose the 401K plan if you are to sponsor one. The next step after that is to determine which services are in need of professional help for them to be delivered.
With regards to understanding 401K services, you must accept the reality that every kind of 401K plan will require multiple services. The services traditionally are categorized into two, namely plan administration and investment management. Plan administration includes third-party administration, custody, and recordkeeping. On the other hand, investment management services will include plan-level as well as participant-level services.
Now when it comes to hiring a professional service provider, know that basically all 401K plans these days are actually outsourcing their plan administration services. Well, it’s actually a practical move because outsourcing could mean you’ll be more cost-effective. In other words, you really don’t want to get torn between hiring and not hiring because you need a professional plan administration provider, no questions asked.
So once you finally determine what services your 401K plan really needs and if you’ve reached the decision to hire professional services, there’s no more reason to delay the search for those service providers. But don’t rely on hiring someone based on small talk. You obviously want to hear a comprehensive offer and ask them if they can deliver the services you’re looking for.
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