Business 401(k) Services / 401(k) Plan Optimization

How to Evaluate 401(k) Recordkeepers

Recordkeepers work in the background of any 401(k), but their role is critical for the health and legal compliance of the plan. They track and keep records of much of what's regulated in your 401(k) by government agencies. It’s important for the health of any 401(k) plan that all the daily business of the plan is recorded correctly; mistakes can have a significant impact on the compliance of a plan, and can therefore be a major risk for employers. As such, a big part of your fiduciary responsibility is to evaluate your 401(k) recordkeeper and their performance. Here’s a step-by-step guide to help you review your 401(k) recordkeeper.

1. Compare Fees From Several Recordkeeper

It’s difficult to know where your plan stands unless you measure your recordkeeper against others. When evaluating potential recordkeepers, ask several vendors for proposals based specifically on your company’s needs and plan size. Rather than getting a blanket proposal, requesting a customized quote will ensure you’re paying reasonable fees.

Additionally, ask for pricing on all optional services and one-time transactions. If a recordkeeper charges for distributions, for example, or for testing support, then their upfront base cost may not be a complete picture of their true cost.

Over time, as your plan grows, it is important to periodically benchmark your plan against other, similar plans, both to ensure your plan remains competitive, and to track your fees over time.

2. Verify Your Recordkeeper Has the Proper Experience

A great 401(k) plan instills participants with a sense of confidence in their future. That’s why it’s essential you confirm your recordkeeper is mature and experienced enough to see your plan through the long run.

Recordkeepers with over $1 billion in assets have proven that they have a mature business model and plenty of experience to remain compliant and invest in technology to ensure the accuracy of their work. Before hiring a recordkeeper, ask for details about their business history for a clear look at their maturity and their ability to provide you with reliable service for years to come. Because any interruption in recordkeeping duties can be a major threat to the compliance and health of a 401(k) plan, you’ll want to lower the risk that you’ll be faced with an unexpected need to find a replacement recordkeeper in the event that yours ceases business operations.

3. Decide Between Bundled or Unbundled Services

When reviewing your vendor options for your 401(k), there are two main paths you can take. One, called a bundled service arrangement, is a single provider to handle all execution, education, and recordkeeping. The other, known as an unbundled service arrangement, is to hand-pick an assortment of partners based off your specific needs. Both provide different levels of control in your 401(k) plan.

Bundled plans may have a more efficient level of communication. In many cases of a bundled service arrangement, your 401(k) provider may be a service provider you already work with, like your payroll provider. In this case, the recordkeeper will have access to all relevant employee information, essentially cutting out any middleman.

On the other hand, an unbundled plan allows you more flexibility in selecting skilled and cost-effective service providers. If investments and recordkeeping services are bundled, it can be difficult to analyze fees because recordkeeping services may be subsidized by investment fees. If you choose a bundled provider, closely analyze their fees and services to make sure the fees for services and investments are reasonable, as required by ERISA.

4. Review Your Recordkeeper’s Technology

You want participants to feel comfortable using their retirement plan. That means that every aspect needs to be easy to use and demonstrates value through concrete tools. Just like any other industry, finance and 401(k) plans benefit hugely from strong technology. Your employees have much more oversight when they can access a website that allows them to review account information, make changes, and stay engaged with their plan.

It’s vital to review the effectiveness of these tech portals; if the website is difficult to use or unintuitive, or the app doesn’t work on a certain mobile platform, it’s less likely to be used by participants. And though it’s not high-tech, a dedicated phone line can be another big help for employees to get instant access to the help they need. In short, you want to be sure your recordkeeper is providing your employees a chance for assistance any way they can so they can stay engaged with their savings.

Monitor Your 401(k) Service Providers

Choosing the right recordkeeper is just as essential as picking out a 401(k) plan for your business. This is how your employees will access and track their savings, so taking the time to carefully review every aspect of their quality is both the right thing to do and is critical to meeting your fiduciary duties. For more information about how you can monitor your service providers as part of your fiduciary responsibility, visit the Fisher Investments 401(k) resource library.

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