What You Need to Know Before Picking a 401K Service Provider
Every 401K sponsor out there, including you, knows how challenging it could be to find the best and most reliable 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. As a matter of fact, the services that 401K providers different from one another in so many aspects and angles. 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. So what really could happen in the event that you decided to pay for services you don’t need and for an excessive amount is that you may be creating a personal fiduciary liability upon yourself as a sponsor.
With this in mind, it is pretty clear that in order to sponsor a 401K plan successfully, you first need to have an absolute understanding of the service that comprise the 401K plan. After you’ve done your homework, it’s time to figure out which of them services will actually need professional assistance in order for them to be successfully delivered.
In understanding 401K services, the first thing you need to realize is that all types of plans will require multiple services. These services are generally classified into two: 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. The biggest reason why outsourcing is favored because it is a lot 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.
Now when you’ve come to the decision to hire professional services and assuming you already have the specifics as to what your 401K plan really needs, you’re now ready to begin looking for those service providers. But you can’t just hire anyone who impresses you at first talk. You obviously want to hear a comprehensive offer and ask them if they can deliver the services you’re looking for.