When service provider fees are paid out of plan assets, the services must be necessary to operate the plan, and the compensation paid for those services must be reasonable. You must consider quality as well as cost. Hiring a cheaper provider who isn’t capable of doing what the plan needs may be just as bad as paying too much.
Selecting a Service Provider
Plans often hire service providers (third–party administrators or other outside professionals) to manage a plan’s day–to–day operations. The selection of service providers is a fiduciary act and must be done prudently.
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Think about what services you need. Some providers offer several services for one fee, sometimes referred to as a “bundled” services arrangement. Others charge separately for individual services.
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Get the same information from more than one service provider on their services, experience, and costs.
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Make sure you understand the terms of agreements or contracts.
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Get a commitment from the provider for regular updates on services.
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When renewing contracts, repeat this process and confirm that they are still right for you.
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Document the process.
Monitoring a Service Provider
After selecting a plan service provider, you should also monitor them to make sure the services are being delivered and the expenses are being charged as agreed.
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Establish and follow a formal review process at specific times to decide if you want to continue using the current provider or look for a replacement.
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Review the provider’s performance.
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Read any reports they provide.
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Check the fees that are actually being charged.
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Follow up on participant complaints.
More Resources
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Understanding Retirement Plan Fees and Expenses
This booklet will help you better understand and evaluate your plan’s fees and expenses. While the focus is on fees and expenses involved with 401(k) plans, many of the principles discussed in the booklet also apply to all types of retirement plans.
