Great client service. It is something we in the service industry strive towards. But how do you define it? How do you measure it? Depending on what type of business you are in, it can mean very different things.
In the retirement plan service industry, there are several key points you as a plan sponsor should review to ensure you are receiving great client service. Plan sponsors should review their service providers and evaluate the services they are providing centered around three main service areas: plan administration, investments, and participant services.
In your plan document, the plan administrator will be implicitly defined. In many cases, the plan administrator is YOU, the employer. Unless you are an expert in plan administration, a prudent person would delegate some of those responsibilities to a third party. The plan administrator is what is called a fiduciary. A fiduciary is always required to act in the best interest of the plan participants.
There are many providers to which you can delegate to in your plan administrator role. Some providers may also be willing to serve in a co-fiduciary role with you, limiting some of your liability.
Here are some the key providers that you should review:
- Recordkeeper – A recordkeeper is typically a behind-the-scenes provider. You will submit contributions to them for investment. They will receive and process participant transfers, loan and distribution requests. A recordkeeper should be processing those transactions both accurately and timely. The recordkeeper would generally produce participant statements. Recordkeepers may also help participants with the enrollment process or the withdrawal process. Your typical recordkeeper will not serve as a co-fiduciary.
- Third-Party Administrator (TPA) – A TPA will normally draft the plan document that governs the plan. They will also prepare calculations for any employer contributions that you are making to the plan, whether required or voluntary; they might also verify that the contributions that were deposited with payroll were timely and accurately applied. Also, annually, your plan may be subject to nondiscrimination testing which the TPA will perform for you. A TPA would also likely prepare any annual government filings such as Form 5500, Form 8955-SSA or Form 5330. A TPA may also prepare enrollment materials or notices for you to deliver to your participants. Your TPA is generally not a co-fiduciary.
- 3(16) Fiduciary – The 3(16) fiduciary is a co-fiduciary who can take on various levels of responsibility with regards to the day-to-day administrative tasks on the plan. Depending on the provider, this may involve contacting participants to let them know they are eligible, reviewing your distributions and loans, distributing your notices, or even signing and filing your Form 5500.
- Custodian – The custodian maintains the account that holds the assets of the plan. This is frequently managed by an outside party such as a bank or a trust company. Funds that are going into the plan will be sent via ACH, wire, or check to this entity for deposit. Funds leaving the plan in the form of loans and distributions will be issued by the custodian via ACH, wire, or check. The custodian may be a co-fiduciary but only if you elect for them to be a directed trustee.
- Directed Trustee – Many custodians will also serve as a directed trustee for their retirement plan clients, often for an additional fee. A directed trustee is always a co-fiduciary on the plan; however, the directed trustee is merely following the direction of the plan participants and the plan administrator with regards to the investments of the plan.
- Investment Professional – Plan sponsors should have an internal committee that works with the investment professional to oversee their work. The investment committee should have an Investment Policy Statement (IPS) that governs what types of funds go into the plan and when those funds can be replaced. You may also wish to bring in an investment professional to help the committee with its task. Depending on the level of investment advisory service you choose, your investment professional may advise you on what funds to put in your plan or they may select the funds on your behalf. Your investment advisor or manager can be a co-fiduciary with you with respect to the services they are providing to the plan. There are two types of investment management options available to plan sponsors. Both of these will serve as a co-fiduciary on the plan.
|3(21) Investment Advisor||3(38) Investment Manager|
|The investment advisor renders investment advice for a fee.||The investment manager has the discretion to manage the assets of the plan.|
|The investment advisor makes recommendations to the plan to the investment committee.||The investment manager selects the investments available for investment for a fee.|
|The investment committee makes the final decision on the funds in the plan.||The investment committee has a duty to monitor the investment manager.|
Investment professionals may also help to educate the participant generally about the funds, or they may even offer one on one counseling. Many investment professionals will assist with expanded financial wellness education.
For each one of these service providers, here are a few questions you may wish to ask:
- How many years have they been in business? Business stability and longevity is a key permeance factor to look at. The longer the business has been around, the more systems they will likely have in place to serve you.
- How many overall clients do they serve? While you may not want to be one of thousands of clients, you may also not want to be the only client!
- Do you have a main contact for this provider? Ideally, you will have a main contact or team of contacts that can answer your questions and help you solve problems that you will incur. Unfortunately, some providers may have you call a 1-800 number and take the luck of the draw which can be frustrating.
- What qualifications does my contact person have that ensure they have the experience that I need? A person with experience in the industry can make all of the difference. Asking what qualifications that contact person has may give you a preview how the relationship will go.
- Do they respond timely to my questions or concerns? As an employer, your time is valuable and there are decisions that need to be made. While not every retirement plan issue is urgent, you should be able to rely on your provider to get the information to you that you need in a timely manner.
- Is this vendor willing to serve as a fiduciary with me and share the liability for serving the plan participants? The provider should acknowledge, in writing, that they are acting as a plan fiduciary.
- Has this provider been subject to any examinations by the DOL, SEC or independent auditors? Some providers may have regular audits to ensure compliance and high standards are met. If they were subject to an audit by a government agency, was it for cause or just for a routine examination?
- Along those lines, has there been any litigation against this firm? Lawsuits do occasionally happen, however, negligence or dereliction of duty should be reviewed and re-examined periodically.
- Are my transactions processed timely and accurately? You should review custodian statements and your bank account statements to ensure that funds entering the plan have been properly applied.
- Do I receive accurate reports or results in a timely manner from each provider? Mistakes happen and so do deadlines. If your provider is not consistently meeting the standards you have for timing, it may be time to look elsewhere.
- Do they charge reasonable fees compared to other providers for the services they are performing? If you charge fees to the plan, this is a very important point to consider. Cheaper isn’t always better but fees do matter.
- Has the provider reached out to you to consider what may have changed with you or your business over the past year? Your day to day business model may have changed. Your goals of the plan may have changed from when you set it up. Your providers should be reaching out to you to make sure your needs are met.
- When is the last time you met with your providers, in person or virtually? If your provider hasn’t offered, this is something you should request at least on an annual basis.
Choosing a service provider is more than just good business. It is the law. As a plan sponsor, you have a fiduciary duty to make sure the providers are meeting the standards that you set. You are responsible for both the administration of the plan and the plan’s investments. Even if you delegate some of the duties to a third party, you still have oversight responsibilities on all of those providers.
At ML&R Wealth Management, our retirement and investment advisory staff have many, many years of experience working with recordkeepers and custodians. We are happy to serve as a TPA, a 3(16), a 3(21), or a 3(38) advisor. If you answered any of these questions negatively, we would be happy to offer a complimentary second look at your plan’s services and fees. Contact us today for your second opinion.