Finding the right providers for a defined contribution (DC) plan is perhaps the most important activity that ERISA fiduciaries perform along with monitoring their services and fees. A commonsense approach to selecting DC plan providers will pay dividends for your plan according to leading ERISA attorneys. With the DOL conflict of interest rule set to become effective April 10, 2017 and the rash of lawsuits only excepted to increase, using a documented prudent process through an RFP and benchmarking periodically is required. But common sense is also important outlined by ERISA attorney Ary Rosenbaum in a recent article.
There are various types of providers ranging from record keepers, TPAs, advisors, auditors (CPAs) and attorneys, each with their unique issues and questions.
Record Keepers
There are now less than 40 national record keepers down from over 100 a decade ago due to increasing costs and the need for scale. No one wants to have to go through a conversion if their provider exits the business so picking a record keeper likely to survive is key. There are another 500 regional record keepers but only 50 with more than $750 million in assets under management have enough scale to do an adequate job.
Advisors
Of the 300,000 active advisors licensed by FINRA or the SEC, 250,000 are working with or getting paid by a DC plan yet just 25,000 have at least 5 plans and $25 million under management which is a minimum qualification. (See Directory of qualified plan advisors on 401kTV.) Just 2500 advisors have $250 million consider to be Elite. Unlike most other providers, some advisors will be willing to act as a fiduciary either suggesting investments choices (3(21)) or actually making the decisions (3(38). The DOL rule will require more advisors to act as fiduciaries but the question will remain whether they are qualified or not.
Auditors
Some plans select the CPA who does their taxes to conduct their audit required for companies with 100 or more eligible or participating employees. Yet only a few accounting firms specialize in ERISA plan audits.
Considerations in Selecting Providers
- Experience – Not just the number of plans serviced but the types and size of the plans.
- Insurance – Do they have E&O, malpractice and fiduciary insurance becoming more important with the rash of lawsuits.
- Fee structure – Asset based v. flat fee, direct or indirect or services provided. Make sure you understand all compensation which might include volume bonuses to advisors and TPAs by record keepers as well as payments to the advisors’ broker dealer.
- Recommendation from other providers – They know.
- Online – Whether Google or resources from FINRA (Broker Check), Brightscope or even Twitter where lots of clients of a small record keeper complained early this year when there was a change in technology.
Nothing substitutes for a formal RFP especially for your record keeper and advisor along with periodic benchmarking but common sense plans an equally important role in selecting and monitoring services providers for your DC plan.
