Reviewing Your 401k Record Keeper Service Agreement – Ask the Lawyer

Reviewing your 401k Record Keeper Service Agreement – Ask the Lawyer by Carol Buckmann

My agreement with my recordkeeper? I think I have it somewhere, but wouldn’t they tell me if it needed to be updated?”  A client asked me this when I suggested that we should review the agreement’s provisions on cybersecurity.  (It turned out that the agreement was old and didn’t have any).

I explained that services agreements require regular review just as investments do.  This includes investment agreements and agreements with other providers, such as those who do QDRO (qualified domestic relations orders) review. An old agreement probably doesn’t have the protections we view as necessary today. The law and plan practices keep changing.  And no, I added when I responded to that client, unless the recordkeeper was marketing new services, that recordkeeper would not necessarily suggest changes to protect the plan fiduciaries.

Try to Get a Better Deal.

If you are like many plan fiduciaries, you haven’t looked at your agreements since you signed them.  However, the provisions in your agreements that set forth the responsibilities of the provider and the employer are not written in stone, and you may now have the opportunity to negotiate a better deal. There’s a focus on fees and competition in the market today, and size matters.  If your plan has grown, you now have more bargaining power to negotiate lower fees.

Some Provisions Worth a New or Second Look.

Apart from fees, which an RFP (request for proposal) can help you evaluate, here are some other provisions that are worth looking at:

  • Service warranties
  • Indemnification obligations on both sides
  • Procedures for dealing with missing participants, a new focus of IRS and DOL audits
  • Cybersecurity protections
  • Time limits for bringing claims-does the vendor try to shorten them by contract?
  • Arbitration vs. litigation to settle disputes. Arbitration may be cheaper and faster, but arbitrators are not required to follow ERISA law in making their decisions.
  • Where will arbitration or litigation occur? Is it a convenient location for you?
  • Will you be getting investment advice from someone who acknowledges ERISA fiduciary status in the agreement and stands behind the advice? (You can and should insist on getting advice only from ERISA fiduciaries, even without the Fiduciary Rule.)
  • If your vendor cut back services to avoid becoming a fiduciary under the Fiduciary Rule, should they be reinstated?
  • Do your vendors assume fiduciary responsibility when they perform administrative services? If not, the plan fiduciaries remain responsible for what they do, an important point to understand.
  • Does your vendor have adequate liability insurance and any required bonding coverage?
  • Can you eliminate or equalize revenue sharing? These are trends as a result of 401k litigation.
  • Are there new legal responsibilities that should be covered?

A plan shouldn’t be run in 2018 under agreements signed in 1994.  Gaps in those old agreements could turn out to be expensive.

Carol Buckmann is a founding partner at Cohen & Buckmann PC, and has practiced at major law firms specializing in the areas of employee benefits and executive compensation for over 30 years. Carol frequently blogs, writes articles and is quoted in the media about current employee benefit issues.


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