Changing 401(k) Providers

Changing 401(k) providers takes time and can be costly. But if your current plan isn’t serving the administrators or participants well, a change is necessary. Before embarking on the process of changing a plan provider, evaluate your options carefully to avoid costly surprises and common errors in selection.

Key Areas on Which to Focus Your Evaluation

Before you decide to part ways with your current provider, it’s important to compare and assess other providers in these key areas:

Performance

Are your current investments performing equally or better than their benchmarks? If lagging, is that a temporary issue? In today’s volatile markets, it’s important not to blame your provider for market dips that happen to everyone. What matters is your trust in the provider’s knowledge, experience and approach. Do you agree with your provider’s investment philosophy?

Fees

A comparison of multiple providers will reveal if your current provider’s fee structure gives you the best deal. Compare management, record-keeping and administrative fees.

Compliance

Compliance includes discrimination testing, distribution reporting and IRS reporting. Is your provider keeping you informed of your responsibilities? For example, do you have an ERISA bond? Is your form 5500 filing handled? If you’re stressed about compliance, you may need to consider a new provider.

Customer Service

Prompt and thorough customer service shows that the provider values your business. A provider who does not feel you are important is likely to miss opportunities to boost returns and may be charging fees for services it doesn’t fully provide. Good customer service for the plan administrators and employees are equally important.

Avoid These Common Errors in Vendor Selection

Assuming Service is the Same

When selecting a vendor, it’s essential to delve into their customer service approach. Will the administrator and employees receive the service they need and deserve? Here are some sample questions:

1. Is there a local representative?
2. What are the call center hours of operation?
3. Is the website user-friendly?
4. When are statements provided? What information do they contain?
5. How does the provider handle distributions and loans?
6. What kind of reporting is available to the plan sponsor?

Choosing an Incompatible Plan Provider

Some providers work better with small companies. They provide the customer service needed by an administrator who may wear many hats and not be an expert on 401(k)s. Other providers may offer limited services, leaving the inexperienced administrator to learn by trial and error. Large companies need a provider that can handle a higher volume.

Blackout Period Blues

When the switch happens, there is always a blackout period. During this time, the accounts are transferred from the old provider to the new. Plan participants are unable to access their accounts. A common mistake is underestimating the length of the blackout period. Push for a specific answer on the blackout period before agreeing to the switch.

First Quarter Overcharge

When switching to a new provider, make sure you understand the exact date that they start charging your company. Some providers bill quarterly and will charge you for the entire quarter even if you switched on the last day. Others prorate according to the date your new plan takes effect.  Find out the date when fees accrue as part of your plan shopping.

Preparation is the key to avoiding unpleasant surprises and errors in vendor selection. To get started, develop a list of questions. The process is detail-oriented and time-consuming. That is why PlanPILOT provides 401(k) plan consulting services. Our experts delve into your company’s needs and find the providers that match your requirements without charging high fees. A thorough evaluation of providers saves time and money while choosing a provider that will help your employees reach their retirement goals.

How PlanPILOT Can Help

If you need help evaluating your current plan provider or looking for a new one, we can do that. As an independent Registered Investment Advisor, PlanPILOT is not tied to any investment fund or record-keeper. We offer clients unbiased advice and assistance to control their retirement plan risks and deliver benefits effectively. Call us today at (312) 973-4911 or email info@planpilot.com to see how we can leverage our vast experience to find the best fit for your plan and its participants.

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