A key element in setting up an employee benefit plan is determining which service provider to use. With so many to choose from how do you know which one is the best for your employee benefit plan? Sure, each service provider has a plethora of information about their services available on their website, but how do you compare it and determine who will be the best for your plan? Better yet, once you determine which service provider to use, what are the best ways to monitor the activities of the service provider to ensure your plan is receiving the services you are paying for?
Summarized below are tips and recommendations from the United States Department of Labor on selecting the best service provider and monitoring their activity over your employee benefit plan. See the bottom of the blog for the link to the full article on the Department of Labor’s website.
Tips for determining and selecting the best service provider:
• Consider what services you need for your plan.
-Legal, accounting, trustee/custodial, recordkeeping, investment management, investment education or advice.
-Make sure to present each potential service provider identical and complete information regarding the needs of your plan.
• Consider a service provider that can provide “bundled services”.
-Bundled services are multiple services such as custodial trustee, investment management, or recordkeeping, all provided by one service provider
-Note: Consider the risks with potential conflicts of interests.
• Ask each prospective provider to be specific about which services are covered for the estimated fees and which are not.
-Compare the information you receive including fees and expenses to be charged for various providers for similar services.
• Check to make sure the service provider has a fidelity bond if they will be handling plan assets.
-A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts.
• Understand the terms of any agreements or contracts signed with service providers and the fees and expenses associated with the contracts.
-In particular, understand what obligations both you and the service provider have under the agreement and whether the fees and expenses to be charged to the plan and plan participants are reasonable.
• Prepare a written record of the process you follow in reviewing potential service providers and the reasons for your selection of a particular provider.
-This record may be helpful in answering any future questions that may arise concerning your selection.
• Receive a commitment from your service provider to regularly provide you with information regarding the services it provides.
• Periodically review the performance of your service providers to ensure that they are providing the services in a manner and at a cost consistent with the agreements.
• Review plan participant comments or any complaints about the services and periodically ask whether there have been any changes in the information you received from the service provider prior to hiring.
See the full article here: http://www.dol.gov/ebsa/newsroom/fs052505.html.