How do you SELECT a defined contribution plan provider?
After deciding to have a defined contribution plan, the next decision is what providers to select.
The Department of Labor makes it clear that a plan fiduciary must conduct a thorough and diligent investigation and a rigorous analysis of relevant information when selecting and reviewing plan providers.
As a defined contribution plan sponsor and fiduciary, you’re responsible for selecting and monitoring providers for your company’s plan. You need to have either a single provider or a combination of providers that offer:
- A broad selection of quality investments;
- Recordkeeping and administration options that meet your needs;
- An effective participant communications program that meets the guidelines outlined by ERISA as well as the needs of plan participants; and
- An expense structure appropriate for your plan and service options.
Most companies do not have a system in place to compare their existing defined contribution plan against what is available in the marketplace. The Department of Labor provides clear guidance on how to select and monitor a service provider and it is critical that you have a documented process to show that you are meeting the requirements in order to demonstrate procedural prudence.
The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. The Due Diligence Review™ provides a key step in this process. By completing this step, you will document your defined contribution plan provider selection process. Also, you will compare plan expenses against benchmarks to document and verify what you are passing through to your employees is ‘reasonable’ per ERISA.