The Beginner’s Guide to Funds

What You Need to Know Before Picking a 401K Service Provider

Every 401K sponsor out there, including you, knows how challenging it could be to find the best and most reliable service provider. It’s not like you’re simply searching for a plumber to fix your leaking pipes where you expect all of your prospects have the same set of skills and expertise. The fact is the services offered by 401K providers will vary from one company to another. This means that one service provider could be the perfect fit for your needs while another one just won’t work. The crucial point of it all for every 401K sponsor out there is to find and match the ideal services being offered to that of plan needs.

First things first, you need to be wary of what short of services you wish to avail because there have been countless instances in which small and medium-sized business 401k plans paid for services that participants actually did not have use for. Obviously, paying for useless services will correspond to bringing down participant investment returns and could even lead to personal fiduciary liability for you, the sponsor.

And taking this into consideration, you have to first have a full understanding of the services that compose the 401K plan if you are to sponsor one. Once you’re sure with that, you can then determine which of the services will need professional assistance for them to be delivered.

With regards to understanding 401K services, you must accept the reality that every kind of 401K plan will require multiple services. These services are generally classified into two: plan administration and investment management. Plan administration usually includes but not limited to recordkeeping, custody, and third-party administration. On the other hand, investment management services will include plan-level as well as participant-level services.

Next, you also must know that majority if not all 401K plans today actually resort to outsourcing their plan administration services to a professional service provider. The reason for this is because doing so will actually mean becoming more cost-effective. So the more relevant question to ask isn’t really whether you need a professional plan administration provider.

Now when you’ve come to the decision to hire professional services and assuming you already have the specifics as to what your 401K plan really needs, you’re now ready to begin looking for those service providers. But don’t get easily impressed by the initial interview. It’s quite obvious that you can’t settle for anything less than a comprehensive offer and make sure you get to ask your prospects about the certainty that they in fact can deliver the services you expect them to provide.

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