What You Need to Know Before Picking a 401K Service Provider
If you happen to be a 401K sponsor, one of the most difficult responsibilities you are to shoulder is finding a reliable and highly competent service provider. The thing with finding one is that it’s not like you’re looking for a roofer to fix or replace a broken shingle, where you expect all your roofer prospects come with the same skills. As a matter of fact, the services that 401K providers different from one another in so many aspects and angles. What this means is that one service provider might be ideal for you based on your needs while the others aren’t. The key really is for a 401K sponsor like you to be able to match the right services based on your plan’s 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. What could happen then is that if you end up paying for excessive services for an expensive price, you might yourself having personal fiduciary liability as a 401K sponsor or you will drag down participant investment returns.
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. The services are usually categorized into two; one is called plan administration while the other is investment management. Plan administration, for the most part, includes that of recordkeeping, third-party administration, and custody. As for investment management services meanwhile, they’re generally referred to as plan-level and participant-level services.
Now when it comes to hiring a professional service provider, know that basically all 401K plans these days are actually outsourcing their plan administration services. The biggest reason why outsourcing is favored because it is a lot more cost-effective. In other words, you really don’t want to get torn between hiring and not hiring because you need a professional plan administration provider, no questions asked.
As soon as you finally make the decision to hire professional services and figure out what your 401K plan really needs, it’s about time you begin shopping for service providers. But you can’t just hire anyone who impresses you at first talk. 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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