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Some Important Reminders Before You Select a 401K Service Provider

As a 401K sponsor, you know for a fact that one of the toughest challenges you’ll encounter is finding the ideal 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. Basically, this suggests that a particular service might be the ideal fit for your needs another one isn’t. 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.

It likewise is as important to be informed about the possibility of availing of services you actually don’t need; like for instance, there are several reported cases in which 401K plans of small businesses paid for services that were literally useless because participants weren’t using them in the first place. So what really could happen in the event that you decided to pay for services you don’t need and for an excessive amount is that you may be creating a personal fiduciary liability upon yourself as a sponsor.

With this in mind, it is pretty clear that in order to sponsor a 401K plan successfully, you first need to have an absolute understanding of the service that comprise the 401K plan. The next step after that is to determine which services are in need of professional help for them to be delivered.

In understanding 401K services, the first thing you need to realize is that all types of plans will require multiple services. The services traditionally are categorized into two, namely plan administration and investment management. Plan administration usually includes but not limited to recordkeeping, custody, and third-party administration. 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. Well, it’s actually a practical move because outsourcing could mean you’ll be 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.

So once you finally determine what services your 401K plan really needs and if you’ve reached the decision to hire professional services, there’s no more reason to delay the search for those service providers. But don’t get easily impressed by the initial interview. You obviously want to hear a comprehensive offer and ask them if they can deliver the services you’re looking for.