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Tips in the Selection Process of 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. Know that finding one isn’t a cakewalk because it’s not like you’re looking for a locksmith to help you get inside your home when you’re locked outside. 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.

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. After you’ve done your homework, it’s time to figure out which of them services will actually need professional assistance in order for them to be successfully delivered.

With regards to understanding 401K services, you must accept the reality that every kind of 401K plan will require multiple services. The services traditionally are categorized into two, namely plan administration and investment management. Plan administration, for the most part, includes that of recordkeeping, third-party administration, and custody. Meanwhile, investment management services are classified as either plan-level or 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. So the more relevant question to ask isn’t really whether you need a professional plan administration provider.

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. Obviously, you want them to make the best pitch and once they do, ask them directly if they indeed are capable of delivering the services you need from them.

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